In Travelers Cas. Ins. Co. of Am. v. Hirsh (No. 14-55539), the United States Court of Appeals for the Ninth Circuit upheld an order denying the appellant’s motion pursuant to California’s anti-SLAPP statute, to strike Travelers’ second amended complaint, holding that the insurer’s causes of action alleged against the attorney were based on post-settlement conduct and not based on an act in furtherance of the appellant’s right of petition or free speech.
In Hirsh, the appellant, Robert Hirsh (“Hirsh”), was appointed as Cumis counsel to defend Travelers’ insured, Visemer De Gelt, LLC (“VDG”), in an underlying lawsuit. A number of disputes arose between Hirsh and Travelers regarding Hirsh’s representation, including disputes relating to billing invoices and entries. Ultimately, the underlying lawsuit was resolved and Travelers agreed to fund the $1.1 million settlement.
Hirsh sought to compel arbitration for additional fees allegedly owed for his Cumis counsel representation. Travelers discovered that Hirsh failed to credit Travelers with its previous defense payments. It also uncovered evidence that VDG and Hirsh entered into an amended settlement agreement with the claimants in the underlying lawsuit, which contained terms Travelers previously rejected. VDG and Hirsh concealed the amended settlement agreement because VDG and Hirsh knew Travelers would not agree to fund the $1.1 million settlement of the underlying lawsuit. When the attorney petitioned to compel a fee arbitration, Travelers filed suit, alleging causes of action for, inter alia, declaratory judgment, unjust enrichment, breach of California Civil Code Section 2860(d) (California’s Cumis counsel statute), and concealment. Travelers alleged that Hirsh received and unjustly retained funds from the settlement of the underlying lawsuit, without providing Travelers with a set off for fees owed to Hirsh, and Hirsh failed to disclose material, non-privileged information regarding the amendment of the settlement in the underlying lawsuit. Travelers sought restitution of the $1.1 million settlement of the underlying lawsuit as well as the defense costs paid to Hirsh.
Hirsh filed a motion to strike the second amended complaint filed by Travelers, alleging that all of the causes of action arose out of Hirsh’s representation of VDG in the underlying lawsuit. A special motion to strike is authorized against so-called “SLAPP” suits (“Strategic Lawsuit Against Public Participation”) – i.e., lawsuits brought “primarily to chill the valid exercise of constitutional rights of freedom of speech and petition for the redress of grievances.” (Code Civ. Proc., § 425.16(a).) Specifically, Hirsh alleged that his activities as a lawyer, i.e. litigation-related speech and activity, were protected under the anti-SLAPP statute. The District Court denied Hirsh’s anti-SLAPP motion and Hirsh appealed.
The Ninth Circuit rejected Hirsh’s argument. In affirming the District Court’s denial, the court found that the causes of action arose from Hirsh’s allegedly wrongful retention of settlement funds without offsetting fees charged to Travelers. In citing Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal. App. 4th 658 and Coretronic Corp. v. Cozen O’Connor (2011) 192 Cal. App. 4th 1381, the Ninth Circuit impliedly found that, although the alleged conduct occurred in the context of litigation, that fact alone does not mean the conduct constitutes “protected” activity. The attorney’s alleged wrongful conduct in retaining settlement funds without offsetting fees and concealing unapproved changes to the settlement agreement were deemed “incidental” to litigation itself. Accordingly, the trial court’s denial of the attorney’s anti-SLAPP motion was upheld. The Ninth Circuit also found that California’s litigation privilege, California Civil Code Section 47(b), did not bar the suit because the causes of action arose from post-settlement conduct, not communications with VDG in settlement of the underlying lawsuit.
Hirsh is a reminder that a lawyer cannot seek the protection of California’s anti-SLAPP statute by simply correlating his or her conduct to a lawsuit and Cumis counsel cannot escape liability by claiming their conduct arose from the defense of the insured. Hirsh also makes clear that insurers can pursue claims against unscrupulous attorneys who act in bad faith while defending insureds.
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