Filing Lawsuit and Filing Demand For Fee Arbitration are Petitioning Activities

A law firms' second amended cross-complaint against a former client stated causes of action protected by the anti-SLAPP statute

Philipson & Simon v. Gulsvig (August 15, 2007, G037335, Fourth District, Division Three)
23 page opinion

154 Cal.App.4th 347

This originally unpublished decision was, on the court's own motion, ordered published on August 15. Let's hope that wasn't because the Court of Appeal thought that more than one or two members of the California State Bar could benefit from its description of how not to practice law. The opinion's priceless first paragraph provides a precis of ways for an attorney to breach his duty of loyalty to his client.

But as fascinating as the potential legal ethics issues are, the decision itself decides the question of whether the respondent law firms' second amended cross-complaint against a former client should have been stricken as a SLAPP suit, in part because the law firm did not serve the client a mandatory notice of her right to arbitrate the firm's fee claim.

P&S law firms' second amended cross-complaint stated four causes of action against former client Gulsvig - fraud, misrepresentation, breach of contract and breach of the covenant of good faith and fair dealing. The anti-SLAPP statute, Code of Civil Procedure section 425.16 requires a two step analysis (1) has the defendant shown that the cause of action is based upon actions that were taken in furtherance of the defendant's right of petition or free speech under the United States or California constitution in connection with a public issue? and (2) if yes, has the plaintiff demonstrated a probability that he will prevail on the claim?

The firms' fraud and misrepresentation causes of action were based upon allegations that because of Gulsvig's fraud and misrepresentation it had been sued in this action by Gulsvig. (Yes, the Court agrees that is a very odd argument.) A lawsuit qualifies as petitioning under the anti-SLAPP law and therefore those causes of action were protected.

The breach of contract and breach of the covenant causes of action, when read in conjunction with the firms' previous cross-complaints, were essentially a claim that Gulsvig had refused to pay P&S $15,000 in fees for an $85,000 settlement payment that it had obtained for her. But P&S had deducted that $15,000 from the settlement payment and had given Gulsvig only $70,000. Because P&S had the money in its possession at all times, the only action that could fit the description "refused to pay" was Gulsvig's act of filing a request for fee arbitration with the Orange County Bar Association. Filing such a request is protected petitioning. The second amended cross-complaint contained expanded fee claims but the initial $15,000 was at the heart of the case and thus the breach of contract and breach of covenant causes of action were based, at least in part, on Gulsvig's petitioning activity.

Could P&S nevertheless sustain its burden of demonstrating probable success on the merits of the cause of action? Not as to fraud and negligent misrepresentation. P&S could never establish that it had reasonably relied upon Gulsvig's allegedly false representation that she owned the judgment for which it had negotiated the $85,000 settlement. Not when the law firm alleged that Gulsvig had spent the two years before that representation telling it that a company named Tultex owned the judgment. And in any event, the only damages P&S sought on these causes of action were the costs it would be incurring in this very action - costs which are not recoverable under the American rule.

When it came to the breach of contract and breach of the covenant causes of action, Gulsvig's problem was that in the second amended cross-complaint the fee claims had been expanded beyond the original $15,000. Gulsvig argued that the trial court's conclusion that the breach of contract and breach of the covenant claims were viable was in error because they were subject to dismissal under the Mandatory Fee Arbitration Act (Business & Professions Code section 6201 et seq.). But Gulsvig had waived her right to arbitration by filing a cross-complaint against P&S before it filed its second amended cross-complaint with the expanded fee claims. Furthermore, even if Gulsvig had not waived her right to arbitration, dismissal is discretionary under the Act and the Court of Appeal could not conclude that the trial court had abused its discretion in deciding not to dismiss these causes of action for failure to serve an arbitration notice.
Justice Bedsworth wrote the opinion. Presiding Justice Sills and Justice Rylaarsdam concurred.

Comment: If you are curious about that great first paragraph, it is the quote of the week on my California Civil Litigation Quote of the Week blog.