Travelers Casualty Insurance Company of America v. Hirsh

In Travelers Casualty Insurance Company of America v. Hirsh, __________ (9th Cir. 2016), the Ninth Circuit Court of Appeals unanimously affirmed the denial of defendant Robert W. Hirsh’s motion under California Code of Civil Procedure section 425.15, the California anti-strategic lawsuit against public participation ("anti-SLAPP") statute, to strike Travelers Casualty Insurance Company of America’s ("Travelers") second amended complaint.

The Court noted that, while the denial would not typically be considered a final judgment, precedent establishes the Court’s jurisdiction to consider the appeal. The Ninth Circuit considers the denial of an anti-SLAPP motion to be an appealable final decision because California’s protective anti-SLAPP statute acts as a substantive immunity from suit.

Considering the merits of the case, Hirsh argued Traveler’s claims arise out of his representation as Cumis counsel of Traveler’s insured, Visemer de Gelt (“VDG”), and that therefore the anti-SLAPP statute protects his activity. Travelers argues the claims do not involve Hirsh’s representation, “but rather his allegedly wrongful retention of settlement funds without offsetting the fees he charged to Travelers.”

The Court found Travelers made a prima facie showing of facts supporting its causes of action (declaratory judgment, unjust enrichment, breach of California Civil Code section 2860(d), and concealment), establishing a probability of prevailing on the merits sufficient to survive the motion to strike. First, Hirsh “sought to compel arbitration in search of further fees from the insurer,” which “created an actual controversy supporting Travelers’ request for declaratory relief.” Second, “Travelers alleges that Hirsh received funds from the settlement of the prior lawsuit and unjustly retained them without providing Travelers a setoff in the fees it owed Hirsh,” which satisfies the “minimum level of legal sufficiency and triability” to survive a motion to strike. Third, “Travelers also alleges that Hirsh failed to disclose material, non-privileged information regarding the amendment of the settlement in the prior lawsuit, which “states a claim under the Cumis statute [ . . . ] and for concealment.” The Court determined: “Because the causes of action at issue arise from Hirsh's post-settlement conduct, not his communications with VDG in settling the prior lawsuit, California's litigation privilege, Cal. Civ. Code § 47(b), does not bar this suit.”

The Court also noted it did “not have jurisdiction to review Hirsh's challenge to the district court's striking count two, alleging breach of a defense handling agreement, because the denial was without prejudice, and there is no final order as to this claim.”

Judges Kozinski and Gould concurred.

Judge Kozinski, with Judge Gould joining, noted he joined the opinion as it “faithfully applies our circuit’s precedents, which accord federal-court defendants the procedural advantages of California’s anti-SLAPP law,” but wanted to “write once again to emphasize that our caselaw is wrong: These interloping state procedures have no place in federal court.”

Our precedents have not aged with grace. Ever since we allowed them to take root, anti-SLAPP cases have spread like kudzu through the federal vineyards. A casual Westlaw search suggests that such cases have more than tripled over the last ten years. And nowhere are anti-SLAPP cases more common than in the Ninth Circuit: The Westlaw data suggest that courts in our circuit have heard 80 percent of these cases over the same decade. In other words, 80 percent of the problem is right here. [Footnotes omitted]

Judge Kozinski referenced the D.C. Circuit’s decision “that anti-SLAPP motions don't belong in federal court because they directly conflict with the Federal Rules of Civil Procedure,” which created a circuit split with the Ninth Circuit “standing on the wrong side.”

Let's review the basics: Every first-year law student learns (or is supposed to learn) that federal courts in diversity cases apply state law to substantive questions. Was the contract breached? Was the accident negligent? See Erie R.R. v. Tompkins, 304 U.S. 64, 78-79, 58 S. Ct. 817, 82 L. Ed. 1188 (1938). But procedural questions are different. When the state law directly conflicts with one of the Federal Rules, the outcome is simple: The Federal Rules trump. [Footnote]

California's anti-SLAPP law directly conflicts with Federal Rule 12, which provides a one-size-fits-all test for evaluating claims at the pleading stage. To survive a 12(b)(6) motion to dismiss, a plaintiff's complaint has to state a claim that is "plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007). California, on the other hand, gives defendants a "special motion to strike" any claims that arise from protected speech activities. Cal. Civ. Proc. Code § 425.16(b)(1). To survive this motion, a plaintiff must show that he has a "probability" of succeeding on the underlying claim. Id. This requires demonstrating that the claim is legally sufficient and "supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited." Wilson v. Parker, Covert & Chidester, 28 Cal. 4th 811, 123 Cal. Rptr. 2d 19, 50 P.3d 733, 739 (Cal. 2002) (citations omitted).

In short, "probability" is a much higher bar than "plausibility": California's special motion requires supporting evidence at the pleading stage; Rule 12 doesn't. That's a problem because the Supreme Court has decided that the plausibility standard alone strikes the right balance between avoiding wasteful litigation and giving plaintiffs a chance to prove their claims. See Twombly, 550 U.S. at 556; see also Ashcroft v. Iqbal, 556 U.S. 662, 679, 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009). The Supreme Court's balance might be the wrong one, of course, but that's not something that the state of California gets to decide. The plausibility standard isn't a floor or a ceiling from which we can depart. Using California's standard in federal court means that some plaintiffs with plausible claims will have their cases dismissed before they've had a chance to gather supporting evidence. It's obvious that the two standards conflict.

The Ninth Circuit then “made the problem worse by allowing defendants to bring interlocutory appeals.” Such appeals “make it hard for a district court to supervise a trial [and] undermine the efficient administration of justice when, as here, a meritless appeal stalls a case for years.”

Now it's time to deliver the coup de grâce. We were wrong in Newsham and Batzel, and wrong not to take Makaeff en banc to reverse them. But it's not too late to correct these mistakes. Cases like this one have no place on our docket, and we should follow the D.C. Circuit in extirpating them. Our ink and sweat are better spent elsewhere.

Judge Gould also concurred, both in the opinion and Judge Kozinski’s concurrence:

Although I previously joined in part the Batzel precedent that is challenged by Judge Kozinski, and my partial dissent did not disagree on the majority's application there of collateral order doctrine to permit appeal of denial of anti-SLAPP motion, I am now persuaded by Judge Kozinski's reasoning, as well as that of the D.C. Circuit in Abbas v. Foreign Policy Grp., LLC, 783 F.3d 1328, 1333-37, 414 U.S. App. D.C. 465 (D.C. Cir. 2015), that an anti-SLAPP motion has no proper place in federal court in light of the Federal Rules of Civil Procedure, and also that the collateral order doctrine does not provide a good fit for immediate appeal of denial of anti-SLAPP motions. Having recognized that there was error in the position that I previously joined, I recede from it.