People v. Potter Handy

316 Cal.Rptr.3d 87

The PEOPLE, Plaintiff and Appellant,

v.POTTER HANDY, LLP, et al., Defendants and Respondents.

A166490

Court of Appeal, First District, Division 3.

Filed December 8, 2023

Trial Court: City & County of San Francisco Superior Court, Trial Judge: Hon. Curtis E.A. Karnow (City & County of San Francisco Super. Ct. No. CGC-22-599079)

Brooke Jenkins, District Attorney (San Francisco), Matthew L. McCarthy, Assistant Chief District Attorney, Daniel Amador, Managing Attorney, Gabriel Markoff and Matthew Beltramo, Assistant District Attorneys; George Gascón, District Attor- ney (Los Angeles), Hoon Chun, Head Deputy District Attorney, and Lesley Klein, Assistant Head Deputy District Attorney, for Plaintiff and Appellant

Eimer Stahl and Robert E. Dunn, San Jose, for the Chamber of Commerce of the United States of America and the California Chamber of Commerce as Amici Curiae on behalf of Plaintiff and Appellant

Callahan & Blaine, David J. Darnell, Santa Ana, and Gaurav K. Reddy for Defendants and Respondents

TUCHER, P.J.

The law firm Potter Handy, LLP and several of its attorneys (collectively, Potter) have filed countless complaints in federal courts in California alleging violation of the Americans with Disabilities Act of 1990 (ADA). (42 U.S.C. § 12101, et seq.) The district attorneys of Los Angeles and San Francisco (the People) allege that these ADA complaints contain standing allegations Potter knows to be false, that Potter files the complaints as part of a shakedown scheme to extract coerced settlements from Small business owners in California, and that this conduct constitutes an "unlawful" business practice under our state’s unfair competition law (UCL). (Bus. & Prof. Code, § 17200 et seq.) As predicate for its charge of unlawfulness, the People rely on Business and Professions Code section 6128, subdivision (a) (§ 6128(a)), which makes it a misdemeanor for an attorney to engage in deceit or collusion with intent to deceive the court or a party, and on two Rules of Professional Conduct governing lawyers.

[1] The question before this court is whether the People’s UCL claim can survive a demurrer brought on the ground that the litigation privilege immunizes Potter’s alleged conduct in this case. (Civ. Code, § 47, subd. (b) (§ 47(b)).) Communications made as part of a judicial proceeding are generally privileged, so as to afford litigants "‘the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions.’" (Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal.4th 1232, 1241, 63 Cal.Rptr.3d 398, 163 P.3d 89 (Action Apartment).) But this broad principle has exceptions, and the parties agree that, had the People filed criminal charges directly under section 6128(a), that case could have proceeded. Courts have long recognized that the privilege must give way where a statute like section 6128(a) "is more specific than the litigation privilege and would be significantly or wholly inoperable if its enforcement were barred when in conflict with the privilege." (Action Apartment, at p. 1246, 63 Cal.Rptr.3d 398, 163 P.3d 89.) We conclude this exception does not extend to a UCL claim predicated on violation of section 6128(a) and on Rules of Professional Conduct. Carving out an exception to the litigation privilege for the People’s UCL claim would not be proper because the Legislature’s prescribed remedies—prosecution directly under section 6128(a) and State Bar disciplinary proceedings—remain viable.

The trial court having properly sustained the demurrer without leave to amend, we affirm.

BACKGROUND

In April 2022, the People filed a complaint against Potter, and we take the material facts alleged in the complaint as true for purposes of demurrer. (San Francisco CDC LLC v. Webcor Construction L.P. (2021) 62 Cal.App.5th 266, 276–277, 276 Cal.Rptr.3d 552 (Webcor).)

According to the complaint, every year Potter files "thousands" of boilerplate law-suits alleging ADA violations, which falsely assert that Potter’s clients have standing to maintain their cases in federal court. These cases also include state-law claims for violating California’s parallel disability law, the Unruh Civil Rights Act, which authorizes recovery of damages not available under the ADA. (See Civ. Code, § 52.) Potter files these lawsuits in federal court in order to circumvent procedural reforms enacted by the California Legislature to curb abusive claims of this type. (See e.g., Code Civ. Proc., §§ 425.50 & 425.55.) Potter’s lawsuits are filed on behalf of a few "[s]erial" plaintiffs against small California businesses with limited resources, especially businesses owned by immigrants or individuals with limited English, and Potter pays "little regard to whether those businesses actually violate the ADA." In order to invoke federal jurisdiction, they intentionally include false standing allegations, including "that the Serial Filer personally encountered a barrier at the business in question, was deterred or prevented from accessing the business because of it, and intends to return to the business after the violation is cured." (Boldface italics omitted.) With these false allegations, Potter "uses ADA/Unruh lawsuits to shake down hundreds or even thousands of small businesses to pay it cash settlements."

The complaint incorporates these factual allegations into a single cause of action for violating the UCL by engaging in an "unlawful" business practice. (Bus. & Prof. Code, § 17200.) According to this pleaded claim, Potter’s knowing assertion and adoption of false standing allegations violates three California laws: (1) section 6128(a), the misdemeanor statute aimed at attorney deceit of the court or a party; (2) Rule 3.1 of the Rules of Professional Conduct (Rule 3.1), which prohibits attorneys from pursuing non-meritorious claims for the purpose of harassing or maliciously injuring any person; and (3) Rule 3.3 of the Rules of Professional Conduct (Rule 3.3), which imposes an affirmative duty on attorneys to correct false statements and to rectify fraudulent conduct committed during litigation to the extent permitted by law. In their prayer for relief, the People seek an injunction restraining the allegedly unlawful business practice; an order requiring Potter to "restore" all money and property acquired through its unlawful practice to "every person in interest"; and civil penalties in the amount of $2,500 for each violation of the UCL proven.

In June 2022, Potter demurred to the complaint on multiple grounds. Pertinent here, Potter argued that the People’s UCL claim is barred by California’s litigation privilege. (§ 47(b).)¹ In opposing the demurrer, the People argued that the litigation privilege does not bar this action because their UCL claim is predicated on violations of a regulatory statute or rule that is itself exempt from the privilege. (Citing Action Apartment, supra, 41 Cal.4th at p. 1246, 63 Cal.Rptr.3d 398, 163 P.3d 89; Zhang v. Superior Court (2013) 57 Cal.4th 364, 159 Cal.Rptr.3d 672, 304 P.3d 163 (Zhang); People v. Persolve, LLC (2013) 218 Cal.App.4th 1267, 160 Cal. Rptr.3d 841 (Persolve).)

[2] In August 2022, the trial court sustained Potter’s demurrer without leave to amend. The court found that the People’s UCL claim is based on conduct that falls squarely within the broad privilege, and that no exception to the privilege applies. Following entry of judgment in favor of Potter, the People filed this timely appeal.²

DISCUSSION

[3, 4] "‘We independently review the superior court’s ruling on a demurrer and determine de novo whether the complaint alleges facts sufficient to state a cause of action or discloses a complete defense.’" (McBride v. Smith (2018) 18 Cal.App.5th 1160, 1172–1173, 227 Cal.Rptr.3d 390.) When a demurrer is sustained without leave to amend, the appellant has the burden to prove there is a reasonable possibility the defect can be cured. (Webcor, supra, 62 Cal.App.5th at p. 276–277, 276 Cal.Rptr.3d 552.) In this case, the People contend the trial court erred in concluding the litigation privilege bars their UCL claim against Potter, but they do not contend they can state a cause of action if the privilege does apply. Thus, we independently review the trial court’s dispositive findings—that conduct alleged in the complaint is protected by the litigation privilege, and that no exception to the privilege has been established.

I. The Litigation Privilege Reaches Potter’s Conduct

[5–7] The litigation privilege is codified in section 47(b), which provides that a "‘publication or broadcast’ made as part of a ‘judicial proceeding’ is privileged." Where it applies, "[t]his privilege is absolute in nature, applying ‘to all publications, irrespective of their maliciousness.’ [Citation.] ‘The usual formulation is that the privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that [has] some connection or logical relation to the action.’ [Citation.] The privilege ‘is not limited to statements made during a trial or other proceedings, but may extend to steps taken prior thereto, or afterwards.’" (Action Apartment, supra, 41 Cal.4th at p. 1241, 63 Cal.Rptr.3d 398, 163 P.3d 89.)

[8–10] Courts give the litigation privilege a "broad interpretation" in order to further its principle purpose of protecting "‘access to the courts without fear of … derivative tort actions.’" (Action Apartment, supra, 41 Cal.4th at p. 1241, 63 Cal.Rptr.3d 398, 163 P.3d 89.) Our Supreme Court has "emphasized the importance of the litigation privilege’s absolute protection of access to the courts, while recognizing that this absolute protection has its costs." (Id. at p. 1244, 63 Cal. Rptr.3d 398, 163 P.3d 89.) "‘[It] is desir- able to create an absolute privilege … not because we desire to protect the shady practitioner, but because w...