In AF Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc., issued March 23, 2006, the Fourth Appellate District was faced with the question of whether an electrical supplier’s conduct in filing a stop notice fell within the ambit of C.C.P. § 425.16, the anti-Slapp statute.
Rhino, the electrical supplier, provided goods to Brown, the electrical contractor, pursuant to two purchase orders. After Brown canceled the purchase orders, a dispute arose over the amount of materials that had already been provided. Rhino subsequently filed the two stop notices with the School District and pursued other remedies, such as retaining a collection agency and filing derogatory credit reports with Dun & Bradstreet. Brown filed a complaint alleging liable, slander and unfair business practices. Rhino then moved to strike the initial complaint under Section 425.16.
The anti-Slapp statute essentially provides that a complaint or a cause of action which is based on a person’s exercise of their rights of free speech or petition is subject to a special notice in the strike, unless the court determines the plaintiff has established the probable validity of its claim. If the moving party is successful in prevailing on such a motion he or she is entitled to their attorneys’ fees. The moving party on such a motion must demonstrate that the challenged cause of action arises from an act in furtherance of their protected rights of free speech or petition. Once that initial burden has been met, the burden shifts to the plaintiff to demonstrate the probable validity of its claim. In practice, this means that the plaintiff must often present strong evidence in support of its causes of action at the very beginning of its case. It should be noted, however, that there is a procedure by which a plaintiff can seek additional discovery in order to respond to the motion.
Section 425.16 defines an act in furtherance of the person’s right of petition or free speech as:
any written or oral statement made in a legislative, executive, or judicial proceeding;
any written or oral statement made in connection with an issue under consideration by a legislative, executive, or judicial body;
any written or oral statement made in a place open to the public or in a public forum in connection with an issue of public interest;
or any other conduct in furtherance of the exercise or the constitutional right of petition or free speech.
In the latter two instances, the defendant must independently demonstrate that the matter at issue is a "public issue," meaning that it impacts the public in general and is not limited to the individual litigant.
The question addressed by the court in Brown was whether the filing of the stop notices was a privileged publication protected under Section 425.16. To answer this question, the court was required to first examine the litigation privilege set forth in Civil Code Section 47. The litigation privilege shields any publication or broadcast made in connection with a judicial or quasi-judicial proceeding. This privilege has been found to extend beyond statements made during a judicial proceeding and includes statements made in preparation for a judicial proceeding or statements made in order to initiate an official action of some kind. For example, demand letters sent in anticipation of a threatened litigation has been found to be privileged even though not made in the context of a pending judicial proceeding. Similarly, the filing of mechanics’ liens and the recording of a lis pendens have been found to be privileged.
The court found that Rhino’s filing of a stop notice generally constitutes conduct protected under Civil Code Section 47. However, that finding was not the end of the inquiry. The second part of the litigation privilege requires not only that the statement to be made in connection with a judicial or quasi-judicial proceeding, but also the statement is made in connection with litigation that is contemplated in "good faith" and "under serious consideration." In other words, the pre-litigation statement must have a logical connection to a legitimately anticipated action. Thus, even though a stop notice would typically be made in connection with a lawsuit that is about to be filed, there must be evidence from which the court can determine that the stop notices were filed in contemplation of an actually anticipated litigation. In this particular case, Rhino failed to demonstrate that litigation was under serious consideration at the time the stop notices were filed. While Rhino did submit declarations claiming it had a viable claim against Brown, there was no evidence presented to the trial court which would indicate that Rhino actually intended to file a lawsuit to enforce the stop notices or to collect on the underlying debt. The stop notices, standing alone, did not fall within the litigation privilege.
The importance of the Brown decision rests primarily in the finding of the court that the filing of the stop notice is a privileged action. In most cases, a party who files a stop notice or mechanics’ lien should be in a position to easily articulate and document that they actually intended to file a lawsuit to foreclose the lien or enforce the stop notice, if necessary. Indeed, in most cases it could be expected that a company who goes through the trouble of filing a stop notice is similarly committed to filing a lawsuit. Rhino failed to present any such evidence to the court, possibly because the amount in controversy was not sufficient to justify the filing of a lawsuit. However, in most cases the obstacle which Rhino failed to overcome, is not one that should present much difficulty to most stop notice claimants. For most such claimants, Brown stands for the helpful proposition that as long as litigation is seriously contemplated, the filing of a stop notice as a first step in that process will be protected and not subject to collateral attack.
For more information please contact Thomas B. Snyder. Thomas B. Snyder is an associate in the Construction, Environmental, Real Estate & Land Use Litigation Practice Group in the firm’s Del Mar Heights office.