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December 2, 2009

Prediwave Corp. v. Simpson Thacher & Bartlett LLP (2009)179 Cal.App.4th 1204

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The Sixth District holds that the anti-SLAPP statute does not apply to client’s complaint against its attorney alleging a conflict of interest.

PrediWave filed a complaint against Simpson Thacher & Bartlett LLP and individual attorneys at the firm for damages for breach of fiduciary duty; constructive fraud; malpractice; and unfair business practices. The complaint alleged that Defendants represented PrediWave and its affiliated companies, on the one hand, and CEO Jianping “Tony” Qu (“Qu”) on the other hand in litigation with New World TMT Limited (“New World”). Simpson engaged in a conflict of interest by representing both the company and Qu, and the litigation strategies allowed Qu to loot PrediWave, dispose of real property in California, and flee the country.

The complaint alleged defendants failed to advise PrediWave’s board of directors about the conflict of interest; failed to recommend to the board that an independent investigation of the allegations against Qu be conducted; failed to conduct a reasonable, independent investigation of Qu and of the transactions whereby Qu was looting PrediWave; and failed to establish an Independent Audit Committee represented by separate and independent counsel. The complaint alleged that in serving Qu, Simpson acted against PrediWave’s best interests.

Simpson filed a special motion to strike under the anti-Strategic Lawsuit Against Public Participation (anti-SLAPP) statute arguing that the causes of action were based upon protected speech and petitioning activity. Simpson submitted a retainer letter to the effect that Simpson would represent and advise PrediWave, “Associated Companies” and any individual officers, directors or shareholders of the Associated Companies that became named parties in any litigation matters with New World. Simpson’s client file included an outline of interview questions for an internal interview of Qu; the written results of the interview, labeled as privileged attorney work-product; a private investigative report regarding six individuals including Qu; an internal memo to the file, labeled attorney work product, which discusses the relationship between PrediWave and another Qu affiliated company, and identified potential areas of concern, including apparent inconsistencies between Qu’s rendition of events and the documentary record. A PrediWave director declared that neither he nor Prediwave’s Board was ever notified that Simpson had conducted an internal investigation revealing Qu’s fraud against PrediWave.

The Court of Appeal reversed the trial court’s grant of the anti-SLAPP motion. An anti-SLAPP motion posits a two-step process for determining whether an action is a SLAPP. First, the court decides whether the defendant has made a threshold showing that the challenged cause of action is one arising from protected activity. A defendant meets this burden by demonstrating that the act underlying the plaintiff’s cause fits one of the categories spelled out in the statute. If the court finds that such a showing has been made, it must then determine whether the plaintiff has demonstrated a probability of prevailing on the claim.

An act in furtherance of a person’s right of petition or free speech under the United States or California Constitution in connection with a public issue includes any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; any written or oral statement or writing made in connection with an issue under consideration or review by a legislative, executive, or judicial body, or any other official proceeding authorized by law; any written or oral statement or writing made in a place open to the public or a public forum in connection with an issue of public interest; or any other conduct in furtherance of the exercise of the constitutional right of petition or the constitutional right of free speech in connection with a public issue or an issue of public interest.

The mere fact that an action was filed after protected activity took place does not mean the action arose from that activity for the purposes of the anti-SLAPP statute. Moreover, that a cause of action arguably may have been triggered by protected activity does not entail that it is one arising from such. The critical consideration is whether the cause of action is based on the defendant’s protected free speech or petitioning activity. It is the principal thrust or gravamen of the plaintiff’s cause of action that determines whether the anti-SLAPP statute applies.

Although the anti-SLAPP statute may protect speech and petitioning activities undertaken on another’s behalf, it does not necessarily follow that the statute applies when a client sues a former attorney for acts ostensibly done in furtherance of the client’s rights. A malpractice claim focusing on an attorney’s incompetent handling of a previous lawsuit does not have the chilling effect on advocacy found in malicious prosecution, libel, and other claims typically covered by the anti-SLAPP statute. The client is not suing because the attorney petitioned on his or her behalf, but because the attorney did not competently represent the client’s interests while doing so. The threat of malpractice encourages the attorney to petition competently and zealously. This is vastly different from a third party suing an attorney for petitioning activity, which clearly could have a chilling effect. Some courts have reasoned that a malpractice action is not based on a constitutional right.

A claim based on breach of the attorney’s duty of loyalty occurs not when the attorney steps into court to represent the new client, but when he or she abandons the old client. A breach of fiduciary duty lawsuit may be set in the context of litigation, but does not arise from it.

The Court of Appeal rejected Simpson’s argument that the gravamen of the complaint related to protected litigation activities. The principal thrust of PrediWave’s claims was that Simpson simultaneously represented both PrediWave and Qu in matters in which they had an irreconcilable conflict of interest. The conflict adversely affected Simpson’s choice of legal strategy and caused defendants to aggressively oppose and stonewall New World and its two outside directors and resulted in Simpson’s repeated failures to take action to safeguard PrediWave against Qu’s misconduct. Simpson failed to investigate Qu, failed to provide the Board with material information or advice regarding Qu and failed to take affirmative action to prevent Qu’s self-dealing and the associated financial losses to PrediWave. Simpson’s joint representation, legal strategy, non-communicative conduct, and failures to act were neither protected by the statute nor did they occur in connection with a public issue or an issue of public interest.

In the anti-SLAPP context, the Court drew a distinction between client’s causes of action against attorneys based upon the attorney’s acts on behalf of those clients; clients’ causes of action against attorneys based upon statements or conduct solely on behalf of different clients; and non-clients’ causes of action against attorneys. Causes of action based on an attorney’s representation of the client that violates the standard of care or the Rules of Professional Conduct are categorically not being brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition.

It is unreasonable to interpret the statutory language to preclude a client’s causes of action against the client’s own attorney arising from litigation-related activities undertaken for that client. This would unreasonably expand the language of the statute beyond the clear legislative purpose and lead to absurd results.

Finding that Simpson did not establish the first prong, the Court of Appeal remanded the case back to the trial court and did not address the second prong, the probability of success.

Comment: Simpson is one of a long line of cases that precludes the use of the anti-SLAPP statute in cases brought by clients against their own counsel.

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