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March 26, 2015

Loanvest I, LLC v. Utrecht (2015) 235 Cal.App.4th 496

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The First District holds that claims by a client against its attorney in the context of litigation are not covered by the anti-SLAPP statute.

Loanvest’s Operating Agreement named South Bay Real Estate Commerce Group, LLC (South Bay) as its manager. No other members had voting or management rights, and the manager could be removed only for breach of fiduciary duty by a super-majority vote of Loanvest’s members. Madow subsequently purchased a seventy percent membership in Loanvest.

Madow added Loanvest and South Bay as defendants in an action he filed against other entities allegedly owned and controlled by South Bay’s manager, George Cresson. The action arose out of complex transactions involving a loan from Loanvest to Post Construction Services.

Utrecht represented Loanvest , and successfully opposed Madow’s motion for a preliminary injunction to prevent Loanvest from paying attorneys representing Cresson for matters unrelated to South Bay’s activities as Loanvest’s manager.

Under a settlement agreement, Madow replaced South Bay as the manager of Loanvest. With Madow in control, Loanvest sued Utrecht arguing his representation in the underlying action was a breach of loyalty because it benefitted Cresson, not Loanvest.  In the

underlying action Utrecht claimed the South Bay’s legal bills were Loanvest’s responsibility, even though South Bay had no right to indemnification.

Utrecht moved to dismiss the cause of action under California’s anti-SLAPP (strategic lawsuit against public participation) statute. The trial court determined the claim was based on an act in furtherance of the right of petition, satisfying the first prong of the anti-SLAPP analysis. The court found Loanvest failed to show its ability to prevail because the complaint was premised on positions Utrecht took on behalf of Loanvest.

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 cause of action does not “arise from” protected activity simply because it is filed after protected activity takes place, or because it is triggered by protected activity. The critical inquiry is whether the defendant’s act underlying the plaintiff’s cause of action is an act in furtherance of the right of petition or free speech.

There is a distinction between clients’ causes of action their attorneys, and non-clients’ causes of action against attorneys. Clients’ claims against attorneys are categorically not brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition.  In a malpractice or breach of fiduciary duty suit, the client does not sue 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 does not chill petitioning activity; it encourages the attorney to petition competently and zealously. This differs from a third party suing an attorney for petitioning activity, which could have a chilling effect.  A client’s claim against its attorney concerns a breach of duty that does not depend on exercising a constitutional right.

Loanvest, Utrecht’s former client, was allegedly harmed by a breach of the duty of loyalty. Its assertion Cresson was Utrecht’s “true client” does not change the admitted fact that Utrecht was the attorney for Loanvest.  Although the complaint focused on statements or positions Utrecht took in matters under review by a court, the claim was not for injuries suffered by a third party.

Since Loanvest’s claim did not challenge the exercise of protected activity, the first prong of the anti-SLAPP analysis was not met, and the second prong was not analyzed.

Comment: Attorneys often conflate the interests of individuals speaking on behalf of an entity client, and the client. This case serves as a good reminder that an attorney representing an entity owes duties to the entity, not individuals communicating on behalf of the entity.

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