THE PEOPLE v. THE PACIFIC LUMBER COMPANY

Filed 1/10/08

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION THREE

Story continued from Part I

Does the Noerr-Pennington Doctrine Bar the States UCL Claims?

Because section 47(b) bars this action, we need not address the States remaining arguments for reversing the trial courts ruling on demurrer. (Aubry, supra, 2 Cal.4th at p. 967 [ [t]he judgment must be affirmed if any one of the several grounds of demurrer is well taken ].) We nonetheless briefly address the States Noerr-Pennington argument, given the parties and amicus curiaes extensive briefing of the issue.

Under the Noerr-Pennington doctrine, [t]hose who petition the government . . . are generally immune from antitrust liability.[1](Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc. (1993) 508 U.S. 49, 56 [Professional Real Estate Investors]; see also Blank, supra, 39 Cal.3d at p. 320 [the Noerr-Pennington doctrine declares that efforts to influence government action are not within the scope of the Sherman Act, regardless of anticompetitive purpose or effect].) This doctrine relies on the constitutional right to petition for redress of grievances to establish that there is no antitrust liability for petitioning any branch of government, even if the motive is anticompetitive.[2] (Pacific Gas & Electric Co. v. Bear Stearns & Co. (1990) 50 Cal.3d 1118, 1133.) The doctrine further relies on principles of comity, i.e., noninterference on the part of the courts with governmental bodies that may validly cause otherwise anticompetitive effects and with efforts intended to influence such bodies. (Blank, supra, 39 Cal.3d at p. 321.)

The Noerr-Pennington doctrine has been extended to preclude virtually all civil liability for a defendants petitioning activities before not just courts, but also before administrative and other governmental agencies. (California Transport v. Trucking Unlimited (1972) 404 U.S. 508, 510-511 [California Transport]; Ludwig v. Superior Court (1995) 37 Cal.App.4th 8, 21, fn. 17 [the principle applies to virtually any tort, including unfair competition and interference with contract].) Indeed, [it] would be destructive of rights of association and of petition to hold that groups with common interests may not . . . use the channels and procedures of state and federal agencies and courts to advocate their causes and points of view respecting resolution of their business and economic interests vis--vis their competitors. (California Transport v. Trucking Unlimited (1972) 404 U.S. 508, 510-511 [30 L.Ed.2d 642, 646, 92 S.Ct. 609]; italics added.) (Matossian v. Fahmie (1980) 101 Cal.App.3d 128, 136.)

As our California Supreme Court has explained: It is only when efforts to influence government action are a sham that they fall outside the protection of the Noerr-Pennington doctrine and within the scope of the Sherman Act. (California Transport, 404 U.S. at pp. 511-516 [30 L.Ed.2d at pp. 646-649]; Noerr, supra, 365 U.S. at p. 144 [5L.Ed.2d at p. 475]; see generally Areeda, Antitrust Law (1982 supp.) [] 202, pp. 4-5 [hereafter Areeda, Antitrust Supplement].) Such efforts amount to a sham when though ostensibly directed toward influencing governmental action, . . . [they are] actually nothing more than an attempt to interfere directly with the business relationships of a competitor . . . . (Noerr, supra, at p. 144 [5 L.Ed.2d at p. 475].) Such efforts, by contrast, do not amount to a sham when, no matter how anticompetitive in purpose or effect, they constitute a genuine effort to influence [government action] . . . . (Ibid.) In other words, efforts to influence government action are a sham only when the person or persons making such efforts [invokes] the process of [governmental] decisionmaking for the injury that the process alone will work on competitors . . . . (Litton Systems, Inc. v. American Tel. & Tel. Co. (2d Cir. 1983) 700 F.2d 785, 810, italics added; accord, Handler & De Sevo, supra, 6 Cardozo L. Rev. at pp. 7-14.) (Blank, supra, 39 Cal.3d at pp. 321-322; see also Hi-Top Steel Corp. v. Lehrer (1994) 24 Cal.App.4th 570, 578-579 (Hi-Top Steel).)

Following the California Supreme Courts decision in Blank, the United States Supreme Court clarified the so-called sham exception to the Noerr-Pennington doctrine, setting forth a two-part test for determining whether a defendants petitioning activities fall within its reach: first, it must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits; second, the litigants subjective motivation must conceal an attempt to interfere directly with the business relationships of a competitor . . . through the use [of] the governmental process -- as opposed to the outcome of that process -- as an anticompetitive weapon.  (BE&K Construction Co. v. National Labor Relations Board (2002) 536 U.S. 516, 526 [BE&K], quoting Professional Real Estate Investors, supra, 508 U.S. at pp. 60-61; see also Wolfgram v. Wells Fargo Bank (1997) 53 Cal.App.4th 43, 54-55.) To meet this test, the defendants petitioning activities thus must be a sham both objectively and subjectively. (BE&K, supra, at p. 526; see also Wolfgram, supra, at pp. 54-55.)

Here, the State contends Pacific Lumbers petitioning activities fall within the sham exception, and thus enjoy no Noerr-Pennington immunity. We disagree. Pacific Lumbers activities in connection with the CEQA administrative proceedings constituted a genuine effort to influence [government action]. (Noerr, supra, 365 U.S. at p. 144.) Designed to secure approval of its Sustained Yield Plan, the companys effort was neither objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits, nor did it conceal an attempt to interfere with a competitors business relationships through the use [of] the governmental process -- as opposed to the outcome of that process. (BE&K, supra, 536 U.S. at p. 526; see also Wolfgram, supra, 53 Cal.App.4th at p. 54 [absent a patent lack of merit, an action protected under the First Amendment by the right of petition cannot be the basis for litigation ].) Indeed, according to the States own allegations, Pacific Lumber achieved the very outcome it petitioned for in the CEQA proceedings permission to harvest timber at a desirable annual rate. (Cf. Hi-Top Steel, supra, 24 Cal.App.4th at pp. 582-583 [a cause of action under the sham exception was stated where the allegations show defendants undertook petitioning activity solely to delay or prevent plaintiffs entry into the shredded automobile body market through use of the governmental process as opposed to the outcome of that process as an anticompetitive weapon ].) That Pacific Lumber is alleged to have employed improper tactics in seeking that outcome does not render their efforts less genuine. (Blank, supra, 39 Cal.3d at p. 325 [[f]or purposes of the Noerr-Pennington doctrine, . . . impropriety and genuineness are not related].)

Apparently conceding Pacific Lumbers conduct fails to meet the two-part test for the sham exception put forth by the United States Supreme Court, the State and amicus curiae rely primarily on federal cases to suggest the exception nonetheless applies because allegations are raised of fraudulent conduct in the context of an adjudicatory proceeding. Specifically, they contend [t]he utterance of knowing and reckless falsehoods that affect the outcome of a government agencys adjudicatory determination . . . are not protected by the Noerr-Pennington doctrine.

In so arguing, the State admits that the United States Supreme Court has not recognized an exception to the Noerr-Pennington doctrine based on a defendants fraudulent conduct. (See Professional Real Estate Investors, supra, 508 U.S. at p. 61, fn. 6 [suggesting an open question remains whether there is a fraud-based exception to the Noerr-Pennington doctrine].) The State argues, however, that the following language in California Transport suggests such an exception would be appropriate:

There are many . . . forms of illegal and reprehensible practice which may corrupt the administrative or judicial processes and which may result in antitrust violations. Misrepresentations, condoned in the political arena, are not immunized when used in the adjudicatory process. Opponents before agencies or courts often think poorly of the others tactics, motions, or defenses and may readily call them baseless. One claim, which a court or agency may think baseless, may go unnoticed; but a pattern of baseless, repetitive claims may emerge which leads the factfinder to conclude that the administrative and judicial processes have been abused. That may be a difficult line to discern and draw. But once it is drawn, the case is established that abuse of those processes produced an illegal result, viz., effectively barring respondents from access to the agencies and courts. Insofar as the administrative or judicial processes are involved, actions of that kind cannot acquire immunity by seeking refuge under the umbrella of political expression. (California Transport, 404 U.S. at p. 513.)

While a split of authority exists, several federal courts have relied on this language to extend the sham exception to cover certain fraudulent acts, at least when done in the adjudicatory context. In Kottle v. Northwest Kidney Centers (9th Cir. 1998) 146 F.3d 1056, 1060, for example, the court recognized that in the context of a judicial proceeding, if the alleged anticompetitive behavior consists of making intentional misrepresentations to the court, litigation can be deemed a sham if a partys knowing fraud upon, or its intentional misrepresentations to, the court deprive the litigation of its legitimacy. (LibertyLakeInv., Inc. v. Magnuson, 12 F.3d 155, 158 (9th Cir. 1993); Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc. 690 F.2d 1240, 1260 (9th Cir. 1982). (See also Potters Medical Center v. City Hosp. Assn (6th Cir. 1986) 800 F.2d 568, 580 [the knowing and willful submission of false facts to a government agency falls within the sham exception]. But see Armstrong Surgical Center, Inc. v. Armstrong County Memorial Hosp. (3d Cir. 1999) 185 F.3d 154, 160-164 & fn. 7 [disagreeing with Kottle and other authority that an exception exists for knowingly submitting false information to an adjudicative body]; Baltimore Scrap Corp. v. David J. Joseph Co. (4th Cir. 2001) 237 F.3d 394, 402, 404 (Baltimore Scrap) [declining to reach the question of whether a fraud exception to Noerr-Pennington still exists after [Professional Real Estate Investors] where [plaintiff] cannot show that the state court judgment was procured by fraud or deceit, and noting that [a] broad fraud exception would allow federal collateral litigation over conduct in state courts that never affected the core of a state judgment].) The Kottle court went on to conclude that administrative bodies are equivalent to judicial ones for purposes of the sham exception when such bodies act in an adjudicatory capacity, meaning their actions are guided by enforceable standards subject to review rather than by political discretion. (Kottle, supra, 146 F.3d at pp. 1061-1062, fn. 5.)

Here, relying on Kottle, the State and amicus curiae contend the CEQA proceedings were akin to judicial ones for purposes of the sham exception because, under the relevant rules and regulations, the CDF made factual findings based upon evidence submitted in connection with public hearings, and because the agencys ultimate decisions were subject to judicial review. (See, e.g., Cal. Code Regs., tit. 14,  1091.10; Code Civ. Proc.,  1094.5.)

Regardless of whether the CEQA proceedings are characterized as judicial or adjudicatory for other purposes, we would decline to hold that the States fraud-based allegations meet the requirements of the sham exception for purposes of the Noerr-Pennington doctrine. First, as stated above, the United States Supreme Court has not expanded the sham exception to cover such allegations, or recognized an independent fraud-based exception. (Professional Real Estate Investors, supra, 508 U.S. at p. 61, fn. 6.) Moreover, the United States Supreme Court has recently confirmed that conduct falls within the sham exception only if it is, unlike here, objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits and subjectively motivated by an unlawful purpose.[3] (BE&K, supra, 536 U.S. at p. 526.) In doing so, the court noted that while false statements may be unprotected for their own sake, the First Amendment requires that we protect some falsehood in order to protect speech that matters. Gertz v. Robert Welch, Inc., 418 U.S. 323, 341 (1974) (emphasis added); id., at 342 (noting the need to protect some falsehoods to ensure that the freedoms of speech and press [receive] that breathing space essential to their fruitful exercises (quoting NAACP v. Button, 371 U.S. 415, 433 (1963))). (BE&K, supra, 536 U.S. at p. 531.)

Further, no California court has expanded the sham exception beyond the two-part standard set forth in Professional Real Estate Investors, despite citing to California Transport and, in at least one case, acknowledging its language setting apart misrepresentations made in the adjudicatory context. (See Hi-Top Steel, supra, 24 Cal.App.4th at p. 577; Blank, supra, 39 Cal.3d at pp. 321-322.)

In declining to expand the sham exception to cover Pacific Lumbers conduct, we also note the California Supreme Courts concern for comity with respect to governmental decision-making when applying the Noerr-Pennington doctrine. (Blank, supra, 39 Cal.3d at p. 321.) Pacific Lumbers challenged activities were directed at the CDF and other independent state agencies engaged, pursuant to California law, in the CEQA process. We have already determined those activities were genuinely intended to influence government action, not mere sham activities intended to use governmental processes to interfere with a competitors business relationships. The CDF rendered its ultimate decisions adopting Sustained Yield Plan Alternative 25, certifying the environmental impact report, and issuing the relevant permits after an extensive public decision-making process that produced an administrative record approximating 80,000 pages. Courts, we believe, should not lightly interfere with such administrative proceedings, particularly where, as here, a substantial period of time has elapsed since their conclusion. (See Laurel Heights Improvement Assn. v. Regents of the University of California (1993) 6 Cal.4th 1112, 1130-1132 [noting that an agency-approved environmental impact report is presumed valid if not challenged within the CEQA statute-of-limitations period and discussing the legislative intent to streamline the CEQA process so as not to unduly prolong[] [it]]. See also Baltimore Scrap, supra, 237 F.3d at p. 404 [holding, in declining to recognize a broad fraud exception to the Noerr-Pennington doctrine, that [i]t is simply not the role of federal courts . . . to reconsider the underlying validity of a state zoning contest].)

Was the Underlying Administrative Process Deprived of Legitimacy?

Finally, even were we to recognize an expansion of the sham exception for fraudulent conduct in adjudicatory proceedings, we would nonetheless conclude that the fraudulent conduct alleged here is not actionable because the State has failed to adequately allege that it deprived the CEQA proceedings of legitimacy. (See Kottle, supra, 146 F.3d at p. 1060; Baltimore Scrap, supra, 237 F.3d at pp. 401-402[[i]f a fraud exception to Noerr-Pennington does exist, it extends only to the type of fraud that deprives litigation of its legitimacy].)

As has already been discussed, the CDF was called upon in the underlying proceedings to determine, among other things, whether Pacific Lumbers Sustained Yield Plan had a sufficient informational and analytical basis (in particular, with respect to potential adverse environmental impacts), and whether it was consistent with certain environmental and economic values. (Cal. Code Regs., tit. 14,  1091.1, 1091.2, 1091.5-1091.10.) The CDF independently reviewed the plan, requested and received additional information regarding the plan from Pacific Lumber, solicited comments from other public agencies, and then held a public hearing at which all interested persons, including other public agencies, were entitled to testify and present evidence. (Cal. Code Regs., tit. 14,  1091.10.) At the conclusion of those events, the Director of the CDF rendered a written decision on February 25, 1999 to adopt Sustained Yield Plan Alternative 25(a) to regulate Pacific Lumbers rate of timber harvesting in connection with the Headwaters Agreement and to certify the environmental impact report. (Cal. Code Regs., tit. 14,  1091.10.) This decision, according to the States allegations, led to a campaign of aggressive lobbying by Pacific Lumber to encourage the CDF to adopt instead a Sustained Yield Plan with a more favorable rate of timber harvesting. The CDF eventually obliged, adopting on March 1, 1999 Sustained Yield Plan Alternative 25, a less restrictive plan than Sustained Yield Plan Alternative 25(a), which, consistent with Pacific Lumbers lobbying efforts, increased the permissible annual rate of timber harvesting.

With respect to the alleged fraudulent conduct, the State contends Pacific Lumber submitted false data regarding landslide frequency at the Jordan Creek watershed on November 18, 1998, two days after the close of the public comment period on the environmental impact report and the companys proposed Sustained Yield Plan. It is unclear from the pleadings whether the CDF actually considered Pacific Lumbers allegedly fraudulent submission in rendering its ultimate decision to adopt Sustained Yield Plan Alternative 25 and to certify the environmental impact report.[4] The pleadings and the record are clear, however, that Pacific Lumbers corrected submission was available to the CDF, or at a minimum to its local counterpart, on or soon after January 22, 1999 before the CDF adopted the more restrictive Sustained Yield Plan Alternative 25(a) on February 25, 1999.[5] Further, under the pleadings, the State does not ultimately challenge the CDFs adoption of Sustained Yield Plan Alternative 25(a); rather, it challenges the CDFs adoption on March 1, 1999 of the lessrestrictive Sustained Yield Plan Alternative 25. Not only was the corrected data available over a month before Sustained Yield Plan Alternative 25 was adopted, but, according to the allegations, the plans adoption followed on the heels of a period of aggressive lobbying by Pacific Lumber, not on the heels of its submission of fraudulent data. As such, it is unclear how the earlier-submitted fraudulent data, even assuming the CDF considered it, could, as the State alleges, have led the agency to adopt the less restrictive Sustained Yield Plan Alternative 25, thereby undermining the legitimacy of the CEQA process. Rather, it appears from the pleadings that Pacific Lumbers lobbying efforts, not its prior fraudulent submission, led to the adoption of the less restrictive plan. (See Baltimore Scrap Corp. v. David J. Joseph Co. (D. Md. 2000) 81 F. Supp. 2d 602, 619 [administrative proceedings were not deprived of legitimacy by the alleged fraud for purposes of Noerr-Pennington where [e]ven if [plaintiff] could establish that the report [submitted to the agency] contained deliberately false information, there was no evidence that the report played a role in the [agencys] decision], affirmed by Baltimore Scrap, supra, 237 F.3d 394.) Pacific Lumbers lobbying efforts, which are not alleged to have been fraudulent or deceptive, constitute a classic form of political expression, and are thus undoubtedly immune from liability under Noerr-Pennington. (Noerr, supra, 365 U.S. at pp. 137-138 [defendant railroad companys lobbying efforts were held to be immune from liability because [i]n a representative democracy such as this . . . the whole concept of representation depends upon the ability of the people to make their wishes known to their representatives].)

Given the undisputed presence of disinterested decision-makers at the CDF as well as other state agencies, the extensive independent review and analysis of Pacific Lumbers proposed harvesting plan, the public hearing open to all interested persons and agencies, and the review process that was available for correcting any identifiable errors (including misrepresentations) in a timely fashion, we are thus disinclined to conclude the CEQA proceedings were rendered illegitimate by Pacific Lumbers alleged submission of fraudulent data which indeed was corrected over a month before issuance of the CDFs ultimate decision.

In reaching this decision, we agree with the State that the trial court had no discretion to weigh the evidence in ruling on Pacific Lumbers demurrer. However, while the court does not weigh evidence, it must determine whether plaintiffs have demonstrated evidence which, if credited, would justify their prevailing at trial. (Blanchard v. DIRECTV, Inc. (2004) 123 Cal.App.4th 903, 921.) Here, for the reasons discussed above, we conclude the States evidence, even if credited, would not justify its prevailing at trial. Further, we conclude the State has failed to prove, on its third try, a reasonable possibility that the operative pleadings defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318.) As such, we affirm the trial courts judgment.

DISPOSITION

The judgment is affirmed.

_________________________

Horner, J.*

We concur:

_________________________

Pollak, Acting P. J.

_________________________

Siggins, J.

People ex rel. Paul V. Gallegos, as District Attorney, etc., et al.v. The Pacific Lumber Company et al., A112028

* Judge of the Alameda County Superior Court, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line attorney.

People ex rel. Paul V. Gallegos, as District Attorney, etc., et al.v. The Pacific Lumber Company et al., A112028

[1] The doctrine derives from the holdings of the United States Supreme Court in Eastern Railroad Presidents Conference et al. v. Noerr Motor Freight, Inc. et al. (1961) 365 U.S. 127 (Noerr), and Mine Workers v. Pennington (1965) 381 U.S. 657 (Pennington), and rest[s] on statutory interpretation. (Blank, supra, 39 Cal.3d at p. 321.)

[2] The right to petition for redress of grievances is [protected by both] the [California] and [United States] Constitutions. (U.S. Const., 1st Amend.; Cal. Const., art. I,  3.) (Pacific Gas & Electric Co. v. Bear Stearns & Co., supra, 50 Cal.3d at p. 1133, fn. 15.)

[3] Indeed, here, Pacific Lumber did in fact have success on the merits in connection with the CEQA proceedings. (See Blank, supra, 39 Cal.3d at p. 325 [where defendants efforts to influence governmental action were successful, they could not be deemed a mere sham].)

[4] It is undisputed the CDF had in its possession several other reports contradicting the false data Pacific Lumber allegedly submitted regarding the Jordan Creek watershed.

[5] The State alleges Pacific Lumber should have delivered the corrected data to the designated [governmental] offices rather than to the local offices of the CDF and the North Coast Regional Water Quality Control Board. As the trial court points out, however, it was the North Coast Regional Water Quality Control Board, not the designated [governmental] offices, that requested the data regarding the Jordan Creek watershed. Moreover, the State nowhere alleges that the designated office, i.e., the state office of the CDF, failed to receive the corrected data from its local counterpart or another source.