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May 1, 2015

Bergstein v Stroock & Stroock & Lavan LLP (2015) 236 Cal.App.4th 793

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The Second District holds a non-client’s complaint that a law firm aided and abetted his former attorney’s breach of fiduciary duty involves constitutionally protected petitioning activity subject to the anti-SLAPP statute. Despite causes of action labeled as various torts, all the conduct alleged involved communicative conduct protected by the litigation privilege. The statute of limitations applicable to attorneys’ conduct in their professional capacity applies to all claims by clients and non-clients.  

David Bergstein and affiliated business entities (“Bergstein”) acquire, produce, and distribute motion pictures which require outside financing. Susan Tregub was the attorney for Bergstein, serving as his general counsel.  When they had a falling out over fees, Tregub threatened to “bring him down.”

David Molner and his “Aramid” entities loaned money to Bergstein’s film production and distribution businesses. Stroock & Stroock & Lavan LLP(“Strook”) sued Bergstein on behalf of Aramid over Bergstein’s personal guarantees.  Levene Neale Bender Yoo & Brill LLP (“Levene”) filed involuntary bankruptcy petitions on behalf of Aramid and others against Bergstein’s entities. 

Tregub worked for Molner and Aramid despite her prior and continuing representation of Bergstein. She coordinated and organized the involuntary bankruptcy proceedings, and assisted Aramid in the litigation arising out of loan transactions in which she had been directly involved on Bergstein’s behalf.  Bergstein obtained a multimillion dollar verdict and punitive damages against Tregub.

Bergstein then sued Stroock and Levene, asserting they aided and abetted Tregub’s torts. Bergstein alleged the law firms received confidential, privileged, and proprietary information from Tregub, and used it to litigate against him.

The law firms moved to dismiss the complaint under C.C.P. § 425.16, California’s anti-SLAPP (strategic lawsuit against public participation) statute. They argued their litigation conduct was constitutionally protected petitioning activity, and there was no probability Bergstein could prevail because the conduct was protected by the litigation privilege, and barred by the statute of limitations applicable to attorney professional conduct, C.C.P § 340.6. Bergstein countered the claims arose from theft of confidential information, and the purchase of claims to maneuver Bergstein entities into involuntary bankruptcy, none of which was protected, and which was illegal as a matter of law.

In affirming the trial court’s grant of the motion, the Court of Appeal observed anti-SLAPP motions involve a two-step process. The court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from activity in furtherance of the constitutional right of petition or free speech. If so, the court then determines whether the plaintiff has demonstrated a probability of prevailing on the claim.

A moving defendant must show the claim is based on the protected petitioning activity. When a cause of action involves both protected and unprotected activity, the court looks to the gravamen of the claim.  The court must examine the specific acts of alleged wrongdoing, not just the form of the claim.

The Supreme Court has held litigation-related conduct that is illegal as a matter of law is not protected by constitutional guarantees of free speech and petition, and not covered by the anti-SLAPP statute.  This is a narrow exception, and either the defendant must concede, or the evidence must conclusively establish, illegality.

Bergstein asserted his evidence conclusively established that defendants aided and abetted Tregub’s violation of her statutory duty of confidentiality. The court held conduct is not illegal because it violates civil statutory or common law, it must be prohibited by criminal law.

The Supreme Court precedent carving out the “illegal as a matter of law” exception pertained to the criminal act of extortion. If every statutory or common law violation was deemed illegal as a matter of law, it would greatly weaken the constitutional interests the statute protects, because complaints always allege a violation of statutory or common law.

This is true notwithstanding the broader interpretation of “illegality” in a C.C.P. § 425.18 “SLAPP-back” proceeding. This is a malicious prosecution or abuse of process lawsuit arising from an earlier cause of action dismissed as a SLAPP. The SLAPP-back statute stacks the procedural deck in favor of the SLAPP-back plaintiff confronted with a SLAPP motion to strike, by precluding a SLAPP motion against a SLAPP-back plaintiff where the prior filing was illegal as a matter of law.

Not only did the SLAPP-back illegality analysis not apply in the anti-SLAPP setting, Bergstein failed to cite to a statutory obligation which rendered the law firms’ conduct illegal until a rebuttal argument at the trial court’s hearing on the motion. This deprived the law firms of the opportunity to dispute elements of the claimed violation.

Bergstein also argued his claims did not arise out of any written or oral statement made in a judicial proceeding; they merely arose in the background of litigation. Aiding and abetting breach of Tregub’s fiduciary duties; interfering with Tregub’s contractual obligation to Bergstein; and interfering with Bergstein’s prospective economic advantage are not, he argued, protected activities.

The court held the form of Bergstein’s causes of action did not control. Rather, the court must analyze the activity that gives rise to asserted liability to determine if it is protected speech or petitioning.  Almost all of the acts of alleged wrongdoing were litigation activities. The acts center on the law firms’ role as counsel for Molner and Aramid: use of confidential information in litigation; coordination and organization of bankruptcy proceedings; and receipt of litigation assistance from Tregub, among many other litigation activities.  Where actions comprise petitioning activity on behalf of a client, they are not incidental to the complaint, regardless of whether they also constitute an alleged breach of duty.

Cases by clients against attorneys do not allege it was improper for the attorney to petition on their behalf, but that some other duty was breached, whether or not it was in the backdrop of litigation. Bergstein’s claims involved the law firms’ use of confidential information to prepare for and conduct litigation.  Litigation activities were at the core of Bergstein’s claims, and arose from protected activity within the meaning of the anti-SLAPP statute.

Turning to the second prong, Bernstein could not prove a probability of prevailing because the litigation privilege precluded the law firms’ liability. Civil Code § 47(b) precludes liability arising from a publication or broadcast made in a judicial proceeding or other official proceeding. It applies to any communication made in judicial or quasi-judicial proceedings; by litigants or other participants authorized by law; to achieve the objects of the litigation; and that have connection or logical relation to the action. It encompasses testimony in court, statements made in pleadings, and statements made prior to the lawsuit to prepare for anticipated litigation or to investigate the lawsuit.  Its purpose is to provide access to the courts without fear of later harassment by derivative tort actions, to encourage open communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid endless litigation.  It is absolute and applies regardless of malice, and has been given broad application.

Bergstein sought to recast the law firms’ acts as non-communicative acts aiding and abetting Tregub’s conduct. This is premised on the same argument that supported Bergstein’s claims the attorneys’ conduct did not arise from protected conduct.  Bergstein did not identify any of defendants’ conduct that was not a communication made in or in anticipation of a judicial proceeding to achieve the objects of the litigation.  Labeling it aiding and abetting does not transform it into non-communicative conduct.

Although the complaint included an allegation about one lawyer’s statement to the press, there was no proof the statement was false or tortious. Allegations about statements by the law firms’ client, Molner, and by Tregub, were not attributable to the law firms.

The statute of limitations also barred Berstein’s claims. Code of Civil Procedure § 340.6 provides a one year from date of discovery statute of limitations in any action against an attorney for a wrongful act or omission in performing professional services, other than for actual fraud.  There is an outside limit of four years from the wrongful act or omission.

Bergstein filed his complaint against Tregub over two years prior to his complaint against his adversaries’ law firms. More than a year prior to filing his complaint against the law firms, Bergstein submitted declarations he immediately suspected Tregub was behind the litigation filed by the law firms; his attorneys wrote to Strook accusing it of receiving confidential information from Tregub; a Bergstein-affiliated debtor moved to disqualify Levene for its use of confidential information acquired from Tregub; and Bergstein filed a cross-complaint against Aramid alleging it aided and abetted Tregub’s breach of duties.  These were all proof that Bergstein discovered, or should have discovered, his causes of action more than one year prior to suing.

The Court rejected Bergstein’s contention that § 340.6 did not apply, and that a catch-all four year statute applied instead. All of Bergstein’s allegations arose from the law firms’ acts and omissions in the performance of legal services for their clients.

Nor is § 340.6 confined to malpractice actions by a client against an attorney. It also applies to malicious prosecution claims by a third party against an attorney. Based on its plain language, § 340.6 applies to all actions against an attorney for a wrongful act or omission, other than for actual fraud, arising in performing professional services.

The court rejected Bergstein’s assertion of delayed discovery. His declarations against Tergut showed he had enough information to put him on inquiry notice.  Where a suspicion of wrongdoing exists, a plaintiff must search out the facts.

The law firms’ repeated denials of receiving confidential information did not estop them from asserting the statute of limitations defense. Equitable estoppel requires the defendant actually and reasonably induces plaintiffs to forbear suing within the limitations period. The law firms’ denials of wrongdoing are not fraudulent concealment.  Bergstein did not did not believe the denials, and could not rely on them to create an estoppel. Mere denial of legal liability does not set up an estoppel; the defendant must make a misrepresentation about the necessity of bringing a timely suit.

The statute of limitations is tolled for fraudulent concealment only if the plaintiff reasonably fails to discover its claim. Bergstein had discovered his claims more than a year prior to suing when he told the law firms their receipt of information from Tregut would not be tolerated.

Comment: This case is a good illustration of a variety of the procedural tools and principles that protect attorneys against claims by third parties.

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