Stroock & Stroock v. Tendler 9/23/02 CA2/8

SUPREME COURT CASES

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: B147408A

Case Date: 09/23/2002

Preview:Filed 9/23/02; opinion on rehearing

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION EIGHT

STROOCK & STROOCK & LAVAN LLP, Plaintiff and Appellant, v. MAR-JEANNE TENDLER and ARTHUR TENDLER, et al., Defendants and Respondents.

B147408 (Los Angeles County Super. Ct. No. BC 223264)

OPINION ON REHEARING

APPEAL from a judgment and an order of the Superior Court for the County of Los Angeles. Jon M. Mayeda, Judge. Affirmed in part, reversed in part and remanded. Stroock & Stroock & Lavan, Michael F. Perlis, D. Wayne Jeffries, James W. Denison and Deborah Drooz for Plaintiff and Appellant. Bohm, Francis, Kegel & Aguilera and Craig A. Kegel for Defendants and Respondents Mar-Jeanne Tendler and Arthur Tendler. Robie & Matthai, Edith R. Matthai and Natalie A. Kouyoumdjian for Defendants and Respondents Robert C. Rosen and The Law Office of Rosen and Associates.

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SUMMARY Stroock & Stroock & Lavan, a law firm, sued Mar-Jeanne and Arthur Tendler, and lawyers Robert C. Rosen and Rosen and Associates, for malicious prosecution of a malpractice suit by the Tendlers' company, Wiz Technology, Inc., against Stroock. The malpractice suit alleged Stroock had represented Wiz in connection with Wiz's initial public offering (IPO), and violated its duties to Wiz by (a) representing the underwriter of the IPO (Strasbourger) in a lawsuit Strasbourger later brought against Wiz for breach of agreements related to the IPO, and (b) representing Wiz's auditors, Coopers & Lybrand, in a Securities & Exchange Commission investigation of Wiz, thereby forming a conduit for dissemination of confidential information about Wiz from its auditors to its litigation adversary, Strasbourger. The allegations in the malpractice suit against Stroock had earlier formed the basis for a motion Wiz brought to disqualify Stroock from representing Strasbourger in the Strasbourger litigation. The disqualification motion succeeded at the trial court level, but the trial court's ruling was eventually reversed by the court of appeal, which held (a) Stroock never represented Wiz, and (b) Stroock owed no duty of confidentiality to Wiz by virtue of its representation of Wiz's auditors. After the Supreme Court denied review, Wiz dismissed the malpractice suit, which had been filed while the appeal of the disqualification order was pending and just before expiration of the statute of limitations. Stroock then filed this suit for malicious prosecution against Wiz's lawyers, Robert C. Rosen and Rosen and Associates (Rosen), and the Tendlers, who, as members of the Wiz board of directors, authorized filing the malpractice suit against Stroock. Stroock alleged Rosen and the Tendlers did not have probable cause to file the malpractice suit. Stroock relied on the court of appeal's conclusion that "Stroock could only have been doing the work for Strasbourger and Wiz could not have reasonably believed otherwise," as well as on the court's rejection of Wiz's contention Stroock had a duty to Wiz independent of any prior attorney-client relationship. Stroock alleged Rosen

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and the Tendlers acted with malice, among other things to divert attention from an alleged scheme by the Tendlers and others fraudulently to manipulate Wiz's stock. The Tendlers brought a motion for summary judgment, asserting among other grounds an affirmative defense that the malpractice suit was brought in reliance on the advice of counsel. Rosen filed a special motion to strike Stroock's complaint under the anti-SLAPP (strategic lawsuit against public participation) statute. The trial court granted both motions, and Stroock appeals both rulings. We conclude that: (1) The trial court erred in granting Rosen's motion to strike the complaint. While the anti-SLAPP statute applies to a malicious prosecution action, Stroock demonstrated a probability it would prevail on the merits, because Rosen had no probable cause to file a malpractice suit premised on the claim that an attorney-client relationship once existed between Stroock and Wiz. (2) The trial court did not err in granting summary judgment to the Tendlers, who established they relied on counsel's advice when they authorized Rosen to file the malpractice complaint against Stroock. FACTUAL AND PROCEDURAL BACKGROUND This malicious prosecution action follows numerous other lawsuits brought by and against Wiz Technology, Inc. and its officers and directors after Wiz, a computer software company formed by Mar-Jeanne and Arthur Tendler, issued common stock to the public in an initial public offering (IPO) in February 1994. The details of two of the lawsuits are particularly pertinent to this appeal, and we begin by describing those actions. 1. Wiz's public offering and the Strasbourger lawsuit. The facts surrounding Wiz's initial public offering, and the first of the subsequent lawsuits that eventually resulted in this malicious prosecution action, are succinctly

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related in the court of appeal's opinion in Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc. (1999) 69 Cal.App.4th 1399, from which we now quote. "Strasbourger, an investment banking firm, served as an underwriter for Wiz's public stock offering. It purchased 1,820,000 shares of Wiz stock for resale to the public. Stroock, Strasbourger's usual corporate counsel, participated in the process by preparing the registration statement, prospectus, and certain regulatory filings, performing a due diligence investigation concerning the correctness of Wiz's representations, and involving itself in the negotiation of an underwriting agreement and a warrant agreement which governed the transaction. Stroock also worked to qualify the stock under the `blue sky' laws of states where the securities were to be sold, and filed necessary materials with the National Association of Stock Dealers. To perform its functions, some of Stroock's lawyers met several times with personnel working for Wiz, which provided the lawyers with information concerning these matters. "The underwriting agreement provided Wiz would pay the attorney fees for its counsel and Strasbourger. Hand & Hand was listed in the agreement as Wiz's counsel and Stroock was listed as Strasbourger's. The prospectus noted Hand & Hand would pass on the shares' legality and Stroock would pass on certain legal matters for Strasbourger. Wiz paid Stroock's bill of $23,666.05 for the blue sky work, as itemized in its statement to Wiz. "About a year and a half later, Wiz engaged Coopers & Lybrand (Coopers) as auditors. To enable Coopers to do its job, Wiz disclosed financial and other information regarding every aspect of its business, activities, and operations, including accounting and management issues. Wiz also discussed the specifics of an SEC (Securities and Exchange Commission) investigation with Coopers. During this time, Stroock was legal counsel for Coopers, while it was also Strasbourger's counsel. Coopers eventually resigned as Wiz's auditors, which Wiz asserted caused its stock value and ability to raise funds to decline. Wiz believed Stroock played a part in Coopers's resignation.

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"Several months later, Strasbourger sued Wiz for allegedly breaching the underwriting agreement by selling shares of its stock on its own, and breaching the warrant agreement by failing to register the shares. Wiz eventually brought a motion to disqualify Stroock from representing Strasbourger on the grounds Stroock had a conflict of interest because it represented Wiz in the stock qualification process and represented Coopers while it served as Wiz's auditor. The court granted the motion." (Strasbourger Pearson Tulcin Wolff Inc. v. Wiz Technology, Inc., supra, 69 Cal.App.4th at pp. 14021403.) 2. The Strasbourger trial court's order disqualifying Stroock. The trial court's order disqualifying Stroock in the Strasbourger lawsuit does not state the court's ground for the order. At the hearing on the disqualification motion, on January 7, 1997, the court (Judge Michael Brenner) made a statement, parts of which suggest the court thought Stroock had represented Wiz. Most of the court's comments suggest the court was primarily concerned with an appearance of impropriety, flowing from the fact Stroock was in a position to receive information about Wiz from its client Coopers and pass that information to its other client Strasbourger to use against Wiz.
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At the beginning of the hearing, the court said: ". . . I have read through all this. It is a little hard to follow, some of this you have to understand all that has gone on in terms of that stock offering, who represented who, and what the nature of that representation was. If we're to concentrate on perception of -- I don't want to say impropriety, that there might be a conflict. "The theory, the public ought to be able to look at these lawsuits and say there couldn't be any conflict here. Then there is this about it, the plaintiffs -- no, the attorney firm, the attorneys were involved in different parts of this whole thing in the past, in such a way that it seems like perhaps they did represent Wiz. They claim that they didn't, that they actually represented in the initial offering, they represented these plaintiffs and the Wiz had their own attorney, Hand & Hand. . . . [

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