Engel v. CBS Inc., 91-55508

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Citation: 981 F.2d 1076
• Docket Number: No. 91-55508,91-55508
• Parties: Donald S. ENGEL; Engel & Engel, Plaintiffs-Appellants, v. CBS INCORPORATED; Moses & Singer; Stanley Rothenberg, Defendants-Appellees.
• Decision Date: 05 February 1993

Page 1076

981 F.2d 1076 Donald S. ENGEL; Engel & Engel, Plaintiffs-Appellants,
v.
CBS INCORPORATED; Moses & Singer; Stanley Rothenberg,
Defendants-Appellees. No. 91-55508. United States Court of Appeals,
Ninth Circuit. Argued and Submitted May 6, 1992.
Decided Dec. 16, 1992.
As Amended Feb. 5, 1993.

Page 1078

Mark D. Passin, Engel & Engel, Los Angeles, Cal., for plaintiffs-appellants.

David A. Battaglia and Wayne W. Smith, Gibson, Dunn & Crutcher, Los Angeles, Cal., for defendants-appellees.

Appeal from the United States District Court for the Central District of California.

Before: TANG, SCHROEDER, and BEEZER, Circuit Judges.

SCHROEDER, Circuit Judge:

This is an appeal from an entry of summary judgment in favor of the defendant, CBS Inc., in an action for malicious prosecution. The plaintiff who brought this action, Don Engel, is counsel to the lead singer of the popular rock music group Boston. Plaintiff Engel alleged that CBS's suit against him, to enjoin his conduct in representing the group, was vexatious litigation. In granting summary judgment, the district court held that the law of California, the place of the plaintiff's domicile, rather than the law of New York, the jurisdiction of the purported vexatious litigation, applied. We disagree with the district court's choice of law analysis, however, and hold that New York law governs resolution of this case because under California's comparative impairment analysis, New York's interests would be more significantly impaired if its law were not applied.

This conflict of law analysis is relevant because New York imposes a special injury requirement in malicious prosecution cases. Under New York law, plaintiff must ordinarily establish damages flowing from interference with person or property, beyond the damages normally attendant upon litigation. Under California law, there is no such special injury requirement. The law chosen in this case could definitively resolve the matter. With respect to the elements common to a claim for malicious prosecution under either New York law or California law, the complaint is sufficient. However, because of New York's special injury requirement, we conclude that Engel has not yet pleaded a sufficient claim under New York law and remand for him to have the opportunity to amend the complaint.

Facts and Procedural Background

The facts of this case are not seriously disputed. In 1976, CBS entered into an exclusive record contract with the music group Boston for the delivery of a total of ten record albums. The contract provided that neither Boston nor Boston's lead singer Donald T. Scholz, could render services for the purpose of recording albums for anyone other than CBS. Boston produced two albums for CBS: "BOSTON" and "DON'T LOOK BACK."

In October of 1983, CBS filed suit in the Southern District of New York against Boston's members and managers for breach of contract, seeking damages in excess of $20,000,000. CBS asserted that Boston had breached the contract by failing to deliver the third album. Members and managers of Boston countered that CBS had wrongfully refused to disburse royalties earned on the first two albums.

In 1984, CBS learned that Donald S. Engel, counsel to Boston's leader, Scholz, was endeavoring to negotiate a new record contract with record companies other than CBS. In February of 1984, Engel informed CBS, in a letter, that Boston considered "itself completely free of its obligation to continue to attempt to provide recording performances of BOSTON to CBS" and that Engel intended to "negotiate an appropriate deal for the release of the next BOSTON album on a label other than CBS." In early August of 1984, Engel's negotiations with MCA Records culminated in a contract between Scholz (on behalf of Boston) and MCA for the delivery of a third Boston album, "THIRD STAGE." This contract, like the contract with CBS, prevented Scholz from making recordings for companies other than MCA.

In late August of 1984, after the MCA-Scholz contract was executed, and while the litigation between CBS and Boston was still proceeding, CBS filed a second action in the United States District Court for the Southern District of New York. In this action, CBS sought to enjoin the named defendants from entering into a contract for delivery of the third Boston album. This complaint named Scholz, Engel, Jeff

Page 1079

Dorenfeld (Scholz's agent), and MCA Records, and specifically alleged that Engel was liable for copyright infringement and breach of contract, based on his participation in the negotiations with other record companies. In February of 1985, the Southern District of New York granted summary judgment in this case in favor of Engel and against CBS.

In November of 1985, Donald Engel and his law firm, Engel & Engel, filed this suit for malicious prosecution in California district court. A lengthy stay of proceedings was entered to allow resolution of the breach of contract action filed by CBS in New York. That litigation culminated in the recovery by Scholz of approximately $6,500,000 from CBS. In 1991, the district court in California granted summary judgment in favor of CBS on Engel's complaint for malicious prosecution. The court held that Engel's claim was barred as a matter of law because CBS had probable cause to institute the prior litigation in New York.

There are three issues we must reach. First, we must review whether the district court was correct in holding that CBS had probable cause to file the breach of contract action in New York. Second, because we conclude that CBS did not have probable cause to file that action against Engel, we must decide whether the law of California or the law of New York governs Engel's claim. Although the probable cause determination is common to both the law of New York and the law of California, with respect to other elements of the tort of malicious prosecution, the states' tests differ and thus the choice of law question becomes relevant. Third, because our choice of law analysis directs us to apply New York law, we must decide whether Engel's complaint satisfies the elements of a malicious prosecution action under New York law.

Probable Cause Determination

A civil action for malicious prosecution requires proof of the following elements:

1. Commencement or continuance of a criminal, civil or administrative proceeding;

2. Its legal causation or institution by the present defendant against the plaintiff, who was the defendant in the original proceeding;

3. Its bona fide termination in favor of the present plaintiff;

4. The absence of probable cause for such proceeding;

5. Malice; and

6. Damage to the plaintiff.

See 3 J.D. Lee & Barry A. Lindahl, Modern Tort Law § 40.04 (Rev.Ed.1988) (footnotes omitted); Restatement (2d), Torts, § 674. California law and New York law require proof of these basic elements. See Bertero v. National General Corp., 13 Cal.3d 43, 118 Cal.Rptr. 184, 189-90, 529 P.2d 608, 613-14 (1974) (listing elements of malicious prosecution claim under California law); Burt v. Smith, 181 N.Y. 1, 73 N.E. 495, 496 (1905) ("A malicious prosecution is one that is begun in malice, without probable cause to believe it can succeed, and which finally ends in failure."), writ of error dismissed, 203 U.S. 129, 27 S.Ct. 37, 51 L.Ed. 121 (1906).

The parties agree that the only issue in dispute with respect to these elements is whether probable cause supported the lawsuit filed by CBS against Engel as counsel for Scholz. We disagree with the district court's conclusion that there was probable cause supporting CBS's action against Engel, who was the attorney representing the party which purportedly breached its contract with CBS. To determine whether probable cause existed, the court needed to examine the law of the jurisdiction where the purportedly malicious civil proceeding was filed, in this case New York.

In New York, "[p]robable cause is the knowledge of facts, actual or apparent, strong enough to justify a reasonable man in the belief that he has lawful grounds for prosecuting the defendant in the manner complained of." Burt v. Smith, 73 N.E. at 496. Under New York law, an attorney generally cannot be held liable to a third

Page 1080

party for purported injuries caused by services performed on behalf of a client, or advice offered to a client, absent "a showing of fraud or collusion, or a malicious or tortious act." Pancake v. Franzoni, 149 A.D.2d 575, 540 N.Y.S.2d 674, 674 (2d Dep't.1989); Kasen v. Morrell, 18 Misc.2d 158, 183 N.Y.S.2d 928, 933 (N.Y.App.Div.1989).

The cases cited by CBS are not to the contrary. They too involve instances of malicious, fraudulent, or collusive conduct on the part of an attorney. Kahn v. Crames, 92 A.D.2d 634, 459 N.Y.S.2d 941, 942-43 (1983) (malicious prosecution action sustained because the attorneys "misappropriated and converted and criminally...