Sherman Xuming Zhang v. E. Patrick Jenevein III

E. Patrick Jenevein III, president of Tang Energy Group,

Ltd., secretly recorded conversations with a business associate,

Sherman Xuming Zhang, president of AVIC International USA,

Inc. (AVIC USA), and later introduced the recordings as evidence

in contractual arbitration. The arbitrators ultimately issued an

award in favor of Tang Energy.

After the arbitration, Zhang and AVIC USA filed this

action against Jenevein for invasion of privacy and eavesdropping

on or recording confidential communications in violation of Penal

Code sections 632 and 637.2. Jenevein filed a special motion to

strike under Code of Civil Procedure section 425.16 (section

425.16). The trial court denied the motion, ruling that neither

making the recordings nor using them as evidence in the

arbitration was protected activity.

The trial court was correct. Because Jenevein’s actions in

recording the conversations and using the recordings in the

arbitration were not in connection with a judicial or official

proceeding authorized by law, they were not protected activities

under section 425.16. Therefore, we affirm.

FACTUAL AND PROCEDURAL BACKGROUND

A. Jenevein Secretly Records Conversations with Zhang

in Anticipation of Arbitration over the Soaring Wind

Business Venture

1. The Soaring Wind Agreement

In 2008 Tang Energy, Aviation Industry of China (AVIC

HQ) through its subsidiary AVIC USA, and others formed

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Soaring Wind Energy LLC (Soaring Wind) to develop wind farms

and promote wind power equipment sales.1 The parties executed

a contract titled “Limited Liability Company Agreement of

Soaring Wind Energy, LLC” (the Soaring Wind agreement). As

part of the contract, the parties agreed that Soaring Wind’s

“Business” would be “to provide worldwide marketing of wind

energy equipment, services, and materials related to wind energy

including, but not limited to, marketing wind turbine generator

blades and wind turbine generators and developing wind farms.”

The agreement included an exclusivity provision stating that,

“during the term of this Agreement, each [party] shall only

conduct activities constituting the Business in and through the

Company and its Controlled subsidiaries.”

The Soaring Wind agreement included an arbitration

provision applying, with exceptions not applicable here, to “any

controversy, dispute or claim arising under or related to” the

agreement, including “whether any [p]erson is in . . . breach of

any provision of” the agreement. The agreement also provided:

“Any decision by a majority of the Arbitrators shall be final,

binding and non-appealable. Any such decision may be filed in

any court of competent jurisdiction and may be enforced . . . as a

final judgment in such court. There shall be no grounds for

appeal of any arbitration award hereunder.”

2. The Recorded Conversations

In 2013 Jenevein learned AVIC HQ had created a number

of subsidiaries he thought were competing with Soaring Wind.



1 When the parties signed the Soaring Wind agreement,

AVIC USA was known as CATIC USA. The entity changed its

name prior to the arbitration.

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Jenevein believed that by competing with Soaring Wind AVIC

HQ breached the Soaring Wind agreement and that Tang Energy

should demand arbitration on that claim. Jenevein also knew the

relationship between AVIC HQ and its subsidiaries would be a

central issue in an arbitration. Jenevein’s theory was that “AVIC

USA was in breach of the [Soaring Wind] Agreement if AVIC HQ

controlled both AVIC USA and AVIC HQ’s other subsidiaries that

were engaged in direct competition with Soaring Wind.” In

anticipation of an arbitration, Jenevein gathered evidence to

support Tang Energy’s claim against AVIC HQ and AVIC USA by

recording at least two conversations with Zhang about the

corporate relationships.

First, on March 22, 2014 Jenevein recorded a conversation

with Zhang during a meeting at a restaurant. According to

Jenevein, Zhang and Jenevein spoke within earshot of other

patrons, and neither of them made any effort to keep his voice

down or to conceal the conversation. Zhang said he selected a

table away from other people at the restaurant, and both men

stopped talking when the server approached the table. Zhang

intended the conversation to be private and believed that it was.

Second, on June 12, 2014 Jenevein recorded a telephone

conference call in which Jenevein, Zhang, and five other people

participated. Jenevein said he and Zhang were in a room

together when Jenevein dialed into the conference call on a

speakerphone and heard a “clearly audible” announcement the

call was being recorded. Zhang denied hearing the

announcement and recalled that “[n]either Jenevein nor anybody

else stated that the call was being recorded.”

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B. Tang Energy Prevails in the Arbitration

Tang Energy filed a demand for arbitration against AVIC

HQ and AVIC USA and, subsequently, a claim on behalf of

Soaring Wind. Although the record does not include any formal

rulings by the arbitrators, the parties agree the arbitrators

allowed Tang Energy to introduce the recorded conversations as

evidence in the arbitration. The arbitrators found AVIC USA

had marketed wind energy equipment, services, and materials in

violation of the exclusivity provision of the Soaring Wind

agreement. The arbitrators awarded Tang Energy and Soaring

Wind over $65 million in damages, attorneys’ fees, and expenses.

A federal district court in Texas affirmed the arbitration award,

and AVIC USA’s appeal from that decision is pending in the

United States Court of Appeals for the Fifth Circuit.

C. Zhang and AVIC USA Sue Jenevein

Meanwhile, after the arbitrators issued their award, Zhang

and AVIC USA filed this action against Jenevein, alleging a

cause of action for eavesdropping on or recording confidential

communications under Penal Code sections 632 and 637.2.2



2 Penal Code section 632, subdivision (a), provides: “A

person who, intentionally and without the consent of all parties

to a confidential communication, uses an electronic amplifying or

recording device to eavesdrop upon or record the confidential

communication, whether the communication is carried on among

the parties in the presence of one another or by means of a

telegraph, telephone, or other device, except a radio, shall be

punished . . . .” Penal Code section 637.2, subdivision (a),

provides: “Any person who has been injured by a violation of this

chapter may bring an action against the person who committed

the violation for the greater of the following amounts: [¶] (1)

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Zhang and AVIC USA alleged that Jenevein used the recorded

conversations with Zhang as evidence against AVIC USA in the

arbitration and that the recorded conversations “were an

important part of the evidence the [arbitration] panel relied on

and a material factor in the [panel’s] decision.” Zhang alleged a

second cause of action for common law invasion of privacy.

Zhang alleged: “The secret recordings of Sherman Zhang’s

conversations made by Patrick Jenevein betrayed Sherman

Zhang’s friendship for the purposes of injuring him and his

company AVIC USA. The recordings and their use constituted an

intentional intrusion into the private affairs of Sherman Zhang,

and these actions are highly offensive to a reasonable person.”

D. Jenevein Files a Special Motion To Strike

Jenevein filed a special motion to strike pursuant to section

425.16. Jenevein argued that this action arose from the exercise

of his constitutional right of petition or free speech in connection

with an arbitration proceeding and that Zhang and AVIC USA

could not establish a probability of prevailing. Zhang and AVIC

USA argued in opposition to the motion that their claims did not

arise from protected activity because contractual arbitration is

not a judicial or official proceeding and because their claims arose

from Zhang’s acts of recording and not the subsequent use of the

recordings in the arbitration. Zhang and AVIC USA also argued

they had shown a probability of success on the merits of their

claims. The trial court denied the motion, concluding neither

recording the conversations nor using them as evidence in a



Five thousand dollars ($5,000) per violation. [¶] (2) Three times

the amount of actual damages, if any, sustained by the plaintiff.”

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contractual arbitration was protected activity. Jenevein timely

appealed.

DISCUSSION

A. Section 425.16

“‘Section 425.16 provides, inter alia, that “[a] cause of

action against a person arising from any act of that person in

furtherance of the person’s right of petition or free speech under

the United States or California Constitution in connection with a

public issue shall be subject to a special motion to strike, unless

the court determines that the plaintiff has established that there

is a probability that the plaintiff will prevail on the claim.”

[Citation.] “As used in this section, ‘act in furtherance of a

person’s right of petition or free speech under the United States

or California Constitution in connection with a public issue’

includes: (1) any written or oral statement or writing made before

a legislative, executive, or judicial proceeding, or any other

official proceeding authorized by law; (2) any written or oral

statement or writing made in connection with an issue under

consideration or review by a legislative, executive, or judicial

body, or any other official proceeding authorized by law . . . .’”’”

(Newport Harbor Ventures, LLC v. Morris Cerullo World

Evangelism (2018) 4 Cal.5th 637, 642 (Newport Harbor).)

“Section 425.16 ‘provides a procedure for weeding out, at an

early stage, meritless claims arising from protected activity.’

[Citation.] ‘The Legislature enacted section 425.16 to prevent

and deter “lawsuits [referred to as SLAPPs] brought primarily to

chill the valid exercise of the constitutional rights of freedom of

speech and petition for the redress of grievances.” [Citation.]

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Because these meritless lawsuits seek to deplete “the defendant’s

energy” and drain “his or her resources” [citation], the

Legislature sought “‘to prevent SLAPPs by ending them early

and without great cost to the SLAPP target’” [citation]. Section

425.16 therefore establishes a procedure where the trial court

evaluates the merits of the lawsuit using a summary-judgmentlike

procedure at an early stage of the litigation. [Citation.] In

doing so, section 425.16 seeks to limit the costs of defending

against such a lawsuit.’” (Newport Harbor, supra, 4 Cal.5th at p.

642.)

Courts evaluate a special motion to strike under section

425.16 “through a two-step process. Initially, the moving

defendant bears the burden of establishing that the challenged

allegations or claims ‘aris[e] from’ protected activity in which the

defendant has engaged. [Citations.] If the defendant carries its

burden, the plaintiff must then demonstrate its claims have at

least ‘minimal merit.’” (Park v. Board of Trustees of California

State University (2017) 2 Cal.5th 1057, 1061 (Park); see Baral v.

Schnitt (2016) 1 Cal.5th 376, 384.) We review a trial court’s

ruling on a special motion to strike under section 425.16 de novo.

(Park, at p. 1067; see Moss Bros. Toy, Inc. v. Ruiz (2018) 27

Cal.App.5th 424, 433 [“we exercise our independent judgment in

determining whether the challenged claim arises from protected

activity”].) We consider “‘the pleadings, and supporting and

opposing affidavits stating the facts upon which the liability or

defense is based.’” (§ 425.16, subd. (b)(2); see Equilon Enterprises

v. Consumer Cause, Inc. (2002) 29 Cal.4th 53, 67; Moss Bros. Toy,

Inc. v. Ruiz, at p. 433].)

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B. Contractual Arbitration Is Not a Judicial or Official

Proceeding Under Section 425.16

A moving defendant’s initial burden is to show the

plaintiff’s cause of action arises from protected activity. (Park,

supra, 2 Cal.5th at p. 1061.) “‘The only means specified in section

425.16 by which a moving defendant can satisfy the [“arising

from”] requirement is to demonstrate that the defendant’s

conduct by which plaintiff claims to have been injured falls within

one of the four categories described in [section 425.16,]

subdivision (e).’” (Park, at p. 1063; accord, Moss Bros. Toy, Inc. v.

Ruiz, supra, 27 Cal.App.5th at p. 434.)

Jenevein argues the causes of action against him in this

case arise from protected activity under section 425.16,

subdivision (e)(1), because Zhang and AVIC USA alleged

Jenevein recorded the conversations with Zhang to gather

evidence in anticipation of, and used the recordings in, the

arbitration and that an arbitration is a “judicial proceeding” or an

“official proceeding authorized by law” within the meaning of that

subdivision. California law, however, is to the contrary. As the

court held in Century 21 Chamberlain & Associates v. Haberman

(2009) 173 Cal.App.4th 1 (Century 21), private contractual

arbitration is not a judicial proceeding under section 425.16. (Id.

at p. 5.) Other courts have reached the same conclusion. (See,

e.g., MMM Holdings, Inc. v. Reich (2018) 21 Cal.App.5th 167,

179, fn. 12 [“an arbitrator is not a ‘judicial body’ and an

arbitration proceeding is not an ‘official proceeding’ within the

meaning of section 425.16, subdivisions (e)(1) and (e)(2)”];

Mission Beverage Co. v. Pabst Brewing Co., LLC (2017) 15

Cal.App.5th 686, 703 [“‘[a]rbitration is not a judicial

proceeding’”]; see also Moss Bros. Toys, Inc. v. Ruiz, supra, 27

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Cal.App.5th at p. 437 [“demanding private arbitration” is an

“unprotected act”].)

So do we. Contractual arbitration is not a “judicial

proceeding”; it is an alternative dispute resolution process that

bypasses judicial proceedings. (See Richey v. AutoNation, Inc.

(2015) 60 Cal.4th 909, 916 [“‘the decision to arbitrate grievances

evinces the parties’ intent to bypass the judicial system’”];

Grafton Partners v. Superior Court (2005) 36 Cal.4th 944, 955

[arbitration “‘“is alternative to, and independent of, the judicial

[forum]”’”]; Madden v. Kaiser Foundation Hospitals (1976) 17

Cal.3d 699, 713 [arbitration “does not invoke a judicial forum”];

Century 21, supra, 173 Cal.App.4th at p. 8 [“[a]rbitration is not a

judicial proceeding—it is an alternative thereto”]; Sheppard v.

Lightpost Museum Fund (2006) 146 Cal.App.4th 315, 323

[“[a]rbitration claims . . . are not filed in courts and they do not

initiate judicial proceedings”].)

Nor is contractual arbitration an “official proceeding

authorized by law” under section 425.16, subdivision (e)(1) or

(e)(2). (See Mission Beverage Co. v. Pabst Brewing Co., LLC,

supra, 15 Cal.App.5th at p. 703 [“[a]s a general rule, ‘private

contractual arbitration’ is ‘not . . . an “official proceeding

authorized by law”’ under . . . section 425.16, subdivision (e)(1)

and (2)”]; Century 21, supra, 173 Cal.App.4th at p. 9 [“[n]or is

arbitration an ‘official proceeding authorized by law,’ subject to

anti-SLAPP protection”].) “When nongovernmental entities are

involved, courts have limited ‘official proceeding’ anti-SLAPP

protection to (1) quasi-judicial proceedings that are part of a

‘comprehensive’ statutory licensing scheme and ‘subject to

judicial review by administrative mandate’ [citation], and (2)

proceedings ‘established by statute to address a particular type of

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dispute.’ [Citations.] Unlike hospital peer review, arbitration is

not part of a comprehensive statutory licensing scheme and not

reviewable by administrative mandate. And unlike mandatory

fee arbitration, private arbitration is not required by statute.”

(Century 21, at p. 9; cf. Mission Beverage Co. v. Pabst Brewing

Co., LLC, at p. 704 [statutorily mandated arbitration involving

beer distribution under the Alcoholic Beverage Control Act];

Mallard v. Progressive Choice Ins. Co. (2010) 188 Cal.App.4th

531, 538-539 [statutorily mandated arbitration of an uninsured

motorist claim].) The arbitration between Tang Energy and

AVIC USA was contractual, not statutorily mandated.

Jenevein places primary reliance on Manhattan Loft, LLC

v. Mercury Liquors, Inc. (2009) 173 Cal.App.4th 1040 (Manhattan

Loft), which held that a party to an arbitration involving real

property could not record a lis pendens because “a lis pendens

may only be filed when an action in a court of law is pending.”

(Id. at p. 1045.) The court in Manhattan Loft reversed an order

granting a special motion to strike a cause of action for slander of

title against the parties that had improperly recorded the lis

pendens because the court concluded the plaintiffs had shown a

probability of prevailing. (Id. at pp. 1050-1054.) Before reaching

that conclusion, however, the court in Manhattan Loft stated:

“The filing of a notice of lis pendens falls squarely within th[e]

definition” of protected activity in section 425.16, subdivision

(e)(1) or (e)(2). (Manhattan Loft, at p. 1050.) The parties,

however, did not appear to dispute this proposition. The plaintiff

did not argue, and the court did not hold, that contractual

arbitration is a judicial or official proceeding within the meaning

of section 425.16. The plaintiff argued only that the filing of the

lis pendens did not arise from protected activity because the lis

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pendens were not related to the arbitration, an argument the

court rejected because the “arbitration proceedings involved

claims that affected title to and rights of possession” of the

property at issue in the dispute. (Manhattan Loft, at p. 1050.)

Indeed, the trial court here decided to follow the holding in

Century 21 rather than the language in Manhattan Loft because

the trial court concluded the court in Century 21 “analyzed this”

issue whereas the court in Manhattan Loft “may not have even

been focused on the issue” and did not “really decide[ ] it.”

To be sure, the court’s statement in Manhattan Loft that

the “filing of a notice of lis pendens falls squarely within” the

statutory definition of protected activity is true for lis pendens

filed in connection with a pending lawsuit. (See Park 100

Investment Group II, LLC v. Ryan (2009) 180 Cal.App.4th 795,

805 [filing a lis pendens is protected activity under section 425.16

because “[c]ommunications in connection with matters related to

a lawsuit come within the scope of the litigation privilege and are

acts arising from this protected activity”]; Salma v. Capon (2008)

161 Cal.App.4th 1275, 1285 [party’s “filing of the notice of lis

pendens in superior court and the naming of . . . lenders as

defendants in his lawsuit were writings made in a judicial

proceeding” and “are squarely covered by section 425.16,

subdivision (e)(1)”].) But it is not true for acts, like the filing of

lis pendens, in connection with proceedings that are not

legislative, executive, or judicial, or other official proceedings

authorized by law. And the cases cited by the court in

Manhattan Loft on this point involved the recording of lis

pendens in connection with lawsuits, not arbitrations. (See

Manhattan Loft, supra, 173 Cal.App.4th at p. 1050, citing Jarrow

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Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 736, fn. 6, and

Salma, at p. 1285.)

Jenevein also cites Greenberg v. Murray (C.D.Cal., June 14,

2010, No. SACV 10-375 AG (CTx)) 2010 WL 2511309, where the

plaintiff alleged the defendants secretly recorded at least six

telephone conversations without the plaintiff’s knowledge and

disclosed them during an arbitration. The plaintiff further

alleged “[t]he recordings ‘adversely affected the outcome of the

arbitration proceeding between the parties . . . which resulted in

an award against [p]laintiff.’” (Id. at p. 1.) The federal district

court stated: “The use of recordings in an arbitration proceeding

is protected under [section] 425.16[, subdivisions] (e)(1) and (2).”

(Greenberg, at p. 2.) The court, however, did not cite any

authority for its statement, did not discuss Century 21, and

issued its decision before MMM Holdings, Inc. v. Reich, supra, 21

Cal.App.5th 167 and Mission Beverage Co. v. Pabst Brewing Co.,

LLC, supra, 15 Cal.App.5th 686.

Jenevein argues: “Conduct in connection with arbitration

involves the exercise of the right of petition because it is closely

related to actual or potential litigation in the courts.” Again,

California law is to the contrary. That a party to an arbitration

agreement may resort to the courts to compel arbitration or

confirm or enforce an arbitration award does not convert the

arbitration proceeding into a judicial or official proceeding within

the meaning of section 425.16. (See Mission Beverage Co. v.

Pabst Brewing Co., LLC, supra, 15 Cal.App.4th at p. 703

[contractual arbitration is not an official proceeding “even though

arbitration awards are subject to judicial confirmation or

vacation”]; Century 21, supra, 173 Cal.App.4th at pp. 7-8 [an

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arbitration demand “does not ‘“fit[ ]”’ any of the four anti-SLAPP

categories”].)3

Jenevein’s reliance on the litigation privilege, Civil Code

section 47, is misplaced. Section 425.16 and Civil Code section 47

have some similar language,4 but the two statutes serve different

purposes. As the court in Century 21 explained in rejecting the

same argument Jenevein makes here: “Statements made in

arbitration may be protected by the litigation privilege.

[Citation.] But statements protected by the litigation privilege

are not necessarily protected by the anti-SLAPP statute. ‘[T]he

litigation privilege and the anti-SLAPP statute are substantively

different statutes that serve quite different purposes . . . .’

[Citation.] ‘The statutory construction rule . . . that identical

statutory language should be interpreted the same way, applies

only when the statutes in question cover “the same or an



3 Jevevein asserts the court in “Century 21 failed to analyze

whether arbitration is ‘conduct in connection with an issue under

consideration . . . by a judicial body.” Although Jenevein does not

cite to subdivision (e)(2), the language he quotes is from that

subdivision. Other than criticizing the court’s decision in Century

21 on this basis, however, Jenevein does not separately argue in

his opening or reply briefs that the causes of action against him

arise from a statement or writing in connection with an issue

under consideration by a judicial body under subdivision (e)(2), as

opposed to a written or oral statement made before a judicial or

official proceeding authorized by law under subdivision (e)(2).

Nor did he make such an argument in the trial court.

4 Civil Code section 47, subdivision (b), defines a privileged

publication or broadcast as one made in “any (1) legislative

proceeding, (2) judicial proceeding, (3) in any other official

proceeding authorized by law . . . .”

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analogous subject” matter. [Citations.] That cannot be said of

the [litigation] privilege . . . and the anti-SLAPP statute . . . . The

[litigation] privilege is a substantive rule of law, whereas the

anti-SLAPP statute is a procedural device to screen out meritless

claims.’” (Century 21, supra, 173 Cal.App.4th at p. 10.)

The order is affirmed. Zhang and AVIC USA are to recover their costs on appeal.