A lender discovers that property securing its construction loans is now burdened by additional liens with priority over its own deeds of trust. The new financing allegedly paid for improvements that were never completed. When the borrower defaults and the properties are sold through a receivership, the lender receives less than it expected.
Can the lender sue the company responsible for the additional financing? And if that company later defended its liens in court, can it use California’s anti-SLAPP statute to seek early dismissal of the lender’s lawsuit?
The California Court of Appeal addressed these questions in Diplomat Property Manager, LLC v. FortiFi Financial, Inc. (2026), Case No. D086371. In an opinion filed September 23, 2026, and certified for publication on October 20, 2026, the Fourth District Court of Appeal affirmed the denial of an anti-SLAPP motion brought by a financing administrator accused of participating in a fraudulent lien scheme.
The decision examines when commercial conduct preceding litigation may qualify as protected petitioning activity under Code of Civil Procedure section 425.16.
Construction Loans, PACE Financing, and Competing Liens
The dispute arose from construction loans secured by deeds of trust against eight California properties. The developer subsequently obtained financing through California’s Property Assessed Clean Energy (PACE) program.
PACE financing permits qualifying property improvements, including certain energy and water efficiency projects, to be financed through assessments collected with property taxes. Unlike conventional construction loans, PACE assessments can become liens with priority over previously recorded private security interests.
That priority can substantially affect a lender’s recovery when a borrower defaults.
According to the complaint, FortiFi Financial, Inc., a private administrator of the PACE program, worked with the developer to arrange financing secured by superior-priority PACE assessments. The lender alleged that FortiFi disbursed proceeds to a construction company controlled by the developer without adequately verifying the underlying improvements or their costs.
The complaint further alleged that some improvements were never completed and others were charged at inflated prices. These were allegations, not findings of fraud by the appellate court.
After the developer defaulted on the original construction loans, litigation resulted in the appointment of a receiver to sell the properties.
FortiFi participated in the receivership proceedings to protect its PACE assessments. According to the lender, the priority of those assessments ultimately reduced the proceeds available to satisfy its construction loans.
Diplomat sought various remedies, including recovery of approximately $844,205 that it anticipated would be paid to FortiFi through the property sales.
FortiFi’s Anti-SLAPP Motion
Diplomat asserted claims including declaratory relief, interference with contractual relations, interference with prospective economic advantage, conspiracy to commit fraud, and unfair competition.
FortiFi responded with a special motion to strike under California’s anti-SLAPP statute, Code of Civil Procedure section 425.16.
The statute provides a procedure for challenging claims arising from certain constitutionally protected speech or petitioning activity. Courts generally apply a two-step analysis.
First, the defendant must establish that the challenged claims arise from protected activity. If that burden is satisfied, the plaintiff must demonstrate that the claims have sufficient legal and factual merit to proceed.
FortiFi advanced two principal arguments.
First, it contended that recording the PACE assessments constituted protected prelitigation activity because recording was necessary before the liens could eventually be enforced through judicial foreclosure.
Second, FortiFi argued that the lender’s claims arose from its participation in the receivership litigation, where it defended the validity and priority of its assessments.
The trial court rejected the motion. FortiFi appealed.
Recording a Lien Does Not Automatically Constitute Protected Prelitigation Activity
The Court of Appeal rejected FortiFi’s argument that recording the PACE assessments qualified as protected prelitigation conduct merely because recording was a prerequisite to possible judicial enforcement.
The court examined the purpose and circumstances of the recording.
PACE assessments are ordinarily recorded to create liens securing financing for property improvements. The assessments are generally expected to be repaid through property taxes, without litigation.
When the assessments in this case were recorded, no existing dispute required judicial resolution. Recording the assessments served a financing function.
The court distinguished other decisions involving notices or communications made in connection with existing disputes or genuinely contemplated litigation.
It also addressed the distinction between PACE assessments and mechanics’ liens, including the treatment of mechanics’ liens in RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc. (2020) 56 Cal.App.5th 413.
The fact that a document might later become relevant to litigation does not, by itself, establish that its creation or recording was protected petitioning activity.
The court therefore concluded that FortiFi had not established anti-SLAPP protection for recording the PACE assessments.
Later Litigation Did Not Change the Nature of the Underlying Claims
FortiFi separately argued that Diplomat’s claims arose from FortiFi’s actions during the receivership proceedings.
FortiFi had opposed efforts to sell properties free of its PACE liens. It maintained that its litigation conduct was part of the conduct challenged by Diplomat.
The appellate court examined the specific acts supplying the basis for the lender’s claims.
Those acts included the alleged failure to evaluate contractors, failure to inspect or document improvements, approval of payments for incomplete or overpriced work, participation in the alleged financing scheme, and recording of allegedly illegitimate PACE liens.
These activities occurred before FortiFi intervened in the receivership proceedings.
Although the complaint also described FortiFi’s conduct during the receivership, the court concluded that the litigation activity did not supply the injury-producing conduct necessary to establish the challenged claims.
This distinction was decisive.
A commercial dispute does not necessarily become an anti-SLAPP case simply because the parties later litigate over the transaction or because a defendant takes steps in court to preserve the economic benefits of an earlier transaction.
The analysis depends on the conduct from which each claim actually arises.
Because FortiFi failed to satisfy the first stage of the anti-SLAPP analysis, the court did not reach the second stage, which would have required consideration of the legal and factual sufficiency of Diplomat’s claims.
What the Decision Means for Commercial Lenders and Property Investors
The decision has practical consequences for lenders and businesses involved in disputes over secured transactions.
A lender may discover that its collateral has become subject to additional assessments or liens that alter the expected priority of repayment. The dispute may involve the legitimacy of the underlying financing, whether funds were properly disbursed, or whether the lender’s security interest was improperly impaired.
If the dispute later reaches court, the defendant’s participation in those proceedings does not automatically make the earlier commercial conduct protected under the anti-SLAPP statute.
The distinction can be significant because an anti-SLAPP motion may impose an early procedural burden, affect discovery, and expose an unsuccessful plaintiff to a potential attorney-fee award if the defendant prevails.
For defendants, the decision also illustrates the importance of identifying the particular allegations that support each cause of action. The mere presence of litigation-related allegations in a complaint does not establish that every claim arises from protected activity.
At the same time, Diplomat should not be read as holding that lien recordings can never qualify for anti-SLAPP protection. The circumstances surrounding a recording, the nature of the lien, and the existence of a genuinely contemplated dispute may affect the analysis.
A Procedural Victory, Not a Finding of Fraud
The Court of Appeal affirmed the order denying FortiFi’s anti-SLAPP motion.
It did not determine whether FortiFi engaged in fraud, whether the PACE assessments were invalid, or whether Diplomat was entitled to recover its alleged losses.
The court also noted that Diplomat conceded that aiding and abetting breach of contract is not recognized as an independent cause of action under California law. That issue did not change the outcome of the anti-SLAPP appeal.
The decision addresses whether the challenged claims arose from protected activity. The merits of the underlying commercial dispute remained unresolved.
For parties litigating disputed financing arrangements, the case provides useful guidance on separating allegedly wrongful business conduct from subsequent efforts to enforce or defend contractual and property rights in court.
Elpis Law represents businesses, investors, and individuals in California commercial litigation, creditor disputes, and real estate litigation. Disputes involving competing liens, alleged fraudulent transactions, or complex financing arrangements require careful evaluation of the underlying documents, transaction history, and available remedies.
Legal Authorities
- Diplomat Property Manager, LLC v. FortiFi Financial, Inc. (Cal. Ct. App., 4th Dist., Div. 1, D086371), opinion filed Sept. 23, 2026, certified for publication Oct. 20, 2026 — official opinion
- RGC Gaslamp, LLC v. Ehmcke Sheet Metal Co., Inc. (2020) 56 Cal.App.5th 413
- Code of Civil Procedure § 425.16 — official text
Related practice areas: Creditor Rights and Judgment Enforcement · Commercial Real Estate Disputes