Motion-Secondary: Velocity Investments, LLC v. Canul

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HINSHAW & CULBERTSON Ww?
380 South Grand Ave., Suite 3600
Los Angeles, CA 90071-3402
213-680-2800

16CV300096
Santa Clara — Civil

Electronically Filed

JUSTIN PENN (SBN CA 302350) by Superior Court of CA,
jpenn@hinshawlaw.com Cc f Santa Cl
SHALINI BHASKER (SBN CA 326729) leuntyof. Senta\Clara:
sbhasker@hinshawlaw.com on 4/20/2022 1:57 PM
HINSHAW & CULBERTSON LLP Reviewed By: R. Walker
350 South Grand Ave., Suite 3600 Case #16CV300096

Los Angeles, CA 90071-3402 Envelope: 8796920

Telephone: 213-680-2800
Facsimile: 213-614-7399

Attorneys for Plaintiff and Cross-Defendant Velocity
Investments, LLC and Cross-Defendant Velocity Portfolio

Group, Inc.
SUPERIOR COURT OF THE STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
VELOCITY INVESTMENTS, LLC, Case No.: 16CV300096
Plaintiff,
CROSS-DEFENDANTS’ OPPOSITION
vs. TO CROSS-COMPLAINANT’S MOTION
TO CONDUCT DISCOVERY;
MARIA CANUL, DECLARATION OF JUSTIN M. PENN
Defendant.
MARIA ANTONIA CANUL, [Filed Concurrently with Request for Judicial
Notice and Declaration of Matthew DiPoalo]
Cross-Complainant,
Date: May 11, 2022
vs. fhime?. | 1:30 pm:
Dept.: 3
VELOCITY INVESTMENTS, LLC, a New
Jersey limited liability company; VELOCITY
PORTFOLIO GROUP, INC., a Delaware
corporation; and ROES 2 through 10, inclusive,
Cross-Defendants.

 

TO THE COURT, ALL PARTIES, AND THEIR ATTORNEYS OF RECORD:

Cross-Defendants VELOCITY INVESTMENTS, LLC (“Velocity”) and VELOCITY
PORTFOLIO GROUP, INC. (“VPGI’) hereby submit their Opposition to Cross-Complainant
MARIA CANUL’s (“Canul”) Motion to Conduct Discovery (“Motion”) as follows:

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213-680-2800

I. INTRODUCTION

This action is one of several litigated by counsel for Canul alleging identical or nearly
identical causes of action and theories against Velocity and VPGI (collectively, “Cross-
Defendants”), many before this exact court. Prior to the involvement of instant counsel, Velocity
was compelled to respond to all discovery, without objections, and produced hundreds of pages of
documents and answers to interrogatories. As a part of that production, Cross-Defendants have
answered all interrogatories, made voluminous productions (subject to protective orders) of
documents and information concerning their financials, policies, corporate structure, and
relationship to one another — all admittedly in the possession of Canul’s counsel. Despite this, Canul
continues to maintain the instant Motion to Conduct Discovery (“Motion”).

Good cause does not exist to grant this Motion and order discovery for at least three reasons:

(1) There has already been exhaustive discovery conducted in this case, including hundreds
of pages of documents concerning the corporate defendants. Canul admits her counsel is in
possession of the discovery she requires, and fails to articulate what else she needs. (Motion, p.
13:9-13; Schwinn Declaration, § 11). Schroeder v. Irvine City Council, 7 Cal. App. 4th 174, 190-
193 (2002) (no good cause where the discovery sought was either readily available from other
sources or redundant of documents already in the record).

(2) Canul admits that her intention of conducting discovery is to test the declaration
submitted in support of the antiSLAPP (Motion, p. 8:9-18), which is not, by itself, good cause to
grant a motion to conduct specified discovery. Sipple v. Foundation for National Progress, 71 Cal.
App. 4th 226, 247 (1999) (discovery intended to test purported "self-serving declarations" in
anti-SLAPP motion not sufficient to show good cause or subvert the intent of the anti-SLAPP
statute).

(3) Canul’s Motion fails to explain what additional facts she expects to discover, rather than
just listing broad categories of factors enumerated by courts to weigh alter ego liability. /-800

Contacts, Inc. v. Steinberg, 107 Cal.App.4th 568, 593, 132 Cal. Rptr. 2d 789 (2003) (“The showing

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should include some explanation of ‘what additional facts [plaintiff] expects to uncover’ [citation
omitted]).

For these reasons, Canul has not demonstrated she is entitled to an order allowing her to
conduct discovery. The Motion should be denied.

IL. FACTUAL BACKGROUND

This action is one of several actions litigated by counsel for Canul, alleging identical or near
identical causes of action and theories against Velocity and VPGI going back years. Declaration of
Michael C. Penn (“Penn Decl.,”), 3. Those actions include: (1) Velocity Investments, LLC v. Sipin,
20CV37053; (2) Velocity Investments, LLC v. Pascual, 18CV338986; (3) Velocity Investments, LLC
v. Jayawardena, 19CV357372; (4) and Pajarit v. Velocity Investments, 17CIV03046. Id.

Protective orders have been entered into in these cases, including the case at issue. Id, § 4.
Pursuant to the protective orders, productions of documents and information have been made in at
least some of these cases, albeit not in this action. Jd. In addition, in this case, the Court has
compelled the production of discovery responses from Velocity without objections. As a result of
that order, Velocity has produced documents related to the financials and operations of it and its
parent corporation, VPGI, as well as documents concerning its relationship with VPGI. Declaration
of Matthew DiPoalo (“DiPoalo Decl.), § 4.

The productions that have been made and which are in the possession of counsel of record
for Canul in this action include over four hundred pages of detailed financial accounting documents,
auditor reports from BDO, statements, policies, procedures, insurance information, and corporate
structure documents. /d., {| 2 and 5. On information and belief, many documents concerning the
corporate forms of VPGI and Velocity are also available through public disclosures. Jd., § 5. The
documents already produced in this case are the documents that would be in response to the
discovery Canul contends she needs to oppose VPGI’s antiSLAPP motion. Jd.

Because of the past productions, counsel for Canul has been in the possession of documents
relating to the issues of the antiSLAPP as well as the existence of VPGI as the parent company of

Velocity, for many years. Penn Decl., {| 5; DiPoalo Decl., {| 6. This is especially true for the this

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case. Penn Decl., {| 4. In this case, prior counsel for Velocity failed to timely respond to discovery
and were ordered to respond and produce documents to all set one Form Interrogatories, Special
Interrogatories, and Requests for Production without objection. /d. Pursuant to these orders,
Velocity produced all documents and information that exist concerning the following categories:

* Financial statements, current balance sheets, and annual reports;

" Credit applications and insurance documents;

= Corporate formation documents for itself and any entity to which it is affiliated,

including VPGI;

= Operation manuals, policies, and procedures;

= Various account information concerning debtors, including about the entities involved

in retaining the information, communicating with debtors, servicing the loan or accounts,
or otherwise having involvement with any of the allegations contained in the Cross-
Complaint. Penn Decl., § 4.

In addition, VPGI was at all relevant times a publicly traded corporation, subject to reporting
and disclosure requirements, including to the Securities and Exchange Commission in the past. /d.,
4 4. This information is publicly available. Jd. On information and belief, documents concerning
VPGI’s corporate structure, policies, procedures, insurance and financials have also been produced
to counsel for Canul. Jd.

That Canul’s counsel has possessed this information for years is further evidenced in two
additional ways:

First, on October 15, 2019, Mr. Schwinn’s office filed a supplemental brief in the Pajarit
case describing Velocity as a subsidiary of VPGI. DiPoalo Decl., § 6.

Second, in the August 6, 2021 Order granting VPGI’s antiSLAPP motion in the
Jayawardena action, this Court recited that counsel for Canul (then on behalf of Jayawardena)
asserted at the July 28, 2021 hearing on the antiSLAPP motion that “the underlying documents [to
support alter ego allegations] were not filed with the opposition because of protective orders in other

cases.” Penn Decl., | 6, Exh. A.

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It is telling that Canul’s motion incorrectly concludes that “No discovery has been conducted
with VPGI thus far in this case.” Motion, p. 5:26. VPGI, as the parent company of Velocity, was
included in much of the discovery produced in this case as a result of the broad sweeping motion to
compel and discovery order. Indeed, a prior discussion on this very point between counsel in a
similar motion gives the game away — Canul’s counsel was unable or unwilling to provide any
explanation as to what additional discovery was needed that was not covered by the production in
this very case.

In the Sipin case, the Plaintiff there, represented by this same counsel, sought to conduct
discovery on the same topics presented here. Velocity and VPGI offered to allow Sipin to use any
of the previously produced documents from this case in the Sipin action for the purposes of the
antiSLAPP being considered there. /d. § 8. After reviewing the Motion to Conduct Discovery,
counsel for Cross-Defendants emailed counsel for Sipin to request the withdrawal of the motion to
conduct discovery in exchange for extending any protective order and production of documents
from the other actions to this action. /d. { 8, Exh. B. Counsel for Sipin refused. /d., Exh. C. Counsel
for Cross-Defendants responded that Sipin’s counsel should have all documents and information
needed in light of the vast production in this case, and Velocity’s counsel asked what else they
wanted, and then sent a follow up email again offering a continuance of all hearings such that Sipin
could use the discovery already in Sipin’s counsel’s possession. /d., Exhs. D and E. Tellingly,
Sipin’s (and Canul’s) counsel was unable or unwilling to explain what additional information or
documents were needed. Jd.

HIT. ARGUMENT
A. Legal Standard For Ordering Specified Discovery Requires Good Cause

California's anti-SLAPP statute, California Code of Civil Procedure § 425.16, was enacted
to promote the "fast and inexpensive unmasking and dismissal" of lawsuits, like this one, that target
a defendant's exercise of the right to petition and free speech. Ludwig v. Superior Court, 37 Cal.

App. 4th 8, 16 (1995).

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To reduce the burden and expense that SLAPP suits impose on defendants, the Legislature
mandated that the filing of a special motion to strike automatically stay all discovery unless the
plaintiff files a noticed motion and establishes "good cause" to conduct "specified. discovery." Civ.
Proc. Code§ 425.16(g). The "good cause" requirement is a fundamental part of the statute; as the
court explained in Ludwig, "[t]he purpose of the statute would be frustrated if the plaintiff could
drag on proceedings for many months by claiming a need to conduct additional investigation."
Ludwig, 37 Cal. App. 4th at 16. Instead, legislative intent is best served by an interpretation [of
subsection (g)] which ... require[ s] a plaintiff to marshal facts sufficient to show the viability of the
action before filing a SLAPP suit." Jd.

Canul is required to demonstrate good cause. She fails to do so, especially given the vast
amount of discovery produced and exchanged to date in this case, as explained below.

B. Canul Has Not Demonstrated Good Cause Exists to Order Discovery

In the context of an anti-SLAPP motion, "good cause" means only discovery relevant and
necessary to the plaintiff's burden of establishing a reasonable probability of prevailing on the claim.
Blanchard v. DIRECTV, Inc., 123 Cal. App. 4th 903, 922 (2004). Consistent with the foregoing
principles, a plaintiff's discovery request under C.C.P. §425.1 6(g) must be denied if the discovery
would not be relevant to or necessary to oppose the defenses raised in the special motion to strike.
See, e.g., Schroeder v. Irvine City Council, 7 Cal. App. 4th 174, 190-193 (2002).

Good cause does not exist where the discovery sought is either readily available from other
sources or redundant of documents already in the record. /d. Moreover, where the party fails to make
an adequate showing of why discovery is needed, the request for discovery must be denied. Tutor-
Saliba Corp. v. Herrera, 136 Cal. App. 4th 604, 617-620 (2006). Indeed, the basis for the anti-
SLAPP motion is that “Canul and her counsel have been aware of this information and the
relationship and corporate statuses of Velocity Investments, LLC and Velocity Portfolio Group, Inc.
since at least May 2018 (over three years ago).” Velocity’s anti-SLAPP Motion, p. 1:24-26. Canul
does not even attempt to explain what discovery is needed to address that position, let alone present

some narrowly tailored discovery requests relevant to the motion. Instead, she seeks a vast array of

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discovery, presumably in the hopes the Court will grant something. This shotgun approach and
conclusory allegations of no discovery having been conducted does not a good faith showing make.

To make the requisite showing of good faith, a plaintiff should include an explanation of
what additional facts he/she expects to uncover, and "[d]iscovery may not be obtained merely to
‘test’ the [defendant's] declarations." See 1-800 Contacts, Inc. v. Steinberg, 107 Cal.App.4th 568,
593, 132 Cal. Rptr. 2d 789 (2003); Sipple v. Foundation for National Progress, 71 Cal. App. 4th
226, 247(1999) (discovery intended to test purported "self-serving declarations" in anti-SLAPP
motion not sufficient to show good cause or subvert the intent of the anti-SLAPP statute). Canul
does not meaningfully address the points raised here, that she has expansive discovery in this case
and others, and that her counsel has known about the relationship between Velocity and VPGI for
years.

Canul’s request for discovery is therefore without good cause for the following reasons:

* The documents Canul contends she needs are redundant and already available to her.

=  Canul admits that her intent for the discovery is to improperly test “self-serving

declarations.”

= Canul provides no explanation of what additional facts she expects to uncover.

First, Canul already has the discovery she requests. Canul’s Motion admits that “CANUL’s
counsel has actual knowledge that many of the documents requested actually exist because
VELOCITY and/or VPGI have produced them in other litigation'...” See Motion, p. 15:23-25;
Schwinn Decl., § 11. This is true — these documents have been produced, and the documents that
are responsive to the proposed discovery requests provided by Canul are these same documents
already produced in this case. DiPoalo Decl., § 5. As stated, this information includes:

= Financial statements, current balance sheets, and annual reports;

= Credit applications and insurance documents;

' This statement appears to reference “other litigation” as an assertion made in the Sipin case. Indeed, the documents to
which this refers were produced in this case, and not in other litigation. While it was accurate to state in Sipin that the
documents were produced in “other litigation,” this case is that “other litigation.” Defendants would, of course, be
willing to show these documents to the Court in camera or otherwise at the Court’s direction.

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= Corporate formation documents for itself and any entity to which it is affiliated,

including VPGI;

= Operation manuals, policies, and procedures;

= Various account information concerning debtors, including about the entities involved

in retaining the information, communicating with debtors, servicing the loan or accounts,
or otherwise having involvement with any of the allegations contained in the Cross-
Complaint. Penn Decl., § 4.

All the documents which exist as to this information have already been produced in the other
actions. Jd. Canul’s Motion all but admits the same. At a minimum, Canul fails to demonstrate her
burden of showing good cause of what additional limited documents or information are needed.

Moreover, documents concerning the entities formation are publicly available. DiPoalo
Decl., § 5; Penn Decl., 9 5. While Canul’s Motion contends that documents are not publicly
available, it provides insufficient evidence in declaration or otherwise that this is true. This
unsupported argument should not be well taken — it is common knowledge that corporate formation
documents, at the very least, are available via government registration websites, especially for
publicly traded corporations like VPGI. This also ignores the information entities advertise on the
internet as to their address and representatives, among other things. Canul provides no indication
that she has availed herself of what is publicly available to her.

That counsel (and Canul) are aware and in possession of the discovery they request is further
evidenced by Canul’s counsel’s confusing position that but for protective orders in place, they would
have presented evidence of alter ego liability at a hearing on VGPI’s antiSLAPP motion in the
Jayawardena action in July 2021. Penn Decl., 4] 6, Exh. A. After reviewing a similar motion in the
Sipin matter, Cross-Defendants offered to allow Sipin to use this discovery in lieu of the motion to
conduct discovery. /d., § 8, Exhs. B-E. In addition, Cross-Defendants specifically referred to the
production and discovery responses in this case, and asked what additional information and

documents were needed to respond to the anti-SLAPP motion. /d. This offer and query was

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ultimately ignored by counsel, despite the additional offer by Cross-Defendants that the hearings be
continued to provide ample time to use the already produced discovery. Jd.

To that end, Canul cannot contend that she has demonstrated good cause and does not have
what she has admitted her counsel is already in the possession of, especially in refusing to engage
in some discussion about what additional limited information or documents are needed. Canul has
simply refused to explain what, if anything, she requires beyond what has been produced. To that
end, good cause does not exist to order discovery that has already been produced.

Second, Canul’s Motion states that she requires the discovery to oppose the specific
arguments submitted in support of the antiSLAPP, and “based on the self-serving declaration of
VELOCITY’s Director of Outsourcing.” See Motion, p. 10:13-16. This is improper and deficient to
show good cause. Good cause for ordering specified discovery relates to Canul’s burden of
establishing a prima facie case of alter ego liability. Good cause cannot be supported by her
intention, as Canul admits, to oppose arguments “based on a self-serving declaration.” Sipple,
supra, 71 Cal. App. 4" at 247; Motion, p. 8:16-19.

Third, Canul’s Motion spends pages enumerating case law that lists the various factors
involved in weighing whether an alter ego relationship exists. See, gen. Motion. This recitation of
law does nothing to show what Canul specifically expects to uncover about the relationship between
Velocity and VPGI. 1-800 Contacts, Inc. v. Steinberg, 107 Cal.App.4th 568, 593, 132 Cal. Rptr. 2d
789 (2003) (“The showing should include some explanation of ‘what additional facts [plaintiff]
expects to uncover’ [citation omitted]). No explanation of any specific relationship (or expectation
thereof) is provided. Instead, and as stated, the Motion’s entire focus is on rebutting the declaration
of Matthew DiPoalo, rather than on supporting any prima facie case for alter ego. This is decidedly
against the antiSLAPP statute’s prescriptions for establishing good cause to conduct discovery and
can only be viewed as a fishing expedition.

The Motion should therefore be denied.

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IV. CONCLUSION

Based on the foregoing, Cross-Defendant VELOCITY PORTFOLIO GROUP, INC.

respectfully requests that this Court deny Canul’s Motion to Conduct Discovery.

DATED: April 20, 2022

By: /s/ Justin M. Penn

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HINSHAW & CULBERTSON LLP

Justin Penn
Shalini Bhasker

Attorneys for Plaintiff and Cross-Defendant
Velocity Investments, LLC and Cross-
Defendant Velocity Portfolio Group, Inc.

 

 

 

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DECLARATION OF JUSTIN M. PENN

I, Justin M. Penn, declare as follows:

1. Tam an attorney admitted to practice before all courts in the State of California. I
am a lawyer with the law firm of Hinshaw & Culbertson LLP, counsel of record for Plaintiff and
Cross-Defendant VELOCITY INVESTMENTS, LLC and Cross-Defendant VELOCITY
PORTFOLIO GROUP, INC. (collectively, “Cross-Defendants”). I have personal knowledge of the
matters set forth in this declaration and, if called as a witness, I could and would competently testify
to all facts set forth herein.

2. — This declaration is submitted in support of Cross-Defendants’ Opposition to Cross-
Complainant MARIA CANUL’s (“Canul’”) Motion to Conduct Discovery.

3. This action is one of several actions litigated by counsel for Canul, alleging identical
or near identical causes of action and theories against Velocity and VPGI.

4. Protective orders have been entered into in these cases, including the case at issue.
Pursuant to the protective orders, productions of documents and information have been made in at
least some of these cases, albeit not in this action. This is especially true for this case, where prior
counsel for Velocity failed to timely respond to discovery and were ordered to respond and produce
documents to all set one Form Interrogatories, Special Interrogatories, and Requests for Production
without objection. I am informed and believe that, pursuant to these orders, Velocity produced all
documents and information that exist concerning the following:

= Financial statements, current balance sheets, and annual reports;

" Credit applications and insurance documents;

= Corporate formation documents for itself and any entity to which it is affiliated,
including VPGI;

= Operation manuals, policies, and procedures;

= Various account information concerning debtors, including about the entities involved

in retaining the information, communicating with debtors, servicing the loan or accounts,

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or otherwise having involvement with any of the allegations contained in the Cross-

Complaint.

5. Because of the past productions, counsel for Canul have been in the possession of
documents relating to the issues of the antiSLAPP as well as the existence of VPGI as the parent
company of Velocity. Moreover, at all relevant times, VPGI was been a publicly traded company.
VPGtT has at all relevant times been a publicly traded corporation, subject to reporting and disclosure
requirements. This information is publicly available. On information and belief, documents
concerning VPGI’s corporate structure, policies, procedures, insurance and financials have also
been produced to counsel for Canul.

6. Inthe August 6, 2021 Order by this Court granting VPGI’s antiSLAPP motion in
the Jayawardena action, this Court recited that, at the July 28, 2021 hearing on the antiSLAPP
motion, counsel for Canul (then on behalf of Jayawardena) asserted that “the underlying documents
[to support alter ego allegations] were not filed with the opposition because of protective orders in
other cases.” Attached hereto as Exhibit A is a true and correct copy of the court’s August 6, 2021
order in the action styled, Velocity Investments, LLC v. Sanjay Jayawardena, et al., Santa Clara
County Superior Court, case no. 19CV357372, also incorporated as Exhibit A to Cross-Defendants’
Request for Judicial Notice.

7. To the extent Canul claims that Cross-Defendants never “agreed” to cross-reference
or otherwise use documents produced in other actions for this action, Cross-Defendants are unaware
of any request by Canul to use any of the previously produced documents from other actions in this
action for the purposes of the instant antiSLAPP.

8. In the case Velocity Investments, LLC v. Sipin, 20CV37053, the Plaintiff there,
represented by this same counsel, sought to conduct discovery on the same issues presented here
After reviewing the Motion to Conduct Discovery in a that case, counsel for Cross-Defendants
emailed counsel for Sipin to request the withdrawal of the motion to conduct discovery in exchange
for Cross-Defendants extending any protective order and production of documents from the other

actions to this action. Attached hereto as Exhibit B is a true and correct copy of Cross-Defendants’

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Counsel’s Email re offer to extend the protective order and discovery. Counsel for Canul responded
that the offer was late and that they wanted additional discovery as well. Attached hereto as Exhibit
C is a true and correct copy of Canul’s Counsel’s Response Email. Counsel for Cross-Defendants
responded that they should have all documents, asked what else they wanted, and then sent another
follow up email offering a continuance of all hearings such that Canul could use the discovery
already in Canul’s counsel’s possession. Attached hereto as Exhibits D and E are true and correct
copies of Cross-Defendants’ Counsel’s Two Consecutive Response Emails. Velocity and VPGI at
no time agreed to waive any protective order or to conduct any additional discovery. Canul’s counsel
did not respond. Neither has Canul explained what, if any, she requires information about that is not
already in her possession based on the prior productions.

9. Attached hereto as Exhibit F is a true and correct copy of the Court’s prior order
compelling Velocity to produce extensive discovery in this case.

Executed this 20" day of April, 2022, at Los Angeles, California.

/s/ Justin M. Penn

Justin M. Penn

13

 

 

 

OPPOSITION TO MOTION TO CONDUCT DISCOVERY; DECLARATION OF JUSTIN M. PENN
1045141\310549259.v1EXHIBIT Abo

BR ow

Electronically Filed

by Superior Court of CA,
County of Santa Clara,
on 8/6/2021 2:40 PM
Reviewed By: R. Walker
Case #19CV357372
Envelope: 7014198

ORDER ON SUBMITTED MATTER

SUPERIOR COURT OF CALIFORNIA

COUNTY OF SANTA CLARA
VELOCITY INVESTMENTS, LLC, Case No. 19CV357372
Plaintiff, ORDER RE: SPECIAL MOTION TO
STRIKE

vs.
SANJAY JAYAWARDENA, et al.,

Defendants.

 

SANJAY JAYAWARDENA, on behalf of
himself and all others similarly situated,

Cross-Complainant,

vs,

VELOCITY INVESTMENTS, LLC, a New
Jersey limited liability company; MANDARICH
LAW GROUP, LLC, a California limited liability
partnership; VELOCITY PORTFOLIO GROUP,
INC., a Delaware corporation; and ROES 2
through 10, inclusive,

Cross-Defendants.

 

 

 

 

The above-entitled matter came on for hearing on Wednesday, July 28, 2021, at 1:30 p.m,

in Department 3, the Honorable Patricia M. Lucas presiding. Having reviewed and considered

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the written submissions filed by the parties, and having listened carefully to arguments of
counsel, the court rules as follows:
I. INTRODUCTION

According to the allegations of the Complaint, filed on October 24, 2019, plaintiff
Velocity Investments, LLC (“Velocity”) is the owner of debt owed by defendant Sanjay
Jayawardena (“Jayawardena”). (Complaint, 4] 3, 14-17.) The Complaint sets forth causes of
action for breach of contract and open book account.

On September 8, 2020, Jayawardena filed a Cross-Complaint against Velocity and
Mandarich Law Group, LLP (“Mandarich”). The Cross-Complaint sets forth the following
causes of action: (1) California Fair Debt Buying Practices Act (against Velocity); (2) Fair Debt
Collection Practices Act (against all cross-defendants); and (3) Rosenthal Fair Debt Collection
Practices Act (against all cross-defendants).

On January 29, 2021, Jayawardena filed an amendment to the Cross-Complaint
substituting Velocity Portfolio Group, Inc. (“WPGT”) for Roe 1. The charging allegations
concerning the Roes appear in the Cross-Complaint at {fj 11-13 and read as follows:

11. The true names and capacities, whether individual, corporate, associate,
governmental, or otherwise, of Cross-Defendants, ROES 1 through 10, are unknown to
Cross-Complainant at this time, who therefore sues said Cross-Defendants by such
fictitious names. When the true names and capacities of said Cross-Defendants have been!
ascertained, Cross-Complainant will seek leave of the Court to amend this Cross-
Complaint accordingly. Cross-Complainant is informed and believes, and thereon alleges.
that each Cross-Defendant designated herein as a ROE is responsible, negligently or in
some other actionable manner, for the events and happenings hereinafter referred to,

and caused damages thereby to the Cross-Complainant, as hereinafter alleged. Cross-
Defendant, ROES 1-10, are, and each of them is, a “debt collector” as that term is defined]
by 15 U.S.C. § 1692a(6) and California Civil Code § 1788.2(c).

12. At all times herein mentioned, each of the Cross-Defendants was the agent,

servant, employee, and/or joint venturer of his/her/its Co-Defendants, and each of them,
and at all said times, each Cross-Defendant was acting in the full course and scope of said
agency, service, employment, and/or joint venture. Any reference hereafter to “Cross-
Defendants” without further qualification is meant by Cross-Complainant to refer to each
Cross-Defendant, and all of them, named above.

13. Cross-Complainant is informed and believes, and thereon alleges that at all times
herein mentioned, Cross-Defendants, ROES 1-10, inclusive, were and are individuals,
corporations, partnerships, unincorporated associations, sole proprietorships, and/or other,

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ORDER RE: SPECIAL MOTION TO STRIKE“1 ave Cur sh OF Ws

 

 

business entities organized and existing under and by virtue of the laws of the State of
California, or the laws of some other state or foreign jurisdiction, and that said Cross-
Defendants, and each of them, have regularly conducted business in the County of Santa
Clara, State of California.

On May 7, 2021, VPGI filed a special motion to strike. In response, Jayawardena filed a
motion for leave to file a First Amended Cross-Complaint, set for hearing on September 22,
2021, and an ex parte application to continue the hearing date on the special motion to strike so
that the motion would be heard together with the motion for leave. The court denied the ex parte
application.

Now before the court is the special motion to strike, filed on behalf of VPGI only.
Jayawardena contested the tentative ruling granting the motion, only as to leave to amend.

I. LEGAL STANDARD

Code of Civil Procedure section 425.16 requires that a court undertake a two-prong
analysis. The first step is to determine whether the challenged cause of action arises from
protected activity. (Equilon Enterprises v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67.)

Jayawardena concedes that his claims arise from actions intended to be protected by
section 425.16. (Opposition, at p. 15:8-9.) Accordingly, the court addresses whether he has met
his burden under the second prong to state and substantiate a legally sufficient claim against
VPGI.

To satisfy the second prong, a plaintiff responding to an anti-SLAPP motion must

state and substantiate a legally sufficient claim. Put another way, the plaintiff

must demonstrate that the complaint is both 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. [A court] consider[s] the

pleadings, and supporting and opposing affidavits upon which the liability or

defense is based. However, [it] neither weigh[s] credibility nor compare[s] the

weight of the evidence. Rather, [it] accept[s] as true the evidence favorable to the

plaintiff and evaluate[s] the defendant's evidence only to determine if it has

defeated that submitted by the plaintiff as a matter of law. If the plaintiff can

show a probability pb prevailing on any part of its claim, the cause of action is not

meritless and will not be stricken; once a plaintiff shows a probability of

prevailing on any part of its claim, the plaintiff has established that its cause of

action has some merit and the entire cause of action stands.

(Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820, emphasis in original, internal

citations, ellipses, brackets, and quotation marks omitted.)

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IH. DISCUSSION

VPGI makes several arguments with regard to the second prong, but its first, that it has
no involvement in the collection lawsuit, is dispositive. Jayawardena’s claims all arise out of
alleged misrepresentations in the Complaint filed by Velocity. (See Cross-Complaint, fj 23-28.)
There is no dispute that VPGI did not file the Complaint together with Velocity and has no
involvement in that underlying action.

A. No Alter Ego Claim Has Been Stated

Jayawardena argues that VPGI is liable for Velocity’s alleged unlawful collection
activities (i.e., filing the Complaint) because Velocity is the alter ego of VPGI. (Opposition, at
pp. 23-25.) However, the Cross-Complaint contains no alter ego allegations. The charging
allegations as to Roe cross-defendants relate to agency, employment, and joint venture, but alter
ego liability is a distinct theory and must be evaluated independently. (Sonora Diamond Corp. v.
Superior Court (2000) 83 Cal.App.4th 523, 537, 540.)

The phrase “alter ego” does not appear anywhere in the Cross-complaint, nor has
Jayawardena alleged the elements of liability under that theory, which are as follows:

In California, two conditions must be met before the alter ego doctrine will be invoked.
First, there must be such a unity of interest and ownership between the corporation and
its equitable owner that the separate personalities of the corporation and the shareholder
do not in reality exist. Second, there must be an inequitable result if the acts in question
are treated as those of the corporation alone. Among the factors to be considered in
applying the doctrine are commingling of funds and other assets of the two entities, the
holding out by one entity that it is liable for the debts of the other, identical equitable
ownership in the two entities, use of the same offices and employees, and use of one as a
mere shell or conduit for the affairs of the other. Other factors which have been
described in the case law include inadequate capitalization, disregard of corporate
formalities, lack of segregation of corporate records, and identical directors and
officers.

(Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at 538-39.)
The issues in an anti-SLAPP motion are framed by the pleadings, which provide the outey

boundaries of the issues that are to be addressed in the motion. A court need not consider on a

special motion to strike assertions not alleged in the complaint. (Medical Marijuana, Inc. v.

ProjectCBD.com (2020) 46 Cal.App.5th 869, 883, 889, and 893 [reversing order denying special

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motion to strike].) Because Jayawardena did not allege in the Cross-Complaint that Velocity is
the alter ego of VPGI, that issue and related evidence are not properly before the court on this
motion.
B. Leave to Amend Should Not Be Granted.
1. The Rule Against Granting Leave to Amend

“Section 425.16 provides no mechanism for granting anti-SLAPP motions with leave to
amend.” (Martin v. Inland Empire Utilities Agency (2011) 198 Cal.App.4th 611, 629.)
Jayawardena made no request for leave to amend in opposing this motion, and only requested
leave to amend in a separately filed a motion, set for hearing on September 22. For these
reasons, the court did not address leave to amend in its tentative ruling, but Jayawardena
contested that omission and requested a hearing.

The policy favoring expedited dismissal of SLAPP claims applies not only when
amendment is sought to support an argument on the first prong that the activity is not protected,
but also when amendment is sought to address a failure by the pleading party under the second
prong to demonstrate a probability of prevailing. (Medical Marijuana, Inc. v. ProejctCBD.com
(2020) 46 Cal.App.Sth 869, 895-900 [reversing order denying special motion to strike: allowing
plaintiff to add new legal theories not appropriate when nothing prohibited the pleading of those
theories before the anti-SLAPP motion].)

2. A Narrow Exception, Inapplicable to This Motion

To support his request at the hearing for leave to amend, Jayawardena relied on Nguyen-
Lam v, Cao (2009) 171 Cal.App.4th 858, to argue that this court should grant leave to amend,
However, subsequent cases have limited Nguyen-Lam to its unique facts, finding it to be “the
sole exception to this otherwise broadly accepted rule [of not granting leave to amend on an anti-
SLAPP motion].” (Medical Marijuana, Inc. v. ProejctCBD.com, supra, 46 Cal.App.Sth at 898.)

Nguyen-Lam differs from this case in two material respects. First, in Nguyen-Lam, the
proposed amendment only sought “to correct a possible deficiency” in the complaint (ibid.):
arguably, the complaint already pleaded malice since it alleged that defendant made the false

statements about plaintiff “’for malicious purposes,’ ‘to get her fired [and] justify her wrongful

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termination....°” (Nguyen-Lam, supra, 171 Cal.App.4th at 868.) In this case, Jayawardena’s
current pleading nowhere mentions the phrase “alter ego” or any facts that would support

disregarding a corporate entity, so the amendment would add an entirely new legal theory.

Second, and more significantly, in Nguven-Lam, the moving party himself had supplied
evidence that established an inference of malice. There is no suggestion in this case that VPGI
has submitted evidence giving rise to an inference of alter ego liability. Moreover, Jayawardena
has not brought forward admissible evidence sufficient to make a prima facie showing of alter

ego liability, which requires more than just a subsidiary relationship or related businesses.

a. Legal Standard for Alter Ego Liability
“The alter ego doctrine arises when a plaintiff comes into court claiming that an opposing}
party is using the corporate form unjustly and in derogation of the plaintiff's interests.”
(Anderson v, Abbott (1944) 321 U.S. 349, 361-62.) In applying this doctrine of equity, the court
may consider many factors in evaluating the circumstances. (Associated Vendors. Inc. v.
Oakland Meat Co. (1962) 210 Cal.App.2d 825, 837, 840.) “No single factor is determinative,
and instead a court must examine all the circumstances to determine whether to apply the

doctrine.” (Zoran Corp. v. Chen (2010) 185 Cal. App.4th 799, 812.)

“Ordinarily, a corporation is regarded as a legal entity, separate and distinct from its
stockholders, officer and directors, with separate and distinct liabilities and obligations.”
(Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.4th at 538 [writ issued to vacate
order finding alter ego liability].) To overcome this starting point of separateness of the
corporate entity, there must be “an abuse of the corporate privilege [that] justifies holding the
equitable ownership of a corporation liable for the actions of the corporation.” (/bid.) “Under
the alter ego doctrine, then, when the corporate form is used to perpetrate a fraud, circumvent a
statute, or accomplish some other wrongful or inequitable purpose, the courts will ignore the
corporate entity and deem the corporation’s acts to be those of the persons or organizations
actually controlling the corporation, in most instances the equitable owners. The alter ego
doctrine prevents individuals or other corporations from misusing the corporate laws by the

device of a sham corporate entity formed for the purpose of committing fraud or other

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misdeeds.” (/bid. (internal citations omitted).) “Alter ego is an extreme remedy, sparingly
used.” (/d., at 539.)
b. Evidence Offered by Jayawardena

Jayawardena identifies and argues his proof that VPGI is the alter ego of Velocity in the
Opposition, at pp. 23-25. With its reply papers, VPGI stated no objections to Jayawardena's
alter ego evidence. Therefore the court considers admissible all of Jaywardena’s evidence. The
Request for Judicial Notice is granted. Jayawardena’s objections to the Declaration of Matthew]
DiPoalo are not material and the court therefore does not address those objections.

Velocity is a wholly owned subsidiary of VPGI which is a publicly traded company.
(Opposition, at p. 24:13-14; Exhibit K, at p. 1:27-28.) VPGI and Velocity are “[c]ompanies
related by common ownership or control.” (Opposition, at p. 24:14-16; Schwinn Decl., at 4 16.)
YVPGI and Velocity are jointly insured. (Opposition, at p. 24:16-17; Schwinn Deecl., at {| 10-11.)

Jayawardena also presents evidence about the operations of Velocity and VPGI, and the
extent to which they are related and integrated. According to Exhibit F, VPGI:

conducts its operations through the following wholly owned subsidiaries:

Velocity Investments, L.L.C. (“Velocity”) was established to invest in consumer
receivable portfolios purchased in the secondary market. Velocity purchases consumer
receivable portfolios at a discount and then liquidates these portfolios through legal
collection means....

The Company invests in consumer debt portfolios purchased directly from originators or
in the secondary market. The Company purchases consumer receivable portfolios at a
discount and then liquidates these portfolios primarily through legal collection means.
The Company uses its proprietary valuation process to calculate the purchase price so
that its estimated cash flow from such portfolios offers it an adequate return on our
investment after servicing expenses. The Company generally purchases consumer
receivable portfolios that include charged-off credit card receivables, which are accounts
that have been written off by the originators, and consumer installment loans.

The Company has purchased more than 150 portfolios from over 30 different debt sellers
since 2003. Its focus has historically been on purchases of charged-off credit card
receivables, which are accounts that have been written off by their originators, and
consumer installment loans, which receivables make up over 95% of its portfolio.

(Opposition, at pp. 23:23-24:6; Schwinn Decl., 4 13..)
Velocity is “a comprehensive accounts receivables management (ARM) company

focused on working with consumers to find satisfactory resolutions to outstanding debts.”

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(Opposition, at p. 24:9-12; Schwinn Decl., at ff] 14-15; Exhibits G and H.)

Finally, the Opposition argues that Velocity is undercapitalized, based on allegations (as
distinct from proof) by Velocity in other cases about its net worth at unspecified times.
(Opposition, at pp. 24:19-25:2; Schwinn Decl., at § 12.) Jayawardena characterizes, but does not
quote or attach, portions of unidentified financial documents from unspecified time periods, to
the effect that Velocity has “a very large and growing ‘Total equity’ deficit.” (Schwinn Decl., at
| 12.) The Opposition also states that “On or about May 28, 2021, VPGTP, INC., announced
that it has successfully completed a cash tender offer for all the approximately 8.9 million
outstanding shares of VPGI for $4.40 per share, thus valuing the VPGI at nearly $40 million
dollars.” (Opposition, at p. 25:3-5; Schwinn Decl.; Exhibit P.)

Acknowledging the vagueness of these assertions about net worth and deficit, at the
hearing Jayawardena asserted through counsel that the underlying documents were not filed with
the opposition because of protective orders in other cases and requested, without prior notice to
VPGI or any parties in other actions, that this court relieve counsel from protective orders in
other cases. This court does not have authority to make orders in other cases or without notice to
the parties.

The only argument put forward by Jayawardena that any of the facts asserted would show)
that VPGI is “a sham corporate entity formed for the purpose of committing fraud or other
misdeeds” (Sonora Diamond Corp. v. Superior Court, supra, 83 Cal.App.Ath at 538) is the
comment in the Schwinn Declaration that because recovery under Civil Code §§ 1788.17 and
1788.62(b), is limited to 1% of the defendant’s net worth, it would be inequitable if the alleged
unlawful acts are attributed to Velocity alone. (Schwinn Decl., at | 12.) In other words,
Jayawardena argues that higher damages would be available in this lawsuit if VPGI were a cross-+
defendant.

Crediting Jayawardena’s evidence, it is not sufficient to establish a prima facie finding of
alter ego liability of VPGI. That there is a subsidiary relationship between Velocity and VPGI,
that they are jointly insured, and that their operations are related, reflect common business

practices and are not signs that a corporate form is being used unjustly. (Meadows v. Emett &

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Chandler (1950) 99 Cal.App.2d 496, 499.) No evidence is offered that Velocity is a sham,
commingles assets, fails to maintain corporate records, or disregards corporate formalities.
Jayawardena claims that Velocity is undercapitalized, but the basis for this claim consists of Mr.
Schwinn’s vague characterizations of unspecified documents and “allegations” by Velocity, not
copied or quoted, about its net worth or finances, relative to an unspecified time. Even if
credited, this “proof” is too vague to support a finding in equity that there exists between
Velocity and VPGI “such a unity of interest and ownership” that the separate entities “do not in
reality exist.” (Sonora Diamond Corp. y. Superior Court, supra, 83 Cal.App.4th at 538, See
also Associated Vendors, Inc, v, Oakland Meat Co. (1962) 201 Cal.App.2d 825, 841-42
[affirming judgment that corporation not liable as alter ego, despite evidence of inadequate
capitalization: such evidence “is, at best, merely a factor to be considered by the trial court in
deciding whether or not to pierce the corporate veil.”]. )

Moreover, the second element of the alter ego doctrine has not been established: