Wednesday, October 14, 2015
C.A. Says Conflict-of-Interest Suit Against Local Lawyers No SLAPP
Split Panel Says Suit Charging Breach of Duty of Loyalty Did Not Arise From Protected Litigation Activity
By KENNETH OFGANG, Staff Writer
A lawsuit by the co-owner of a dissolved publishing company against the local attorneys who represented the other co-owner in intellectual property litigation, as well as in the dissolution, is not amenable to an anti-SLAPP motion, the Court of Appeal for this district ruled yesterday.
In a 2-1 decision, Div. Seven affirmed Los Angeles Superior Court Judge Elizabeth A. White’s ruling in favor of Jean E. Sprengel. The plaintiff, an anesthesiologist, is suing Pasadena lawyer Gregory Zbylut and the Century City firm of Leopold, Petrich & Smith, claiming they breached a duty of loyalty owed to her as half-owner of Purposeful Press, LLC.
Sprengel and Lanette Mohr formed Purposeful Press to market and distribute the Chemo Companion Careguide, a guidebook Sprengel wrote about the side effects of chemotherapy. A 2008 agreement between the two women made Mohr the “sole manager of the company.”
In 2010, Mohr sought an increase in her salary, but Sprengel offered to take over the managerial duties instead. At that point, according to Sprengel’s complaint in the later lawsuit, Mohr refused to surrender the company’s books and records and insisted that Sprengel had no say in how the company was run.
In 2011, Mohr retained Zbylut and Vincent Cox, of Leopold, Petrich & Smith, as counsel for Purposeful Press and signed a retainer agreement. The engagement for which the lawyers were hired was an investigation to determine the company’s intellectual property rights regarding the guidebook.
Later that year, Sprengel sued to dissolve the company and separately sued Mohr for copyright infringement. She alleged that Mohr had continued to market the plaintiff’s book and derivative works, despite Sprengel having revoked the implied license granted to Purposeful Press.
After the suits were filed, Mohr additionally retained the attorneys to represent her with respect to related issues, including questions regarding the copyright registration, the legal determination of the company’s IP rights, and Sprengel’s alleged unauthorized withdrawals of more than $150,000 from the company’s accounts.
The copyright suit was tried in 2012 and 2013 before a federal district judge, who ruled that Sprengel was the sole owner of the copyrighted works, but that the implied license that she granted the defendants absolved them of liability for any infringement. Sprengel then sued Mohr’s lawyers in September 2013.
She claimed that the attorneys had represented Mohr’s interests to the detriment of the company’s, and to her detriment as a half-owner. She pled claims for malpractice, breach of fiduciary duties, constructive fraud, and “money had and received.”
Duty of Loyalty
The defendant attorneys filed an anti-SLAPP motion, alleging that the claims arose from their litigation activities and were thus protected by Code of Civil Procedure §425.16. They also asserted they were not liable as a matter of law because as counsel for purposeful press, they owed no duty of loyalty to any principal.
In denying the motion, White ruled that for purposes of the first prong of the anti-SLAPP analysis, the legal determination as to whether the suit arose from protected activity, an attorney’s alleged breach of fiduciary duty and/or the duty of loyalty set forth in the Rules of Professional Conduct is not protected.
Only if the moving defendant prevails at the first step, she added, may the court address whether the attorney actually owed the plaintiff the duties asserted. Since the defendants did not prevail at the first step in this case, she said, they will have to argue their defenses at a later stage.
Justice Laurie Zelon, writing for the Court of Appeal, agreed.
She cited, among other cases, Benasra v. Mitchell Silberberg & Knupp LLP (2004) 123 Cal.App.4th 1179, holding that a claim the defendant law firm breached its duty of loyalty to a client by representing a party with adverse interests in an arbitration proceeding did not arise from protected activity within the meaning of §425.16.
Zelon rejected the defendants’ argument that Benasra and other cases were distinguishable because Sprengel never formed an attorney-client relationship with them. Such arguments “improperly conflate the first and second prongs of the Section 425.16 test.”
Justice John Segal joined Zelon’s opinion, while Presiding Justice Dennis Perluss dissented.
“I agree with the majority that Jean Sprengel’s claims…cannot be meaningfully distinguished from the claims at issue in many of these cases,” Perluss wrote. “…However, I do not agree those cases categorically refusing to apply section 425.16 to ‘garden variety malpractice actions’ were properly decided.”
“Whatever the label for the former client’s causes of action—professional negligence, breach of fiduciary duty or breach of contract—if those claims are based on the lawyer’s actions in litigation (or in anticipation of litigation), they arise from acts in furtherance of the right of petition. There is no more justification for a categorical exclusion of legal malpractice actions from the scope of section 425.16 than for excluding malicious prosecution cases.”
The line of cases relied on by the majority, he suggested, may be “fueled by an understandable distaste for the explosion of section 425.16 motions with their related prejudgment appeals” rather than by adherence to the “plain language principle of statutory interpretation.”
Attorneys on appeal were Matthew J. Norris for Zbylut, Michael McCarthy and Susan S. Baker of Nemecek & Cole for Cox and his firm, and Fred J. Knez for Sprengel.
The case is Sprengel v. Zbylut, 15 S.O.S. 4821.
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