In Midland Pacific Building Corp. v. King, (— Cal.Rptr.3d —, 2007 WL 4181579, Cal.App. 2 Dist., Nov. 28, 2007), a California Court of Appeal reviewed a lower court’s denial of anti-SLAPP motions in a case alleging breach of contract and fraud by defendants who claimed those allegations arose from their constitutionally protected rights of free speech and petition. (The acronym SLAPP stands for Strategic Lawsuit Against Public Participation.)
The court affirmed the lower court’s denial on both charges. It found that plaintiff demonstrated a likelihood of prevailing in the breach of contract action and that the alleged fraud was incidental to defendants’ exercise of free speech and therefore not protected.
In 2003, John and Carole King (“Kings”) entered into an agreement to sell 27 acres of property in San Luis Obispo County (“County”), and within the sphere of influence of the City of San Luis Obispo (“City”), to Midland Pacific Building Corp. (“Midland”). The terms of the sale specified that Midland would pay the Kings $125,000 for each single family residential lot that could be created in conformance with the City’s planning decisions. The parties estimated the number of lots at 120, but possibly more or less, which would have resulted in a total sale price of $15 million.
In 2005, the Kings told Midland that City officials wanted higher density, more affordable housing to be developed on the property, resulting in 140 lots. Midland agreed to a 140-lot proposal and in January 2006, the City Planning Commission (“Commission”) approved a 140-lot tentative tract map for the property. The Kings also said that due to rising real estate values, they wanted the per-lot price increased by $35,000. Midland refused this price increase, and requested the Kings to act in accordance with the terms of the sales agreement. The Kings then told City officials they would submit a new proposal for 190 lots, which would have raised the sale price of their property to $23.75 million.
Midland sued the Kings for breach of contract for submitting the more expensive, higher-density 190 lot map to the City; and for fraud, alleging that the Kings got Midland to agree to the 140-lot plan by falsely claiming that the City would not approve the 120-lot plan. The Kings in turn filed an anti-SLAPP motion, arguing that Midland’s suit was an effort to prevent them from exercising their constitutional rights to free speech and to petition the government. The trial court ruled that the anti-SLAPP statute was not intended to protect purely business transactions and therefore the Kings had not shown that their actions were protected. The Kings appealed.
California Code of Civil Procedure Section 425.16 allows defendants in civil suits, who believe that they have been sued to prevent or discourage them from exercising their constitutional rights, to file anti-SLAPP motions to have the case dismissed.
Reviewing that law, the court said an anti-SLAPP motion requires a two-step analysis. First, the defendant must show that the questioned actions arose from constitutionally protected activities. If the defendant meets that burden, the plaintiff must then demonstrate a likelihood of prevailing on the claim, in order for the anti-SLAPP motion to be denied and the plaintiff’s case to continue.
In the breach of contract case, the Kings’ activities did in fact arise from their constitutionally protected rights of speech and petitioning the government, shifting the burden to Midland to show that it was likely to prevail on the claim, the court said. The court found Midland met that burden. The Kings had promised Midland to seek City approval of a 120-lot plan, but ultimately submitted a 190-lot plan instead. “That alone is sufficient evidence of a breach. One does not use one’s best efforts to obtain approval of a low-density tract map by promoting a competing high-density map,” the court said.
In the fraud case, the critical anti-SLAPP question is more stringent: “whether the cause of action is based on the defendant’s protected free speech or petitioning activity,” the court said. Here, the basis of the fraud case is statements between private parties to induce a change in the terms of a contract. That has nothing to do with the Kings’ rights to speech and petition, and the fraud actions are therefore not based on any protected activity, the court said. Since the Kings had failed to meet that burden, Midland need not show that it was likely to prevail in the fraud action.
The lower court ruling dismissing the King’s anti-SLAPP motion, and allowing Midland’s case for breach of contract and fraud to continue, was affirmed.