by Robert K. Sall

When litigation is brought against a law firm by a non-client based upon the law firm’s allegedly false or misleading communications, the complaint is commonly met with an anti-SLAPP motion seeking to establish that the plaintiff’s claim arises out of the exercise of the right of petition and that the litigation privilege precludes the action from going forward. A recent court of appeal decision, Medallion Film LLC v. Loeb & Loeb LLP, 100 Cal. App. 5th 1272 (2024), turns our focus once again to the intersection of California’s litigation privilege under Civil Code section 47(b) and the “anti-SLAPP” statute, Code of Civil Procedure section 425.16, with respect to the content of a lawyer’s letter written to convey a client’s legal position.

To forestall at least some suspense in this drama, the court of appeal in Medallion reversed the trial court’s decision granting Loeb & Loeb’s anti-SLAPP motion and remanded the case with directions to enter an order denying the motion. Some commentators have argued that the court of appeal got it wrong and the letter should have been viewed as a protected communication. See, e.g., Timothy D. Reuben, A Bad Opinion for Lawyers, 137 Daily Journal 73, April 15, 2024. Loeb & Loeb filed a petition for review on May 7, 2024, which remains pending at the time of this writing.

Medallion Film, Pelican Point, and others (collectively “Medallion”), sued Loeb & Loeb in 2021 (Los Angeles County Superior Court No. 21STCV45129), alleging claims based upon fraud, aiding and abetting fraud, concealment, and negligent misrepresentation arising out of the allegedly false representations made in a prelitigation letter sent by a Loeb & Loeb partner on behalf of its client to dissuade the group from continuing to communicate with a third party to investigate concerns over a potential fee to which the group believed it was entitled.

By way of background, in 2014, Clarius Capital Group had entered into a consulting fee agreement with Medallion providing for Medallion to assist with obtaining funding for film projects by introducing Clarius to industry contacts and for Medallion to then be compensated with a portion of the funding obtained. Clarius agreed that it would not directly conduct business or transactions with any of the Medallion contacts to whom it was introduced. Pursuant to this arrangement, Medallion introduced Clarius to an individual at BlackRock, who was one of Medallion’s contacts specified in the agreement. Medallion Film LLC, 100 Cal. App. 5th at 1278.

Soon after this agreement was made, the principal of Clarius, William Sadleir, allegedly dissolved Clarius and its related business entities and, with Loeb & Loeb’s assistance, formed new corporate entities under the name Aviron Capital with which he continued to conduct the same business of obtaining financing and marketing Clarius’ film projects. The lawsuit filed by Medallion alleged that Sadleir controlled both the Clarius and Aviron entities and that he had transferred Clarius’ assets to the Aviron entities. Id. Medallion alleged that Aviron obtained financing for its film projects from BlackRock in 2015, and further extended that credit arrangement in 2017. Medallion allegedly learned of this and contacted Sadlier, who denied any affiliation between Aviron and Clarius. In 2018, Medallion wrote to their contact at BlackRock, informing him that they have a fee agreement with Sadlier for which compensation would be owed based upon monies raised by Aviron from BlackRock through their earlier introduction. Medallion’s letter asked for assistance in collecting what is due, and requested that BlackRock “[l]et us know so we don’t have to litigate and can resolve the matter” amicably. Id.

When Aviron’s counsel, Loeb & Loeb, learned of this inquiry, one of its partners, Bernard Given II, allegedly wrote a letter to Medallion in March 2018. The letter stated, as quoted by the court of appeal, “Aviron has no legal connection to Clarius Capital Group, LLC whatsoever. It is not a successor in interest and there is no common ownership between the two companies.” Given’s letter went on to state that Sadlier, who had signed the earlier Clarius agreement, is merely an employee of Aviron with no ownership interest. It described Medallion’s claim as being without merit and stated “[a]ny further communication by you to [BlackRock] regarding this matter will be considered by Avrion to constitute tortious interference.” Id.

Plaintiffs alleged that they believed the false representations made by Given in the letter, which dissuaded them from taking action. However, they later learned from documents in a separate litigation brought by BlackRock against Sadleir and Aviron that Given’s representations were allegedly untrue. Medallion filed suit, attaching as exhibits a series of documents from the BlackRock litigation supporting their discovery of the facts alleged. Id. at 1279-80. In response, Loeb & Loeb brought an anti-SLAPP motion under Code of Civil Procedure section 425.16 asserting, inter alia, that the claim arose out of Loeb & Loeb’s exercise of the right of petition on behalf of its client. Our focus here is on the discussion of litigation privilege and its application to the letter, not the other defenses that were raised in the motion and Medallion’s opposition, each of which was disposed of by both the trial court and the court of appeal.

The anti-SLAPP statute is designed to protect defendants from meritless lawsuits that might chill the exercise of the rights to speak and petition on matters of public concern. The statute authorizes a defendant to bring a special motion to strike a claim “arising from any act of that person in furtherance of the person’s right of petition or free speech under the United States Constitution or the California Constitution in connection with a public issue.” Cal. Civ. Proc. Code, § 425.16(b)(1). The litigation of an anti-SLAPP motion requires a two-step analysis. Initially, the moving party defendant bears the burden of establishing that the challenged allegations arise from protected activity. If this first prong is satisfied, the second prong of the analysis shifts the burden to the plaintiff to show that the claim has at least minimal merit. The court will strike the claim if the plaintiff cannot meet this burden. See Medallion Film LLC, 100 Cal. App. 5th at 1283-84.

In the trial court, Loeb & Loeb argued that plaintiffs could not establish a probability of success on their claims because, among other things, the litigation privilege provided an absolute defense for the content of the letter. Loeb & Loeb argued that Given’s letter was sent in direct response to Medallion’s inquiry to BlackRock, which allegedly threatened legal action, and that it believed that Medallion was contemplating litigation seriously and in good faith, and the representations made in Given’s letter related to Medallion’s anticipated claims to recover fees. Id. at 1281-82.

Medallion opposed the motion, asserting in the trial court that Loeb & Loeb had not met its burden on the first prong of the anti-SLAPP analysis to show that the claims arose from the exercise of the right of petition because Given’s statements in the letter were unlawful as a matter of law. Addressing the second prong, Medallion argued that even if the claims arose from protected activity, the letter was not protected by the litigation privilege because no litigation was seriously being contemplated in good faith when Given wrote the March 2018 letter. Id. at 1282.

The trial court granted the anti-SLAPP motion, finding that the plaintiff’s first amended complaint arose out of protected activity, and that the absolute litigation privilege would bar Medallion from establishing the minimal merit necessary to maintain its claims. The court struck the plaintiffs’ first amended complaint, entering judgment in favor of Loeb & Loeb. At the same time, however, the trial court expressed concern that plaintiff’s evidence opposing the motion was “certainly not insubstantial and raises a reasonable doubt as to whether Given was truly ignorant of his letter’s falsity.” Id. at 1283. Apparently feeling constrained by the law requiring it to apply the litigation privilege, the trial court took the most unusual step of stating that it did not like the result and believed that its decision was “probably not” fair, urging Medallion to appeal the ruling because “if Given had knowingly and maliciously lied, plaintiffs ‘should be able to sue them for that.’” Id. It is not every day that happens in a courtroom and the trial court must have been driven by the belief that there should be a remedy against lawyers who allegedly lie, inducing reliance upon false information.

Unlike the trial court’s statement of its reservations, it is an everyday occurrence that lawyers write letters and respond to positions taken in litigation and make serious written threats of litigation not yet filed. Many courts have held that prelitigation communications may qualify for the protection of the litigation privilege so long as they “concern the subject of the dispute and [are] made in anticipation of litigation contemplated in good faith and under serious consideration.” Id. at 1284-85 (citing Flickinger v. Finwall, 85 Cal. App. 5th 822, 832-33 (2022) and numerous prior decisions).

Following the trial court’s suggestion, Medallion appealed. Applying the de novo standard of review in anti-SLAPP cases, the Second District Court of Appeal evaluated the circumstances in which a prelitigation letter sent by counsel will not be protected by California’s litigation privilege.

Generally, the policy behind the litigation privilege is to afford litigants and witnesses free access to the courts without fear of being harassed subsequently by derivative tort actions, to encourage open channels of communication and zealous advocacy, to promote complete and truthful testimony, to give finality to judgments, and to avoid unending litigation. To effectuate these purposes, the litigation privilege is absolute, and applies regardless of malice. Rusheen v. Cohen, 37 Cal. 4th 1048, 1055-56 (2006). So important is this public policy that in Rusheen the California Supreme Court held that the litigation privilege would protect a lawyer even from a civil action based on filing allegedly perjured declarations of service.

On appeal, Loeb & Loeb questioned a line of authorities and disputed the existence of the good faith and serious consideration requirement, relying upon two decisions that arguably cast doubt on its appropriateness in the first prong of the anti-SLAPP analysis, Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc., 56 Cal. App. 5th 413 (2020) and Pech v. Doniger, 75 Cal. App. 5th 443 (2022). The court of appeal noted that “Loeb & Loeb overstates the scope and import of these decisions: in neither case did the court rule the good faith and serious consideration requirement no longer exists to determine whether prelitigation activity is protected.” Medallion Film LLC, 100 Cal. App. 5th at 1285-86. The court of appeal disagreed with the interpretation of the good faith and serious consideration requirement in RGC Gaslamp and Pech, noting that the concern raised in those decisions misconstrued the showing of good faith and serious consideration of litigation that is required. It is not a test for malice, but rather, it focuses on whether the litigation was genuinely contemplated.
“[I]t protects prelitigation communications,” the court stated, that are “made in genuine contemplation of litigation while excluding from protection communications made when litigation is ‘just a negotiating tactic or a hypothetical possibility.’” Medallion Film LLC, 100 Cal. App. 5th at 1286-87. “The requirement to show that litigation is seriously contemplated ensures that prelitigation communications are actually connected to litigation and that their protection therefore furthers the anti-SLAPP statute’s purpose of early dismissal of meritless lawsuits that arise from protected petitioning activity.” Id. In this manner, “the good faith and serious consideration requirement ‘guarantees that hollow threats of litigation are not protected.’” Id. (quoting People ex rel. Fire Ins. Exch. v. Anapol, 211 Cal. App. 4th 809 (2012)).

The court of appeal further distinguished the RGC Gaslamp and Pech decisions because those involved prelitigation activities that were intrinsically preparatory to litigation such that no analysis was necessary to determine that they were protected activity. In Pech, the communication was legal advice provided to the lawyer’s clients in preparation for litigation. In RGC Gaslamp, the communication was the filing of a mechanic’s lien, a necessary prerequisite to filing litigation to enforce such a lien. See id. at 1285-86.

Reviewing the contents of Loeb & Loeb’s letter, the court of appeal concluded that Given’s representations were not communications made in preparation for or in anticipation of litigation. The court found that the respondent’s brief filed by Loeb & Loeb “repeatedly and hyperbolically” described the email to which Given responded as an explicit threat of litigation, thereby establishing that Given’s letter was anticipating litigation. However, the court found that Medallion’s letter to BlackRock was neither a demand letter nor a litigation threat and was not even directed to Aviron. Rather, the court concluded, it was Medallion’s letter to BlackRock asking for BlackRock’s help in securing a payment to which they thought they were entitled. The email demonstrated a request for assistance from a person who could be influential in persuading Sadleir to pay them, without having to resort to litigation. The court described it as “the exact opposite of a threat of litigation.” Id. at 1287 (emphasis in original). A remote possibility of future litigation was not enough to demonstrate a communication is protected by litigation privilege that is not actually connected to litigation. Id.

It remains to be seen whether the matter will be taken up by the California Supreme Court, and whether this clarification by the court of appeal of the standards applicable to prelitigation communications and the litigation privilege will remain viable.

Although not addressed in the opinion at all, the issues in this case raise several ethical concerns. Assuming, for the purpose of argument only, that Loeb & Loeb is required to defend the litigation, is it likely that the trial court would find the otherwise privileged communications between Aviron and Given to not be privileged, applying the crime-fraud exception to attorney-client privilege? California Evidence Code section 956 provides “[t]here is no privilege under this article if the services of the lawyer were sought or obtained to enable or aid anyone to commit or plan to commit a crime or fraud.” In BP Alaska Exploration, Inc. v. Superior Court, 199 Cal. App. 3d 1240 (1988), the communications between law firm and client relating to a letter written by a lawyer arguably containing misrepresentations to an adverse party were found to not be subject to attorney-client privilege. On the remand of Medallion, and if the holding remains viable, it could open the door to discovery of those communications and aid in ascertaining whether there was an intent by Loeb & Loeb to make an actionable misrepresentation.

Similarly, if there is credible evidence of dishonesty or misrepresentation, do the attorneys involved in the case have a duty to report the author to the State Bar under rule 8.3 of the Rules of Professional Conduct (Reporting Professional Misconduct), which became effective in August 2023? Subdivision (a) of rule 8.3 provides, in relevant part: “A lawyer shall, without undue delay, inform the State Bar, or a tribunal with jurisdiction to investigate or act upon such misconduct, when the lawyer knows of credible evidence that another lawyer . . . has engaged in conduct involving dishonesty, fraud, deceit, or reckless or intentional misrepresentation . . . that raises a substantial question as to that lawyer’s honesty, trustworthiness, or fitness as a lawyer in other respects.” In Comment 3 to the rule, it provides: “The duty to report without undue delay under paragraph (a) requires the lawyer to report as soon as the lawyer reasonably believes the reporting will not cause material prejudice or damage to the interests of a client of the lawyer or a client of the lawyer’s firm.” Does the reporting of misconduct of a defendant who is a lawyer raise a risk of material prejudice or damage to the interests of the client, the lawyer, or his or her firm? Food for thought.

In all events, the author of a demand letter or response to one must be careful to ascertain whether the writing contains information that is false or misleading as that may result in disciplinary consequences even if the writer is protected against civil liability by the application of litigation privilege. Lawyers have a duty of honesty under Business & Professions Code section 6106, which provides that moral turpitude is a suspension or disbarment offense. As always, let’s be careful out there.

Robert K. Sall is a shareholder with Sall Spencer Callas & Krueger in Laguna Beach. A Certified Specialist in Legal Malpractice Law by the State Bar of California’s Board of Legal Specialization, he lectures frequently for the OCBA on lawyer conduct, fee disputes, and legal ethics. He can be reached at rsall@sallspencer.com.