Zhang v. Synder, Inc.

Filed 7/20/07 Zhang v. Synder, Inc. CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION ONE

The trial court denied appellants anti-SLAPP motion to strike respondents cross-complaint for defamation. We find that respondents cross-complaint is not based on statements made by appellants in connection with an issue under consideration or review by a judicial body within the meaning of Code of Civil Procedure section 425.16, subdivision (e)(2), and therefore affirm the denial of the motion to strike.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Cross-defendant and appellant Synder, Inc. (Synder or appellant) manufactures membranes and filtrations systems. Cross-defendant and appellant Edward Yeh (Yeh) is the president of Synder. Cross-complainant and respondent Yong Zhang (respondent or Zhang) was employed by Synder from June of 1996 to May of 2005 as a production supervisor in its plant in Vacaville. On September 4, 1997, Zhang executed an agreement with Synder in which he promised not to reveal confidential information or trade secrets disclosed to him during his employment.^[1] Zhang was terminated from his employment with Synder in May of 2005.

On December 22, 2005, Synder filed a complaint against Zhang for misappropriation of trade secrets, breach of fiduciary duties, breach of confidence, breach of contract, and unfair competition. The complaint alleged that between May of 2004 and July of 2005, Zhang misappropriated and wrongfully disclosed Synders trade secrets to a Chinese company known as NMC, a competitor of Synder. As a result, the complaint further alleged, NMC thereafter replicated Plaintiffs membrane and filtration production facilities in China, and thereby caused damages to Synder. The allegations were based upon information Yeh received during a visit to the NMC membrane and filtration production facility in China. The president of NMC advised Yeh that he had obtained the technology which was used for constructing the facility from Zhang. Yeh also received reports from employees of Synder that Zhang had been observed surreptitiously videotaping the membrane casting operation at the facility and measuring the dimensions of various parts of the production system.

In December of 2005, after the complaint was filed but before it was served upon Zhang, Yeh was contacted by a representative of Spectrum Laboratories (Spectrum) who stated he was considering hiring Zhang and was interested in his job performance and qualifications for employment. Yeh was asked to give the reasons for the termination of Zhangs employment with Synder. Yeh responded with the accusation that Zhang had misappropriated trade secrets of Synder. He added that Synder had recently filed suit against Zhang for misappropriating trade secrets and selling them to a Chinese competitor, who used them to construct its own membrane and filtration production facility. Zhang was subsequently advised by Spectrum of Yehs accusations.

On February 3, 2006, Zhang filed an answer to the complaint along with a cross-complaint against appellants for slander and preventing subsequent employment by misrepresentation (Lab. Code,  1050), all based upon Yehs comments to Spectrum. In the cross-complaint Zhang denied that he misappropriated or disclosed any of Synders trade secrets. Zhang claimed that in December of 2005 he was the victim of an extortion or coercion attempt by Frank Wan, the sole investor in NMC, who asked Zhang to work for him in China to manufacture membranes. When Zhang refused, Wan threatened to falsely tell Synder that Zhang had sold Synders trade secrets to NMC if he did not change his mind and agree to work for NMC in China as Wan requested. Zhang also alleged that he was told by Synder that his termination was due to downsizing of the company rather than any misappropriation of trade secrets. According to Yeh, however, Zhang was informed that his termination was due to improper conduct reported by several employees in the nature of an attempt to or actual misappropriation of Synders trade secrets.

Appellants thereafter filed a special motion to strike the cross-complaint pursuant to Code of Civil Procedure section 425.16.^[2] Respondent filed opposition, and both parties filed supporting declarations and objections. The trial court found that the allegations of the cross-complaint were based on a private conversation between Yeh and a representative of Spectrum Laboratories, not made in connection with the judicial proceeding associated with the complaint as section 425.16 requires. Therefore, the motion to strike was denied. This appeal followed.

DISCUSSION

Appellants argue that the cross-complaint is subject to an anti-SLAPP motion to strike under section 425.16. Appellants complain of the trial courts mistaken focus upon the private nature of the conversation between Edward Yeh and the CEO of Spectrum to find that the cross-complaint does not arise out of the exercise of free speech within meaning of section 425.16. They point out that the fact that Yong Zhangs defamation cross-complaint is based on a private conversation between Edward Yeh and the CEO of Spectrum is not determinative. (Italics added.) Appellants maintain that while the conversation may have been between private citizens, the anti-SLAPP statute applies to any action that arose from protected statements.

A lawsuit qualifies as a special motion to strike under section 425.16 if it arises from an act  in furtherance of the persons right of petition or free speech under the United States or California Constitution.  [Citations.] (Gilbert v. Sykes (2007) 147 Cal.App.4th 13, 22.) Subdivision (b)(1) of section 425.16 provides in pertinent part: A cause of action against a person arising from any act of that person in furtherance of the persons 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. In order to encourage participation in matters of public significance, section 425.16 specifies in subdivision (a) that the statute shall be construed broadly.  (Governor Gray Davis Com. v. American Taxpayers Alliance (2002) 102 Cal.App.4th 449, 456; see also Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 11211122.)

Section 425.16 articulates a two-step process for determining whether an action is a SLAPP. [Citations.]  First, the court decides whether the defendant has made a threshold prima facie showing that the defendants acts, of which the plaintiff complains, were ones taken in furtherance of the defendants constitutional rights of petition or free speech in connection with a public issue. [Citation.] If the court finds that such a showing has been made, then the plaintiff will be required to demonstrate that there is a probability that the plaintiff will prevail on the claim. [Citations.] The defendant has the burden on the first issue, the threshold issue; the plaintiff has the burden on the second issue. [Citation.] [Citation.] [Citations.] Only a cause of action that satisfies both prongs of the anti-SLAPP statutei.e., that arises from protected speech or petitioning and lacks even minimal meritis a SLAPP, subject to being stricken under the statute. [Citation.] (Governor Gray Davis Com. v. American Taxpayers Alliance, supra, 102 Cal.App.4th 449, 456.)

 Under section 425.16, subdivision (b)(2), the trial court in making these determinations considers the pleadings, and supporting and opposing affidavits stating the facts upon which the liability or defense is based.  [Citation.] (Tuchscher Development Enterprises, Inc. v. San Diego Unified Port Dist. (2003) 106 Cal.App.4th 1219, 12311232.) On appeal we review independently whether the complaint against the appellant arises from appellants exercise of a valid right to free speech and petition and if so, whether the respondent established a probability of prevailing on the complaint. (Governor Gray Davis Com. v. American Taxpayers Alliance, supra, 102 Cal.App.4th 449, 456.)

The trial court in the present case found that appellants failed to make the requisite prima facie showing of acts taken in furtherance of constitutional rights of petition or free speech, and did not reach the second prong of the anti-SLAPP statute. (See Paul for Council v. Hanyecz (2001) 85 Cal.App.4th 1356, 1365.) Subsection (e) of section 425.16 defines  act in furtherance of a persons right of petition or free speech under the United States or California Constitution in connection with a public issue  to include: (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. To satisfy the arising from test, it need only be demonstrate[d] that the defendants conduct by which plaintiff claims to have been injured falls within one of the four categories described in [section 425.16,] subdivision (e).  (Yu v. Signet Bank/Virginia (2002) 103 Cal.App.4th 298, 316, quoting from Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 66.)

The phrase arising from in section 425.16, subdivision (b)(1), has been interpreted to refer to the act underlying the plaintiffs cause or the act which forms the basis for the plaintiffs cause of action and that such act must have been one done in furtherance of the right of petition or free speech. In short, the statutory phrase cause of action . . . arising from means simply that the defendants act underlying the plaintiffs cause of action must itself have been an act in furtherance of the right of petition or free speech. [Citation.] In the anti-SLAPP context, the critical point is whether the plaintiffs cause of action itself was based on an act in furtherance of the defendants right of petition or free speech. [Citation.] [Citation, italics in original.] (Gallimore v. State Farm Fire & Casualty Ins. Co. (2002) 102 Cal.App.4th 1388, 13971398; see also Kajima Engineering & Construction, Inc. v. City of Los Angeles (2002) 95 Cal.App.4th 921, 928929; Chavez v. Mendoza (2001) 94 Cal.App.4th 1083, 10891090.)

Nothing in any of the alleged wrongful conduct directly implicates a public issue or an issue of public interest within the meaning of clauses (3) and (4) of section 425.16, subdivision (e). Nor did cross-defendants make any statement or writing before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, to qualify as protected acts pursuant to clause (1) of the statute. (Italics added.) None of the alleged acts and statements were made to judicial officials, or occurred within the confines of an appearance in a judicial proceeding. (Cf. ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1009.)

The sole remaining category of protected acts encompasses statements made in connection with an issue under consideration or review by a judicial body as provided in section 425.16, subdivision (e)(2). (Italics added.) A cause of action arising from litigation activity may appropriately be the subject of a section 425.16 motion. (Shekhter v. Financial Indemnity Co. (2001) 89 Cal.App.4th 141, 151.)  [P]lainly read, section 425.16 encompasses any cause of action against a person arising from any statement or writing made in, or in connection with an issue under consideration or review by, an official proceeding or body. [Citation.] (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 734; see also Braun v. Chronicle Publishing Co. (1997) 52 Cal.App.4th 1036, 1043.) A defendant moving under section 425.16 to strike a cause of action arising from a statement made in connection with an issue under consideration in a legally authorized official proceeding within the meaning of clause (2) of subdivision (e) need not separately demonstrate that the statement concerned an issue of public significance. (Briggs v. Eden Council for Hope & Opportunity, supra, 19 Cal.4th 1106, 1123; Dowling v. Zimmerman (2001) 85 Cal.App.4th 1400, 1416.) Under the plain terms of the statute it is the context or setting itself that makes the issue a public issue: all that matters is that the First Amendment activity take place in an official proceeding or be made in connection with an issue being reviewed by an official proceeding. (Braun v. Chronicle Publishing Co., supra, at p. 1047.)

We agree with respondent that the preexisting litigation between the parties did not, standing alone, make the statements by Yeh protected by the anti-SLAPP statute. The arising from requirement is not satisfied by showing that the challenged suit followed in time, or even that it was in response to or motivated by, the conduct which the suit challenges. [T]he mere fact an action was filed after protected activity took place does not mean it arose from that activity. (Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th 53, 66.) Moreover, that a cause of action arguably may have been triggered by protected activity does not entail it is one arising from such. (Navellier v. Sletten (2002) 29 Cal.4th 82, 89.) Thus, the chronological sequence of events whereby the appellants conduct followed the filing of the complaint does not compel the finding that the alleged acts were necessarily in furtherance of a statement made in connection with an issue under consideration before a judicial body. The trial court must instead focus on the substance of the plaintiffs lawsuit in analyzing the first prong of a special motion to strike. (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 669670.)

We disagree with respondents claim that if the speech [is] not protected by constitutional or statutory provision that is, if it is not a valid exercise of . . . free speech it cannot meet the first threshold test and be protected by the anti-SLAPP statute. Respondent has confused or conflated the distinct steps of the section 425.16 two-step process. (Navellier v. Sletten, supra, 29 Cal.4th 82, 88; Holbrook v. City of Santa Monica (2006) 144 Cal.App.4th 1242, 1247.) [O]ur high court has rejected the argument that the validity of the speech is a proper inquiry when determining whether the anti-SLAPP statute potentially applies. (Mann v. Quality Old Time Service, Inc. (2004) 120 Cal.App.4th 90, 105.) Instead, under the statutory scheme, a court must generally presume the validity of the claimed constitutional right in the first step of the anti-SLAPP analysis, and then permit the parties to address the issue in the second step of the analysis, if necessary. [Citation.] Otherwise, the second step would become superfluous in almost every case, resulting in an improper shifting of the burdens. (Chavez v. Mendoza, supra, 94 Cal.App.4th 1083, 1089.) If the nature of the activity alleged in the cross-complaint brings the claims within the ambit of section 425.16, appellants were not required to also demonstrate that their activity was privileged as a matter of law; the matter of privilege or other form of constitutionally protected activity becomes relevant only at the second step of the anti-SLAPP analysis, where respondent would be required to present evidence showing a reasonable probability of success on his claims. (Navellier, supra, at pp. 9495; Mann v. Quality Old Time Service, Inc., supra, at p. 105.) If the plaintiff contests the first step of the section 425.16 process, but fails to  demonstrate as a matter of law that the defendants acts do not fall under section 425.16s protection, then the claimed illegitimacy of the defendants acts is an issue which the plaintiff must raise and support in the context of the discharge of the plaintiffs burden to provide a prima facie showing of the merits of the plaintiffs case. . . . [Citation.] (Kashian v. Harriman (2002) 98 Cal.App.4th 892, 910, italics omitted.)

We thus examine  the defendant[s] activity that gives rise to [their] asserted liabilityand whether that activity constitutes protected speech or petitioning. [Citation.] (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP, supra, 133 Cal.App.4th 658, 671, italics omitted.) The fact that the conversation upon which the cross-complaint is based was between private individuals does not render section 425.16 inapplicable. (Ruiz v. Harbor View Community Assn. (2005) 134 Cal.App.4th 1456, 1467; Terry v. Davis Community Church (2005) 131 Cal.App.4th 1534, 1546.) The value of the speech does not depend on its source. (Mission Oaks Ranch, Ltd. v. County of Santa Barbara (1998) 65 Cal.App.4th 713, 730.) The anti-SLAPP suit statute is designed to protect the speech interests of private citizens, the public, and governmental speakers, and the identity of the speaker is not a decisive factor in determining whether the speech activity is protected under the First Amendment. (Braun v. Chronicle Publishing Co., supra, 52 Cal.App.4th 1036, 1042.) Although the communication at issue was made by Yeh to another private citizen rather than to or before an official agency, it is not therefore excluded from the shelter of the anti-SLAPP suit statute. (Dove Audio, Inc. v. Rosenfeld, Meyer & Susman (1996) 47 Cal.App.4th 777, 784; Averill v. Superior Court (1996) 42 Cal.App.4th 1170, 11751176; Wilcox v. Superior Court (1994) 27 Cal.App.4th 809, 821822, disapproved on other grounds in Equilon Enterprises v. Consumer Cause, Inc., supra, 29 Cal.4th 53, 68, fn. 5.)

The trial court therefore did mistakenly rely on the fact that the allegations of the defamation action are based on a private conversation to find that statements do not fall within Code of Civil Procedure section 425.16(e)(2). The statute defines acts in furtherance of the constitutional right to petition to include any written or oral statement or writing made in connection with an issue under consideration or review by a . . . judicial body . . . . [Citation.] This includes statements or writings made in connection with litigation in the civil courts. [Citation.] . . . Thus, an action for defamation falls within the anti-SLAPP statute if the allegedly defamatory statement was made in connection with litigation. (Healy v. Tuscany Hills Landscape & Recreation Corp. (2006) 137 Cal.App.4th 1, 5.)

We nevertheless conclude that the allegedly defamatory statements by Yeh are not within the scope of the concededly broad definition of communicative conduct undertaken or statements made in connection with or arising from the litigation that was initiated by the complaint for misappropriation of trade secrets.^[3]  A cause of action arising from defendants litigation activity may appropriately be the subject of a section 425.16 motion to strike. [Citations.] (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1056.) Section 425.16, like the litigation privilege of Civil Code section 47,  applies to any publication required or permitted by law in the course of a judicial proceeding to achieve the objects of the litigation, even though the publication is made outside the courtroom and no function of the court or its officers is involved.  (Jacob B. v. County of Shasta (2007) 40 Cal.4th 948, 955; see also Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, 1540, italics added.)^[4]  The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action. [Citation.] (Jacob B., supra, at p. 955.) It is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards, and includes any  communications with some relation to judicial proceedings . . . . (Rusheen, supra, at p. 1057; see also Blanchard v. DirectTV, Inc. (2004) 123 Cal.App.4th 903, 919.)

However, although the scope of section 425.16, subdivision (e)(2) is extremely broad when applicable, the privilege does not apply in all situations. (Kolar v. Donahue, McIntosh & Hammerton, supra, 145 Cal.App.4th 1532, 1541.) [S]ection 47(b) does not prop the barn door wide open for any and every sort of prelitigation charge or innuendo, especially concerning individuals. (Nguyen v. Proton Technology Corp. (1999) 69 Cal.App.4th 140, 150.)  [A] statement made in a judicial proceeding is not privileged unless it has some reasonable relevancy to the subject matter of the action.  (Id., at p. 147, quoting from Silberg v. Anderson (1990) 50 Cal.3d 205, 220.) [T]he connection or logical relation which a communication must bear to litigation in order for the privilege to apply, is a functional connection. That is to say, the communicative actbe it a document filed with the court, a letter between counsel or an oral statementmust function as a necessary or useful step in the litigation process and must serve its purposes. This is a very different thing from saying that the communications content need only be related in some way to the subject matter of the litigation; it is another way of saying what the Supreme Court stated in Silberg, supra, about the relationship between the furtherance and the connection or logical relation prongs of the four-part Silberg testthat the former is simply part of the latter. [Citation.] (Rothman v. Jackson (1996) 49 Cal.App.4th 1134, 1146.) Statements to nonparticipants in the action are generally not privileged under section 47, subdivision (b), and are thus actionable unless privileged on some other basis. (Rothman, supra, at p. 1141.)

Here, Yehs statements which furnish the basis for the cross-complaint may relate superficially and indirectly to the litigation appellants had already filed against respondent for misappropriation of trade secrets, but were neither connected with nor achieved the objects of the litigation within the meaning of section 425.16. The other party to the conversation was not a party, witness or other participant in the action. The discussion was not about the litigation, but instead the separate subject of respondents fitness for employment and the reasons for his termination from Synder. In his comments to Spectrum, Yeh mentioned the recently filed suit against Zhang for misappropriation of trade secrets, but only in the most general sense and not in any context that bore a connection or logical relation to the action. Yehs statements were also not made with any apparent intent of achieving an advantage in litigation. Rather, Yeh merely responded to a distinct inquiry that related to respondents application for employment with Spectrum.

Finally, application of the litigation privilege here would not serve the fundamental purpose of the privilege, which is  to afford litigants and witnesses [citation] the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. [Citation.] Additionally, the privilege promotes effective judicial proceedings by encouraging  open channels of communication and the presentation of evidence  without the external threat of liability [citation], and by encouraging attorneys to zealously protect their clients interests. [Citation.] (Flatley v. Mauro (2006) 39 Cal.4th 299, 321322.) Shielding Yeh from a suit based upon his statements to a third party on the separate matter of an employment investigation would not further these purposes. (Kolar v. Donahue, McIntosh & Hammerton, supra, 145 Cal.App.4th 1532, 1541; Mattco Forge, Inc. v. Arthur Young & Co. (1992) 5 Cal.App.4th 392, 406.) We thus conclude that the statements are not entitled to the protection of the litigation privilege^[5] or the anti-SLAPP law. (Washer v. Bank of America (1943) 21 Cal.2d 822, 831832;^[6] Nguyen v. Proton Technology Corp., supra, 69 Cal.App.4th 140, 152; Rothman v. Jackson, supra, 49 Cal.App.4th 1134, 1151; Susan A. v. County of Sonoma (1991) 2 Cal.App.4th 88, 9396.)

DISPOSITION

Accordingly, the judgment is affirmed.

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¹ The agreement also contained a noncompetition provision.

^[2] All further statutory references are to the Code of Civil Procedure unless otherwise indicated.

^[3] In examining the order on appeal, we review the trial courts actual ruling, not its reasons. A judgment or order correct in theory will be affirmed, even where the trial courts given reasoning is erroneous. (Punsly v. Ho (2003) 105 Cal.App.4th 102, 113.)

^[4] Communications  within the protection of the litigation privilege of Civil Code section 47, subdivision (b) [citation], . . . are equally entitled to the benefits of section 425.16. [Citations.] [Citation.] (Sylmar Air Conditioning v. Pueblo Contracting Services, Inc., supra, 122 Cal.App.4th 1049, 1058, italics added; see also Rubin v. Green (1993) 4 Cal.4th 1187, 11941195; Dove Audio, Inc. v. Rosenfeld, Meyer & Susman, supra, 47 Cal.App.4th 777, 784.)

^[5] We express no opinion on the applicability of the privilege recognized by Civil Code section 47, subdivision (c) in view of our conclusion that the communications at issue do not fall within the anti-SLAPP statute.

^[6] In Washer, the litigation privilege was found not to cover a bank vice-presidents statements to the press concerning the reasons the bank had discharged the plaintiff, although the discharge (and, necessarily, its reasons) were the subject of quasi-judicial proceedings before the National Labor Relations Board. (Washer v. Bank of America, supra, 21 Cal.2d 822, 824, 831832; see also Rothman v. Jackson, supra, 49 Cal.App.4th 1134, 11451146.)