California Court of Appeal, 4th District, Division 1
No. D022306
(Appeal from Superior Court of San Diego County Superior Court No. 665784)
COUNSEL:
Meisenheimer and Herron, Matthew V. Herron and Robert M. Steele for Plaintiff and Appellant.
Sobel & Custer, Janet E. Sobel and Patricia Jo Custer for Defendant and Appellant.
KREMER, P.J.
Gary D. Aronson appeals a summary judgment on his defamation action against Kevin J. Kinsella. Aronson contends the court misapplied the standard for etermining whether prelitigation statements are covered by the litigation privilege (Civ. Code, [FN1] s. 47, subd. (b)) and improperly ruled Kinsella had not waived the attorney-client and work product privileges. Kinsella also appeals, contending summary judgment should have been granted on the ground Aronson could prove no damages and therefore was libel-proof. We affirm.
In 1983, Kinsella formed the venture capital firm of Avalon Ventures (hereafter Avalon). Avalon was involved in the founding of Vertex Pharmaceuticals (hereafter Vertex) (1989) and GenPharm International (1988).
In May 1987, Avalon entered into a "letter agreement" with Aronson where Avalon agreed to assign one-third of any founders stock or warrants which Avalon received in new start-up companies and to reimburse Aronson's expenses for "any new start-up company that [Aronson] might bring to [Avalon] which [met] [Avalon's] investment criteria" providing Aronson originated the idea for the company and did "sufficient work to determine the potential upside of the company." [FN2] While with Avalon, Aronson worked on the Vertex project. He also worked on the Chimera project. Chimera Biotech (hereafter Chimera) was a company which later became a part of GenPharm International. By March 1990, Aronson was no longer working with Avalon.
According to Kinsella, in the biotechnology venture capital field a person who has helped to "establish," to "found," or to "finance" a start-up company means the individual was a "prime mover" in the formation of the company and was involved in recruiting leading scientists with promising technologies, preeminent advisors and experienced business managers; developing business plans; providing capital and seeking additional investors from the venture capital community. Kinsella stated Aronson did not help to found or finance Vertex because Aronson "performed none of the primary tasks typically considered to be involved in founding a company," i.e., recruiting scientific advisors, management personnel or employees, facilitating the acquisition of any technology, bring in financing; or making any substantial or important contributions to Vertex's business plan. According to Kinsella, he rather than Aronson, performed these tasks.
According to Kinsella, Aronson never worked on the formation or financing of GenPharm International but worked directly for Kinsella only on Chimera, a company which was later acquired by GenPharm International. When Chimera was acquired by GenPharm International, Aronson's consulting work on this project ended. Aronson's final compensation for work performed on Chimera was paid by GenPharm International as successor to Chimera's obligation.
Aronson presented evidence, including his declaration, tending to support a conclusion he was involved in helping to found or finance Vertex. Among other things, there was a letter of reference for Aronson by Lawrence Bock who became a partner in Avalon in 1989. This letter, written in March 1990 states: "In the case of both GenPharm and Vertex, Mr. Aronson made major contributions and received an equity interest as part of his compensation. [FN3]
A dispute arose between Aronson and Kinsella about the amount of compensation Aronson was entitled to for working on the Vertex project. Avalon filed a declaratory relief action in February 1991 against Aronson and Aronson's consulting company. Aronson cross-complained against Avalon and Kinsella for breach of the May 1987 letter agreement. The jury awarded Aronson over $1.6 million (the value of one-third of Avalon's stock and warrants in Vertex at that time) on Aronson's breach of contract claim. The trial judge decided the quantum meruit value of Aronson's services to Avalon was $300,000.
In 1992, Aronson was president of DepoTech Corporation (hereafter DepoTech), a biotechnology company. DepoTech circulated a business plan to raise investment capital which stated, inter alia, that Aronson had assisted in "the founding of seven companies and the financing of two others. These companies include: . . . GenPharm International, Vertex Pharmaceuticals . . . ." The business plan also included Aronson's resume which stated he "helped to establish and/or finance" the companies listed in the business plan.
Kinsella received a portion of this business plan from another venture capitalist in July 1992. Kinsella objected to Aronson taking credit for the founding or financing of GenPharm International and Vertex because Kinsella believed he had founded or financed those companies. Kinsella retained a law clerk to do legal research on DepoTech's claims in his business plan and consulted with three different attorneys about whether he had a basis for suing Aronson for making false claims. The attorneys advised him he had a valid claim. Kinsella stated he intended to bring whatever legal action would be necessary to stop DepoTech (and Aronson) from continuing "this false advertising and unfair business competition." One of Kinsella's attorneys, Michael O'Donnell, testified in his deposition that Kinsella stated he would pursue a lawsuit if the matter were not resolved.
On October 26, Kinsella's attorney, Mauricio Flores, wrote the following letter to the chairman of DepoTech:
"Specifically, the statements that 'GDAC has helped establish and/or finance Vertex Pharmaceuticals' and 'GenPharm International' are untrue and misleading statements contained in the business plan. Mr. Aronson played no role in either the founding or the financing of Vertex or GenPharm. These statements reflect adversely on Mr. Kinsella, who did in fact play a major role in both.
"Such statements violate California Business and Professions Code Sections 17500 et seq. relating to deceptive, untrue or misleading advertising constituting unfair competition. On behalf of Mr. Kinsella, we demand that within 10 business days you contact everyone who received the DepoTech Corporation Business Plan dated January 1992, ascertain from them the names of everyone who read the Plan, and send to each one of them a certified letter renouncing the false and misleading claims. We also demand that you provide us with a list of all persons contacted within 15 business days.
"If you do not comply, we will be forced to consider appropriate legal action."
On November 5, 1992, DepoTech and Aronson entered into an agreement where Aronson agreed "to indemnify (but not defend) DepoTech and its affiliates from any liability established by judgment, or arising from any claims made by Kevin Kinsella based on [his] alleged fraud or deception" and DepoTech agreed to "waive any bond requirement for a derivative suit arising from any legal action involving Kevin Kinsella" and agreed DepoTech and Aronson would split "any proceeds received from settlement, arbitration, or judgment received in any derivative suit (to be financed solely by [Aronson]) arising from claims by Kevin Kinsella."
On November 9, 1992, Andrews sent a letter to Kinsella's attorney stating Aronson was no longer employed by DepoTech, DepoTech had revised its materials to delete any references to Aronson's background or the Vertex or GenPharm International claims and that "[p]arties interested in DepoTech have already been informed as to Mr. Aronson's status with the Company." Kinsella felt this sufficiently complied with his demands and there was no need to proceed with a lawsuit "against DepoTech to stop an action that was no longer occurring."
In March through June 1993, Aronson wrote a series of letters to Kinsella's attorney. Aronson included a copy of his resume. He asserted the resume was correct but sought Kinsella's approval. He stated he needed "to use this resume to seek work but [he had] not broadly distributed it to potential employers for fear that Mr. Kinsella [would] sue [him] as he threatened to do to DepoTech."
In June 1993, Aronson filed a libel per se against Kinsella based on Kinsella's allegedly false statements in the October 26, 1992 letter that Aronson "played no role in either the founding or the financing of Vertex or GenPharm." Aronson alleged as a result of these statements he had suffered damage to his reputation.
In March 1994, Aronson moved for summary adjudication on Kinsella's affirmative defense that the statements were true and on the ground the October 26 letter was libelous per se. The court denied the motion. In its order, the court noted the prior action between Avalon and Aronson did not have an identity of issues with the present action because the prior action involved the value of Aronson's services not the nature of those services.
Thereafter, Kinsella moved for summary judgment, inter alia, based on the grounds the statements in the October 26 letter were absolutely privileged under section 47, subdivision (b) and Aronson had not suffered any damages and was not entitled to presumed damages because undisputed evidence established Aronson's resume included falsehoods.
The court granted Kinsella's motion for summary judgment on the basis the statements in the October 26 letter were absolutely privileged under section 47, subdivision (b). The court denied summary judgment on the other grounds, inter alia, noting there were triable issues of fact as to damages.
Aronson contends the court applied the wrong standard in granting summary judgment because the trial court granted summary judgment on the basis Kinsella's statements in the October 26 letter were "absolutely privileged under Civil Code § 47(b)" (italics added). Aronson contends the statements here were not entitled to an "absolute" but only a limited, "qualified" privilege. He argues the litigation privilege applies to statements made before litigation only when those statements are related "'to a proceeding that is contemplated in good faith and under serious consideration'" and is "contemplated for legitimate purposes." (Italics as supplied by Aronson, quoting from Herzog v. "A" Company, Inc. (1982) 138 Cal.App.3d 656, 662 and fn. 5.) Aronson argues because the privilege is "qualified," the privilege is defeated upon a showing of malice and he presented triable issues of fact on the malice issue.
Section 47, subdivision (b) provides "[a] privileged publication or broadcast is one made . . . [¶] [i]n any . . . judicial proceeding . . . ."
The privilege applies to:
The privilege also extends to communications which have some relation to an anticipated lawsuit. (Rubin v. Green (1993) 4 Cal.4th 1187, 1194.) In California, the courts have held a prelitigation statement is protected by the litigation privilege of section 47, subdivision (b) when the statement is made in connection with a proposed litigation that is "contemplated in good faith and under serious consideration. [Citation.]" (Edwards v. Centex Real Estate Corp., supra, 53 Cal.App.4th 15, 33; Laffer v. Levinson, Miller, Jacobs & Phillips (1995) 34 Cal.App.4th 117, 123-124 and cases cited therein; Fuhrman v. California Satellite Systems (1986) 179 Cal.App.3d 408, 421, disapproved on different grounds in Silberg v. Anderson, supra, 50 Cal.3d 205, 217; Herzog v. "A" Company, Inc., supra, 138 Cal.App.3d 656, 661-662; see also Rubin v. Green, supra, 4 Cal.4th 1187, 1194-1195 [citing with approval Block v. Sacramento Clinical Labs, Inc. (1982) 131 Cal.App.3d 386, 396 for the proposition the litigation "privilege applies to communications with 'some relation to a proceeding that is actually contemplated in good faith and under serious consideration by . . . a possible party to the proceeding"].)
This "good faith and serious consideration" test derives from section 586, comment e of the Restatement Second of Torts. Section 586 provides:
[FN4] Section 587 of the Restatement Second of Torts states a similar rule for a party to litigation.
From this language in Laffer, Aronson argues the privilege for prelitigation statements is a "qualified" rather than "absolute" privilege which can be defeated by a showing of malice. Aronson argues since there are triable issues of fact as to whether Kinsella was acting with malice when he made the statement in the October 26 letter, summary judgment was improperly granted.
It has been stated that "'The distinction between absolute and qualified privileges is essentially that an absolute privilege confers immunity regardless of motive while a qualified privilege can be lost if the defendant acted out of malice.'" (Lundquist v. Reusser (1994) 7 Cal.4th 1193, 1206, fn. 12.) Malice in this context means "a state of mind arising from hatred or ill will, evidencing a willingness to vex, annoy or injure another person." (Id. at p. 1204, internal quotation marks and citations omitted.)
Our review of Laffer and cases applying the litigation privilege to prelitigation statements leads us to the conclusion Laffer used the word "qualified" in a colloquial sense and did not use the term in its technical, legal sense of meaning the privilege does not apply unless the statements were made without malice. In the Laffer case, Laffer, Jacobs and the respondent, [FN5] who were defendants in a prior action, settled with the plaintiff by each contributing money to the plaintiff. Jacobs and respondent signed mutual releases which released each other not only from any and all claims for indemnity in connection with the action but also waived the protection of section 1542, i.e., waived later discovered claims. [FN6]
[FN6] Section 1542 provides: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor."
In reversing the summary judgment, the Laffer court stated:
We further note Aronson's interpretation of the "good faith and serious consideration" test would essentially resurrect the "interest of justice" test which was repudiated by the Supreme Court in Silberg v. Anderson, supra, 50 Cal.3d 205. Before the Silberg decision, there were a number of cases which limited the application of the litigation privilege to statements which were made in the "interest of justice." (Id. at pp. 216-217.) This "interest of justice" test apparently originated in Bradley v. Hartford Acc. & Indem. Co. (1973) 30 Cal.App.3d 818, 826 where the court stated: