Zamora & Hoffmeier v. Virtue et al

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UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
SAN FERNANDO VALLEY DIVISION
In re:
Continental Coin Corporation
Debtor(s).
Case No.: 1:00-bk-15821-GM
Adv No: 1:13-ap-01061-GM
Chapter 11
MEMORANDUM OF OPINION DENYING
DEFENDANT’S SPECIAL MOTION TO
STRIKE PURSUANT TO CALIFORNIA
CODE OF CIVIL PROCEDURE §425.16
REGARDING DOCKET NUMBER 7
Zamora & Hoffmeier
Plaintiff(s),
v.
Hill, Farrer & Burrill LLP, Daniel J.
McCarthy, Rodger Virtue
Defendant(s).
Date: May 14, 2013
Time: 10:00 a.m.
Courtroom: 303
BACKGROUND
Continental Coin Corp. filed for Chapter 11 bankruptcy on 6/19/2000. On
9/4/2001, Nancy Hoffmeier Zamora was appointed as the Chapter 11 trustee
(“Zamora”). On 11/2/2001, the Court approved Trustee’s employment of Zamora &
Hoffmeier (“Z&H”) as general counsel. Over the course of Zamora’s work as trustee,
Daniel McCarthy (“McCarthy”) and the firm by which he is employed, Hill, Farrer &
Burrill, LLP (“HFB”), filed numerous objections on behalf of creditor Rodger Virtue
(“Virtue”), including an objection to Trustee’s proposed liquidation plan. The Court
FILED & ENTERED
JUL 01 2013
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	Gonzalez
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confirmed the Trustee’s liquidation plan over Virtue’s objection on 8/2/07.
On 12/12/2007, the Court entered an order allowing Virtue to file a complaint
against Trustee. The order contained a provision that prohibited Virtue from including
any claims against the Trustee’s attorney. On 12/28/2007, Virtue filed a complaint (the
“Adversary Proceeding” or “Adversary Complaint”) alleging negligence, gross
negligence and breach of duty against Trustee, also naming Z&H as a defendant with
an allegation for legal malpractice.1 The Trustee and Z&H opposed the Adversary
Complaint as a violation of the Court’s Order. The Bankruptcy Court agreed and Virtue
appealed to the District Court, which affirmed that Virtue could not sue Z&H. The
District Court’s Opinion became final on 3/21/2011, after which both parties appealed
the District Court Opinion to the United States Court of Appeals for the Ninth Circuit (the
“Ninth Circuit”) and the Ninth Circuit dismissed both for lack of appellate jurisdiction. 2
On 6/11/2011, Virtue filed a First Amended Complaint removing Z&H as a defendant.
On 3/20/2013, Z&H filed a complaint against Virtue, McCarthy and HFB for malicious
prosecution and abuse of process.3
THE MOTION4
Virtue moves to strike Z&H’s 3/20/2013 Complaint for malicious prosecution and
abuse of process pursuant to California Code of Civil Procedure § 425.16, commonly
known as California’s “anti-SLAPP statute.” Virtue argues that Z&H’s claims arise from
Virtue’s original Adversary Proceeding thus satisfying the first prong of the anti-SLAPP
statute. Next, Virtue argues that Z&H fails to meets its burden under the statute
1 1:07-ap-01291-GM.
2 A timeline of the various events and appeals relevant to this motion is attached hereto.
3 Unless otherwise specified, all defendants are referred to jointly under the term “Virtue.”
4 Two identical motions, one filed by Virtue and the other by HFB, are before the Court. Because they are identical,
references to Virtue as the moving party will include McCarthy and HFB. (Adv#:1:13-01061, Dk #5, #6)
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because Z&H fails to show a probability of success on the merits of the claims.
Because Z&H fails to meet its burden, the claims should be dismissed as SLAPPs
pursuant to the anti-SLAPP statute.
Z&H opposes Virtue’s motion on the grounds that the anti-SLAPP statute is
inapplicable. Z&H argues that because Virtue’s Adversary Proceeding is not related to
a public issue, it is not protected activity under the statute. Thus, the first prong of the
anti-SLAPP statute is not met. Next, Z&H claims that it meets the second-prong burden
of the anti-SLAPP statute because its complaint is sufficiently pled under the federal
rules of pleading. Thus, Z&H argues, the Court should deny Virtue’s motion to strike
and either compel Virtue to answer the Z&H complaint and allow Z&H to proceed with
discovery related to the Z&H complaint, or continue to the hearing on the motion so that
Z&H can conduct discovery and amend its complaint if necessary.
DISCUSSION
I. Summary of California’s Anti-SLAPP Purpose and Procedure.
Strategic Lawsuit Against Public Participation, commonly referred to as “SLAPP”
suits, refer to meritless lawsuits that appear to be normal lawsuits but are initiated for
the purpose of deterring ordinary citizens from exercising their legal rights to protected
speech. Wilcox v. Superior Court, 27 Cal. App. 4th 809, 816 (Cal. App. 2d Dist. 1994).
The purpose of a SLAPP is “not to succeed on the merits, but to so intimidate the
private citizen (or even the government official) that that citizen’s activity ceases
because the expense, risk and anxiety engendered by the process of litigating a SLAPP
is too great.” Causes of Action: Bringing and Defending Anti-SLAPP Motions to Strike
or Dismiss, 22 C.O.A.2d 317, 322, § 2 (2003). A SLAPP abuses the judicial process
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with the desired outcome of preventing individuals from exercising their right to free
speech. Id.
Identifying a surge in these SLAPPs, the California legislature enacted California
Code of Civil Procedure, §425.16 in 1992. The purpose of California’s anti-SLAPP
statute is to dismiss meritless claims that simply seek to “chill the valid exercise of the
constitutional rights of freedom of speech and petition for the redress of grievances.”
Cal. Code Civ. Pro §425.16(a). The statute states the legislative purpose clearly: “to
encourage continued participation in matters of public significance, and that this
participation should not be chilled through abuse of the judicial process.” Id. The
legislature further notes that it should be construed broadly. Cal. Code Civ. Pro
§425.16(b).
To prevent the success of these SLAPPs, the California legislature created a
two-pronged analysis to determine when cases should be dismissed as SLAPPs. First,
the Court must determine whether the defendant has met her burden to show that the
challenged cause of action arises from protected activity. Navellier v. Sletten, 29 Cal.
4th 82, 88 (Cal. 2002). If the Court is satisfied with the defendant’s showing, then the
burden shifts to the plaintiff, and the Court will evaluate whether the plaintiff has met her
burden to show a probability of prevailing on the merits of her claim. Id. As a final
safeguard, the legislature has provided that a successful defendant may recover
expenses incurred in bring forth an anti-SLAPP motion. Cal. Code Civ. Pro
§425.16(c)(1).
II. Applicability of California’s Anti-SLAPP Statute in Federal Court.
A. The Erie Doctrine Will Govern a Federal Court’s Analysis of a State Law
Claim.
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In Erie R.R. v. Tompkins, the United States Supreme Court confronted the issue
of what law, state or federal, a federal court should apply when deciding on matters of
state law. See 304 U.S. 64 (1938). The resulting Erie Doctrine, as it has come to be
known, created a relatively simple test to address this issue: federal courts should apply
substantive state law and federal procedural law. Id. at 78. However, conflict arises
when there is a “direct collision” between state and federal law. Hanna v. Plumer, 380
U.S. 460, 472 (1965). The Supreme Court further addressed this issue in Guaranty
Trust Co. v. York, creating an outcome determinative test which instructed federal
courts to apply state law if the application of federal law would provide a different
outcome. 326 U.S. 99, 109 (1946). This test supported the intent of the Erie decision
which was to prevent forum shopping and to prevent inequitable administration of the
law. Id.
The Supreme Court addressed the more specific issue of when a state law
conflicts with a Federal Rule of Civil Procedure in Hanna v. Plumer. 380 U.S. at 470.
“When a situation is covered by one of the Federal Rules, the question facing the court
is a far cry from the typical, relatively unguided Erie Choice: the court has been
instructed to apply the Federal Rule, and can refuse to do so only if the Advisory
Committee, this Court, and Congress erred in their prima facie judgment that the Rule in
question transgresses neither the terms of the Enabling Act nor constitutional
restrictions.” Id. at 471. Thus, where a federal court is faced with a “direct collision”
between a state law and a Federal Rule of Civil Procedure, the Federal Rule governs.
B. Where No Conflict Arises Between State Substantive Law and Federal
Procedural Law, State Law Governs.
The Ninth Circuit has addressed the problem of direct collision specifically as it
relates to the requirements of an anti-SLAPP motion and the Federal Rules of Civil
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Procedure and found that no such collision necessarily occurs. U.S. ex rel. Newsham v.
Lockheed Missiles & Space Co., Inc., 190 F.3d 963, 972 (9th Cir. Cal. 1999). The Court
noted that the anti-SLAPP statute and the Federal Rules pursue different aims: the
Federal Rules simply guiding procedure, and the anti-SLAPP statute guiding “the
constitutional rights of freedom of speech and petition for redress of grievances.” Cal.
Civ. Code § 425.16(a). The Court further noted that while the relevant Federal Rules,
primarily rules 8, 12 and 56, do share some common ground with the anti-SLAPP
statute in that they all allow for early dismissal of unmeritorious claims, “this
commonality of purpose, however, does not constitute a ‘direct collision’.” Newsham,
190 F.3d at 972. Thus, if no collision occurs, the anti-SLAPP statute will govern.
The California Supreme Court has found that subsection (g) of the anti-SLAPP
statute, the provision governing discovery, does collide with the Federal Rules. When
such a collision occurs, the Federal Rules should prevail, as per Hanna. The Court
noted that it “refused to apply certain discovery-limiting provisions of the anti-SLAPP
statute because they would conflict with Fed. R. Civ. P. 56.” Verizon Delaware, Inc. v.
Covad Communications Co., 377 F.3d 1081, 1091 (9th Cir. Cal. 2004). Z&H’s anti-
SLAPP motion does not involve subsection (g). The only subsections at issue are (b),
the pleading requirements, and (e), whether Z&H’s claims arise from Virtue’s
Constitutionally protected petitioning activities. The Ninth Circuit has ruled that these
provisions do not collide with, and thus should not be displaced by, the Federal Rules.
See Newsham,190 F.3d 963 at 972.
C. The Outcome of Virtue’s Anti-SLAPP Motion Is the Same Whether State
or Federal Rules of Procedure Apply.
Even if the Court were to find a direct collision between the anti-SLAPP statute
and the Federal Rules of Civil Procedure and thus allow the Federal Rules to displace
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the requirements of the anti-SLAPP statute, the outcome would be same. California
courts have consistently ruled that the “probability of prevailing” language of the anti-
SLAPP statute should be interpreted similarly to the “no genuine dispute” language of
Federal Rule 56, governing summary judgment. See Wilcox, 33 Cal.Rptr.2d at 454.
This means that if a reasonable jury could see any dispute as to the plaintiff’s probability
of prevailing on the merits of his claim, the anti-SLAPP motion to dismiss should be
denied. The California Supreme Court has further clarified that a court should make this
determination as “if the evidence submitted by the plaintiff is credited.” Taus v. Loftus,
40 Cal. 4th 683, 713 (Cal. 2007). Thus, the plaintiff’s burden is quite low to show a
probability of prevailing on the merits.
III. Virtue Meets His Burden Under the Anti-SLAPP Statute Because His Motion to
Strike Arises from Protected Activity Under the Anti-SLAPP Statute.
In the instant case, Virtue moves to strike Z&H’s claims for malicious prosecution
and abuse of process pursuant to California’s anti-SLAPP statute. Both malicious
prosecution and abuse of process are state claims and thus subject to California’s anti-
SLAPP statute. See In re Bah, 321 B.R. 41 (9th Cir. BAP 2005). The Ninth Circuit has
ruled that these two claims should not be categorically exempt from the anti-SLAPP
statute. Flores v. Emerich & Fike, 385 Fed. Appx. 728, 732 (9th Cir. Cal. 2010). Thus,
to successfully strike Z&H’s claim for malicious prosecution, Virtue has the initial burden
to show that Z&H’s claims arises from Virtue’s Adversary Proceeding, and that this
Adversary Proceeding was protected activity under the statute.
Claims for malicious prosecution and abuse of process may be subject to the
anti-SLAPP statute because they are within the activity that the statute seeks to protect.
By definition, claims for malicious prosecution and claims for abuse of process are
retaliatory claims, arising in response to the opposing party’s litigation. In California, an
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action for malicious prosecution requires first that the plaintiff establish “that the
underlying action was commenced by or at the direction of the defendant and it was
pursued to a legal termination in the plaintiff's favor.” HMS Capital, Inc. v. Lawyers Title
Co., 118 Cal. App. 4th 204, 213 (Cal. App. 2d Dist. 2004). This requirement is met in
the instant case because the underlying action involves Virtue’s legal malpractice claim
against Z&H. Virtue filed his complaint, naming Z&H as a defendant, in spite of the
Court’s orders denying Virtue the right to do so. Virtue also failed to remove Z&H as a
defendant even after the Court denied Virtue’s motion for reconsideration. In a claim for
abuse of process, a litigant must “establish that the defendant (1) contemplated an
ulterior motive in using the process, and (2) committed a willful act in the use of the
process not proper in the regular conduct of the proceedings.” Rusheen v. Cohen, 37
Cal.4th 1048, 1057 (Cal. 2006). Here again, Z&H’s abuse of process claim rests on the
accusation that Virtue’s legal malpractice claim, and failure to adhere to the Court’s
order regarding this claim, was an improper use of the judicial system. Thus, both
claims “arise from” and in response to Virtue’s original legal malpractice claim.
Furthermore, Virtue’s legal malpractice claim was within the purview of his
Constitutional rights of free speech. Subsection (e) of the anti-SLAPP statute creates
an exception to the “public issue” requirement of subsection (b). Pursuant to this
subsection, activity may be protected under the statute even if it does not arise “from
any act of that person in furtherance of the person's right of petition or free speech
under the United States Constitution or the California Constitution in connection with a
public issue.” Cal. Code Civ. Pro §425.16(b). Activity unrelated to a public issue that
may still be protected under the statute includes “any written or oral statement of writing
made before a. . . . judicial proceeding” or “any written or oral statement or writing made
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in connection with an issue under consideration or review by a . . .judicial body.” Cal.
Code Civ. Pro §425.16(e). Therefore, Virtue’s legal malpractice claim need not be
related to a public issue to find protection under the anti-SLAPP statute. The very filing
of an adversary proceeding constitutes a written statement made before a judicial body
and is thus protected under subsection (e). Virtue thus meets his burden.
IV. Z&H Has Met Its Burden Under the Anti-SLAPP Statute
A. The Evidence Should Be Considered Using a Standard Which Is Similar
To, But Not Identical With That for a Motion for Summary Judgment.
In general a motion to dismiss under Fed. R. Civ. P.12(b)(6) – incorporated into
Fed. R. Bank. P 7012 – is determined solely on the matters stated within the complaint,
incorporated by reference, and other items of which the Court can take judicial notice.
5B Wright & Miller, Federal Practice and Procedure: Civil 3d § 1357, at 375-6 (2004).
The introduction of other external material on either the part of the movant or the
opposition is subject to the discretion of the trial court. Id. at 5C § 1364. Given the
nature of this complaint, which rests largely on the intention of the Defendants, I would
not normally allow or require the Plaintiff to file a declaration because no discovery has
yet taken place and discovery is the key to proving a wrongful intention behind
seemingly acceptable actions.
However, the anti-SLAPP statute states that in “making its determination, the
court shall consider the pleadings, and supporting and opposing affidavits stating the
facts upon which the liability or defense is based.” Cal. Code Civ. Pro §425.16(b)(2). In
applying this provision, the California courts have decided that the analysis should be
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similar to that of a summary judgment motion. Because both motions seek to assess
the merits of the plaintiff’s claim before trial, “the same evidentiary standards should. .
.govern both.” Gallant v. City of Carson, 128 Cal. App. 4th 705, 712 (Cal. App. 2d Dist.
2005), overruled on other grounds by Reid v. Google, Inc., 50 Cal. 4th 512.5 In order
that the Court can discern the merits of the plaintiff’s claim, the Court must rule on
evidentiary objections so as to “determine whether [the plaintiff] has presented
admissible evidence that demonstrates a probability of prevailing on the merits of her
claim.” Martin v. Inland Empire Utilities Agency, 198 Cal. App. 4th 611, 630 (Cal. App.
4th Dist. 2011) at 630.
“Though the court does not weigh the credibility or comparative probative
strength of competing evidence, it should grant the motion if, as a matter of law, the
defendant's evidence supporting the motion defeats the plaintiff's attempt to establish
evidentiary support for the claim.” Soukup v. Law Offices of Herbert Hafif, 39 Cal.4th
260, 291 (Cal. 2006). The court thus considers evidence submitted by both sides,
evaluating the defendant’s evidence, including evidentiary objections, “only to determine
if it has defeated that submitted by the plaintiff as a matter of law. HMS Capital,118 Cal.
App. at 213.
However, there is no mention of how or if the Court should use a less stringent
standard to assess the quality of the objected-to evidence at this early stage in the
proceedings, which is at a time when no discovery has yet occurred.
In this motion, the Defendants do not present any contrary evidence, but object
to Zamora’s declaration and assert that he thus has presented no admissible evidence
at all to support his claim.
5 The same result occurs if federal procedure were to apply since if either party filed an affidavit/declaration, the
Court must consider it and this converts the motion into one for summary judgment. Fed. R. Civ. P. 12(d).
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Because the anti-SLAPP statute is silent, the Federal Rules of Evidence will
apply. Rule 701 of the Federal Rules of Evidence states in relevant part that, in order to
be admissible, a witness’ testimony “in the form of opinions or inferences is limited to
those opinions or inferences which are . . . rationally based on the perception of the
witness.” Fed. R. Evid. P. 701. Virtue’s primary objections to Mr. Zamora’s declaration
concern Zamora’s assertions as to the reasons that Virtue decided to sue Z&H despite
the Court’s order not to do so and Virtue’s intent to damage the Trustee and her counsel
when he has continued to oppose the Trustee’s and Z&H’s interim application for fees.
The objections seek to remove all material that supports Zamora’s theory that these
actions by Virtue were malicious and abusive.
B. Having Considered the Evidence, Z&H Has Met Its Burden of Proof Under
the Anti-SLAPP Statute.
The Court takes judicial notice of the following from the dockets (see attached
chart for listing of relevant matters on the dockets):
(1) Virtue has objected to all or most of the substantive motions brought by
the Trustee in bankruptcy case 00-15821;
(2) Virtue’s motion for leave to sue Z&H was denied by the bankruptcy court;
(3) Although Virtue filed a motion to reconsider, he did not wait until that was
heard to include Z&H in his complaint against the Trustee;
(4) Virtue knew that including Z&H in the complaint was in violation of the
Court’s order in that he asserted in the complaint that this was filed
as a precautionary measure since the 12/12/07 order was not yet
final, there was his motion to modify pending, and on 12/21/07
Zamora filed an appeal [though no appeal had been filed as to the
ruling concerning Z&H];
(5) Virtue’s briefs in the district court appeal agree that only the Trustee has
standing to sue the Trustee’s counsel, but argue for a policy
change to allow a creditor to do so on behalf of the estate;
(6) The district court affirmed the ruling of the bankruptcy court that Virtue did
not have standing to sue Z&H. The district court found that as a
matter of black letter law, a creditor cannot bring a malpractice
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action against the Trustee’s attorney and also noted that “Virtue
presents no authority to the contrary;”
(7) Virtue opposed the second and third interim fee applications of the
Trustee and of Z&H as premature until the allegations of
wrongdoing against the Trustee have been decided.
As to the objections to the declaration of Anthony Zamora, the Court notes that
most are based on lack of foundation, lack of personal knowledge, and/or speculation.
There is a difference between speculation and non-expert opinion. As discussed
above, FRE 701 requires three things, one of which is that it is rationally based on the
witness’s perception. The other two prongs (helpful to determine a fact in issue and not
based on specialized knowledge) are not in question.
As noted from the docket and from the actions that the Court has observed and
the content of papers filed in this case, there is a high level of hostility between these
parties. This case happens to be a particularly bad mix of personalities. As happens all
too often, counsel have so identified with their clients that they no longer provide the
objective view and advice that they should. The Trustee is represented by her husband,
whose arguments have led this Court to believe that he is excessively aggressive (at
least in this case) and that he has used language in his papers that are highly charged,
calling his opponent’s claims “bogus.” Nor has he been shy of ad hominen attacks
against his opponent’s counsel, referring to them as “malpractice counsel,” and
presenting his frankly irrelevant personal opinion that “it boggles that McCarthy, Virtue,
and their growing cell of attorneys have gotten so far.”6 In one opposition, Zamora
stated (referring to McCarthy and Virtue): “Soon enough, these criminal charlatans and
their collaborators will be exposed for what they really are. Rest assured, Trustee will
6 Adv#:1:13-01061, Dk #13, pg 2
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not stop until this happens.”7
McCarthy does not have a known relationship to his client (Virtue) and is more
careful in his use of language in documents filed with the Court although it is clear
during hearings that he is also unnecessarily aggressive and provoking. And while the
Court has not seen most of the letters and emails that have certainly been sent by him
to the Trustee’s counsel, in his August 24, 2012 letter, McCarthy attacks Mr. Zamora’s
performance as counsel as both “silly” and “laughable,” and reflective of the “typical. .
.rhetorical and lack of legal analysis offered in the pleadings” of this lawsuit.8
Even without a showing of overt hostility by McCarthy, the Court finds that it is a
reasonable inference that Virtue used the 12/21/07 motion to reconsider as a ruse to
name Z&H in the lawsuit since there was no statute of limitations or other reason not to
wait until the outcome of their certain appeal of the 12/12/07 order. While the Court
cannot agree that the statement that Virtue, et. al “never had an honest and sincere
belief in the validity of Virtue’s complaint,” it is clear from the brief that Virtue knew that
the only way that he could gain standing was to convince the district court that policy
should allow this although the law did not. As experienced bankruptcy counsel, it is
clear that McCarthy had to know that this was, at best, a long shot and that harm was
likely to befall Z&H if it had to defend an appeal in the district court. Thus, I overrule the
objection to paragraph 6. As to paragraph 7, I sustain it as to p. 27, lines 10-20 and
overrule it as to the balance of paragraph 7.
As to the objection to paragraph 9, the record shows that the objection to the fee
applications was – at least in part – based on the contention that Virtue would prevail on
appeal as to Z&H, although much of it also had to do with the assertion that Virtue
7 Adv.#1:07-01291, Dk #145, pg 3, ln. 5-7.
8 Adv#:1-13-01061, Dk #12, pg 36
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would appeal as to the Trustee and that if a distribution occurred, the estate would be
depleted. Thus I accept that the objection was an attempt to prevent Z&H from being
paid for its work in defending itself and the Trustee. The balance of the objection to
paragraph 9 is sustained.
Concerning paragraph 10, the docket and the papers filed with this Court support
the contention that this was all-out war and that the resources of the estate were being
drained. However, as to the other allegations in the paragraph, there is nothing at this
time to substantiate them. Until recently the Trustee has absolutely refused to provide
any discovery on the key issue of the Virtue complaint against her. Thus the Court does
not have any showing (let alone a prima facie one) that her reputation is being
impugned or that she and her attorney are entitled to fees as an administrative claim.
Thus, the balance of the objection to paragraph 10 is sustained.
Sustain the objection to paragraph 13, lines 13-16.
Beyond the “facts” alleged to which the objection was overruled, the matters of
which the Court can take judicial notice, and the hostile language in the papers filed with
this Court, the Court also finds that Z&H suffered harm during the pendency of the
appeal in that it had to defend the appeal and because Virtue failed to dismiss Z&H
(even without prejudice) that Z&H had to disclose to its professional liability insurer that
it was a defendant in the adversary action.
Demanding admissible evidence at the outset of a case puts a unique burden on
the Plaintiff and on the Court. Thus the standard is very low. The California Supreme
Court has ruled that this standard is easily met, noting that even a claim of “minimal
merit” will satisfy the plaintiff’s burden. Navellier, 29 Cal.4th at 89. The only issue is
whether – taking all of the Plaintiff’s evidence as true – there is a probability that the
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Plaintiff can prevail on the merits. Here such a probability exists.
1. Z&H’s Malicious Prosecution Claim Is Pled Sufficiently.
Z&H sufficiently pleads its claim for malicious prosecution. To prevail on a
malicious prosecution claim, “the plaintiff must establish that the prior underlying action
(1) was commenced by or at the direction of the defendant, or the defendant continued
to prosecute it after discovering it lacked probable cause, and it was pursued to a legal
termination in plaintiff's favor; (2) was brought without probable cause; and (3) was
initiated with malice.” HMS Capital, 118 Cal. App. 4th at 213. Read as favorable to
Z&H, the complaint successfully establishes each element of a malicious prosecution
claim. “On December 28, 2007, Virtue, McCarthy, and HFB filed a complaint against
Trustee.” (Complaint, 8:24-25). Later, the complaint alleges a lack of probable cause,
claiming that Virtue commenced “false accusations” with “absolutely no legal basis to do
so,” and “without probable cause.” (Complaint, 13:25; 10:9-10; 10:11). This clearly
satisfies the second element of a malicious prosecution claim. Finally, Z&H asserts that
“Virtue, McCarthy, and HFB maliciously filed the Adversary Complaint,” thereby
establishing the third element of malice. (Complaint, 14:9-10). The Complaint is thus
legally sufficient and supported by a prima facie showing of facts supporting its claim.
2. Z&H’s Abuse of Process Claim Is Pled Sufficiently.
Z&H sufficiently pleads its claim for abuse of process. “To succeed in an action
for abuse of process, a litigant must establish that the defendant (1) contemplated an
ulterior motive in using the process, and (2) committed a willful act in the use of the
process not proper in the regular conduct of the proceedings.” Rusheen, 37 Cal.4th at
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1057. Z&H’s complaint alleges that Virtue “misused the Adversary Complaint for an
ulterior purpose. . . with an intent to harm Z&H.” (Complaint, 14:1-3). The Complaint
further alleges that Virtue “misused the judicial process by using the Adversary
Complaint to prevent or delay Z&H from filing interim and final fee applications”
(Complaint, 9:26-28). Taken as true, this is sufficient to establish a claim for abuse of
process.
V. If Z&H Prevails on Its Claim for Malicious Prosecution or Abuse of Process, It
May Be Entitled to Attorneys’ Fees For Defending the Underlying Gross Negligence
Claim.
The general American Rule is that each party is responsible for its own attorneys’
fees. Fantasy, Inc. v. Fogerty, 984 F.2d 1524 (9th Cir. Cal. 1993). “In the United
States, the prevailing litigant is ordinarily not entitled to collect a reasonable attorneys'
fee from the loser.” Alyeska Pipeline Serv. Co. v. Wilderness Society, 421 U.S. 240,
247 (U.S. 1975). The California Code of Civil Procedure codifies this rule stating that
“except as attorney's fees are specifically provided for by statute, the measure and
mode of compensation of attorneys and counselors at law is left to the agreement,
express or implied, of the parties; but parties to actions or proceedings are entitled to
their costs, as hereinafter provided.” Cal. Code Civ. Pro §1021.
In the state of California, attorneys’ fees may be awarded for the underlying
action in either a malicious prosecution or abuse of process claim. “In recognition of the
wrong done the victim of such a tort, settled law permits him to recover the cost of
defending the prior action including reasonable attorney's fees.” Bertero v. National
General Corp., 13 Cal. 3d 43, 51 (Cal. 1974). However, neither claim allows for the
award of attorneys’ fees for the present litigation, only the underlying action. Thus, if
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Z&H prevails on the merits of either its malicious prosecution claim or its abuse of
process claim, it may be entitled to the costs of litigating the gross negligence claim
from which they both stem. As to the costs of the present litigation, the Court has found
no case law indicating that Z&H is entitled to recover attorneys’ fees for either the
malicious prosecution or abuse of process claim.
VI. Conclusions
The Court denies Virtue’s special motion to strike pursuant to California Code of
Civil Procedure §425.16. Both parties meet their respective burdens of proof. The
Court has considered Virtue’s evidentiary objections and ruled on them in order to make
this determination. Virtue successfully shows that the original Adversary Proceeding is
protected speech under the statute and Z&H establishes a probability of prevailing on
the merits of its claims. Because Z&H successfully meets its burden of proof, the anti-
SLAPP statute does not apply. The claims should be heard on their merits. The
request for attorneys’ fees is denied.
###
Date: July 1, 2013
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date case docket item content
1/30/2007 00-15821 346,
347
motion to modify the memorandum
and order as to suing trustee's
counsel, etc. denied
2/20/2007 00-15821 287 Trustee files disclosure statement
and plan
4/3/2007 00-15821 297 disclosure statement approved
5/22/2007 00-15821 302 plan confirmed
7/31/2007 00-15821 304,
305
Virtue, through his attorneys, files
motion for leave to sue trustee and
her counsel and to employ HFB on
behalf of the estate
8/29/2007 00-15821 314 initial hearing on motion for leave
to sue trustee and her attorney
11/14/2007 00-15821
continued hearing on motion for
leave to sue trustee an her
attorney
12/12/2007 00-15821 321,
322
memorandum of opinion and court
order that Virtue cannot sue
trustee's attorney and that HFB
cannot be appointed as counsel on
behalf of the estate
12/21/2007 00-15821 323 Trustee appeals ruling on ruling
that she is subject to suit
only deals with suit
against trustee and not
against Z&H; District
Court case CV08-00093
12/21/2007 00-15821 327
motion by Virtue to modify the
memorandum and order as to
suing trustee's counsel
12/28/2007 07-1291 1 Virtue files a complaint filed
against trustee and Z&H,
Against all for breach of
fiduciary duty, negligence,
gross negligence and
against Z&H for legal
malpractice. Asserts that
this is filed as a
precautionary measure
since 12/12/07 order is
not final, there is a motion
to modify by Virtue, and
on 12/21/07 Zamora filed
an appeal [but not as to
Z&H]
1/30/2008 00-15821 346,
347
adversary 07-1291 stayed until
pending appeal in main case is
complete, motion to modify the
12/12/07 order denied
2/5/2008 00-15821 348
Virtue files notice of appeal of
order granting trustee's motion for
stay of 12/12/07 order, of order
denying Virtue's motion to modify
the 12/12/07 order, and of the
12/12/07 order (dkt #321, 346)
District Court case CV08-
02504
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date case docket item content
2/8/2008 00-15821 352
Trustee files amended notice of
appeal as a cross-appeal of the
12/12/07 order
because the appellate
period commenced again
on the motion denying the
motion to modify. District
Court case CV08-1478
1/12/2009 08-0093 27 Trustee files opening brief on
appeal
2/12/2009 08-0093 47 Virtue files opening brief on appeal
3/16/2009 08-0093 49 Trustee files reply brief on appeal
3/30/2009 08-0093 50 Virtue files reply brief on appeal
7/14/2009 00-15821 399
Virtue, through counsel, opposes
the second application of Z&H for
interim fees for several reasons
including that the appeal as to the
suit against Z&H was pending.
7/28/2009 00-15821 405
Court deferred ruling on the fees of
Z&H pending appeals concerning
that issue
8/21/2009 00-15821 408 District Court affirms that Virtue
may not sue Z&H
District Court case 08-
0093, which is a
consolidation of three
appeals (08-0093, 08-
1478, and 08-2504)
5/11/2011 07-1291 12
first amended complaint filed only
against trustee and bonding
company
states that Z&H not
named as a defendant
based on 12/12/07 order
precluding that
6/8/2011 00-15821 438,
439
Trustee and Z&H file third interim
application for fees
6/15/2011 00-15821 442
Virtue opposes second and third
interim fee application of trustee
and Z&H as premature until the
allegations of wrongdoing against
the trustee have been decided
6/29/2011 00-15821 447
Court takes off calendar the third
interim fee requests as to trustee
and her counsel - pending appeal
of 07-1291
10/26/2011 07-1291 28
motion to dismiss ruled on, granted
as to bonding company, but
otherwise denied
11/4/2011 07-1291 29
second amended complaint filed
only against trustee and bonding
company
states that Z&H not
named as a defendant
based on 12/12/07 order
precluding that
12/12/2011 07-1291 35
Trustee and bonding company file
answer to second amended
complaint
12/16/2011 07-1291 37
Trustee files counterclaim and third
party claim against Virtue,
McCarthy, and HFB
1/18/2012 07-1291 48, 49 answers to counterclaim and third
party claim filed
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date case docket item content
2/17/2012 07-1291 53
counterclaimants file anti-SLAPP
motion to strike counterclaim and
third party claim and for judgment
on the pleadings
4/30/2012 07-1291 63
counterclaim and third party claim
are dismissed with prejudice on
motion to dismiss
5/1542012 07-1291 67 Trustee files appeal of dismissal of
counterclaim and third party claim
District Court case 12-
4981.
9/26/12 07-1291 105
Trustee files appeal of order
granting counter-defendant’s
motion for attorney’s fees
District Court case 12-
8458
3/20/2013 13-1061 1
Z&H files suit against Virtue,
McCarthy, and HFB for malicious
prosecution and abuse of process
for filing adv. 07-1291
4/22/2013 13-1061 5
Virtue and his attorneys file a
motion to dismiss the complaint
under anti-SLAPP
5/6/13 07-1291 147
District Court dismisses Trustee’s
appeal of dismissal of counterclaim
and third party claim for failure to
timely file her opening brief
District Court case 12-
4981
5/6/13 07-1291 147
District Court dismisses Trustee’s
appeal of order granting counter-
defendant’s motion for attorney’s
fees for failure to timely file her
opening brief
District Court case 12-
8458
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This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012 F 9021-1.1.NOTICE.ENTERED.ORDER
NOTICE OF ENTERED ORDER AND SERVICE LIST
Notice is given by the court that a judgment or order entitled (specify): __MEMORANDUM OF
OPINION DENYING DEFENDANT’S SPECIAL MOTION TO STRIKE PURSUANT TO
CALIFORNIA CODE OF CIVIL PROCEDURE §425.16 REGARDING DOCKET
NUMBER 7
was entered on the date indicated as AEntered@ on the first page of this judgment or order and will be
served in the manner stated below:
1. SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF) B Pursuant to controlling
General Orders and LBRs, the foregoing document was served on the following persons by the court via
NEF and hyperlink to the judgment or order. As of (date)________________, the following persons are
currently on the Electronic Mail Notice List for this bankruptcy case or adversary proceeding to receive
NEF transmission at the email addresses stated below.
Daniel J McCarthy dmccarthy@hillfarrer.com,
spadilla@hillfarrer.com;docket@hillfarrer.com
Won M Park wpark@wcb-law.com, maguiniga@wcb-law.com;dsokol@wcb-law.com
United States Trustee (SV) ustpregion16.wh.ecf@usdoj.gov
Anthony N Zamora zamora3@aol.com
Service information continued on attached
page
2. SERVED BY THE COURT VIA UNITED STATES MAIL: A copy of this notice and a true copy of this
judgment or order was sent by United States mail, first class, postage prepaid, to the following persons
and/or entities at the addresses indicated below:
Service information continued on attached
page
3. TO BE SERVED BY THE LODGING PARTY: Within 72 hours after receipt of a copy of this judgment
or order which bears an AEntered@ stamp, the party lodging the judgment or order will serve a complete
copy bearing an AEntered@ stamp by United States mail, overnight mail, facsimile transmission or email
and file a proof of service of the entered order on the following persons and/or entities at the addresses,
facsimile transmission numbers, and/or email addresses stated below:
Service information continued on attached
page
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