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

This is an appeal from a judgment in a lawsuit brought by the District Attorney for Humboldt County on behalf of the People of California (the State) under Californias Unfair Competition Law, Business and Professions Code sections 17200 et seq. (UCL), for alleged fraudulent business practices. Judgment was entered against the State following the sustaining of a demurrer to the second amended complaint. In reaching the judgment, the trial court ruled that respondents The Pacific Lumber Company, Scotia Pacific Company LLC, and Salmon Creek LLC (collectively, Pacific Lumber) were immune from UCL liability under both California Civil Code section 47, subdivision (b) and under federal law pursuant to the so-called Noerr-Pennington doctrine, and that the State had failed to state a cause of action based on Pacific Lumbers alleged fraudulent business practices. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

On February 24, 2003, the State filed a complaint against Pacific Lumber asserting causes of action arising under the UCL. The allegations in the complaint stemmed from a 1996 agreement between Pacific Lumber, the State of California and the United States known as the Headwaters Agreement. Pursuant to the Headwaters Agreement, Pacific Lumber agreed to sell the Headwaters Forest, an ancient redwood forest, and other land to the state and federal governments for over $300 million and other consideration. In return, Pacific Lumber received assurances from those governments that it would be permitted to harvest certain of its remaining timberlands in accordance with, among other things, a sustained yield plan and habitat conservation plan approved by relevant state and federal agencies.[1]

An exhaustive 3-year administrative review process ensued pursuant to the California Environmental Quality Act, Public Resources Code sections 21000 et seq. (CEQA), after which the appointed state agency, the California Department of Forestry and Fire Protection (CDF), certified the States environmental impact report and, on or about March 1, 1999, approved Pacific Lumbers sustained yield plan and habitat conservation plan (referred to herein collectively as the Sustained Yield Plan). Following the issuance of all necessary federal and state permits, the Headwaters Forest purchase was thus completed.[2]

In its original complaint, the State alleged Pacific Lumber intentionally misrepresented and concealed crucial facts during the CEQA administrative proceedings held in connection with the Headwaters Agreement. Pacific Lumber demurred.

Before a hearing was held on Pacific Lumbers demurrer to the original complaint, the State filed a first amended complaint on May 27, 2003, raising essentially the same allegations. The trial court thereafter sustained Pacific Lumbers demurrer to the first amended complaint with leave to amend. The second amended complaint, the subject of this appeal, was then filed May 27, 2004.

In the second amended complaint, the State again alleged Pacific Lumber intentionally misrepresented and concealed crucial facts during the CEQA administrative proceedings held in connection with the Headwaters Agreement. In particular, the State alleged Pacific Lumber submitted a report containing false data in order to obtain approval from the CDF for an increased rate of timber harvesting and to ensure decreased environmental mitigation requirements. According to the second amended complaint, the false data was submitted to conceal a finding by a consultant hired by Pacific Lumber that new timber harvesting could trigger increased landslide frequency in the Bear Creek and Elk River watersheds. Worried such finding would result in issuance of permits for lower rates of harvesting, and thus would hinder its ability to meet certain of its financial obligations, Pacific Lumber allegedly devised a scheme to submit false data for Jordan Creek, a watershed adjacent to Bear Creek, which indicated, contrary to the Bear Creek and Elk River finding, that new harvesting would not likely trigger increased landslide frequency.

Pacific Lumber allegedly submitted this false data shortly after the end of the 90-day period allowed under CEQA for public review and comment on Pacific Lumbers harvesting plan and on the State of Californias environmental impact report.[3] Pacific Lumber then allegedly delayed submitting corrected data for two months, and deliberately delivered the corrected data to the wrong place to the North Coast Regional Water Quality Control Board and a local office of the CDF rather than to the government offices designated to review public comments and to make final determinations on Pacific Lumbers permits.

According to the State, Pacific Lumbers submission of false data and delayed submission of corrected data undermined the legitimacy of the CEQA process by (1) precluding the preparation of an accurate environmental impact report open to public review and comment; and (2) allowing for the approval of Pacific Lumbers sustained yield plan and the issuance of permits based on incorrect information. The State thus sought civil penalties and other relief under the UCL to prevent Pacific Lumber from realizing profits on timber harvested pursuant to its allegedly fraudulently-obtained Sustained Yield Plan.

The trial court sustained Pacific Lumbers demurrer to the second amended complaint, this time without leave to amend. The trial court reasoned that Pacific Lumber was immune from liability for its conduct in connection with the underlying CEQA administrative proceedings under Civil Code section 47, subdivision (b), the so-called litigation privilege, and under federal law according to the so-called Noerr-Pennington doctrine. Judgment was thus entered against the State. This appeal followed.

DISCUSSION

The State contends on appeal that the trial court erred by applying the litigation privilege under Civil Code section 47, subdivision (b) and the Noerr-Pennington doctrine under federal law to Pacific Lumbers alleged wrongful conduct in connection with the CEQA administrative process, and by deciding on demurrer as a matter of law that Pacific Lumbers alleged material concealments and misrepresentations did not undermine the legitimacy of that process.

We address the States arguments in turn. In doing so, we apply well-established rules governing the appellate review of an order sustaining a demurrer. We thus must give[] the complaint a reasonable interpretation, and treat[] the demurrer as admitting all material facts properly pleaded. (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967.) Because only factual allegations are considered on demurrer, we must disregard any contentions, deductions or conclusions of fact or law alleged [in the complaint]. (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695, 713.) Further, because the demurrer at issue is to an amended complaint, we may properly consider allegations asserted in the prior complaints: A plaintiff may not discard factual allegations of a prior complaint, or avoid them by contradictory averments, in a superseding, amended pleading. [Citation.] (Continental Ins. Co. v. Lexington Ins. Co. (1997) 55 Cal.App.4th 637, 646.)

Where, as here, the trial court has sustained a demurrer, we must determine whether the plaintiff has pleaded facts sufficient to state a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [Blank].) The judgment must be affirmed if any one of the several grounds of demurrer is well taken. [Citation.] (Aubry, supra, 2 Cal.4th at p. 967.)

Finally, where, also as here, the demurrer was sustained without leave to amend, we must determine whether the plaintiff has proven a reasonable possibility that the pleadings defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318.) If the plaintiff meets that burden, we must reverse the trial courts order as an abuse of discretion. (Ibid.)

Does the Litigation Privilege Bar the States UCL Claims?

The trial court rejected the States UCL action as a matter of law after finding it barred by Civil Code section 47, subdivision (b) (section 47(b)). Section 47(b) renders absolutely privileged communications made as part of a judicial or quasi-judicial proceeding. (Silberg v. Anderson (1990) 50 Cal.3d 205, 212 [Silberg]; Civ. Code,  47, subd. (b); Action Apartment Assoc., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1241 [Action Apartment].) 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. (Silberg, supra, at p. 212.)

The principal purpose of [the litigation privilege] 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. [Citations.] (Action Apartment, supra, 41 Cal.4th at p. 1241.) Or, as otherwise stated, it exists to protect citizens from the threat of litigation for communications to government agencies whose function it is to investigate and remedy wrongdoing. [Citation.] (Wise v. Thrifty Payless, Inc. (2000) 83 Cal.App.4th 1296, 1303.)

To achieve this end, the absolute privilege is interpreted broadly to apply to any communication, not just a publication, having some relation to a judicial [or quasi-judicial] proceeding, irrespective of the communications maliciousness or untruthfulness. (Kashian v. Harriman (2002) 98 Cal.App.4th 892, 912-913, 920; Action Apartment, supra, 41 Cal.4th at p. 1241; Silberg, supra, 50 Cal.3d at p. 216.) And judicial or quasi-judicial proceedings are defined broadly to include all kinds of truth-seeking proceedings, including administrative, legislative and other official proceedings. (Silberg, supra, at p. 213.) Further, the privilege  is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards. (Rusheen v. Cohen (2006) 37 Cal.4th 1048, 1057 [39 Cal.Rptr.3d 516, 128 P.3d 713 (Rusheen).) (Action Apartment, supra, at p. 1241.)

Here, the States UCL action is premised on Pacific Lumbers allegedly fraudulent conduct in communicating information to government agencies during the CEQA administrative proceedings held in connection with the Headwaters Agreement. In particular, the State alleges Pacific Lumber submitted false information in connection with those proceedings with the intent to interfere with the CDFs consideration of Pacific Lumbers Sustained Yield Plan, certification of the State of Californias environmental impact report, and issuance of permits for the remaining timber lands under the Headwaters Agreement. As such, Pacific Lumbers communications, whether fraudulent or not, fall squarely within the scope of the litigation privilege.[4](Silberg, supra, 50 Cal.3d at p. 212 [the litigation privilege protects communication[s] (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]; Kashian v. Harriman, supra, 98 Cal.App.4th at p. 920 [communications made in connection with litigation do not necessarily fall outside the privilege merely because they are, or are alleged to be, fraudulent, perjurious, unethical, or even illegal]. See also Mission Oaks Ranch, Ltd. v. County of Santa Barbara (1998) 65 Cal.App.4th 713, 726-727 [[s]ection 47 applies . . . to the preparation and certification of an EIR [i.e., an environmental impact report], and thus bars a lawsuit against a consultant for allegedly including false statements in a proposed EIR], overruled on other grounds by Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1123, fn. 10; Pettitt v. Levy (1972) 28 Cal.App.3d 484, 488 [Any publication made in a city planning commission or city council proceedings is within the protection of [section 47] though the proceedings are not strictly judicial]; id. at pp. 489-490 [section 47 bars a lawsuit by property owners against certain individuals for allegedly preparing and presenting false documentary evidence in connection with opposing the owners building permit application].)

While accepting that communications like those challenged here generally fall within the litigation privilege, the State nonetheless claims the privilege is inapplicable in this case because it arises under the UCL rather than under general tort laws. The UCL forbids acts of unfair competition, which is defined to include any unlawful, unfair or fraudulent business act or practice. (Bus. & Prof. Code,  17200; Cel-Tech Communications, Inc. v. Los Angeles Cellular Telephone Co. (1999) 20 Cal.4th 163, 180 [Cel-Tech].) The UCL is broad in scope, embracing anything that can properly be called a business practice and that at the same time is forbidden by law. [Citations.] (Cel-Tech at p. 180.) The UCLs scope is not, however, unlimited. (Cel-Tech at pp. 182-184.) Of relevance here, for example, it does not permit an action that another statute expressly precludes. (Id. at p. 184.) As such, [w]hen specific legislation provides a safe harbor, plaintiffs may not use the general unfair competition law to assault that harbor. (Id. at p. 182.) Here, the trial court found that section 47(b) provided such a safe harbor. For reasons discussed below, we agree.

In Rubin v. Green (1993) 4 Cal.4th 1187 (Rubin), our Supreme Court specifically examined the safe harbor provided by section 47(b) in an action brought under the UCL. There, the plaintiff, the owner of a mobile home park, sued a park resident and her attorneys for, among other things, improper solicitation by the attorneys in anticipation of litigation against the plaintiff over park conditions. (Rubin, supra, at pp. 1190-1192.) Acknowledging that the alleged acts of attorney solicitation fell squarely within the litigation privilege, the plaintiff argued the case should nonetheless proceed because, unlike ordinary tort laws, the UCL grants any member of the public standing to seek relief for unfair competition. (Id. at p. 1200.)

The court disagreed, reject[ing] the claim that a plaintiff may, in effect, plead around absolute barriers to relief by relabeling the nature of the action as one brought under the unfair competition statute. (Rubin, supra, 4 Cal.4th at p. 1201.) The court thus concluded that, where the conduct alleged in the complaint comes within the scope of section 47(b), and is thus absolutely immune from civil tort liability, [t]o permit the same . . . acts to be the subject of an injunctive relief proceeding brought by this same plaintiff under the [UCL] undermines that immunity. If the policies underlying section 47(b) are sufficiently strong to support an absolute privilege, the resulting immunity should not evaporate merely because the plaintiff discovers a conveniently different label for pleading what is in substance an identical grievance arising from identical conduct as that protected by section 47(b). (Rubin, supra, at pp. 1202-1203.)

Relying on dicta found elsewhere in Rubin, the State and amicus curiae argue this holding does not apply here because, unlike in Rubin, the State, as plaintiff, (1) was not a party to the underlying CEQA proceedings; and (2) is a governmental entity suing on behalf of the public rather than a private litigant. We reject both contentions.

As an initial matter, we disagree the State was not a party to the underlying CEQA proceedings. The State of California was a party to the Headwaters Agreement and, in the CEQA proceedings, several State agencies, including the CDF and the Department of Fish and Game participated on behalf of the People of the State of California. Indeed, the State Attorney General continues to defend the outcome of those proceedings on behalf of the People in a case now pending before the California Supreme Court, Environmental Protection Information Center et al. v. California Department of Forestry and Fire Protection et al., case number S140547. It is thus clear the Peoples interests were adequately represented in the CEQA proceedings (the State does not contend otherwise), and that, as such, those proceedings, not this litigation, provided the more appropriate forum in which to expos[e] . . . the bias of witnesses and the falsity of evidence, thereby enhancing the finality of judgments and avoiding an unending roundelay of litigation, an evil far worse than an occasional unfair result. [Citation.] (Silberg, supra, 50 Cal.3d at p. 214.) That the People are being represented in this case by the District Attorney of Humboldt County rather than by the State Attorney General or a State agency does not change that fact. (People v. Sims (1982) 32 Cal.3d 468, 487 [ the agents of the same government are in privity with each other, since they represent not their own rights but the right of the government ]. Superseded by statute on another ground as stated in Gikas v. Zolin (1993) 6 Cal.4th 841, 851.)

Moreover, putting this conclusion aside, we disagree with the State that, under Rubin, the litigation privilege does not preclude lawsuits under [the UCL] by non-party litigants. Rather, the Rubin court expressly limited its holding to the precise circumstances before [it], including the circumstance that the same plaintiff was involved against the same defendants in the prior litigation, and that both the State Bar and prosecutorial authorities are authorized to pursue additional sanctions against attorney solicitation of the sort alleged in the amended complaint. (Rubin, supra, 4 Cal.4th at pp. 1203-1204.) And the California Supreme Court has clarified since Rubin that no broad exception [exists] to the litigation privilege for any party who did not participate in the underlying litigation because such exception would be antithetical to the privileges purposes. (Action Apartment, supra, 41 Cal.4th at p. 1247.) Derivative litigation brought by parties who did not participate in the underlying litigation, like litigation brought by parties who did participate, would pose an external threat of liability that would deter potential litigants, witnesses, and others from participating in judicial proceedings.[5] (Id. at p. 1248.)

We acknowledge that, in so concluding, our Supreme Court left open the possibility that the Legislature could create exceptions to the litigation privilege for both parties and non-parties to the prior proceedings. (Action Apartment, supra, 41 Cal.4th at p. 1247.) According to the State and amicus curiae, the Legislature created such an exception for UCL actions brought on behalf of the public by governmental entities. In so arguing, the State points to CEQAs savings clause, which provides that [n]o provision of this division is a limitation or restriction on the power or authority of any public agency in the enforcement or administration of any provision of law which it is specifically permitted or required to enforce or administer . . . . (Cal. Pub. Res. Code,  21174.) The State and amicus curiae also point again to dicta in Rubin, which states that the policy underlying the unfair competition statute can be vindicated by multiple parties other than plaintiff, including the Attorney General, district attorneys, [and] certain city attorneys . . . . (Rubin, supra, 4 Cal.4th at p. 1204.) We conclude neither source provides authority for an exception to the litigation privilege for enforcement actions brought by governmental entities under the UCL.

With respect to CEQAs savings clause, we find within it no legislative intent to override the litigation privileges absolute protection of access to courts and other quasi-judicial bodies. Indeed, the clause gives governmental entities no additional authority whatsoever, but rather simply acknowledges and preserves their existing authority. (Cal. Pub. Res. Code,  21174.) Thus, absent some other, independent source of authority to pierce the litigation privilege, the savings clause is irrelevant to our inquiry. (See Action Apartment, supra, 41 Cal.4th at p. 1245.)

Nor do we find within Rubins dicta an independent source of authority to pierce the litigation privilege. First, as we touched upon above, the Rubin court had no reason, given the facts before it, to consider a broad exception to the privilege for enforcement actions brought by governmental entities under the UCL. Second, we believe such exception, at least so broadly stated, would run counter to our Supreme Courts insistence, given the importance of the privileges absolute protection of access to official proceedings, that litigants, whatever their identity, should not be permitted to plead around the privilege absent clear legislative intent to the contrary. (Action Apartment, supra, 41 Cal.4th at pp. 1247-1248; see also Rubin, supra, 4 Cal.4th at pp. 1202-1203.) That legislative intent does not exist here.

The UCL, unlike other statutes that courts have determined were intended by the Legislature to withstand the litigation privilege, is not necessarily more specific than the litigation privilege and would [not] be significantly or wholly inoperable if its enforcement were barred when in conflict with the privilege.(Action Apartment, supra, 41 Cal.4th at pp. 1246-1247 [noting, for example, that [t]he crimes of perjury and subornation of perjury would be almost without meaning if statements made during the course of litigation were protected from prosecution for perjury by the litigation privilege and that [t]he misdemeanors established by Business and Professions Code section 6128 evince a legislative intent that certain attorney conduct not be protected from prosecution by the litigation privilege: Every attorney is guilty of a misdemeanor who either: [] (a) Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party. [] (b) Willfully delays his clients suit with a view to his own gain. [] (c) Willfully receives any money or allowance for or on account of any money which he has not laid out or become answerable for. ].)[6] Nor do we find, or has the State or amicus curiae pointed to, any other irreconcilable conflicts between the litigation privilege and the UCL upon which to base an exception. (Action Apartment, supra, at p. 1247.)

Further, as Pacific Lumber points out, several courts have recognized that the litigation privilege applies to claims brought against public entities. (E.g., Braun v. Bureau of State Audits (1998) 67 Cal.App.4th 1382, 1394; People v. Health Laboratories of North America, Inc. (2001) 87 Cal.App.4th 442, 450.) To then decline to apply the privilege to claims brought by public entities, under the UCL or any other statute, would indeed be inequitable.

For these reasons, we agree with the trial court that section 47(b) bars this action. Indeed, to conclude otherwise, we believe, would be inconsistent with our mandate to resolve [a]ny doubt about whether the [litigation] privilege applies . . . in favor of applying it. [Citation.] (Kashian, supra, 98 Cal.App.4th at pp. 912-913.) As several California courts have explained in recognizing that the litigation privilege has its costs,  [it] is desirable to create an absolute privilege . . . not because we desire to protect the shady practitioner, but because we do not want the honest one to have to be concerned with [subsequent derivative] actions . . .   (Silberg, supra, 50 Cal.3d at p. 214, quoting Thornton v. Rhoden (1966) 245 Cal.App.2d 80, 99.)

In so holding, we acknowledge the States and amicuss argument that UCL actions brought by governmental entities on the Peoples behalf serve important law enforcement purposes. However, the California Supreme Court has already made clear that fact alone does not warrant erosion of the absolute litigation privilege. Acknowledging in Action Apartment that the City of Santa Monica may have been motivated by a legitimate government purpose in adopting a city ordinance prohibiting landlords from bringing actions to recover rental units without a reasonable factual or legal basis, it nonetheless held that [t]he Citys enforcement of the provision . . . that creates a civil and criminal cause of action based on the act of initiating litigation would cut against the litigation privileges core policy of protecting access to the courts. [Citation.] Knowing that the City or any other person could bring [such an enforcement action] . . . would have a chilling effect on landlords pursuing evictions through the courts. (Action Apartment, supra, 41 Cal.4th at p. 1244.) The same chilling effect would occur here, we fear, were this lawsuit to proceed.

Story continues as Part II

Publication Courtesy of California attorney directory.

Analysis and review provided by Oceanside Property line attorney.

[1] A sustained yield plan is one submitted by a landowner to address long-term issues of sustained timber production, and cumulative effects analysis which includes issues of fish and wildlife and watershed impacts on a large landscape basis. (Cal. Code Regs., tit. 14,  1091.1, subd. (b).)

[2] We grant Pacific Lumbers unopposed request for judicial notice of this courts opinion in Environmental Protection Information Center et al. v. California Department of Forestry and Fire Protection et al. (2005) 134 Cal.App.4th 1093. (Evid. Code,  452, subds. (c), (d).) The California Supreme Court granted review April 3, 2006, and thus depublished the opinion. The opinion reflects the fact that on March 31, 1999, the Environmental Protection Information Center and the Sierra Club filed a lawsuit in California court challenging the issuance of certain state permits in connection with the Headwaters Agreement. Somewhat ironically, the California Attorney General has vigorously defended the issuance of those permits on behalf of various state agencies in connection with that litigation, which is still pending in the California Supreme Court, case number S140547. We do not rely on the opinion as legal precedent. (Cal. Rules of Court, rule 8.1115.)

[3] After a sustained yield plan is submitted and the Director of the CDF determines that it contains sufficient and complete information to permit further review, a 90-day review and comment period ensues, which includes the holding of a public hearing, after which the Director decides whether to accept or reject the plan. (Cal. Code Regs., tit. 14,  1091.10, subds. (a)-(e).) The Directors decision is subject to an administrative appeals process and, ultimately, to judicial review. (Cal. Code Regs., tit. 14,  1091.11; Cal. Code Regs., tit. 14,  1091.10; Code Civ. Proc.,  1094.5.)

Here, the draft documents available for public review included a combined habitat conservation plan and sustained yield plan, and an environmental impact statement and environmental impact report.

[4] An exception to the litigation privilege exists where the communication was made in connection with judicial or quasi judicial proceedings not instigated in good faith. (E.g., Action Apartment, supra, 41 Cal.4th at p. 1251.) Here, however, no such lack of good faith has been alleged with respect to Pacific Lumbers petitioning of the government in connection with the Headwaters Agreement. As such, we have no reason to consider this exception.

[5] On this point, the California Supreme Court appears to reject language in two of the States authorities, Kashian, supra, 98 Cal.App.4th at p. 924, and American Products Co., Inc. v. Law Offices of Geller, Stewart & Foley, LLP (2005) 134 Cal.App.4th 1332, 1346, suggesting that a UCL action survives the litigation privilege so long as the plaintiff is not a party to the earlier litigation.

[6] Despite the language in Rubin quoted above discussing the broad standing principles of the UCL, that decision nowhere recognizes a legislative intent within the UCL to permit enforcement actions brought by governmental entities that would otherwise be barred by section 47(b). To the contrary, Rubin focused on the fact that the State Bar is excepted from the litigation privilege in its enforcement of the antisolicitation statute. (Rubin, supra, 4 Cal.4th at p. 1198; see also Action Apartment, supra, 41 Cal.4th at pp. 1246-1247.)