People ex rel. Gallegos v. Pacific Lumber Co.

Opinion

This is an appeal from a judgment in a lawsuit brought by the District Attorney for Humboldt County on behalf of the People of California (the State) under California’s unfair competition law, Business and Professions Code section 17200 et seq. (UCL), for alleged fraudulent business practices. Judgment was entered against the State following the sustaining of a demurrer to the second amended complaint. In reaching the judgment, the trial court ruled that respondents the Pacific Lumber Company, Scotia Pacific Company LLC, and Salmon Creek LLC (collectively, Pacific Lumber) were immune from UCL liability under both Civil Code section 47, subdivision (b) and under federal law pursuant to the so-called Noerr-Pennington doctrine, and that the State had failed to state a cause of action based on Pacific Lumber’s alleged fraudulent business practices. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

On February 24, 2003, the State filed a complaint against Pacific Lumber asserting causes of action arising under the UCL. The allegations in the complaint stemmed from a 1996 agreement between Pacific Lumber, the State of California and the United States known as the Headwaters Agreement. Pursuant to the Headwaters Agreement, Pacific Lumber agreed to sell the Headwaters Forest, an ancient redwood forest, and other land to the state and federal governments for over $300 million and other consideration. In return, Pacific Lumber received assurances from those governments that it would be permitted to harvest certain of its remaining timberlands in

DISCUSSION

The State contends on appeal that the trial court erred by applying the litigation privilege under Civil Code section 47, subdivision (b) and the Noerr-Pennington doctrine under federal law to Pacific Lumber’s alleged wrongful conduct in connection with the CEQA administrative process, and by deciding on demurrer as a matter of law that Pacific Lumber’s alleged material concealments and misrepresentations did not undermine the legitimacy of that process.

We address the State’s arguments in turn. In doing so, we apply well-established rules governing the appellate review of an order sustaining a demurrer. We thus must “give[] the complaint a reasonable interpretation, and treat[] the demurrer as admitting all material facts properly pleaded.” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962 , 967 [ 9 Cal.Rptr.2d 92 , 831 P.2d 317 ] (Aubry).) Because only factual allegations are considered on demurrer, we must disregard any “contentions, deductions or conclusions of fact or law alleged [in the complaint].” (Daar v. Yellow Cab Co. (1967) 67 Cal.2d 695 , 713 [ 63 Cal.Rptr. 724 , 433 P.2d 732 ].) Further, because the demurrer at issue is to an amended complaint, we may properly consider allegations asserted in the prior complaints: “ ‘[A] plaintiff may not discard factual allegations of a prior complaint, or avoid them by contradictory averments, in a superseding, amended pleading.’ [Citation.]” (Continental Ins. Co. v. Lexington Ins. Co. (1997) 55 Cal.App.4th 637 , 646 [ 64 Cal.Rptr.2d 116 ].)

Where, as here, the trial court has sustained a demurrer, we must determine whether the plaintiff has pleaded facts sufficient to state a cause of action. (Blank v. Kirwan (1985) 39 Cal.3d 311 , 318 [ 216 Cal.Rptr. 718 , 703 P.2d 58 ] (Blank).) “The judgment must be affirmed ‘if any one of the several grounds of demurrer is well taken. [Citations.]’ [Citation.]” (Aubry, supra, 2 Cal.4th at p. 967.)

Finally, where, as here, the demurrer was sustained without leave to amend, we must determine whether the plaintiff has proven a reasonable possibility that the pleading’s defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318.) If the plaintiff meets that burden, we must reverse the trial court’s order as an abuse of discretion. (Ibid.)

Does the Litigation Privilege Bar the State’s UCL Claims?

The trial court rejected the State’s UCL action as a matter of law after finding it barred by Civil Code section 47, subdivision (b) (section 47(b)).

“ ‘The principal purpose of [the litigation privilege] is to afford litigants and witnesses [citation] the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions. [Citations.]’ ” (Action Apartment, supra, 41 Cal.4th at p. 1241.) Or, as otherwise stated, it “exists to protect citizens from the threat of litigation for communications to government agencies whose function it is to investigate and remedy wrongdoing. [Citation.]” (Wise v. Thrifty Payless, Inc. (2000) 83 Cal.App.4th 1296 , 1303 [ 100 Cal.Rptr.2d 437 ].)

To achieve this end, the absolute privilege is interpreted broadly to apply “to any communication, not just a publication, having ‘some relation’ to a judicial [or quasi-judicial] proceeding,” irrespective of the communication’s maliciousness or untruthfulness. (Kashian v. Harriman (2002) 98 Cal.App.4th 892 , 912-913, 920 [ 120 Cal.Rptr.2d 576 ]; see Action Apartment, supra, 41 Cal.4th at p. 1241; Silberg, supra, 50 Cal.3d at p. 216.) And “judicial or quasi-judicial” proceedings are defined broadly to include “all kinds of truth-seeking proceedings,” including administrative, legislative and other official proceedings. (Silberg, supra, at p. 213.) Further, the privilege “ ‘is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.’ (Rusheen v. Cohen (2006) 37 Cal.4th 1048 , 1057 [ 39 Cal.Rptr. 3d 516 , 128 P.3d 713 (Rusheen).)” (Action Apartment, supra, at p. 1241.)

Here, the State’s UCL action is premised on Pacific Lumber’s allegedly fraudulent conduct in communicating information to government agencies during the CEQA administrative proceedings held in connection with the Headwaters Agreement. In particular, the State alleges Pacific Lumber submitted false information in connection with those proceedings with the intent to interfere with the CDF’s consideration of Pacific Lumber’s Sustained Yield Plan, certification of the State of California’s environmental impact report, and issuance of permits for the remaining timberlands under the Headwaters Agreement. As such, Pacific Lumber’s communications, whether fraudulent

The court disagreed, “rejecting] the claim that a plaintiff may, in effect, ‘plead around’ absolute barriers to relief by relabeling the nature of the action as one brought under the unfair competition statute.” (Rubin, supra, 4 Cal.4th at p. 1201.) The court thus concluded that, where the conduct alleged in the complaint comes within the scope of section 47(b), and is thus “absolutely immune from civil tort liability,” “[t]o permit the same . . . acts to be the subject of an injunctive relief proceeding brought by this same plaintiff under the [UCL] undermines that immunity. If the policies underlying section 47(b) are sufficiently strong to support an absolute privilege, the resulting immunity should not evaporate merely because the plaintiff discovers a conveniently different label for pleading what is in substance an identical grievance arising from identical conduct as that protected by section 47(b).” (Rubin, supra, at pp. 1202-1203.)

Relying on dicta found elsewhere in Rubin, the State and amicus curiae argue this holding does not apply here because, unlike in Rubin, the State, as plaintiff, (1) was not a party to the underlying CEQA proceedings; and (2) is a governmental entity suing on behalf of the public rather than a private litigant. We reject both contentions.

As an initial matter, we disagree the State was not a party to the underlying CEQA proceedings. The State of California was a party to the Headwaters Agreement and, in the CEQA proceedings, several state agencies, including the CDF and the Department of Fish and Game participated on behalf of the State. Indeed, the state Attorney General continues to defend the outcome of those proceedings on behalf of the People in a case now pending before the California Supreme Court, Environmental Protection Information Center v. Department of Forestry & Fire Protection, S140547. It is thus clear the People’s interests were adequately represented in the CEQA proceedings (the State does not contend otherwise), and that, as such, those proceedings, not this litigation, provided the more appropriate forum in which to “expos [e] . . . the bias of witnesses and the falsity of evidence, thereby enhancing the

With respect to CEQA’s savings clause, we find within it no legislative intent to override the litigation privilege’s absolute protection of access to courts and other quasi-judicial bodies. Indeed, the clause gives governmental entities no additional authority whatsoever, but rather simply acknowledges and preserves their existing authority. (Pub. Resources Code, § 21174.) Thus, absent some other, independent source of authority to pierce the litigation privilege, the savings clause is irrelevant to our inquiry. (See Action Apartment, supra, 41 Cal.4th at p. 1245.)

Nor do we find within Rubin’s dicta an independent source of authority to pierce the litigation privilege. First, as we touched upon above, the Rubin court had no reason, given the facts before it, to consider a broad exception to the privilege for enforcement actions brought by governmental entities under the UCL. Second, we believe such exception, at least so broadly stated, would run counter to our Supreme Court’s insistence, given the importance of the privilege’s absolute protection of access to official proceedings, that litigants, whatever their identity, should not be permitted to plead around the privilege absent clear legislative intent to the contrary. (Action Apartment, supra, 41 Cal.4th at pp. 1247-1248; see also Rubin, supra, 4 Cal.4th at pp. 1202-1203.) That legislative intent does not exist here.

The UCL, unlike other statutes that courts have determined were intended by the Legislature to withstand the litigation privilege, is not necessarily “more specific than the litigation privilege and would [not] be significantly or wholly inoperable if its enforcement were barred when in conflict with the privilege.” (Action Apartment, supra, 41 Cal.4th at pp. 1246-1247 [noting, for example, that “[t]he crimes of perjury and subornation of perjury would be almost without meaning if statements made during the course of litigation were protected from prosecution for perjury by the litigation privilege” and that “[t]he misdemeanors established by Business and Professions Code section 6128 evince a legislative intent that certain attorney conduct not be

As our California Supreme Court has explained: “It is only when efforts to influence government action are a ‘sham’ that they fall outside the protection of the Noerr-Pennington doctrine and within the scope of the Sherman Act. (California Transport, 404 U.S. at pp. 511-516 [30 L.Ed.2d at pp. 646-649]; Noerr, 365 U.S. at p. 144 [5 L.Ed.2d at p. 475]; see generally Areeda, Antitrust Law (1982 supp.) [][] 202, pp. 4—5 [hereafter Areeda, Antitrust Supplement].) Such efforts amount to a sham when though ‘ostensibly directed toward influencing governmental action, . . . [they are] actually nothing more than an attempt to interfere directly with the business relationships of a competitor . . . .’ (Noerr, supra, at p. 144 [5 L.Ed.2d at p. 475].) Such efforts, by contrast, do not amount to a sham when, no matter how anticompetitive in purpose or effect, they constitute a ‘genuine effort to influence [government action] . . . .’ (Ibid.) In other words, efforts to influence government action are a sham only when the person or persons making such efforts ‘invok[es] the process of [governmental] decisionmaking for the injury that the process alone will work on competitors . . . .’ (Litton Systems, Inc. v. American Tel. & Tel. Co. (2d Cir. 1983) 700 F.2d 785 , 810, italics added; accord, Handler & De Sevo, supra, 6 Cardozo L.Rev. at pp. 7-14.)” (Blank, supra, 39 Cal.3d at pp. 321-322; see also Hi-Top Steel Corp. v. Lehrer (1994) 24 Cal.App.4th 570 , 578-579 [ 29 Cal.Rptr.2d 646 ] (Hi-Top Steel).)

Following the California Supreme Court’s decision in Blank, the United States Supreme Court clarified the so-called “sham exception” to the Noerr-Pennington doctrine, setting forth a two-part test for determining whether a defendant’s petitioning activities fall within its reach: “first, it ‘must be objectively baseless in the sense that no reasonable litigant could realistically expect success on the merits’; second, the litigant’s subjective motivation must ‘concea[l] an attempt to interfere directly with the business relationships of a competitor . . . through the use [of] the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon.’” (BE&K Constr. Co. v. NLRB (2002) 536 U.S. 516 , 526 [ 153 L.Ed.2d 499 , 122 S.Ct. 2390 ] (BE&K), quoting Professional Real Estate

Here, the State contends Pacific Lumber’s petitioning activities fall within the sham exception, and thus enjoy no Noerr-Pennington immunity. We disagree. Pacific Lumber’s activities in connection with the CEQA administrative proceedings constituted a “genuine effort to influence [government action].” (Noerr, supra, 365 U.S. at p. 144.) Designed to secure approval of its Sustained Yield Plan, the company’s effort was neither “ ‘objectively baseless’ ” in the sense that no reasonable litigant could realistically expect success on the merits, nor did it conceal an attempt to interfere with a competitor’s business relationships “ ‘through the use [of] the governmental process—as opposed to the outcome of that process.’ ” (BE&K, supra, 536 U.S. at p. 526; see also Wolfgram, supra, 53 Cal.App.4th at p. 54 [“absent ‘a patent lack of merit, an action protected under the First Amendment by the right of petition cannot be the basis for litigation . . .’ ”].) Indeed, according to the State’s own allegations, Pacific Lumber achieved the very outcome it petitioned for in the CEQA proceedings—permission to harvest timber at a desirable annual rate. (Cf. Hi-Top Steel, supra, 24 Cal.App.4th at pp. 582-583 [a cause of action under the sham exception was stated where the “allegations show defendants undertook petitioning activity solely to delay or prevent plaintiffs’ entry into the shredded automobile body market through use of ‘the governmental process—as opposed to the outcome of that process—as an anticompetitive weapon’ [citation] . . .”].) That Pacific Lumber is alleged to have employed improper tactics in seeking that outcome does not render their efforts less genuine. (Blank, supra, 39 Cal.3d at p. 325 [“[f]or the purposes of the Noerr-Pennington doctrine, . . . impropriety and genuineness are not related . . .”].)

Apparently conceding Pacific Lumber’s conduct fails to meet the two-part test for the sham exception put forth by the United States Supreme Court, the State and amicus curiae rely primarily on federal cases to suggest the exception nonetheless applies because allegations are raised of fraudulent conduct in the context of an adjudicatory proceeding. Specifically, they contend “[t]he utterance of knowing and reckless falsehoods that affect the outcome of a government agency’s adjudicatory determination ... are not protected by the Noerr-Pennington doctrine.”

In so arguing, the State admits that the United States Supreme Court has not recognized an exception to the Noerr-Pennington doctrine based on a defendant’s fraudulent conduct. (See Professional Real Estate Investors,

While a split of authority exists, several federal courts have relied on this language to extend the sham exception to cover certain fraudulent acts, at least when done in the adjudicatory context. In Kottle v. Northwest Kidney Centers (9th Cir. 1998) 146 F.3d 1056 , 1060, for example, the court recognized that “in the context of a judicial proceeding, if the alleged anticompetitive behavior consists of making intentional misrepresentations to the court, litigation can be deemed a sham if ‘a party’s knowing fraud upon, or its intentional misrepresentations to, the court deprive the litigation of its legitimacy.’ (Liberty Lake Inv., Inc. v. Magnuson, 12 F.3d 155 , 158 (9th Cir. 1993); Clipper Exxpress v. Rocky Mountain Motor Tariff Bureau, Inc., 690 F.2d 1240 , 1260 (9th Cir. 1982).” (See also Potters Medical Center v. City Hosp. Ass’n (6th Cir. 1986) 800 F.2d 568 , 580 [“the knowing and willful submission of false facts to a government agency falls within the sham exception . . .”]; but see Armstrong Surgical v. Armstrong Memorial Hosp. (3d Cir. 1999) 185 F.3d 154 , 160-164 & fn. 7 [disagreeing with Kottle and other authority that an exception exists for knowingly submitting false information to an adjudicative body]; Baltimore Scrap Corp. v. David J. Joseph Co. (4th Cir. 2001) 237 F.3d 394 , 402, 404 (Baltimore Scrap) [declining to reach the question of “whether a fraud exception to Noerr-Pennington still exists after [Professional Real Estate Investors]” where “[plaintiff] cannot show that the state court judgment was procured by fraud or deceit,” and noting that “[a] broad fraud exception would allow federal collateral litigation over conduct in state courts that never affected the core of a state judgment . . .”].) The Kottle court went on to conclude that

Was the Underlying Administrative Process Deprived of Legitimacy?

Finally, even were we to recognize an expansion of the sham exception for fraudulent conduct in adjudicatory proceedings, we would nonetheless conclude that the fraudulent conduct alleged here is not actionable because the State has failed to adequately allege that it deprived the CEQA proceedings of legitimacy. (See Kottle, supra, 146 F.3d at p. 1060; Baltimore Scrap, supra, 237 F.3d at pp. 401-402 [“[i]f a fraud exception to Noerr-Pennington does exist, it extends only to the type of fraud that deprives litigation of its legitimacy . . .”].)

As has already been discussed, the CDF was called upon in the underlying proceedings to determine, among other things, whether Pacific Lumber’s Sustained Yield Plan had a sufficient informational and analytical basis (in particular, with respect to potential adverse environmental impacts), and whether it was consistent with certain environmental and economic values.

Given the undisputed presence of disinterested decision makers at the CDF as well as other state agencies, the extensive independent review and analysis of Pacific Lumber’s proposed harvesting plan, the public hearing open to all interested persons and agencies, and the review process that was available for correcting any identifiable errors (including misrepresentations) in a timely fashion, we are thus disinclined to conclude the CEQA proceedings were rendered illegitimate by Pacific Lumber’s alleged submission of fraudulent data—which indeed was corrected over a month before issuance of the CDF’s ultimate decision.

In reaching this decision, we agree with the State that the trial court had no discretion to weigh the evidence in ruling on Pacific Lumber’s demurrer. However, “while the court does not weigh evidence, it must determine whether plaintiffs have demonstrated evidence which, if credited, would justify their prevailing at trial.” (Blanchard v. DIRECTV, Inc. (2004) 123 Cal.App.4th 903 , 921 [ 20 Cal.Rptr.3d 385 ].) Here, for the reasons discussed above, we conclude the State’s evidence, even if credited, would not justify its prevailing at trial. Further, we conclude the State has failed to prove, on its third try, a reasonable possibility that the operative pleading’s defect can be cured by amendment. (Blank, supra, 39 Cal.3d at p. 318.) As such, we affirm the trial court’s judgment.

The judgment is affirmed.

Poliak, Acting P. J., and Siggins, J., concurred.

On February 1, 2008, the opinion was modified to read as printed above. Appellants’ petition for review by the Supreme Court was denied April 23, 2008, S161003. George, C. J., did not participate therein.