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Liberty Synergistics Inc. v. Microflo Ltd.

United States Court of Appeals, Second Circuit

May 31, 2013

Liberty Synergistics Inc., a California corporation, Plaintiff-Appellee,
v.
Microflo Ltd., an inactive New York Corporation, Edward Malkin, an individual, and Ecotech Ltd., a Cayman Islands Company, Defendants-Appellants.[*]

Argued: February 1, 2013

In this suit—which was originally filed in state court in California, later removed to federal court in California, and then voluntarily transferred to the United States District Court for the Eastern District of New York—the District Court (Sandra J. Feuerstein, Judge) denied the defendants' motion to dismiss the suit pursuant to California's anti-Strategic Litigation Against Public Participation ("anti-SLAPP") rule, see Cal. Civ. Proc. Code § 425.16, on the basis that New York law, not California law, governs the plaintiff's malicious prosecution claim. In short, the District Court held that California's anti-SLAPP rule became inapplicable after the suit was transferred to New York. The questions presented in this appeal are: (1) whether the District Court's decision with respect to the inapplicability of California's anti-SLAPP rule is a "collateral order" reviewable on an interlocutory appeal under 28 U.S.C. § 1291; and (2) whether the District Court erred by concluding that California's anti-SLAPP rule is inapplicable in light of its determination that New York law, instead of California law, governs the plaintiff's malicious prosecution claim.

With respect to the first question, we hold that the District Court's decision constitutes an immediately appealable collateral order. With respect to the second question, we hold that the District Court erred in concluding that California's anti-SLAPP rule cannot apply to a claim transferred from a California federal court to a New York federal court and governed, under the Erie doctrine, by New York law. In particular, the District Court conflated the relevant state choice-of-law question with the separate federal choice-of-law inquiry under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938). State rules that are considered "procedural" under state law may still apply in federal diversity suits if those rules are considered "substantive" under federal law pursuant to Erie. Because the plaintiff initially brought this suit in California and then voluntarily transferred it from a California federal court to the Eastern District of New York pursuant to 28 U.S.C. § 1404(a), and because a California state court would have applied California's anti-SLAPP rule as a procedural matter, the rule is still potentially available following the transfer. See Ferens v. John Deere Co., 494 U.S. 516, 531 (1990).

For these reasons, Liberty's motion to dismiss this appeal for lack of appellate jurisdiction is denied; the order of the District Court denying the defendants' motion to dismiss pursuant to California's anti-SLAPP rule is vacated; and the cause is remanded to the District Court for further consideration of the motion to dismiss, and for such further proceedings as may be appropriate in the circumstances.

Dennis H. Sabourin (Eugenie F. Temmler, on the brief), Rabner, Allcorn, Baumgart & Ben-Asher, P.C., Montclair, NJ, for Defendants-Appellants.

Tracy Graves Wolf (Peter T. Shapiro, on the brief), Lewis Brisbois Bisgaard & Smith LLP, Dallas, TX, and New York, NY; Harold A. Ducote, Jr., Ducote Law Corporation, PC, Costa Mesa, CA, for Plaintiff-Appellee.

Before: Walker, Cabranes, and Wesley, Circuit Judges.

José A. Cabranes, Circuit Judge:

On its face, this appeal involves a somewhat technical issue of federal appellate procedure— namely, whether we have jurisdiction under the "collateral order" doctrine to consider the merits of this interlocutory appeal. But a similarly difficult inquiry, which also bears on our analysis of the jurisdictional question, is whether the District Court properly applied governing choice-of-law principles under the Rules of Decision Act, see 28 U.S.C. § 1652, [1] as interpreted in Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938) ("Erie"), and its progeny.[2]

The tricky choice-of-law questions raised in this appeal have arisen because this case has progressed through three different venues. The suit, which alleges malicious prosecution with respect to prior litigation in federal court in New York between the same parties, was originally filed in California state court, later removed to federal court in California, and then voluntarily transferred to the United States District Court for the Eastern District of New York pursuant to 28 U.S.C. § 1404(a).[3] While the suit was pending in federal court in California, the defendants filed a motion to dismiss under California's anti-Strategic Litigation Against Public Participation ("anti-SLAPP") rule, see Cal. Civ. Proc. Code § 425.16, [4] arguing that the plaintiff's malicious prosecution claim was meritless and intended to inhibit the defendants' constitutionally protected conduct in bringing the suit. After the case was transferred, the United States District Court for the Eastern District of New York (Sandra J. Feuerstein, Judge) denied the defendants' pending motion to dismiss, which was based on the purported immunity provided by California's anti-SLAPP rule. The Court concluded that because New York law, not California law, governs the substance of the plaintiff's cause of action, and because the suit was transferred to a federal court in New York, California's anti-SLAPP rule did not apply.

The questions presented in this appeal are: (1) whether the District Court's decision regarding the inapplicability of California's anti-SLAPP rule is a "collateral order" reviewable on an interlocutory appeal under 28 U.S.C. § 1291; and (2) whether the District Court erred by concluding that California's anti-SLAPP rule is inapplicable in light of its determination that New York law, instead of California law, governs the plaintiff's malicious prosecution claim.

With respect to the first question, we hold that the District Court's denial of the defendants' motion to dismiss under California's anti-SLAPP rule constitutes an immediately appealable collateral order because it (1) conclusively determined the disputed issue; (2) resolved an important question that is completely separate from the merits of the action; and (3) would be effectively unreviewable in a later appeal. See Will v. Hallock, 546 U.S. 345, 349 (2006).

With respect to the second question, we hold that the District Court erred in concluding that California's anti-SLAPP rule cannot apply to a claim transferred from a California federal court to a New York federal court and governed, under the Erie doctrine, by New York law. In particular, the District Court conflated the relevant state choice-of-law question with the separate federal choice-of-law inquiry under Erie. State rules that are considered "procedural" under state law may still apply in federal diversity suits if those rules are considered "substantive" under federal law pursuant to Erie. Because the plaintiff initially brought this suit in California and then voluntarily transferred it to the Eastern District of New York, and because a California state court would have applied California's anti-SLAPP rule as a procedural matter, the aspects of California's anti-SLAPP rule considered substantive by federal law continue to apply in this case, notwithstanding that the case is now being heard in New York, and notwithstanding that the cause of action is otherwise governed by substantive New York law. See Ferens v. John Deere Co., 494 U.S. 516, 531 (1990).

For these reasons, the District Court's order denying the defendants' motion to dismiss pursuant to California's anti-SLAPP rule is vacated, and the cause is remanded to the District Court for further consideration of the motion to dismiss, and for such further proceedings as may be appropriate in the circumstances.

BACKGROUND

The plaintiff-appellee in this case, Liberty Synergistics Inc. ("Liberty"), was the defendant in an earlier, now-concluded round of litigation between the same parties in the Eastern District of New York. Thereafter, Liberty filed this malicious prosecution suit in California state court against defendants-appellants Microflo Ltd., Edward Malkin, and Ecotech Ltd. (jointly, "Microflo"). Liberty filed its complaint in California state court on September 17, 2010, alleging that Microflo, in pursuing the previous litigation against Liberty, "undertook no reasonable investigation to verify any of the facts asserted in the[ ] complaint, [and] maintain[ed] the action against Liberty out of motives grounded in spite, malice, and with a vexatious and malicious intent, in complete and utter disregard for the rights of Liberty and others . . . ." Complaint ¶ 27. Microflo removed the case to the Central District of California on November 30, 2010.

Microflo then moved on January 3, 2011, to dismiss the suit under California's anti-SLAPP rule, Cal. Civ. Proc. Code § 425.16, see note 4, ante, arguing that Liberty's claim is meritless and is intended to inhibit Microflo's constitutionally protected conduct in petitioning for relief in the prior litigation. Microflo also moved to dismiss the case for lack of personal jurisdiction. Before the California federal court decided these motions, however, it transferred the case on January 12, 2011, to the District Court for the Eastern District of New York ("the District Court"), pursuant to a stipulation by the parties, under 28 U.S.C. § 1404(a), see note 3, ante.

Later that year, Microflo reasserted its "Motion to Strike" under California's anti-SLAPP rule. Judge Feuerstein referred the matter to Magistrate Judge E. Thomas Boyle, who heard oral argument on October 6, 2011, and issued an amended report and recommendation ("R&R") on October 26, 2011.[5] In his R&R, Magistrate Judge Boyle concluded, inter alia, that California law does not govern Microflo's motion to dismiss under California's anti-SLAPP rule because, under California's choice-of-law principles, New York law governs Liberty's malicious prosecution claim. In other words, Magistrate Judge Boyle determined that California's anti-SLAPP rule does not apply to a claim governed by New York substantive law and being heard in New York, even though the case was originally brought in California. As Magistrate Judge Boyle explained:

Defendants have succeeded in their argument that New York substantive law applies to this case. As it applies to this Motion to Strike, however, [their choice-of-law argument] is unavailing.
California Code of Civil Procedure § 425.16—the anti-SLAPP statute under which this Motion to Strike is brought—is California substantive law. See Batzel v. Smith, 333 F.3d 1018, 1025–26 (9th Cir. 2003) ("Because California law recognizes the protection of the anti-SLAPP statute as a substantive immunity from suit, this Court, sitting in diversity, will do so as well."). The Ninth Circuit has held that anti-SLAPP motions may be maintained in diversity cases where California provides the law of decision. See id.; see also U.S. ex rel. Newsham v. Lockheed Missiles & Space Co., 190 F.3d 963, 971–73 (9th Cir. 1999) (applying certain subsections of ...

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