Unreported / Non-Citable
Background
Tracy Reed and Trang Reed married in 2007 and, with Tracy's friend Roderick Hamby, started Copilotco LLC, a secure managed data hosting business, in 2011. A draft operating agreement listed Tracy with a 34 percent interest and Hamby and Trang with 33 percent each, but no executed version was produced, and Trang testified she never signed or agreed to any ownership arrangement with Hamby. Hamby never received profits, K-1 forms, or profit and loss statements, and the company's accountant treated Copilotco as a single-member LLC for tax purposes. Trang and Tracy opened the company bank account with both authorized to withdraw funds, and Trang testified she paid household expenses from the account with Tracy's knowledge, treating the funds as profits reported on their joint tax returns.
After the Reeds separated and divorced, Tracy and Hamby sued Trang in July 2020 for breach of contract and breach of fiduciary duty, alleging she misappropriated $162,036.28 from Copilotco. Through successive amendments they removed Tracy as a plaintiff, added a derivative claim, dropped the contract claim, and never served Copilotco despite a court order. On the eve of trial in January 2024, their counsel requested dismissal without prejudice, which the court granted. Trang then filed a malicious prosecution action against Tracy, Hamby, and their attorneys, Lenden Webb, Raza Khan, Katherine Cervantes, and Webb Law Group. The defendants filed anti-SLAPP motions under Code of Civil Procedure section 425.16, which the trial court denied after finding Trang had demonstrated a probability of prevailing, including a prima facie showing that the prior suit lacked probable cause.
The Court’s Holding
The Court of Appeal, in an opinion by Justice Buchanan with Acting Presiding Justice Dato and Justice Kelety concurring, reviewed the anti-SLAPP ruling de novo. The parties agreed the malicious prosecution claim arose from protected litigation activity, satisfying the first prong. On the second prong, the court explained that probable cause is an objective inquiry into whether any reasonable attorney would have thought the prior claim tenable, but where the defendant's knowledge is disputed, the jury must resolve that factual question first. Because Trang produced evidence that appellants knew their factual allegations were untrue, the court could not decide probable cause as a matter of law.
On Hamby's ownership interest, the court found Trang made a prima facie showing that Hamby lacked probable cause because secretary of state and IRS filings did not list him as a member during the relevant period, he received no K-1 forms or profits, and the operating agreement required additional steps to become and remain a member. The court declined to consider a February 2011 statement of information attached to reply declarations because appellants did not challenge the trial court's discretion to disregard new reply evidence. On the withdrawals, the court found evidence that Tracy knew of, encouraged, and benefited from Trang's use of company funds, that no oral contract prohibited commingling, and that Copilotco's insolvency stemmed from losing major clients and market competition rather than Trang's withdrawals. The court emphasized it was not deciding the merits, only that the claim had minimal merit to survive anti-SLAPP screening, and affirmed the order denying the motions with costs to Trang.
Key Takeaways
- A malicious prosecution claim survives an anti-SLAPP motion if the plaintiff produces evidence that, accepted as true, shows the prior lawsuit was initiated or continued without probable cause, even if the claim is disfavored.
- Disputes about what a defendant knew when filing or maintaining a lawsuit must be resolved by the jury before a court can determine probable cause as a matter of law.
- Evidence that an LLC claimant never received K-1 forms, profits, or voting rights, and was not listed in regulatory filings, can support a prima facie showing that he lacked probable cause to assert membership-based claims.
- A party's knowledge and approval of the conduct later alleged as misappropriation, combined with evidence that the alleged harm resulted from other causes, can establish minimal merit for a malicious prosecution claim.
- New evidence submitted for the first time in reply declarations may be disregarded, and failure to challenge that ruling on appeal forfeits consideration of the evidence.
Why It Matters
The decision illustrates how the anti-SLAPP minimal-merit standard applies to malicious prosecution claims arising from business disputes, particularly where the prior plaintiffs' own testimony and tax records undermine their asserted ownership and misappropriation theories. It reinforces that continuing to prosecute a case after learning facts that negate probable cause can expose litigants and their attorneys to liability.
The opinion also underscores practical limits on appellate review: courts will not weigh credibility at the anti-SLAPP stage, will not consider evidence properly excluded from the trial court record without a preserved challenge, and will treat lay opinions about legal conclusions such as ownership status as lacking evidentiary value. The ruling allows Trang Reed's malicious prosecution action to proceed without determining its ultimate merits.