Casa Herrera, Inc. v. Beydoun
| Decision Date | 28 October 2002 |
| Docket Number | No. D038326.,D038326. |
| Court | California Court of Appeals Court of Appeals |
| Parties | CASA HERRERA, INC., Plaintiff and Appellant, v. Nasser BEYDOUN et al., Defendants and Respondents. |
Meisenheimer, Herron & Steele, Matthew V. Herron and Robert M. Steele, San Diego, for Plaintiff and Appellant.
Gibson, Dunn & Crutcher, Nicola T. Hanna and Michele L. Maryott, Irvine, for Defendants and Respondents Community First National Bank and Tom Ferrara.
Ira S. Carlin, Escondido, for Defendants and Respondents Nasser Beydoun and Am Mex Food Industries, Inc.
Appellant Casa Herrera, Inc. (Casa Herrera) prevailed at trial in an underlying lawsuit brought against it by respondents Am Mex Food Industries, Inc. (Am Mex) and Nasser Beydoun (Beydoun). On appeal from judgment in the underlying lawsuit, this court in an unpublished opinion affirmed the judgment in favor of Casa Herrera, concluding that the parol evidence rule precluded Am Mex and Beydoun from establishing their claims against Casa Herrera for breach of contract and fraud in connection with Casa Herrera's sale of a tortilla oven to Am Mex. This court also affirmed an award of attorney fees in favor of Casa Herrera against Am Mex and Beydoun. (Beydoun v. Casa Herrera (Jan. 10, 2000, D030061) [nonpub. opn.])
Casa Herrera then filed the current action pleading malicious prosecution claims against Am Mex and Beydoun, and a separate malicious prosecution claim against respondents Community First National Bank and Tom Ferrara (collectively Bank), which alleged Bank instigated and encouraged the filing and continuation of the underlying action. Casa Herrera's complaint also pleaded a claim against Bank under Code of Civil Procedure section 1908, subdivision (b) (Section 1908), alleging that although Bank was not a party in the underlying action, because it had a proprietary and financial interest in the judgment and controlled the underlying action, Bank was bound by the judgment and was liable to pay all costs and attorney fees awarded to Casa Herrera by the judgment.
The trial court, relying on Hall v. Harker (1999) 69 Cal.App.4th 836, 82 Cal Rptr.2d 44 (Hall), granted Am Mex, Beydoun and Bank's motion for judgment on the pleadings on Casa Herrera's malicious prosecution claims. The trial court ruled that, under Hall, a termination of a lawsuit based on the parol evidence rule as a matter of law is not a favorable termination of the underlying action, thereby precluding Casa Herrera from establishing an essential element of its malicious prosecution claims. The trial court also granted Bank's motion for judgment on the pleadings on Casa Herrera's Section 1908 claim on the ground that Section 1908 did not impose liability on nonparties for awards of costs and attorney fees. Casa Herrera appeals the judgment dismissing the current action.
We hold that Casa Herrera's malicious prosecution claims should not have been dismissed because we conclude, contrary to Hall, that a defendant exonerated from liability in the underlying action based on the parol evidence rule has obtained a favorable termination on the merits. However, we hold the trial court correctly dismissed Casa Herrera's Section 1908 claim.
In 1994 Am Mex, owned by Beydoun, purchased a tortilla oven and related equipment from Casa Herrera that Am Mex intended to use to manufacture tortillas for sale to its distributors; Beydoun guaranteed a loan to pay the purchase price. The written contract contained several warranties, including a warranty that the oven would produce tortillas at certain rates.1 The oven was delivered to Am Mex on June 10, 1994. The contract provided that after installation Am Mex had 10 days to operate the oven and to return it if not satisfied with its operation. Am Mex did not sign the written acceptance of the oven for more than a month because it was having difficulty satisfactorily operating the oven; Casa Herrera made some repairs and advised Am Mex on how to properly operate the oven. On July 22, 1994, after Casa Herrera and Am Mex personnel monitored the oven for several shifts, Am Mex signed the written acceptance acknowledging they had observed the oven in operation and were satisfied with the quantity and quality of production.2 (Beydoun v. Casa Herrera, supra, D030061.)
Am Mex encountered financial difficulties and was unable to service its debts to Valley De Oro Bank, the predecessor to Bank, and in 1996 Valley De Oro Bank filed a lawsuit to enforce the security interest it held in Am Mex's assets and obtained an order appointing a receiver to take control of Am Mex's assets.3 After the receiver was appointed, Am Mex and Beydoun filed the underlying action against Casa Herrera alleging breach of contract and fraud in connection with the sale of the oven. Am Mex's claims relied on its assertions that Casa Herrera promised and represented the oven would produce 16-ounce tortillas at the rate of 1500 dozen per hour, Casa Herrera knew the oven could not maintain that rate of production, and the oven's inability to produce tortillas of that size at that rate caused Am Mex's financial downfall.4 (Beydoun v. Casa Herrera, supra, D030061.)
The trial court granted Casa Herrera's motion for nonsuit against Beydoun and, after hearing additional evidence, also granted Casa Herrera's motion for nonsuit against Am Mex, reasoning that neither Beydoun nor Am Mex had standing to sue for fraud or breach of contract. On appeal, this court affirmed the ruling but did not reach the issue of standing. Instead, this court concluded there was insufficient evidence to support the breach of contract or fraud claims because the written contract obligated Casa Herrera to provide an oven producing 10-ounce tortillas at the rate of 1500 dozen per hour, and the parol evidence rule barred Am Mex from attempting to show Casa Herrera breached a promise (or fraudulently promised) to provide an oven producing 16-ounce tortillas at the rate of 1500 dozen per hour. (Beydoun v. Casa Herrera, supra, D030061.)
Casa Herrera filed this action alleging all of the elements required for its malicious prosecution claims against Am Mex, Beydoun and Bank, including the allegation that the appellate opinion in Beydoun v. Casa Herrera, supra, D030061, was a favorable termination of the underlying action.5 Bank, joined by Am Mex and Beydoun, moved for judgment on the pleadings. They argued that, under Hall, when the plaintiff in the underlying action was unable to establish his claim because the parol evidence rule barred him from introducing evidence to support his claim, the termination in favor of the underlying defendant does not qualify as a favorable termination; the defense judgment is considered based on procedural or technical factors rather than a substantive termination on the merits of the claim. Casa Herrera opposed the motion. The trial court ruled that, under Hall, the opinion in Beydoun v. Casa Herrera, supra, D030061, as a matter of law precluded Casa Herrera from showing the favorable termination element of a malicious prosecution action.
Casa Herrera's claim under Section 1908 alleged that because Bank had a proprietary and financial interest in the judgment and controlled the underlying action, Bank was bound by the judgment and liable to pay all costs and attorney fees awarded to Casa Herrera by the judgment. Bank filed a motion for judgment on the pleadings, arguing Section 1908 merely codified the common law rules of res judicata and did not provide authority to add it as an additional judgment debtor on the judgment. Casa Herrera opposed the motion, arguing that Section 1908, subdivision (b) expressly allows a court to enter a judgment against a nonparty. The trial court rejected Casa Herrera's interpretation of Section 1908, subdivision (b), granted Bank's motion for judgment on the pleadings, and entered judgment against Casa Herrera.
The trial court, recognizing the binding effect of Hall , ruled the judgment in the underlying action was not a favorable termination for purposes of a malicious prosecution action because it was based on the parol evidence rule. However, we conclude Hall's holding was incorrect and should not be perpetuated.
A termination of the underlying action in the defendant's favor, although required, is not alone sufficient to satisfy the favorable termination element required for a malicious prosecution action. (Hall, supra, 69 Cal.App.4th at pp. 843-844, 82 Cal.Rptr.2d 44.) Although "[i]t is not essential to maintenance of an action for malicious prosecution that the prior proceeding was favorably terminated following trial on the merits[,][the] termination must reflect on the merits of the underlying action." (Lackner v. LaCroix (1979) 25 Cal.3d 747, 750, 159 Cal.Rptr. 693, 602 P.2d 393 [original italics].) Lackner explained that "[i]f the termination does not relate to the merits—reflecting on neither innocence of nor responsibility for the alleged misconduct—the termination is not favorable in the sense it would support a subsequent action for malicious prosecution." (Lackner, at p. 751, 159 Cal.Rptr. 693, 602 P.2d 393, fn. omitted.) Lackner ultimately held a termination based on the statute of limitations "must be deemed a technical or procedural as distinguished from a substantive termination" that "is in no way dependent on nor reflective of the merits—or lack thereof—in the underlying action" and therefore would not qualify as a favorable termination. (Id at pp. 751-752, 159 Cal.Rptr. 693, 602 P.2d 393.) Other cour...
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