Goldberg v. Sidley Austin LLP

1

MICHAEL GOLDBERG, as Trustee, etc., Plaintiff and Appellant, v. SIDLEY AUSTIN LLP et al., Defendants and Respondents.

B307487, B310865

California Court of Appeals, Second District, Fifth Division

January 19, 2024

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Los Angeles County No. 19STCV42900 Amy Hogue, Judge. Affirmed.

Miller Barondess, Louis R. Miller, Brian A. Procel, Mira Hashmall and Christopher D. Beatty for Plaintiff and Appellant.

Munger, Tolles &Olson, Xiaonan April Hu, Brad D. Brian Mark R. Yohalem, and Benjamin Horwich for Defendants and Respondents Sidley Austin and Neal Sullivan.

RUBIN P. J.

INTRODUCTION

This appeal arises from a massive Ponzi scheme perpetrated by non-party Robert Shapiro through Woodbridge Group of Companies, LLC and its affiliated entities.^[1] Shapiro has pleaded guilty to wire fraud and tax evasion. Woodbridge declared bankruptcy in 2017. As part of the bankruptcy plan the bankruptcy court approved the creation of the Woodbridge Liquidation Trust. Plaintiff and appellant Michael Goldberg is the trustee of the trust. On December 2, 2019, the trustee brought suit against a number of law firms and their respective attorneys, alleging they aided and abetted Shapiro's and Woodbridge's Ponzi scheme by, among other things, preparing false and negligent legal memoranda and revising offering documents to mislead investors.

Respondents Sidley Austin LLP (Sidley) and Neal Sullivan, a partner at Sidley, filed a special motion to strike under the anti-SLAPP law (Code Civ. Proc., § 425.16).^[2] The trial court granted Sidley's special motion to strike in its entirety and awarded attorney fees under the statute. The trustee appeals from these orders. We affirm the anti-SLAPP order and the award of attorney fees.

FACTUAL BACKGROUND^[3]

Shapiro, the central figure in the Ponzi scheme, owned and operated Woodbridge, which "marketed promissory notes and other offerings as low-risk, high yield investments backed by high-interest real-estate loans to third-party commercial borrowers."

Woodbridge primarily sold two types of products: (1) a 12-to-18-month promissory note called First Position Commercial Mortgages (Note or Notes); and (2) a five-year private-placement security that served as an investment into pooled Notes (Pooled Notes).

Woodbridge told investors the Notes were based on shortterm, hard money loans, between $1 million and $100 million, that were made to independent third-party property borrowers. According to Woodbridge these loans carried high rates of interest (approximately 11 to 15 percent) and were secured by a first lien on the property (with 60 to 70 percent loan-to-value ratios). At the end of the term, typically one year, the third-party borrowers were required to repay Woodbridge the principal amount of the loan. If they defaulted, Woodbridge could foreclose on the property to recover the amount owed. Woodbridge promised to pay Note investors five to eight percent annual interest, along with a return of the investor's principal at the end of the term. Woodbridge explained to investors that Woodbridge would profit from the spread between the interest it received on the mortgages and interest it owed to the investors.

From August 2012 through December 2017, Woodbridge sold Pooled Notes through Funds 1, 2, 3, 3A, and 4, and Bridge Loan Funds 1 and 2.^[4] Woodbridge allegedly limited each of the Pooled Note offerings to accredited investors with a $50,000 minimum subscription and provided for a five-year term with a six to ten percent aggregate annual return paid monthly and a two percent "accrued preferred dividend." At the end of the five-year term, Pooled Note holders would also be entitled to a distribution based on Woodbridge's profits.

In 2013, Woodbridge and Shapiro came under regulatory scrutiny. Ultimately, over two dozen state agencies and the Securities and Exchange Commission (SEC) launched investigations into Woodbridge's operations. Initially, state investigators appeared to be concerned with whether Notes were securities under federal and state law. Woodbridge took the position that Notes were not securities, and it did not need to comply with the rules regarding the sale of securities, including disclosure and registration requirements. Although Woodbridge conceded Pooled Notes were securities, it took the position that they were also exempt from the rules regarding the sale of securities because the underlying investments, the Notes, were not securities. Woodbridge retained law firms, including Sidley, to represent it in the various regulatory investigations.

It was later revealed that Woodbridge had been operating a massive Ponzi scheme. It made almost no loans to independent borrowers. Woodbridge instead made sham loans to affiliated entities that were secretly controlled by Shapiro. Woodbridge had minimal revenue other than money raised from new investors, which it used to pay false returns to earlier investors in a classic Ponzi scheme. In total, Woodbridge raised over $1.3 billion through its sale of Notes and Pooled Note offerings.

On December 4, 2017, Woodbridge's 278 affiliated companies entered into bankruptcy proceedings. On January 23, 2018, the bankruptcy court approved a settlement between Woodbridge, its investors, other creditors, and the SEC under which Woodbridge would be governed by a new board of directors. The bankruptcy court also approved creating a trust to assist investors in recovering their losses from third parties who contributed to the Ponzi scheme. Approximately 4,600 Woodbridge investors assigned their claims to the trust. In 2019, Shapiro pleaded guilty to wire fraud and tax evasion. He was sentenced to 25 years in federal prison.

On December 2, 2019, the trustee brought suit against a number of law firms and individual attorneys, including Sidley and Sullivan. The trustee alleged causes of action against Sidley and Sullivan for aiding and abetting securities fraud, aiding and abetting fraud, aiding and abetting breach of fiduciary duty, negligent misrepresentation, professional negligence, and aiding and abetting conversion.

In particular, the trustee alleged Sidley's and Sullivan's liability principally rested on drafting misleading letters of rescission to investors, revising Woodbridge's offering documents to include fraudulent or negligent statements regarding Woodbridge's operations, helping Woodbridge to create new product offerings to avoid regulatory scrutiny, and drafting memoranda concluding Notes were not securities to alleviate investor concerns. The trustee additionally sought to recover the alleged fraudulent transfer of assets from Woodbridge in the form of the legal fees Woodridge had paid to Sidley.

In response to the complaint, Sidley filed an anti-SLAPP motion. Sidley argued the legal services it provided to Woodbridge were protected activity because they related to ongoing regulatory investigations, and the trustee had not shown a sufficient probability of prevailing on the merits. The trial court granted Sidley's motion, awarded it attorney fees in a separate order, and the Trustee timely appealed both orders.

DISCUSSION

A. Standard of Review

"We review de novo the grant or denial of an anti-SLAPP motion. [Citation.] We exercise independent judgment in determining whether, based on our own review of the record, the challenged claims arise from protected activity. [Citations.] In addition to the pleadings, we may consider affidavits concerning the facts upon which liability is based. [Citations.] We do not, however, weigh the evidence, but accept plaintiff's submissions as true and consider only whether any contrary evidence from the defendant establishes its entitlement to prevail as a matter of law." (Park v. Board of Trustees of California State University (2017) 2 Cal.5th 1057, 1067 (Park); Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820.)

B. Overview of Anti-SLAPP Statute

The anti-SLAPP statute was enacted to curtail lawsuits "brought primarily to chill the valid exercise of the constitutional rights of freedom of speech and petition ...." (§ 425.16, subd. (a).) "[A] special motion to strike under section 425.16 involves a two-step process. First, the moving defendant must make a prima facie showing 'that the act or acts of which the plaintiff complains were taken "in furtherance of the [defendant]'s right of petition or free speech under the United States or California Constitution in connection with a public issue," as defined in the statute.' [Citation.] If the defendant makes this initial showing of protected activity, the burden shifts to the plaintiff at the second step to establish a probability it will prevail on the claim. [Citation.] The plaintiff need only state and substantiate a legally sufficient claim. [Citation.] The plaintiff's evidence is accepted as true; the defendant's evidence is evaluated to determine if it defeats the plaintiff's showing as a matter of law. [Citation.] The procedure is meant to prevent abusive SLAPP suits, while allowing 'claims with the requisite minimal merit [to] proceed.'" (City of Montebello v. Vasquez (2016) 1 Cal.5th 409, 420.)

To satisfy the first prong, the moving defendant must establish that the cause of action arises from protected activity, as defined by section 425.16, subdivision (e). Subdivision (e) of section 425.16 describes four categories of protected speech and conduct, the first two of which are relevant to our analysis: "(1) any written or oral statement or writing made before a legislative, executive, or judicial proceeding, or any other official proceeding authorized by law, (2) any written or oral statement or writing made in connection with an issue under consideration ...