AWI Builders, Inc. v. Payne

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AWI BUILDERS, INC. et al., Plaintiffs and Respondents, v. HAROLD T. PAYNE, as Successor in Interest, etc., Defendant and Appellant.

B322626

California Court of Appeals, Second District, Fourth Division

September 25, 2024

NOT TO BE PUBLISHED

APPEAL from an order of the Superior Court of Los Angeles County No BC696666, Robert Broadbelt, Judge.

Rob Bonta, Attorney General, Jodi L. Cleesattle, Assistant Attorney General, Pamela J. Holmes, Donna M. Dean and Shirley R. Sullinger, Attorneys General for Defendant and Appellant.

Pacheco & Neach, Rod Pacheco; Feldman &Associates and Mark Feldman for Plaintiffs and Respondents.

COLLINS, J.

Plaintiffs AWI Builders, Inc., and its principals, Zhirayr "Robert" Mekikyan and Anna Mekikyan, sued numerous entities and individuals involved with a state Division of Labor Standards Enforcement (DLSE) investigation of their business practices. Plaintiffs' third amended complaint included a federal civil rights claim under 42 U.S.C. section 1983 (section 1983) alleging that defendant Susan Nakagama, a DLSE employee, violated their due process rights in both her official and individual capacities by participating in a conspiracy to unlawfully investigate plaintiffs and withholding and instructing a subordinate DLSE employee to withhold documents from plaintiffs during the investigation. Nakagama moved to strike the section 1983 cause of action under the anti-SLAPP statute, Code of Civil Procedure section 425.16.^[1]

The trial court granted the motion as to the official capacity claim but denied it as to the individual capacity claim. Although it found that Nakagama met her first-step burden of showing that the individual capacity cause of action arose from protected activity (§ 425.16, subd. (e)(2)), it also found that plaintiffs carried their second-step burden of showing a probability of prevailing on the merits. The trial court rejected Nakagama's assertions of absolute prosecutorial immunity, qualified immunity, and litigation privilege under Civil Code section 47, subdivision (b) (section 47).

Nakagama died during the pendency of this appeal. Her successor in interest and personal representative, Harold T. Payne, now contends that the trial court should have granted the anti-SLAPP motion in full. In addition to asserting the immunity and privilege arguments raised below, he contends that plaintiffs failed to meet their burden of showing a probability of prevailing on the merits. Plaintiffs respond that Nakagama failed to carry her burden at the first step below. They further contend that even if the matter is subject to the anti-SLAPP statute, the trial court properly rejected Nakagama's assertions of privilege and immunity and we should not address Payne's new argument regarding the merits of the claim.

We reverse. The trial court correctly found the cause of action subject to the anti-SLAPP statute. However, its analysis at the second step of the anti-SLAPP inquiry was inadequate, as was plaintiffs' showing. We exercise our discretion to consider Payne's belatedly raised legal argument regarding plaintiffs' likelihood of prevailing on the merits, which is persuasive in light of plaintiffs' failure to plead or demonstrate the lack of adequate state remedies for the alleged due process violation. We need not and do not address the arguments regarding privilege and immunity.

FACTUAL BACKGROUND

Plaintiffs allege the following in the operative third amended complaint.

Between 2011 and 2013, after a public and competitive bid process Riverside County awarded plaintiffs three public works contracts: the $16.9 million "Mead Valley Project," the $14 million "Public Defender Project," and the $13.5 million "Medical Center Project." Plaintiffs were also awarded a $10.5 million contract in Orange County, the "OC Fair Project," in 2013.

In mid-to-late 2013, plaintiffs discovered significant structural problems with the building in the Public Defender Project that were unknown at the time of the bid. The change orders necessary to account for the issues "became significant points of contention between AWI and Riverside County." Riverside County subsequently terminated AWI's contract on the Public Defender Project and awarded the project to a different construction company, increasing the amount of the contract from $14 million to $32 million. In late 2013, after "pointed communications" with Riverside County, AWI obtained counsel and "identified the possibility of a lawsuit and government claims regarding the county's refusal to pay AWI for work it had performed under the contract awarded."

Plaintiffs allege that refusal to pay contractors was "a pattern and practice for Riverside County." They further allege that Riverside County also had a pattern of "harass[ing] contractors who were possible litigants with a host of crushing abuses, directed at drying up all sources of revenue by withholding payments, using a labor compliance firm to generate specious complaints to the [DLSE], which would then levy exponential fines against the contentious contractor, and finally to falsely generate criminal investigations which would either put the company out of business and or [sic] put the owners in prison."

Pursuant to this alleged "playbook," in the "early months of 2014" Riverside County, through "straw man" company GKK Works, hired a private labor consulting firm, Alliant Consulting, and Alliant's president, Christa Schott, to start a specious investigation into plaintiffs. Although GKK Works hired Alliant and Schott, Schott "took her orders from only two entities, Riverside County Administration officials and the Orange County District Attorney's Office (OCDA), and had little or no contact with GKK." By June 2014, despite having uncovered no evidence of wrongdoing by plaintiffs, Schott "succeeded in convincing DLSE . . . to open an investigation" into plaintiffs. Schott worked closely with a DLSE employee, Maria Sandoval, and provided Sandoval with "fabricated" "investigative materials." Sandoval "spearheaded" DLSE's investigation, "which was overseen by Nakagama, and spurred on by Schott." At Schott's "constant and aggressive insistence throughout 2014 and 2015," DLSE filed "various labor code administrative claims" against plaintiffs in 2015. The DLSE claims enabled Riverside County "to withhold payments of over millions of dollars [sic] in monies owed to AWI."

While the DLSE was investigating, plaintiffs "sought to defend themselves" and also continued their efforts to obtain payment from Riverside County on the various projects, filing government claims and eventually suing Riverside County in 2015. In 2014, plaintiffs, through their counsel, "made requests for documents from DLSE" to defend against the administrative claims levied against them. Sandoval contacted Schott, who in turn contacted the Riverside and Orange County district attorneys' offices. Schott "made every attempt to convince Sandoval not to turn over documents Schott had created or given to Sandoval, in an effort to hide her unlawful involvement." Sandoval "consulted with her supervisor Nakagama, who also instructed Sandoval not to turn over documents." During the deposition in which Sandoval testified to receiving this instruction, which occurred "in a related civil case in Orange County," Sandoval also stated that Nakagama told her "that the instruction to conceal documents was a directive that came directly from" the OCDA and an attorney there. Plaintiffs allege that Riverside County and OCDA personnel "convinced" Nakagama and Sandoval to "also withhold numerous documents" plaintiffs requested in 2014 and 2015, "in violation of due process protections afforded the accused in administrative hearings." In her own deposition in the related case, Nakagama "admitted" that concealing documents from the subject of an administrative investigation "was not only a violation of DLSE regulations, but also of due process rights." Plaintiffs were unaware of the concealment until "civil discovery in related litigation against Riverside County."

Meanwhile, Alliant and Schott concurrently "stepped up the pressure on AWI" and "badgered" Riverside County's district attorney's office to initiate criminal prosecutions against AWI. Alliant and Schott similarly "badgered" Orange County to investigate and prosecute plaintiffs. Orange County initiated an investigation into plaintiffs in 2015. In 2015, Schott visited plaintiffs' business offices without a warrant, broke into locked filing cabinets, and photocopied documents contained therein. On a separate occasion in 2015, Schott met with Tony Hawk, a "high-ranking job superintendent for AWI on one of the Riverside projects," and paid him to provide her with plaintiffs' confidential records that later served as the basis for multiple search warrants executed by OCDA and Riverside County in October 2015.

Many "business documents, an extensive amount of computer equipment, thumb drives, external hard drives, an iPhone and a credit card were seized" in connection with the search warrants. The loss of these records "caused havoc" for plaintiffs during their efforts to refute the DLSE's allegations of Labor Code violations and seek redress against Riverside County because they had no access to their electronic or written records.

After plaintiffs filed a successful motion to compel in a case against Riverside County, a forensic examination of Alliant's and Schott's computers "revealed well over 80,000 pages of documents" that had been concealed. Riverside County ultimately settled all plaintiffs' claims against it for $4.5 million.

Neither OCDA nor Riverside County filed a criminal complaint against plaintiffs. However, the DLSE issued several civil wage and penalty...