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September 23, 2009

Hylton v. Frank E. Rogozienski, Inc. (2009) 177 Cal.App.4th 1264

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The Fourth District holds that an attorney client fee dispute is not subject to a motion to strike under the anti-SLAPP statute. 

Eldon Hylton founded a software company, DivXNetworks, Inc (DivX).  Hylton and DivX entered into a founder stock purchase agreement (FSPA) that entitled Hylton to purchase three million shares of DivX common stock for a nominal sum.  The FSPA also provided a variety of vesting dates for the stock and DivX’s right to repurchase Hylton’s shares under a variety of circumstances.  DivX advised Hylton his employment was being terminated without giving any reason and without the requisite notice under the FSPA that it was exercising its option to repurchase the unvested shares.

Hylton sought legal advice from Rogozienski for wrongful termination.  Rogozienski advised Hylton that his lawsuit should include a claim seeking to confirm the stock ownership and induced Hylton to sign a contingent fee contract for one third of all consideration paid, collected or recovered.

Rogozienski advised Hylton to settle the lawsuit, to avoid losing his stock.  Under the terms of that settlement, DivX confirmed it could not repurchase any of the shares owned by Hylton and consented to Hylton’s transfer of one million of those shares to Rogozienski at a value of at least $6 million.

Hylton sued Dogonzienski for rescission of the contingency contract and restitution of the stock, and for declaratory relief and damages on the basis that the fee was unconscionable and Rogozienski breached his fiduciary duties when he induced Hylton to enter into the contingency fee contract.  Hylton’s ownership of the DivX stock was never in significant dispute because DivX had neither terminated Hylton’s employment for cause nor exercised any purported repurchase option.  In conducting the case Rogozienski induced Hylton to settle the entire action to trigger Rogozienski’s claim to one-third of the stock.

Rogozienski filed an anti-Strategic Lawsuit Against Public Particiaption (anti-SLAPP) motion to strike.  The Court of Appeal affirmed the trial court’s denial of the motion.  The anti-SLAPP law involves a two-step process: The defendant must demonstrate that the complaint involves acts taken in furtherance of the constitutional rights of petition or free speech in connection with a public issue, as defined by the statute.  If this is demonstrated the Plaintiff has the burden of showing a reasonable probability of prevailing on the merits at trial.  The plaintiff must show both that the claim is legally sufficient and that there is admissible evidence that, if credited, would be sufficient to sustain a favorable judgment.

The anti-SLAPP statute should be broadly construed and a plaintiff cannot avoid operation of the anti-SLAPP statute by attempting, through artifices of pleading to characterize an action as a garden variety tort or contract claim.  The court examines the principal thrust or gravamen of a plaintiff’s cause of action to determine whether the anti-SLAPP statute applies and whether the trial court correctly ruled on the anti-SLAPP motion.  If the core injury-producing conduct does not rest on protected speech or petitioning activity, collateral or incidental allusions to protected activity will not trigger application of the anti-SLAPP statute.

Although petitioning activity is part of the evidentiary landscape within which Hylton’s claims arose, the gravamen of Hylton’s claims is that Rogozienski engaged in non-petitioning activity inconsistent with his fiduciary obligations.  He falsely advised Hylton there was some doubt about Hylton’s entitlement to the DivX stock, and concocted and carried out a scheme to manipulate his representation of Hylton in a manner to justify extracting an excessive fee.  He falsely advised Hylton that he could lose all of his stock to induce Hylton to consent to an agreement that transferred $6 million in DivX stock to Rogozienski.

Although Hylton’s claims allude to Rogozienski’s petitioning activity, the gravamen of the claim rests on the alleged violation of Rogozienski’s fiduciary obligations to Hylton by giving Hylton false advice to induce him to pay an excessive fee.  The fact Hylton’s claims are related to or associated with Rogozienski’s litigation activities is not enough.

The court rejected Rogozienski’s assertion that Hylton’s claims are the equivalent of a malicious prosecution action against an attorney, brought not by a third party defendant, but by the attorney’s former client and therefore squarely within the purview of the anti-SLAPP statute.  It does not follow that a legal malpractice action may be subject to a SLAPP motion merely because it shares some similarities with a malicious prosecution action and involves attorneys and court proceedings.  There is no authority that a client’s action against his or her attorney, whether pled as a malpractice claim, a breach of fiduciary duty claim, or any other theory of recovery, is subject to the anti-SLAPP statute merely because some of the allegations refer to the attorney’s actions in court.

Comment: This case is consistent with California’s reluctance to allow the anti-SLAPP statute govern disputes between attorneys and clients.


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