Downtown
v. Waschovia Bank Nat. Assn.
Filed 11/14/13 Downtown Sunnyvale Residential v. Waschovia Bank Nat. Assn. CA6
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH
APPELLATE DISTRICT
DOWNTOWN SUNNYVALE
RESIDENTIAL, LLC et al.,
Cross-complainants
and Appellants,
v.
WACHOVIA BANK NATIONAL
ASSOCIATION, as Administrative Agent, etc.,
Cross-defendant
and Respondent.
H037419
(Santa Clara
County
Super. Ct.
No. CV153447)
ORDER MODIFYING OPINION
AND DENYING PETITION FOR
REHEARING
BY THE COURT:
It is ordered that the opinion
filed herein on October 17, 2013,
be modified as follows:
On page 15, in the first paragraph
of section II.C, at the end of the sentence which reads: “The only argument made below regarding the
probability of prevailing rested on their position that the trial court had, by
halting the proposed receiver’s sale of the property, effectively determined
that Wachovia had acted in violation of section 726,†insert the following
footnote No. 9:
9.
In a petition for rehearing, SHP and Pau argue they made a prima facie
showing on the merits of their claim for declaratory relief on the question of
who had authority to act on behalf of the Borrowers at the time the October
2009 settlement and foreclosure agreements were finalized, and thus the court
should have reversed the trial court’s order with respect to that cause of
action. Though the matter was addressed
in the briefs on appeal, the fact remains that the argument was not presented
to the trial court below, either in the papers filed in opposition to the
anti-SLAPP motion or at the hearing on that motion. As a rule, “[p]oints not raised in the trial
court will not be considered on appeal.â€
(Hepner v. Franchise Tax Bd.
(1997) 52 Cal.App.4th 1475, 1486.) While
we may have discretion to consider such matters, particularly where, as here,
no resolution of a factual dispute is required, we decline to do so in this
case. (Cedars-Sinai Medical Center v. Superior Court (1998) 18 Cal.4th 1,
6.) As appellants admit in their
petition for rehearing, this exact question of managerial authority is
presently at issue in a related case involving the same parties (Sup. Ct. Santa
Clara County, 2011, No. 1-11-CV-213485; Court of Appeal No. H039332). Appellants assert, at page 15 of their
petition for rehearing, “the [managerial authority] issue will . . . proceed to
trial.†Appellants present no compelling
reason to reinstate a duplicative claim.
We do, however, wish to make clear that we express no opinion on the
ultimate resolution of the question of managerial authority in this case.â€
Appellants’ petition for rehearing
is denied. There is no change in the
judgment.
Dated: __________________________
Premo,
J.
Rushing,
P.J. Elia,
J.
Filed
10/17/13 (unmodified version)
California
Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or
relying on opinions not certified for publication or ordered published, except
as specified by rule 8.1115(b). This
opinion has not been certified for publication or ordered published for
purposes of rule 8.1115.
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SIXTH
APPELLATE DISTRICT
DOWNTOWN SUNNYVALE
RESIDENTIAL, LLC et al.,
Cross-complainants
and Appellants,
v.
WACHOVIA BANK NATIONAL
ASSOCIATION, as Administrative Agent, etc.,
Cross-defendant
and Respondent.
H037419
(Santa Clara
County
Super. Ct. No. CV153447)
In 2007,
Wachovia Bank, N.A. (Wachovia) provided a loan of approximately $109 million to
a limited liability company, Downtown Sunnyvale Mixed Use, LLC (DSMU),
which intended to use the funds to develop a combined retail, residential and
commercial property in downtown Sunnyvale, California. Two years later, there was a default and the
partially-completed project was abandoned.
Wachovia filed an action for judicial foreclosure and secured the
appointment of a receiver. At one point,
Wachovia obtained court approval to have the receiver market and sell the
property independent of the foreclosure proceedings. Minority investors in DSMU objected to this
turn of events and informed Wachovia that its conduct violated the one form of
action and security first rules set forth in Code of Civil Procedure section
726.
cross-complaint against Wachovia alleging violations of section 726 along with
various torts including fraudulent concealment, misrepresentation and
interference with contract. Wachovia
brought a special motion to strike the cross-complaint pursuant to the
provisions of California’s anti-SLAPP
statute (§ 425.16). The trial court
granted the motion and dismissed the cross-complaint.
We shall affirm.
I. Factual and Procedural Background
A. The loan, default and the complaint for judicial foreclosure
In 2007,
RREEF America REIT III Corp. MM and RREEF America REIT III Corp. MM TRS
(collectively RREEF), along with SHP San Jose, LLC (SHP), formed the Borrowers
in order to acquire and develop a combined retail, residential and commercial
property in Sunnyvale, California. RREEF
was designated the manager of DSMU and held a 95 percent interest in that
entity, with the remaining 5 percent interest held by SHP. DSMU entered into a development management
agreement with Peter Pau, doing business as Sand Hill Property Company (Pau),
to develop the property. Peter Pau is
the principal of SHP.
That same
year, Wachovia
title="">[4] loaned the
Borrowers $108.8 million, secured by a deed of trust, to develop the
property. Pau assigned to Wachovia “all
of its right, title and interest†in the development management agreement
pursuant to which it was developing the property.
In January
2009, RREEF informed Wachovia that the Borrowers would be unable to complete
construction of the property and inquired about settling its loan
obligations. In February 2009, SHP
ceased making capital contributions to DSMU.
The Borrowers defaulted in June 2009 by failing to pay the balance of
the loan at maturity.
In July
2009, SHP wrote to Wachovia and RREEF advising that because RREEF had defaulted
on the DSMU agreement by not making required capital contributions, RREEF had
no authority to act in any capacity on behalf of the Borrowers. Wachovia continued to communicate with the
Borrowers through RREEF, however, as the DSMU agreement identified RREEF as the
Borrowers’ manager and RREEF represented to Wachovia it continued to have
authority over the Borrowers.
At the end
of the summer of 2009, although construction was only 40 to 50 percent
complete, with the exception of tenant improvements, Borrowers had stopped nearly
all work. Unfinished buildings were at
risk of water damage, rust and erosion, the internal fire sprinkler system was
inoperable, and defaults on payments to subcontractors could result in the
removal of protective equipment and fencing from the site, exposing the
property to theft and vandalism.
In July
2009, Wachovia sent two versions of a letter to the Borrowers, care of RREEF,
consenting to the Borrowers’ entry into an infrastructure improvements
agreement, allowing for limited development of the property despite the
default. The letters, in which Wachovia
reserved all rights and remedies against the Borrowers, sought to “resolve the
existing default and full payment [sic]
under the matured Loan.†One version of
the letters was prepared as a “public†version because, according to Wachovia,
the infrastructure improvements agreement impacted third parties and this
version could be released to others without providing details relating to the
default which did not concern them.
The
“nonpublic†version of the letter set forth certain parameters for the parties
to explore the possibility of a sale of the property “whether by foreclosure or
otherwise,†and further called for Wachovia and others to restrict their
communications with the project’s principals for a one-month period to avoid
interfering with the Borrowers’ attempts to settle the mechanics’ liens and
other claims against the property.
Both
letters were acknowledged and signed by RREEF, which further “represent[ed] and
confirm[ed] that it has the authority to enter into this [letter agreement] on
behalf of Borrowers.†Neither version of
the letter was addressed to SHP or Pau, nor is there any indication that either
version was delivered to them at or near the time they were prepared.
In
September 2009, Wachovia filed a notice of default and, two days later, filed a
complaint listing causes of action for specific performance of the deed of
trust, breach of the security agreements and judicial foreclosure. Within a few days of filing the complaint,
Wachovia moved for appointment of a receiver under section 564.
B. The receiver’
Prior to
the hearing on that appointment, the general contractor terminated its contract
with DSMU and removed equipment and security fencing from the property. Because of concerns over security at the
property, Wachovia applied ex parte for an order appointing a receiver after
first advising the Borrowers and SHP that it was doing so. SHP consented to the appointment, but did not
indicate it was acting on behalf of the Borrowers in doing so. The Borrowers did not answer Wachovia’s
complaint or respond to the motion for appointment of a receiver.
The trial
court appointed a receiver, giving him broad authority to “take possession of,
use, operate, manage and control the Collateral, to collect and receive any and
all rents, profits and other income from the Collateral, to protect, preserve,
maintain and improve the Collateral, and to incur expenses that are necessary
and appropriate toward those ends.â€
Pursuant to the order, the receiver could “at any time, apply . . . for
. . . further powers.†Further, the
order provided that “[a]ll advances . . . made by Wachovia to the Receiver
shall constitute secured advances under, and shall have the same lien priority
as,†the deed of trust.
Wachovia
subsequently entered into a partial settlement of its claims against the
Borrowers and the guarantor.
name="_ftnref5" title="">[5] Pursuant to the settlement, the Borrowers
were released from any indebtedness under the loan, as well as any claim for a
deficiency judgment, contingent on their cooperation with the sale of the
property by nonjudicial foreclosure.
Furthermore, the guarantor was relieved of any liability on the debt,
and RREEF deposited $17 million into an account for the receiver’s use in
settling lien claims against the property.
In the
settlement agreement, RREEF warranted it was authorized to execute and perform
the Borrowers’ obligations, had obtained any necessary consent or approval to
act required under the entity agreements and that it was not in default under
those or any other agreements. RREEF
further agreed to oppose any challenge by SHP to the settlement, approval of
the receiver or foreclosure on the property.
In the last
part of 2009 and throughout 2010, the receiver settled various lawsuits and
liens relating to the property, stabilized the property and prepared to lease a
portion of it to a prospective tenant.
During that period, Wachovia advanced additional funds to the receiver
for these purposes.
In June
2010, SHP brought an action in Delaware seeking inspection of DSMU’s books and
records. In its verified complaint, SHP
alleged that RREEF “is the manager of DSMU,†and further alleged a “foreclosure
would have a severe financial impact on SHP.â€
In
September 2010, the receiver sought a court order giving him the authority to
market the property for sale. According
to the receiver’s supporting declaration, SHP had expressed an interest in
purchasing the property, was being provided with a copy of the motion and would
be invited to make an offer to purchase some or all of the property. No one--not the Borrowers, “non-party Sand
Hill Property Management†or SHP--opposed the receiver’s motion. The trial court granted the motion,
authorizing the receiver to “select a purchase offer for the sale of any
portion of the Property that the Receiver believes would serve the best
interest of the receivership estate, which [purchase offer] will be subject to
final Court approval.â€
The
receiver selected a commercial real estate broker, began marketing the property
and examined the various purchase proposals as they were submitted. According to the receiver, “no parties were
to be given preferential bidding rights or first refusal options[, since] . . .
preferred rights . . . would have created a massive disincentive for qualified
parties to participate in the process.â€
As part of the process, interested parties were required to execute a
confidentiality agreement, but Pau and SHP refused to do so. Pau communicated with the receiver on at
least two occasions, explaining his refusal to sign the confidentiality
agreement and seeking preferential bidding rights, but the receiver rejected Pau’s
proposals. The receiver did write to Pau
authorizing him to have discussions with other bidders regarding a joint
venture to purchase the property.
Ultimately, Pau did not make a bid for the property. Wachovia, the Borrowers and the City of
Sunnyvale consented to the proposed sale to the bidder selected by the receiver
in April and May 2011.
C. SHP and Pau’s cross-complaint for violations of section 726
In May
2011, Pau sent Wachovia a Wozab
advising Wachovia that “its actions and contemplated actions to enforce the
Sunnyvale Deed of Trust†were prohibited, and that he would seek sanctions
depriving Wachovia of both its security and debt if it persisted in its
actions. On the same day, Pau filed a cross-complaint
Wachovia on behalf of himself and SHP, and purportedly on the Borrowers’
behalf. Pau also filed an answer to
Wachovia’s September 2009 complaint, also purportedly on behalf of the
Borrowers. Pau attached the
referenced it in both the cross-complaint and the answer to Wachovia’s
complaint.
The
cross-complaint alleged that SHP is the sole member of DSMU with the authority
to act for that entity because RREEF defaulted on the DSMU agreement in July
2009. Wachovia prepared two versions of
a letter to DSMU in July 2009, purporting to authorize DSMU to enter into an
infrastructure agreement with the City of Sunnyvale. A redacted version was prepared for Pau and
SHP, whereas the unredacted version was prepared for RREEF and contained the
details of agreements between RREEF and Wachovia to sell the property using a
specific broker, i.e., Eastdil Secured, requiring potential buyers to sign a
confidentiality agreement, and preventing potential buyers from communicating
directly with any of the principals on the project, including the City of
Sunnyvale. These agreements were
concealed from SHP and Pau.
In October
2009, Wachovia and RREEF purported to enter into a secret settlement agreement
pertaining to the loan agreement and deed of trust. In this agreement, Wachovia agreed to accept
a settlement payment of anywhere from $16 million to $18 million from DSMU,
relieve RREEF from its guaranty of the loan and execute a release of all
claims, contingent on the parties executing a foreclosure agreement. RREEF signed the settlement agreement on
behalf of DSMU even though it no longer had authority to act on behalf of that
entity. The secret foreclosure agreement
between Wachovia and RREEF provided that the parties agreed to a nonjudicial foreclosure
sale of the property, agreed not to impede or delay any such foreclosure and
RREEF agreed to “vigorously oppose†any challenge made by SHP to the settlement
or foreclosure.
Both the
settlement and foreclosure agreements were kept secret from SHP and Pau. When they learned of the agreements, SHP and
Pau requested copies but Wachovia and RREEF refused. SHP had to file a lawsuit in Delaware in
order to gain access to the documents, which were finally disclosed pursuant to
a Delaware court’s order in November 2010.
After the
receiver moved for an order allowing him to sell the property, Wachovia and the
receiver assured SHP its rights would be protected and that the receiver would
act fairly toward all bidders for the property.
In reliance on those assurances, SHP did not challenge the receiver’s
motion. However, the receiver did not
act fairly towards SHP and failed to market the property to obtain the highest
and best price. The receiver acted
unfairly in the following ways: (1) the
broker it selected, Eastdil Secured, is a wholly-owned subsidiary of Wachovia;
(2) it insisted potential bidders sign a restrictive confidentiality agreement;
and (3) it required potential bidders to agree, in violation of California law,
that the receiver had the “sole discretion to reject any or all proposals or
expressions of interest in the property and to terminate discussions with any
party at any time without [sic] or
without notice.†(Underscoring omitted.)
The
receiver also refused to provide SHP or Pau with the marketing materials for
the property and, by requiring potential bidders to sign the confidentiality
agreement, prevented those bidders from talking with SHP or Pau about possibly
continuing as the development partner on the project. The receiver refused to consider SHP’s bids
and prevented SHP from participating on the same basis as other parties by
insisting it sign the confidentiality agreement despite the fact that SHP was
contractually obligated to communicate with, among other parties, the City of
Sunnyvale and DSMU.
SHP and
Pau, upon “further investigat[ion] . . . learned that Wachovia’s actions or
contemplated actions to enforce the Sunnyvale Deed of Trust are prohibited by
the One Form of Action rule.†The May
2011 Wozab letter warned Wachovia
that its actions, including the proposed sale of the property by the receiver,
are so prohibited.
The
cross-complaint listed the following causes of action against Wachovia:
instruments, fraudulent concealment, intentional misrepresentation, negligent
misrepresentation; interference with contract (brought by SHP against
Wachovia), interference with contract (brought by Pau against Wachovia),
conspiracy to commit fraud and interfere with contract, and accounting.
D. Pau moves for a modification of
instructions to the receiver
Two days
after filing the cross-complaint and answer, Pau applied to the trial court for
a modification of instructions to the receiver.
Following a hearing, the trial court issued an order clarifying that,
“[p]ending a settlement agreement, final judgment or foreclosure decree, the
October 12, 2010 order granting receiver the authority to sell the receivership
property, etc. is premature.†The trial
court also denied without prejudice the receiver’s motion for an order
confirming the proposed sale of the property.
Consequently, the receiver’s sale of the property was forestalled.
E. Wachovia institutes nonjudicial
foreclosure proceedings
Wachovia
subsequently caused the trustee to notice a sale of the property by nonjudicial
foreclosure for August 17, 2011. After
the notice of sale was recorded, Pau’s counsel wrote to Wachovia advising that
Pau would not attempt to stop the foreclosure sale, and “[t]hanks to the
court’s June 6 order, [SHP and Pau] now have an equal opportunity to bid along
with every other person in an open, forthright, and transparent manner.†Pau’s counsel requested that Wachovia not
continue the foreclosure sale, but cautioned that SHP and Pau would maintain their
cross-complaint.
On August
16, 2011, Pau applied ex parte for a temporary restraining order enjoining the
foreclosure sale. In the application,
Pau alleged that Wachovia had violated section 726, was engaged in
bid-chilling, had previously attempted to improperly sell the property through
the receiver, had inflated the secured debt by “wrongfully add[ing] an
estimated $50-70 million to the alleged loan balance in violation of a Court
Order and statutory lien priority,†and “refused to provide a pay-off
demand.â€
The trial
court denied the ex parte application.
At the subsequent foreclosure sale, Wachovia purchased the property with
a credit bid in the original loan amount.
Pau did not bid.
F. Wachovia’s anti-SLAPP motion
Wachovia
filed an anti-SLAPP motion against the cross-complaint. Following a hearing, the court granted the
motion, finding that Wachovia had “made a threshold showing†that the claims
against it arise from protected activity and “[c]ross-complainants fail to
demonstrate [their claims] are legally sufficient and supported by a sufficient
prima facie showing of facts to sustain a favorable judgment.â€
II. Discussion
A. Overview of anti-SLAPP
and standard of review on appeal
The anti-SLAPP statute provides a
“procedural remedy to dispose of lawsuits that are brought to chill the valid
exercise of constitutional rights.†(
1055-1056.) Consequently, “the
anti-SLAPP statute is to be construed broadly.â€
(Padres L.P. v. Henderson
(2003) 114 Cal.App.4th 495, 508.)
In evaluating an anti-SLAPP motion,
the trial court must engage in a two-step process. (Equilon
Enterprises v. Consumer Cause, Inc.
(2002) 29 Cal.4th 53, 67 (Equilon).) It first determines “whether the defendant
has made a threshold showing that the challenged cause of action is one arising
from protected activity.†(
88.) A defendant meets this burden by
demonstrating that plaintiff’s action is premised on statements or conduct
taken “ ‘in furtherance of the [defendant]’s right of petition or free speech
under the United States [Constitution] or [the] California Constitution in
connection with a public issue,’ as defined in the [anti-SLAPP] statute. (§ 425.16, subd. (b)(1).)†(Equilon,
supra, at p. 67.) If the defendant makes the requisite showing,
the burden shifts to the plaintiff to demonstrate a probability of prevailing
on the claim. (Ibid.) “Only a cause of
action that satisfies both prongs of
the anti-SLAPP statute--i.e., that arises from protected speech or petitioning
SLAPP, subject to being stricken under the statute.†(Navellier,
supra, at p. 89.)
We review the trial court’s decision
de novo. (Flatley v. Mauro (2006) 39 Cal.4th 299, 325.) In so doing, we consider “the pleadings, and
supporting and opposing affidavits stating the facts upon which the liability
or defense is based.†(§ 425.16, subd.
(b)(2).) We do not make credibility
determinations or compare the weight of the evidence presented below. Instead, we accept the opposing party’s
evidence as true and evaluate the moving party’s evidence only to determine if
it has defeated the opposing party’s evidence as a matter of law. (Soukup v. Law Offices of Herbert Hafif
(2006) 39 Cal.4th 260, 269, fn. 3.) The
court “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.†(
“A defendant who files a special
motion to strike bears the initial burden of demonstrating that the challenged
cause of action arises from protected activity.†(Peregrine
Funding, Inc. v. Sheppard Mullin
Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 669.) This requirement is not always easily
met. (Equilon, supra, 29
Cal.4th at p. 66.) “A claim does not
arise from constitutionally protected activity simply because it is triggered
by such activity or is filed after it occurs.†(World
Financial Group, Inc. v. HBW Ins.
& Financial Services, Inc.
(2009) 172 Cal.App.4th 1561, 1568.) In deciding whether a cause of action
“arises from†protected activity, “the critical point is whether the
plaintiff’s cause of action itself was based
on an act in furtherance of the
defendant’s right of petition or free speech.â€
(City of Cotati v. Cashman
(2002) 29 Cal.4th 69, 78.) An “act
underlying the plaintiff’s cause of action must itself have been an act in furtherance of the right of petition or
free speech.†(Ibid.) Courts must look to
“the act underlying the cause of action, not the gist of the cause of
action.†(Wallace v. McCubbin (2011) 196 Cal.App.4th 1169, 1190.)
Under the “ ‘principal thrust or
gravamen test,’ †even if a cause of action is based on allegations of both
protected and unprotected activity, the anti-SLAPP statute may still
apply. (Club Members for an Honest Election v. Sierra Club (2008) 45
Cal.4th 309, 319.) So long as the
allegations of protected activity are not “only incidental to a cause of action
based essentially on nonprotected activity,†the cause of action is subject to
section 425.16. (Martinez v. Metabolife Internat., Inc. (2003) 113 Cal.App.4th 181, 188.)
A moving defendant satisfies his or
her burden by showing that the conduct or statement forming the basis of the
plaintiff’s claim falls within one of the four categories of protected activity
set forth in section 425.16, subdivision (e).
(Equilon, supra, 29 Cal.4th at p. 66.)
That provision states: “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) 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; (3) 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; (4) 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.†(§ 425.16, subd. (e).)
By legislative mandate, the phrase
“in connection with†is read broadly and the California Supreme Court has held
“that ‘[j]ust as communications preparatory to or in anticipation of the
bringing of an action or other official proceeding are within the protection of
the litigation privilege . . . such statements are equally entitled to the benefits
of section 425.16.’ †(
Opportunity (1999) 19 Cal.4th 1106, 1115.)
Furthermore, the negotiation and execution of settlement agreements
relating to litigation are made “in connection†with judicial proceedings and thus
fall within the ambit of section 425.16.
(Navellier,
B. The causes of action
against Wachovia arise from protected activity
relief and cancellation of instruments
The first cause of action for
declaratory relief and cancellation of instruments alleges that Wachovia’s
settlement and foreclosure agreement with RREEF, as well as Wachovia’s July
2009 letter to RREEF setting forth the parameters for resolving the default,
were intended to violate the one form of action rule. The cross-complaint further alleges that
Wachovia, along with the receiver, utilized a marketing and sales process that
“chilled bidding, . . . discriminated against SHP and . . . Pau, . . . suborned
the process of applying the security and collateral to the secured obligation
by asserting ‘sole discretion’ to accept or reject bids, allowed [
hand-pick the buyer.†As remedies, SHP
and Pau sought declarations that the settlement and foreclosure agreements are
illegal and void, that RREEF had no authority to act on behalf of DSMU or DSR
at the time the agreements were made and a declaration that Wachovia has
forfeited its rights in the security and to the debt by violating section 726
after receipt of a Wozab letter.
SHP and Pau’s reliance on
1508 is misplaced. That case involved
the beneficiary of a deed of trust who initiated nonjudicial foreclosure
proceedings against the plaintiff and was subsequently sued for, among other
things, wrongful foreclosure. The court
held that the defendant beneficiary could not claim the protections of section
425.16 for her alleged wrongdoing as “ ‘nonjudicial foreclosure is a private,
contractual proceeding, rather than an official governmental proceeding or
action.’ †(Garretson v. Post, supra,
at p. 1518, italics removed.) In this
case, however, Wachovia first brought an action for judicial foreclosure and, as part of a contemplated settlement of
that official governmental proceeding, agreed to instead proceed by way of
nonjudicial foreclosure.
The settlement and foreclosure
agreements were not, as SHP and Pau contend, unprotected private
transactions. Those agreements, along
with the negotiations and communications leading up to them, were part and
parcel of the ongoing litigation between Wachovia and the Borrowers. It is true the agreements contemplated a
nonjudicial process, i.e., nonjudicial foreclosure, but that process was only envisioned
as part of the settlement of the judicial process. As a result, the agreements were most
certainly made “in connection with†a judicial proceeding.
concealment
This cause of action alleges that
Wachovia intentionally concealed the following from Pau: (1) the nonpublic version of the July 2009
letter; (2) the settlement and foreclosure agreements; (3) the fact the
receiver was not independent but was acting on behalf of Wachovia; and (4) that
the receiver would not consider or accept any bid made by SHP or Pau.
Although Pau argues the gist of this
cause of action is based on Wachovia’s failing to act, the allegations belie
his argument. Pau is complaining not so
much that Wachovia failed to act, but more that Wachovia failed to act in the
manner Pau believes it should have. He
alleges Wachovia sent him a version of a letter different from the one it sent
to RREEF. He alleges Wachovia refused to
send copies of the settlement and foreclosure agreements to him and SHP. He alleges Wachovia and the receiver
affirmatively (and falsely) represented that DSMU’s and SHP’s rights would be
protected and that SHP could participate in the bidding “ ‘on the same basis as
other interested parties.’ †He alleges
Wachovia “intended to deceive [SHP and Pau] by failing to disclose the facts
and agreements and by affirmatively telling [them] otherwise as set forth
herein.†These allegations set forth
actions, not inaction, on Wachovia’s part and thus fall within the scope of
section 425.16’s protections.
claims
The fourth and fifth causes of
action for misrepresentation are based on allegations that Wachovia made
certain affirmative misrepresentations regarding the receiver’s sale. The seventh and eighth causes of action for
interference with contract are based on allegations regarding Wachovia’s
negotiation and execution of the settlement agreement, the receiver’s motion
for authorization to market and sell the property and Wachovia’s alleged
fraudulent concealment and misrepresentations.
The tenth cause of action for conspiracy is founded on the allegations
regarding Wachovia’s negotiation and execution of the settlement agreement, the
July 2009 letter and the statements made regarding the receiver’s sale process. As discussed above, all these alleged actions
and misrepresentations were made “in connection†with or in anticipation of a
judicial proceeding. Consequently, the
trial court properly found that the complained-of acts arose from protected
activity.
C. No evidence presented to
show a probability of prevailing
Having determined that the claims
brought against Wachovia arose from protected activity under section 425.16, we
now examine whether SHP and Pau demonstrated a probability that they would
prevail on those claims. The record
shows they did not. Their opposition
below was focused almost exclusively on establishing that the claims against
Wachovia did not arise from protected activity.
The only argument made below regarding the probability of prevailing
rested on their position that the trial court had, by halting the proposed
receiver’s sale of the property, effectively determined that Wachovia had acted
in violation of section 726. This
argument is set forth in less than one page of their opposition papers below in
a section entitled “Cross-claims are ‘likely to prevail’ because they did.â€
The trial court found SHP and Pau’s
evidence insufficient to show a probability of prevailing on its claims, and so
do we. Before explaining why that is so,
a brief discussion of section 726 is in order.
Section 726 provides, as relevant
here, that a beneficiary of a note and deed of trust on real property who seeks
to collect the debt “can bring only one lawsuit to enforce its security
interest and collect its debt.†(
Specifically, the secured creditor must proceed against the real
property first. He cannot treat the debt
as an ordinary debt and base an independent cause of action on it. (Ibid.;
Walker v. Community Bank (1974) 10
Cal.3d 729.) “[W]here the creditor sues
on the obligation and seeks a personal money judgment against the debtor
without seeking therein foreclosure of such mortgage or deed of trust, he makes
an election of remedies, electing the single remedy of a personal action, and
thereby waives his right to foreclose on the security or to sell the security
under a power of sale.†(
defense in an action on the promissory note, forcing the creditor to proceed
against the security, or he may invoke it as a sanction against the creditor on
the basis that the creditor, by not foreclosing first on the security, has
waived his right to do so. (
In its order modifying the
instructions to the receiver, the trial court was addressing an issue it was
not previously aware of, namely that the dispute as to who had authority to act
on behalf of the Borrowers--RREEF or SHP and Pau. The trial court did not rule on whether
Wachovia had violated section 726, nor did it find expressly or impliedly that
the effort to empower the receiver to conduct a sale of the property was in any
way improper, let alone a violation of section 726. Those questions were not before it.
When the court initially granted the
receiver the authority to conduct a sale, it was operating under the assumption
that RREEF was the legitimate representative of the Borrowers. Neither SHP nor Pau contested that issue, in
fact, let alone indicated that they believed they were the only legitimate
representatives.
When SHP and Pau subsequently came
forward and claimed that it was RREEF which had first defaulted and thus could
not act on the Borrowers’ behalf, the trial court determined it was premature
to authorize the receiver to conduct a sale until the dispute over who spoke
for the Borrowers could be resolved. The
language of the order makes clear the court was making no pronouncement on
whether Wachovia, the receiver or anyone else had violated section 726. Instead, the court was clarifying that, until
there was some resolution of the dispute over this authority issue by
settlement or otherwise, it was premature to allow the receiver to proceed with
the sale of the receivership property.
SHP and Pau also presented no
evidence showing a probability they would prevail on their claims that Wachovia
was in violation of section 726 by breaching either the one form of action rule
or the security first rule. Wachovia
filed a complaint seeking judicial foreclosure--an action permitted by section
726. That complaint did not proceed to
judgment. As it was pending, Wachovia
sought to enter into a settlement with the Borrowers by which the property
could be sold via nonjudicial foreclosure--again a process permitted by section
726. There was only one action brought,
and at no time did Wachovia seek to appropriate noncollateral assets before
exhausting the security. As part of the
proposed settlement, the Borrowers did agree to pay a certain sum of money for
use by the receiver to settle lien claims, etc., but those funds were not
appropriated by Wachovia. Wachovia
proceeded only against the security.
Although it sought (and initially
obtained) judicial approval to have the receiver market and sell the property,
that judicial approval was subsequently found to be premature in light of the
dispute between the parties regarding who had authority to act on the
Borrowers’ behalf. If RREEF did in fact
have such authority, the Borrowers’ agreement to proceed via the receiver’s
sale process would be binding, and after that sale was finalized, Wachovia’s
complaint for judicial foreclosure would be moot. The mere fact that Wachovia was seeking an
alternative means of proceeding against the security, with court approval no
less, does not demonstrate a probability that SHP and Pau could establish a
violation of section 726.
As to the remaining causes of action
for fraudulent concealment, misrepresentation, interference with contract,
conspiracy and accounting, Wachovia argues that SHP and Pau waived their right
to argue that they presented sufficient evidence to support these claims by
failing to raise those arguments before the trial court. Assuming without deciding that SHP and Pau
did not waive these arguments, we find the evidence presented below was
insufficient.
The fraudulent concealment claims
are based on the allegations that Wachovia prepared two versions of the July
2009 letter--one for SHP and Pau and the other for RREEF. Both versions of the letters were addressed
to DSMU, however. There is no indication
on either letter that two versions were prepared in order to conceal information
from SHP and Pau specifically. Rather,
per Wachovia, one version of the letter was prepared for RREEF and contained
the details regarding the proposed settlement of the outstanding debt, the
other was provided for distribution to anyone who had no need to know the
details of that proposed settlement.
Again, at the time this letter was prepared, Wachovia was engaging in
discussions with RREEF in its capacity as the Borrowers’ manager, not with SHP
or Pau. Both versions of the letter were
addressed to DSMU care of RREEF and Pau does not indicate that he was sent a
copy of the sanitized version at or near the time it was prepared. In the declaration he submitted in support of
his opposition to the anti-SLAPP motion, Pau merely authenticates copies of the
two versions, stating that the sanitized version was “prepared for [him] to
see†and that he obtained the nonsanitized version “from RREEF pursuant to a
Delaware court order.â€
The evidence regarding the
misrepresentation claims is equally insufficient to establish a prima facie
case. SHP and Pau contends that Wachovia
made assurances that they would be allowed to participate on equal footing in
the receiver’s sale process, but that Wachovia always intended to have its
wholly-owned subsidiary broker the sale with the receiver having sole
discretion to choose the buyer. The July
2009 letter, which Pau relies on for support, indicates only that Wachovia was
exploring a consensual sale of the property.
The nonsanitized version of the letter contains the details of the
proposed settlement of the debt and sale of the property, by foreclosure or
some other mechanism. There is no
mention of a receiver, let alone any indication that Wachovia and the
unmentioned receiver would collude to freeze SHP and Pau out of any sales
process that would not even be implemented until almost a year and a half
later.
In addition, the evidence shows that
SHP and Pau were not seeking to
participate on an equal footing with the other bidders. Instead, their communications with the
receiver expressed their desire to have preferential bidding rights, such as
the right “to buy the property for $100,000 more than the next highest
offer.â€
Furthermore, Pau and SHP filed a
lawsuit in Delaware in June 2010, seeking evidence relating to the alleged
collusion between Wachovia and the Borrowers.
At that point, the receiver had not even sought authorization to market
and sell the property, so how Pau could justifiably rely on any assurances from
Wachovia after June 2010 is unclear.
Pau also failed to present evidence
to show how Wachovia purportedly interfered with a contract, i.e., DSMU
agreement, in which it had a legitimate interest. It provided the financing required under the
DSMU agreement and had “right, title, and interest†in the development
management agreement. Wachovia was not
an interloper to the agreements underpinning this development project and SHP
and Pau did not present sufficient evidence to show how it could be liable for
interfering. (Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7
Cal.4th 503, 514.)
Finally, because SHP and Pau did not
present sufficient evidence to support their tort claims against Wachovia, the
derivative conspiracy and accounting claims fail as well.
III. Disposition
The order is affirmed. Wachovia shall recover its costs on appeal.
Premo,
J.
WE CONCUR:
Rushing, P.J.
Elia, J.
name="_ftn1" title="">[1] DSMU along with its subsidiary Downtown Sunnyvale Residential, LLC
(DSR) will be collectively referred to as “the Borrowers.â€
Procedure.
