Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism

Filed 3/22/18

IN THE SUPREME COURT OF CALIFORNIA

NEWPORT HARBOR VENTURES, )

LLC, et al., )

)

Plaintiffs and Respondents, )

) S239777

v. )

) Ct.App. 4/3 G052660

MORRIS CERULLO WORLD )

EVANGELISM et al., )

) Orange County

Defendants and Appellants. ) Super. Ct. No. 30-2013-00665314

____________________________________)

Code of Civil Procedure section 425.16 (§ 425.16), California’s so-called

anti-SLAPP (strategic lawsuit against public participation) statute, is intended to

resolve quickly and relatively inexpensively meritless lawsuits that threaten free

speech on matters of public interest. When it applies, section 425.16 permits a

defendant to file a special motion to strike a cause of action (sometimes referred to

as an anti-SLAPP motion) “within 60 days of the service of the complaint or, in

the court’s discretion, at any later time upon terms it deems proper.” (§ 425.16,

subd. (f).) Here, defendants filed the special motion within 60 days of the third

amended complaint, but not within 60 days of any earlier complaint. The third

amended complaint contains some of the same causes of action as earlier

complaints. We granted review to decide whether a special motion to strike an

amended complaint may seek dismissal of causes of action that had been included

in the earlier complaints.

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Because the anti-SLAPP statute is designed to resolve these lawsuits early,

but not to permit the abuse that delayed motions to strike might entail, we

conclude, as did the Court of Appeal, that, subject to the trial court’s discretion

under section 425.16, subdivision (f), to permit late filing, a defendant must move

to strike a cause of action within 60 days of service of the earliest complaint that

contains that cause of action.

I. PROCEDURAL HISTORY

We take this procedural history primarily from the Court of Appeal’s

opinion. (Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism

(2016) 6 Cal.App.5th 1207, 1211-1215 (Newport Harbor).)

Plaintiffs Newport Harbor Ventures, LLC, and Vertical Media Group, Inc.,

sued defendants Morris Cerullo World Evangelism and Roger Artz for damages

based on events involving a ground sublease of real property in Newport Beach.

Among other allegations, plaintiffs alleged that defendants fraudulently settled an

unlawful detainer action involving the property. The first and subsequent

complaints alleged multiple causes of action, including breach of written contract

and breach of the implied covenant of good faith. Plaintiffs eventually filed a

third amended complaint. That complaint also alleged that defendants

fraudulently settled the unlawful detainer action. It contained the causes of action

for breach of written contract and breach of the implied covenant of good faith

contained in the original complaint and added, for the first time, causes of action

for quantum meruit and promissory estoppel.

Within 60 days of the filing of the third amended complaint, defendants

moved to strike that complaint under section 425.16. They argued that settlement

of the unlawful detainer action was an act arising from the right to petition and

therefore is protected under the anti-SLAPP statute. Plaintiffs argued the motion

was untimely because it was not brought within 60 days of any earlier complaint.

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The trial court agreed and denied the motion as untimely. It explained that “[t]he

case has been pending for over two years. The court notes that the Complaint and

every pleading filed by Plaintiffs thereafter, all referenced the Settlement

Agreement at the heart of Defendants’ argument. Defendants demurred to every

pleading filed by Plaintiffs. They filed a Motion to Strike the Complaint and the

Second Amended Complaint. The court has also heard and ruled on Defendants’

Motion for Judgment on the Pleadings and Motion for Summary Judgment.

Substantial discovery has already taken place. The court has granted several

discovery motions filed by Plaintiffs. The purpose of the anti-SLAPP statute is to

dismiss meritless lawsuits designed to chill free speech rights at the earliest stage

of the case. That purpose no longer applies at this late stage in the litigation.”

Defendants appealed the denial order. (§ 425.16, subd. (i).) The Court of

Appeal affirmed. It held that “a defendant must file an anti-SLAPP motion within

60 days of service of the first complaint (or cross-complaint, as the case may be)

that pleads a cause of action coming within section 425.16[, subdivision] (b)(1)

unless the trial court, in its discretion and upon terms it deems proper, permits the

motion to be filed at a later time (§ 425.16[, subd.] (f)). An amended complaint

reopens the time to file an anti-SLAPP motion without court permission only if the

amended complaint pleads new causes of action that could not have been the

target of a prior anti-SLAPP motion, or adds new allegations that make previously

pleaded causes of action subject to an anti-SLAPP motion.” (Newport Harbor,

supra, 6 Cal.App.5th at p. 1219.)

The court also concluded that defendants’ motion was timely as to the two

new causes of action pleaded for the first time in the third amended complaint.

“To conclude otherwise,” it explained, “would allow [plaintiffs] to circumvent the

purpose of the anti-SLAPP statute by holding back those two causes of action

from earlier complaints.” (Newport Harbor, supra, 6 Cal.App.5th at p. 1220,

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citing Lam v. Ngo (2001) 91 Cal.App.4th 832, 840-841 (Lam).) But it also

concluded that plaintiffs had established a probability of prevailing on those

causes of action and, accordingly, the trial court correctly denied the anti-SLAPP

motion. (Newport Harbor, at pp. 1212, 1220-1226.)

We granted defendants’ petition for review. Later, we issued an order

limiting review to the issue concerning the proper interpretation of section 425.16,

subdivision (f). (Cal. Rules of Court, rule 8.516(a)(1).)

II. DISCUSSION

A. Suspension of Corporate Status.

A corporation may not prosecute or defend an action while its corporate

status is suspended for failure to pay taxes. (Bourhis v. Lord (2013) 56 Cal.4th

320, 324.) Before oral argument, the question arose whether plaintiffs’ corporate

status had been suspended. The day before oral argument, plaintiffs’ counsel filed

documentation indicating that both corporations’ corporate status had been

revived. We grant plaintiffs’ request to judicially notice the documents. (Cal.

Rules of Court, rules 8.252, 8.520(g).) Accordingly, counsel properly represented

the plaintiffs at oral argument.

B. The Proper Interpretation of Code of Civil Procedure section

425.16, subdivision (f).

“Section 425.16 provides, inter alia, that ‘A cause of action against a person

arising from any act of that person in furtherance of the person’s right of petition

or free speech under the United States or California Constitution in connection

with a public issue shall be subject to a special motion to strike, unless the court

determines that the plaintiff has established that there is a probability that the

plaintiff will prevail on the claim.’ (Id., subd. (b)(1).) ‘As used in this section,

“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: (1)

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any written or oral statement or writing made before a legislative, executive, or

judicial proceeding, or any other official proceeding authorized by law; (2) 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 . . . .’ (Id., subd. (e).)” (Equilon Enterprises

v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 58.)

Section 415.16 “provides a procedure for weeding out, at an early stage,

meritless claims arising from protected activity.” (Baral v. Schnitt (2016) 1

Cal.5th 376, 384.) “The Legislature enacted section 425.16 to prevent and deter

‘lawsuits [referred to as SLAPPs] brought primarily to chill the valid exercise of

the constitutional rights of freedom of speech and petition for the redress of

grievances.’ (§ 425.16, subd. (a).) Because these meritless lawsuits seek to

deplete ‘the defendant’s energy’ and drain ‘his or her resources’ [citation], the

Legislature sought ‘ “to prevent SLAPPs by ending them early and without great

cost to the SLAPP target” ’ [citation]. Section 425.16 therefore establishes a

procedure where the trial court evaluates the merits of the lawsuit using a

summary-judgment-like procedure at an early stage of the litigation. [Citation.]

In doing so, section 425.16 seeks to limit the costs of defending against such a

lawsuit.” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 192.)

The parties seem to agree that defendants’ action in settling the unlawful

detainer action was an act “in furtherance of [their] right of petition or free

speech” (§ 425.16, subd. (b)(1)), and thus constitutes protected activity under

section 425.16. (See Newport Harbor, supra, 6 Cal.App.5th at p. 1211.) We will

assume that to be the case. The issue before us concerns the timing of section

425.16’s special motion to strike. Section 425.16, subdivision (f), provides as

relevant: “The special motion may be filed within 60 days of the service of the

complaint or, in the court’s discretion, at any later time upon terms it deems

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proper.” (Italics added.) We must decide how this provision applies to an

amended complaint.

In Lam, supra, 91 Cal.App.4th 832, the question arose whether a defendant

could file the special motion to strike within 60 days of service of an amended

complaint if the amended complaint added new causes of action for acts that

section 425.16 protects. As the Lam court described it, the question was “whether

the words ‘the complaint’ in section 425.16. subdivision (f) may include amended

complaints, or necessarily are restricted to just the original.” (Lam, at p. 840.)

The plaintiff argued that the motion to strike had to be made within 60 days of the

original complaint or not at all. The court disagreed.

“[T]he purpose of the anti-SLAPP suit law would be readily

circumventable if a defendant’s only opportunity to strike meritless SLAPP claims

were in an attack on the original complaint. Causes of action subject to a special

motion to strike could be held back from an original complaint . . . . [¶] In

context, the ‘special’ anti-SLAPP suit motion is directed at a particular document,

namely ‘the complaint.’ It would make no sense to read ‘complaint’ to refer to an

earlier complaint that contained no anti-free-speech claims, but not allow such a

motion for a later complaint that had been amended to contain some. After all, the

whole purpose of the statute is to provide a mechanism for the early termination of

claims that are improperly aimed at the exercise of free speech or the right of

petition.” (Lam, supra, 91 Cal.App.4th at pp. 840-841.)

A similar, but slightly different, issue arose in Yu v. Signet Bank/Virginia

(2002) 103 Cal.App.4th 298 (Yu). There, as in Lam, supra, 91 Cal.App.4th 832,

the plaintiff argued that a special motion to strike was untimely because it was

filed within 60 days of the amended complaint, but not within 60 days of the

original complaint. The Court of Appeal held that the word “complaint” in section

426.16, subdivision (f), includes an amended complaint. It noted that Lam

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“point[ed] out among other things that if the statute were construed as the

[plaintiffs] urge, a plaintiff might attempt to circumvent the anti-SLAPP law by

waiting until an amended complaint to assert its SLAPP allegations.” (Yu, at p.

314.)

Under Lam and Yu, an anti-SLAPP motion may be brought after an

amended complaint, at least as to new claims not previously made. The Court of

Appeal in this case agreed with those cases to that extent. (Newport Harbor,

supra, 6 Cal.App.5th at p. 1220.) We do too, for the reasons, quoted above, that

the Lam court identified. But what about causes of action in an amended

complaint that were included in an earlier complaint? May the defendant file the

special motion to strike those causes of action when it could have done so sooner

after service of the earlier complaint? Lam, supra, 91 Cal.App.4th 832, did not

address the question.

The Yu court did address the question. It ruled broadly that the motion to

strike following an amended complaint was timely even though it could have been

filed sooner. “Admittedly, this is not a case where an anti-SLAPP motion was

promptly made to counter SLAPP allegations first added to an amended pleading.

[The defendants] could have filed their motion at the outset of the case and . . .

their anti-SLAPP theory seems to have been an afterthought. [The defendants’]

opportunity to belatedly raise that theory arose as a matter of right only because

the [plaintiffs] were required to file a third amended complaint, which deleted

many more allegations than it added, and added nothing that implicated the anti-

SLAPP law. We nevertheless conclude . . . that [the defendants’] motion was

timely because it was filed within 60 days of service of the third amended

complaint.” (Yu, supra, 103 Cal.App.4th at p. 315.)

Without specifically citing Yu, supra, 103 Cal.App.4th 298, the court in

Hewlett-Packard Co. v. Oracle Corp. (2015) 239 Cal.App.4th 1174 disagreed with

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this last point, albeit in dicta. “The rule that an amended complaint reopens the

time to file an anti-SLAPP motion is intended to prevent sharp practice by

plaintiffs who might otherwise circumvent the statute by filing an initial complaint

devoid of qualifying causes of action and then amend to add such claims after 60

days have passed. [Citation.] But a rule properly tailored to that objective would

permit an amended pleading to extend or reopen the time limit only as to newly

pleaded causes of action arising from protected conduct. A rule automatically

reopening a case to anti-SLAPP proceedings upon the filing of any amendment

permits defendants to forgo an early motion, perhaps in recognition of its likely

failure, and yet seize upon an amended pleading to file the same meritless motion

later in the action, thereby securing the ‘free time-out’ condemned in [People ex

rel. Lockyer v. Brar (2004)] 115 Cal.App.4th 1315, 1318.” (Hewlett-Packard Co.,

at p. 1192, fn. 11.)

The Court of Appeal in this case agreed with Hewlett-Packard Co. v.

Oracle Corp., supra, 239 Cal.App.4th 1174, in this regard. (Newport Harbor,

supra, 6 Cal.App.5th at pp. 1217-1218.) It “disagree[d] with Yu to the extent it

holds that a defendant has an absolute right to file an anti-SLAPP motion to an

amended complaint, even when the motion could have been brought against an

earlier complaint.” (Id. at p. 1218.) It quoted our explanation in Varian Medical

Systems, Inc. v. Delfino, supra, 35 Cal.4th at page 192, that section 425.16 was

intended to end meritless SLAPP suits early without great cost to the target. It

said permitting a defendant an absolute right to file an anti-SLAPP motion to an

amended complaint “would encourage gamesmanship that could defeat rather than

advance that purpose.” (Newport Harbor, at p. 1218.)

We agree with the Court of Appeal. Section 425.16 provides a means for

the prompt and relatively inexpensive resolution of lawsuits that threaten free

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speech. But it also “present[s] the possibility for abuse of the anti-SLAPP

statute.” (Platypus Wear, Inc. v. Goldberg (2008) 166 Cal.App.4th 772, 783.)

“All discovery proceedings in the action shall be stayed upon the filing of a

notice of motion made pursuant to this section. The stay of discovery shall remain

in effect until notice of entry of the order ruling on the motion.” (§ 425.16, subd.

(g).) “An order granting or denying a special motion to strike shall be appealable

under [Code of Civil Procedure s]ection 904.1.” (Id., subd. (i).) An appeal under

this provision “automatically stays all further trial court proceedings on the merits

upon the causes of action affected by the motion.” (Varian Medical Systems, Inc.

v. Delfino, supra, 35 Cal.4th at p. 186.) Because of these provisions, as one Court

of Appeal put it, we “have acknowledged the ironic unintended consequence that

anti-SLAPP procedures, enacted to curb abusive litigation, are also prone to

abuse.” (Olsen v. Harbison (2005) 134 Cal.App.4th 278, 283.) “[S]ome anti-

SLAPP appeals will undoubtedly delay litigation even though the appeal is

frivolous or insubstantial. . . . [S]uch a result may encourage defendants to

‘misuse the [anti-SLAPP] motions to delay meritorious litigation or for other

purely strategic purposes.’ ” (Varian Medical Systems, Inc., at p. 195.)

In this case, as the trial court noted when it exercised its discretion to deny

a late filing, much litigation, including discovery, had already been conducted for

two years before the anti-SLAPP motion brought it to a halt. It is far too late for

the anti-SLAPP statute to fulfill its purpose of resolving the case promptly and

inexpensively. “An anti-SLAPP motion is not a vehicle for a defendant to obtain a

dismissal of claims in the middle of litigation; it is a procedural device to prevent

costly, unmeritorious litigation at the initiation of the lawsuit.” (San Diegans for

Open Government v. Har Construction, Inc. (2015) 240 Cal.App.4th 611, 625-

626.) To minimize this problem, section 425.16, subdivision (f), should be

interpreted to permit an anti-SLAPP motion against an amended complaint if it

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could not have been brought earlier, but to prohibit belated motions that could

have been brought earlier (subject to the trial court’s discretion to permit a late

motion). This interpretation maximizes the possibility the anti-SLAPP statute will

fulfill its purpose while reducing the potential for abuse.

Defendants argue that, because filing an anti-SLAPP motion stays

discovery proceedings, and an appeal from the denial of the motion stays all

further trial court proceedings on the merits of the causes of action affected by the

motion, permitting defendants to challenge only new causes of action in an

amended complaint cannot further judicial efficiency. We disagree. Perfect

efficiency may be unobtainable. But limiting an anti-SLAPP motion to new

causes of action can make the process more efficient. Claims unaffected by the

anti-SLAPP motion might be able to go forward. Moreover, a rule limiting the

anti-SLAPP motion to new causes of action can streamline the resolution of the

motion and any ensuing appeal by limiting the number of issues to be resolved.

The plaintiff also has control over what to allege in an amended complaint. An

amended complaint might not add new causes of action subject to an anti-SLAPP

motion, in which case no anti-SLAPP motion at all would be permitted.

For these reasons, we agree with the Court of Appeal’s interpretation of

section 425.16, subdivision (f). Specifically, we agree with the summary of its

holding quoted in part I., ante, of this opinion. (Newport Harbor, supra, 6

Cal.App.5th at p. 1219.) (We express no opinion regarding its further conclusion

that plaintiffs had established a probability of prevailing on the new causes of

action.)

Defendants argue that this conclusion requires overruling Baral v. Schnitt,

supra, 1 Cal.5th 376. It does not. That case concerned how “the special motion to

strike operate[s] against a so-called ‘mixed cause of action’ that combines

allegations of activity protected by the statute with allegations of unprotected

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activity.” (Id. at p. 381.) It did not consider the timeliness of any motion to strike

or the proper interpretation of section 425.16, subdivision (f).

III. CONCLUSION

We affirm the judgment of the Court of Appeal. We also disapprove Yu v.

Signet Bank/Virginia, supra, 103 Cal.App.4th 298, to the extent it is inconsistent

with this opinion.

CHIN, J.

WE CONCUR:

CANTIL-SAKAUYE, C.J.

CORRIGAN, J.

LIU, J.

CUÉLLAR, J.

KRUGER, J.

RAYE, J.*

——————————————————

* Administrative Presiding Justice of the Court of Appeal, Third Appellate

District, assigned by the Chief Justice pursuant to article VI, section 6 of the

California Constitution.

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See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Newport Harbor Ventures, LLC v. Morris Cerullo World Evangelism

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 6 Cal.App.5th 1207

Rehearing Granted

__________________________________________________________________________________

Opinion No. S239777

Date Filed: March 22, 2018

__________________________________________________________________________________

Court: Superior

County: Orange

Judge: Deborah C. Servino

__________________________________________________________________________________

Counsel:

Galuppo & Blake, Louis A. Galuppo, Steven W. Blake, Andrew E. Hall and Daniel T. Watts for

Defendants and Appellants.

Knypstra Law, Knypstra Hermes, Bradley P. Knypstra and Grant Hermes for Plaintiffs and Respondents.

Counsel who argued in Supreme Court (not intended for publication with opinion):

Steven W. Blake

Galuppo & Blake

2792 Gateway Road, Suite 102

Carlsbad, CA 92009

(760) 431-4575

Daniel T. Watts

Galuppo & Blake

2792 Gateway Road, Suite 102

Carlsbad, CA 92009

(760) 431-4575

Grant Hermes

Knypstra Hermes

2731 1/2 East Coast Highway

Corona Del Mar, CA 92625

(949) 432-3802