T.T. v. Marin County Mental Health Youth and Family Services

Filing 77

ORDER GRANTING IN PART AND DENYING IN PART ANTI-SLAPP MOTION TO STRIKE AND AWARDING ATTORNEYS FEES by Judge Alsup granting in part and denying in part 58 Motion to Strike ; granting in part and denying in part 63 Motion to Dismiss (whalc1, COURT STAFF) (Filed on 1/25/2013)

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1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 9 Plaintiff, 11 For the Northern District of California United States District Court 10 12 13 COUNTY OF MARIN, Defendant. COUNTY OF MARIN, 16 17 18 19 20 21 ORDER GRANTING IN PART AND DENYING IN PART ANTISLAPP MOTION TO STRIKE AND AWARDING ATTORNEY’S FEES v. 14 15 No. C 12-02349 WHA T.T., by and through his guardian ad litem SUSAN T., Counterclaimant, v. T.T., by and through his guardian ad litem SUSAN T.; SUSAN TIMMEL; JESSICA WELCH; COLLEEN A. SNYDER; CHRISTIAN M. KNOX; F. RICHARD RUDERMAN; PAULA SOLOMON and RUDERMAN & KNOX, LLP, 22 Counterclaim Defendants. / 23 24 INTRODUCTION 25 In this action to enforce an administrative judgment in favor of a special-needs student, 26 plaintiff moves to strike defendant’s counterclaims for fraud, false claims, and breach of 27 contract. For the reasons explained below, the motion is GRANTED IN PART and DENIED IN 28 PART. 1 STATEMENT 2 Plaintiff T.T. is a special-needs student who filed a Individuals with Disabilities 3 Education Act “due process” complaint against the Novato Unified School District and 4 defendant County of Marin before the Office of Administrative Hearings for the State of 5 California in August of 2011. The due process complaint alleged that Novato and the County 6 had failed to provide T.T. an appropriate education given his disability. Plaintiff settled the 7 complaint with Novato, but not the County, in November of 2011. 8 The settlement agreement between plaintiff and Novato provided that Novato would The settlement agreement defined the parties as “Jessica Welch . . . individually and on behalf of 11 For the Northern District of California reimburse plaintiff $82,000 for educational costs for the 2011-2012 and 2012-2013 school years. 10 United States District Court 9 her son” T.T., and Novato; the County is not explicitly named in the settlement agreement. The 12 settlement agreement also released “all claims” related to the dispute between the parties, 13 including Novato’s “past and present officials, employees, trustees, successors, predecessors, 14 assigns, agents, attorneys, consultants, affiliates and representatives” (Dkt. No. 60-1 at 3–4). 15 Following settlement, Novato was dismissed from the due process action. 16 Plaintiff subsequently pursued his due process claim against the County before the OAH. 17 The due process complaint before the OAH sought, inter alia, declaratory and compensatory 18 relief for the County’s alleged failure to provide appropriate education for the 2009–2010 19 through 2010–2011 school years (Dkt. No. 73-2 at 10). 20 Outside of the OAH proceedings, the County contended that OAH did not have subject- 21 matter jurisdiction in the matter due to a line-item veto by the governor of the relevant statute in 22 October 2010, a state court decision in March 2011 (not involving plaintiff), and a July 2011 23 memorandum of understanding with Novato. The County also contended that OAH did not have 24 personal jurisdiction over the county because it had not been properly served with the complaint. 25 The County did not, however, assert these contentions in front of OAH. The County refused to 26 participate in the OAH proceeding in any way, refusing, for example, to make a special 27 appearance to contest jurisdiction. OAH was apparently apprised of the County’s arguments by 28 plaintiff, who submitted letters from defendant’s counsel to the ALJ. During the OAH hearing, 2 1 the ALJ arranged for the County to be contacted via telephone; the County confirmed during that 2 phone call that it did not intend to appear at the hearing. 3 OAH held that it had subject-matter and personal jurisdiction over the absent defendant 4 and awarded plaintiff $41,000 as compensation for, inter alia, the County’s failure to provide 5 appropriate education prior to its responsibilities being extinguished by the line-item veto. OAH 6 also held that there was no risk of a double recovery because the OAH judgment and the 7 settlement with Novato covered different educational expenses. The County did not appeal the 8 OAH judgment. 9 In February 2012, plaintiff’s counsel sent the County a demand letter seeking to enforce the judgment and requesting prevailing party attorney’s fees. Following expiration of the 11 For the Northern District of California United States District Court 10 County’s window to appeal the OAH decision, plaintiff filed suit in this district to enforce the 12 OAH judgment under 20 U.S.C. 1415(i)(3) . In September (as amended in November), the 13 County filed counterclaims for fraud, for filing a false claim under the California False Claims 14 Act, and for breach of contract. 15 With respect to the latter, the County contends that it was an intended third-party 16 beneficiary of the settlement with Novato, and that the OAH suit therefore breached the claims 17 release. The County asserts this breach-of-contract claim against plaintiff, plaintiff’s mother, 18 and plaintiff’s grandmother. 19 The County also contends that the counterclaim defendants made false statements during 20 the OAH hearing, and that these statements constitute fraud. The County asserts this claim for 21 fraud against plaintiff, plaintiff’s mother and grandmother, plaintiff’s counsel and their law firm, 22 and plaintiff’s expert witness in the OAH proceeding. 23 The County further contends that because of the allegedly false statements during the 24 OAH proceeding, the letter demanding reimbursement based on the OAH judgment “was based 25 upon false information” (Amd. Counterclaim ¶ 40) and therefore constitutes a false claim under 26 the CFCA. There is no contention that plaintiff’s counsel misrepresented the OAH judgment 27 itself or the amount of attorney’s fees due in the demand letter. The County asserts the CFCA 28 claim against plaintiff, the mother and grandmother, and plaintiff’s counsel and their law firm. 3 1 The County further contends that the instant action is part of plaintiff’s “continued 2 attempt to defraud the County of Marin with . . . false claims” (id. ¶ 41). This allegation is 3 incorporated by reference into the County’s counterclaim for fraud, but is not incorporated into 4 the CFCA claim. (id. ¶¶ 41, 43, 58). California’s Anti-SLAPP statute, and requests attorney’s fees and costs. Following full briefing 7 and oral argument, plaintiff’s motion as to the counterclaim for breach of contract is DENIED, 8 and plaintiff’s motions as to the fraud and CFCA counterclaims is GRANTED. Plaintiff’s request 9 for attorney’s fees and costs with respect to the fraud and CFCA counterclaims is GRANTED. 10 At oral argument, the County reiterated that the OAH proceeding did not have 11 For the Northern District of California Plaintiff moves to dismiss the counterclaims and moves to strike the counterclaims under 6 United States District Court 5 jurisdiction over the County. The County does not, however, request any relief on this basis at 12 present and the parties have not briefed the issue. This dispute remains to be addressed, if at all, 13 another day. 14 ANALYSIS 15 A “strategic lawsuit against public participation” — otherwise known as a “SLAPP suit” 16 — is a “meritless suit filed primarily to chill the defendant’s exercise of First Amendment 17 rights.” Dove Audio, Inc. v. Rosenfeld, Meyer & Susman, 47 Cal. App. 4th 777, 783 (1996). 18 California Code of Civil Procedure Section 425.16(b)(1) — the “anti-SLAPP” statute — allows 19 defendants to strike any cause of action “arising from any act of that person in furtherance of the 20 person’s right of petition or free speech under the United States Constitution or the California 21 Constitution in connection with a public issue.” Section 425.16(e)(1) defines “act in furtherance 22 of a person’s right to petition or free speech” as “any written or oral statement made before a 23 legislative, executive, or judicial proceeding, or any other official proceeding authorized by 24 law.” 25 The analysis under the anti-SLAPP statute is two-pronged. First, the party moving to 26 strike must make a threshold showing that the challenged claim was one arising from “protected 27 activity.” Second, if the moving party is able to do so, the burden shifts to opposing party to 28 4 1 make a prima facie showing of facts that would support a judgment in their favor if proved at 2 trial. Vargas v. City of Salinas, 46 Cal. 4th 1, 14 (2009). 3 “Special procedural rules apply where an anti-SLAPP motion is brought in federal 4 court.” Bulletin Displays, LLC v. Regency Outdoor Adver., Inc., 448 F. Supp. 2d 1172, 1180 5 (C.D. Cal. 2006) (Judge Cormac Carney). This is because the anti-SLAPP burden-shifting 6 analysis must comply with the Federal Rules: 7 8 9 11 For the Northern District of California United States District Court 10 § 425.16 applies in federal court. However, it cannot be used in a manner that conflicts with the Federal Rules. This results in the following outcome: If a defendant makes a special motion to strike based on alleged deficiencies in the plaintiff’s complaint, the motion must be treated in the same manner as a motion under Rule 12(b)(6) except that the attorney’s fee provision of § 425.16(c) applies. If a defendant makes a special motion to strike based on the plaintiff’s alleged failure of proof, the motion must be treated in the same manner as a motion under Rule 56 except that again the attorney’s fees provision of § 425.16(c) applies. 12 Carr v. Asset Acceptance, LLC, No. 11-890, 2011 WL 3568338 *3 (E.D. Cal. Aug.12, 2011) 13 (Judge Lawrence O’Neill) (quoting Rogers v. Home Shopping Network, Inc., 57 F. Supp. 2d 973, 14 983 (C.D. Cal. 1999) (Judge Dean Pregerson). “If a defendant makes an anti-SLAPP motion 15 based on the plaintiff’s failure to submit evidence to substantiate its claims, the motion is treated 16 as a motion for summary judgment, and discovery must be developed sufficiently to permit 17 summary judgment under Rule 56. Bautista v. Hunt & Henriques, No. 11-4010, 2012 WL 18 160252, at *3–4 (N.D. Cal. Jan. 17, 2012) (Magistrate Judge Joseph Spero) (citing Bulletin 19 Displays, 448 F. Supp. 2d at 1180, and In re Bah, 321 B.R. 41, 45 n.6 (9th Cir. 2005)). 20 Although the parties have submitted evidentiary materials their opposition and reply 21 papers, plaintiff’s motion to strike focuses on the sufficiency of the pleadings. Thus, this order 22 construes plaintiff’s motion to strike as a motion under Rule 12(b)(6). This order now turns to 23 the two prongs of analysis. THE CHALLENGED CLAIMS ARISE FROM PROTECTED ACTIVITY 24 1. 25 Plaintiff first has the burden of showing that the County’s counterclaims for relief arise 26 out of activity protected by Section 425.16. In the anti-SLAPP context, the critical point is 27 whether the County’s counterclaims for relief are based on an act in furtherance of plaintiff’s 28 5 1 right of free speech. City of Cotati v. Cashman, 29 Cal. 4th 69, 78 (2002). Acts in furtherance 2 of a person’s right of petition or free speech include: 3 (1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law; 4 5 (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; 6 7 Cal. Civ. Proc. Code § 425.16(e). A claim for relief arising from a party’s litigation activity may 8 appropriately be the subject of a Section 425.16 motion to strike. Church of Scientology v. 9 Wollersheim, 42 Cal. App. 4th 628, 648 (1996). Acts in furtherance of free speech or the right of 10 civil action.” Rusheen v. Cohen, 37 Cal. 4th 1048, 1056 (2005) (holding that a creditor’s actions For the Northern District of California United States District Court petition further include “communicative conduct such as the filing, funding, and prosecution of a 11 12 taken in collecting a judgment constituted communicative conduct in furtherance of the right of 13 petition). 14 This order holds that all three of the County’s counterclaims are based on acts in 15 furtherance of plaintiff’s right of free speech. The breach-of-contact counterclaim arises out of 16 plaintiff’s act of prosecuting his due process complaint against the County (Amd. Counterclaim ¶ 17 56). The fraud counterclaim arises out of plaintiff’s representations during the OAH action (id. 18 ¶¶ 60–61). The CFCA counterclaim arises out of plaintiff’s demand letter requesting 19 reimbursement under the OAH judgment and prevailing party attorney’s fees (id. ¶ 45). These 20 acts are indisputably part of plaintiff’s litigation activity. 21 The County contends that plaintiff’s actions are not protected because the counterclaims 22 are based on illegal activity. This contention is devoid of merit. The County does not point to 23 any allegedly illegal activity other than plaintiff’s actions in connection with prosecuting its 24 claim. Instead, the County makes a circular and conclusory allegation that its “claims for fraud, 25 false claims act violations and breach of contract, are based on [plaintiff’s] illegal fraudulent 26 conduct to obtain monies from the County” (Opp. 9). 27 28 6 1 The County’s contentions that that the due process complaint was pursued despite an 2 alleged lack of subject-matter jurisdiction and despite the release in the settlement agreement are 3 irrelevant to defining the underlying activity. 4 2. 5 On the second prong of the anti-SLAPP analysis, 6 7 8 9 11 For the Northern District of California United States District Court 10 12 THE COUNTY’S ABILITY TO PREVAIL ON ITS CLAIMS [o]nce it is determined that an act in furtherance of protected expression is being challenged, the plaintiff must show a reasonable probability of prevailing in its claims for those claims to survive dismissal. To do this, the plaintiff must demonstrate that the complaint is legally sufficient and supported by a prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited. This burden is much like that used in determining a motion for nonsuit or directed verdict, which mandates dismissal when no reasonable jury could find for the plaintiff. Thus, a defendant’s anti-SLAPP motion should be granted when a plaintiff presents an insufficient legal basis for the claims or when no evidence of sufficient substantiality exists to support a judgment for the plaintiff. 13 Metabolife Intern., Inc. v. Wornick, 264 F. 3d 832, 840 (9th Cir. 2001) (quotation marks 14 omitted). This rule will now be applied to the record on this motion. 15 16 A. The County’s Counterclaims Are Not Precluded Plaintiff contends that the County cannot prevail on any of its three counterclaims 17 because these claims are precluded. Plaintiff asserts that defendant’s counterclaims are 18 precluded because County has waived them or is estopped from asserting them because it failed 19 to appear at the OAH proceeding or appeal that decision. “California . . . accords collateral 20 estoppel effect to default judgments, at least where the judgment contains an express finding on 21 the allegations.” Murray v. Alaska Airlines, Inc., 522 F.3d 920, 924 (9th Cir. 2008). One of the 22 threshold requirements for collateral estoppel under California law, however, is that “the issue 23 sought to be precluded from relitigation must be identical to that decided in a former 24 proceeding.” Lucido v. Superior Court, 51 Cal. 3d 335, 341 (1990). 25 This order therefore finds that the County is not precluded from asserting its three 26 counterclaims in this action, at least on this record. Plaintiff asserts in conclusory fashion that 27 “[e]ach of the County’s three claims require the Court to unseat the findings by the OAH” (Dkt. 28 No. 72 at 7). Plaintiff does not establish — on a claim by claim basis — that the issues sought to 7 1 be precluded are identical to issues decided at the OAH proceeding. For example, plaintiff does 2 not establish that the OAH proceeding resolved the questions of whether the County is a third- 3 party beneficiary to the settlement agreement, nor whether plaintiff made representations to the 4 OAH in furtherance of an organized fraud. Moreover, the County’s counterclaim under the 5 CFCA for submission of the post-judgment demand letter is necessarily outside the scope of the 6 issues decided at the OAH proceeding, and thus cannot be precluded. 7 B. 8 The County’s Breach-of-Contract Counterclaim Turning to the proceedings in this action, Plaintiff contends that County was neither a party beneficiary by the parties. This contention goes to the merits of the County’s breach-of- 11 For the Northern District of California third-party beneficiary of the settlement agreement with Novato, nor was intended to be a third- 10 United States District Court 9 contract claim. Being outside the pleadings, this contention would more properly be raised on a 12 motion for summary judgment and this order declines to rule on the issue at the Rule 12(b)(6) 13 stage. 14 Plaintiff asserts that the County’s breach-of-contract counterclaim is barred by the 15 litigation privilege. This order disagrees. Determining the scope of the litigation privilege is 16 similar to the anti-SLAPP analysis above regarding whether the target of a claim arises out of a 17 protected activity. California Civil Code § 47(b), provides that: 18 19 A privileged publication or broadcast is one made in any (1) legislative proceeding, (2) judicial proceeding, (3) in any other official proceeding authorized by law, or (4) in the initiation or course of any other proceeding authorized by law. 20 Regarding a claim for breach of contract: 21 24 [W]hether the litigation privilege applies . . . turns on whether its application furthers the policies underlying the privilege. . . . [T]he purpose of the litigation privilege is to ensure free access to the courts, promote complete and truthful testimony, encourage zealous advocacy, give finality to judgments, and avoid unending litigation. 25 Wentland v. Wass, 126 Cal. App. 4th 1484, 1492 (2005). Where the communication at issue is a 26 separate promise independent of the litigation, however, the litigation privilege may not apply. 27 See id. at 1495. 22 23 28 8 1 The County seeks to enforce a separate promise independent of the litigation: a release 2 provision. After weighing the public policy interests, this order concludes that the litigation 3 privilege should not apply here because otherwise any effort to enforce an otherwise valid 4 litigation release could be hamstrung by invocation of the litigation privilege. 5 Based on the pleadings, this order also holds that the County has pled a barely-plausible 6 counterclaim for breach of contract. The elements of a breach of contract claim are: (1) 7 existence of the contract, (2) performance by the plaintiff or excuse for nonperformance, (3) 8 breach by the defendant, and (4) damages. Tom Trading, Inc. v. Better Blue, Inc., 26 Fed. Appx. 9 733, 735 (9th Cir. 2002). The counterclaim alleges the existence of a contract between plaintiff and Novato to which the County is allegedly a third-party beneficiary (Amd. Counterclaim. ¶ 11 For the Northern District of California United States District Court 10 52). This allegation is supported by other facts alleged in the complaint: the settlement 12 agreement released claims against Novato’s agents, representatives, and consultants, and by 13 virtue of a memorandum of understanding with Novato, County was such an agent, 14 representative, and consultant for these purposes (id. ¶¶ 26–27). The counterclaim asserts that 15 plaintiff breached by continuing its suit against the County following the agreement (id. ¶ 56). 16 The counterclaim also alleges damages from the claim for reimbursement (id. ¶ 67). 17 These allegations are sufficient at the pleading stage. Accordingly, the County has 18 established an ability to prevail on its counterclaim for the purposes of Rule 12(b)(6) and 19 plaintiff’s anti-SLAPP motion is DENIED as to this claim. This should not, however, be taken as 20 a ruling that the County’s counterclaim is likely to survive a motion for summary judgment. 21 22 C. The County’s Fraud Counterclaim The County’s counterclaim for fraud is a different story. This counterclaim does not 23 follow the more common path of seeking to set aside a prior judgment on the grounds that it was 24 procured by fraud. Rather, the County seeks to recover money in tort from the speakers 25 themselves based entirely on representations made during the OAH proceedings (Amd. 26 Counterclaim ¶¶ 60–61). These representations fall squarely within the realm of 27 communications protected by the litigation privilege. Accordingly, this order holds that the 28 County cannot establish a probability that it will prevail on this counterclaim. 9 1 To the extent that the fraud counterclaim could be interpreted to apply to statements 2 made to enforce the OAH judgment, the California Supreme Court has explicitly held that the 3 litigation privilege applies to actions taken in collecting a judgment. Rusheen v. Cohen, 37 Cal. 4 4th 1048, 1058 (2005). Extending the litigation privilege to post-judgment activities is 5 consistent with the litigation privilege’s policy of giving litigants and witnesses free access to the 6 courts and promoting finality in judgments. Id. at 1063. 7 The County attempts at length to substantiate the elements of its fraud claim but does not 8 address the application of the litigation privilege. Moreover, even if the County had attempted to 9 salvage this counterclaim, the counterclaim complaint plainly fails to plead the fraud counterclaim with particularity under Federal Rule 9(b). For example, although the County lists 11 For the Northern District of California United States District Court 10 a series of sixteen allegedly fraudulent misrepresentations (the vast majority of which are 12 actually legal contentions), the County fails to identify which of the eight fraud counterclaim 13 defendants made which representation. 14 15 16 The motion to strike the fraud counterclaim is GRANTED. D. The County’s CFCA Counterclaim The parties dispute whether the litigation privilege applies to the County’s CFCA 17 counterclaim given the factual circumstances of this dispute. It is not necessary to resolve this 18 issue because there is a more fundamental problem with this counterclaim. 19 Under Section 12651(a)(1) of the CFCA, liability falls on any person who “knowingly 20 presents or causes to be presented a false or fraudulent claim for payment or approval.” Here, 21 plaintiff’s attorneys clearly submitted a “claim” to the County in the form of the demand letter 22 requesting payment under the OAH judgment and attorney’s fees. The problem is that there is 23 no contention that the claim itself was “false.” The County does not allege that the demand letter 24 misstated the OAH judgment or the amount of attorney’s fees due. Construing the awkwardly- 25 written pleading favorably to the County, the counterclaim alleges that the demand letter was 26 based on a “false record.” In other words, the County is asserting that plaintiff made false 27 statements at the OAH proceeding, and that the OAH judgment that plaintiff seeks to enforce is 28 “based on” false information. 10 1 The County does not cite any authority that interprets the CFCA to apply to an accurate 2 claim to enforce a judgment where the recipient disagrees with an underlying factual finding. 3 Indeed, it would be bizarre if the government could collaterally attack any attempt to enforce a 4 judgment — with the threat of treble damages — because it alleged that the prevailing party 5 made a false factual statement at the earlier proceeding. This is especially true where, as here, 6 the County defaulted on the earlier proceeding by failing to appear. 7 8 The County has failed to plead a plausible claim under the CFCA. Plaintiff’s motion to strike is GRANTED. 9 Plaintiff’s anti-SLAPP motion to strike as to the County’s counterclaims under the CFCA 11 For the Northern District of California United States District Court 10 CONCLUSION and for fraud is GRANTED. Plaintiff’s motion to strike as to the County’s counterclaim for 12 breach of contract is DENIED. Plaintiff is awarded attorney’s fees pursuant to California Civil 13 Procedure Code Section 427.16(c). Plaintiff may only recover for attorney’s fees and costs 14 incurred in defending against the County’s CFCA and fraud counterclaims. The parties must 15 follow the procedure set out in the accompanying order. 16 17 Because it was unnecessary to rely on the lodged materials to reach the conclusions above, plaintiff’s request for judicial notice DENIED AS MOOT 18 19 20 IT IS SO ORDERED. 21 22 Dated: January 25, 2013. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 23 24 25 26 27 28 11

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