Fourth District Allows Malicious Prosecution Claim to Proceed Against Neighbors Who Brought a Frivolous CEQA Suit, But Holds that the Plaintiff Developers Had Not Established Malice as to the Attorneys

June 15th, 2021

By: Sam Bacal-Graves

Dunning v. Clews (2021) 64 Cal.App.5th 156 involves a malicious prosecution lawsuit, brought by developers who successfully defended against CEQA claims in Clews Land & Livestock, LLC v. City of San Diego (2017) 19 Cal.App.5th 161 (the CEQA litigation). Following a clear victory in the CEQA litigation, the developer filed a malicious prosecution lawsuit against the CEQA petitioners and their attorneys. The CEQA petitioners’ attorneys responded by filing a special motion to strike under Code of Civil Procedure section 425.16 (commonly known as the anti-SLAPP statute). The trial court denied the anti-SLAPP motion as to both the CEQA petitioners and their attorneys. Both appealed. While the defendant attorneys succeeded on appeal, the CEQA petitioners themselves did not, as the Court concluded that the developer had established a probability of prevailing on its malicious prosecution claim against them. Accordingly, the malicious prosecution claim, with potential for civil liability, may proceed against the CEQA petitioners at trial.

In 2013, Cal Coast Academy and North Coast County Center for Educational Development (collectively, Cal Coast) purchased a property with intent to construct and operate a private secondary school on it. A CEQA lawsuit was filed by the neighbors, owners and operators of the Clews Horse Ranch, challenging the MND and approval, arguing an EIR had been required. Both the trial court and the Court of Appeal disagreed, finding that the petitioners had failed to exhaust administrative remedies by not properly appealing the approval to the City Council, and that the petition’s allegations were substantively meritless as well.

Following its victory in the CEQA litigation, Cal Coast filed its own lawsuit, alleging that the CEQA litigation petitioners and their attorneys had engaged in malicious prosecution. In response, attorney defendants, joined by Clews Horse Ranch, filed a special motion to strike the complaint under the anti-SLAPP (strategic lawsuit against public participation) statute. The trial court denied the anti-SLAPP motion. Defendant attorneys and Clews Horse Ranch filed an appeal through the immediate anti-SLAPP appellate process without the underlying malicious prosecution claim yet reaching a verdict.

The anti-SLAPP statute is designed to protect defendants from retaliatory lawsuits that might chill the exercise of their rights to speak and petition on matters of public concern. It authorizes a special motion to strike a claim arising from any act in furtherance of such rights. An anti-SLAPP motion involves two procedural steps. First, the moving defendants must establish that the challenged claims, here the malicious prosecution, arose from an activity protected by the statute. If defendant can do so then the plaintiff, here Cal Coast, must establish that the challenged claims have at least minimal merit for the anti-SLAPP motion to be denied.

The parties agreed that the malicious prosecution claims arose from the filing and prosecution of the CEQA claims in trial and on appeal, an activity protected by the anti-SLAPP statute. As such, the only issue to resolve was whether the malicious prosecution claims had minimal merit.

To establish a claim has minimal merit, a court will consider the probability of prevailing on each element of the cause of action. The only disputed elements of the malicious prosecution claim were whether the CEQA suit (1) was brought or maintained without probable cause; and (2) was initiated or maintained with malice.

The Court held that the defendants and their attorneys lacked probable cause for pursuing their CEQA argument that the Project would have a significant noise impact. While individuals associated with Clews Horse Ranch gave testimony and comment that the school’s noise would annoy riders and frighten horses, the record contained no evidence that the environment would be impacted. Citing Joshua Tree Downtown Business Alliance v. County of San Bernardino (2016) 1 Cal.App.5th 677, the Court observed that dire predictions by nonexperts does not constitute substantial evidence. At most, the record here contained generalized concerns and unsubstantiated opinion about the volume of children and schools, lacking any evidentiary basis. As such, the Court concluded that, at least as to the noise impacts, Cal Coast had established that the CEQA lawsuit was pursued without probable cause.

The Court next evaluated the existence of malice. The malice element goes to the defendant’s subjective intent. This requires the existence of an improper purpose, which can be established where (1) the plaintiff or attorney does not believe their claim to be valid, (2) there is actual hostility or ill will, or (3) the proceeding is meant to deprive the person against whom it is initiated of beneficial use of their property or in order to force a settlement with no relation to the merits of the claim.

Cal Coast presented three theories as to why malice existed. First, it alleged a desire by Clews Horse Ranch to prevent or delay development of the neighboring property. Second, it alleged that Christian Clews, owner of the ranch, sought to retain his property’s seclusion due to his ongoing sexual abuse and exploitation of minors, and possession and distribution of child pornography (Clews pled guilty to federal criminal charges of this nature shortly after the CEQA litigation). Third, it alleged that the attorneys for Clews Horse Ranch sought to prolong the litigation in order to cause Cal Coast to abandon the project, thereby reducing the likelihood they would be subject to a legal malpractice claim for failing to properly exhaust administrative remedies.

The Court found ample evidence that Clews Horse Ranch maintained the litigation with malice. Multiple declarations suggested that they had consistently and aggressively opposed any use of the proposed school property, and harassed prior owners by restricting their access to the property and deploying hostile and spiteful behaviors to dissuade them from developing it.

However, the Court ruled that Cal Coast had not shown such malice on the part of the attorney defendants. They were unable to establish that the attorneys knew of their clients’ motives, nor could the court impute the clients’ motive to their attorneys. Cal Coast advanced various theories as to how malice was established by the defendant attorneys’ conduct in settlement negotiations; however, the Court found that the settlement negotiations communications were directly related to the CEQA litigation and, therefore, did not support a reasonable inference the CEQA litigation was filed to force a settlement unrelated to the merits of that action. Additionally, Cal Coast submitted a declaration by its own attorney providing that attorney’s subjective impression of the attorney defendants’ motives, which the Court easily found insufficient to support a finding of malice. Cal Coast also argued that the defendant attorneys sought to avoid a decision on the merits to reduce the likelihood Clews Horse Ranch would file a malpractice action or State Bar complaint against them for failing to exhaust administrative remedies, but the Court found neither Cal Coast nor the record provided evidence supporting this assertion. While the Court found that the CEQA claims lacked factual investigation and that the client may have had actual ill will, the Court ruled that Cal Coast failed to establish that the defendant attorneys knowingly pursued the untenable claims or otherwise acted with malice.

The order denying the anti-SLAPP motion as to the attorney defendants was reversed, allowing the defendant attorneys to recoup both costs and attorney fees under the statute and avoid the malicious prosecution claim. However, the denial of the anti-SLAPP motion was upheld as to the remaining defendants, the Clews Horse Ranch and its owners. The case in the trial court for malicious prosecution against them may now proceed.

Key Point: Flimsy CEQA lawsuits filed for improper purposes can result in unintended consequences for both petitioners and their attorneys. However, malicious prosecution claims must be supported by an evidentiary basis at the outset in order to survive an anti-SLAPP motion. Courts may not impute a client’s motives to their attorneys.

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