Sagonowsky v. More

• Decision Date: 22 May 1998
• Docket Number: A078305,Nos. A078201,s. A078201
• Citation: 75 Cal.Rptr.2d 118,64 Cal.App.4th 122
• Court: California Court of Appeals Court of Appeals
• Parties: , 98 Cal. Daily Op. Serv. 3946, 98 Daily Journal D.A.R. 5428 Christina M. SAGONOWSKY et al., Plaintiffs and Appellants, v. Antonia L. MORE, Defendant and Respondent. Stefan MROZOWSKI, Plaintiff and Appellant, v. Antonia L. MORE, Defendant and Respondent.

Page 118

75 Cal.Rptr.2d 118

64 Cal.App.4th 122, 98 Cal. Daily Op. Serv. 3946,

98 Daily Journal D.A.R. 5428

Christina M. SAGONOWSKY et al., Plaintiffs and Appellants, v. Antonia L. MORE, Defendant and Respondent.

Stefan MROZOWSKI, Plaintiff and Appellant, v. Antonia L. MORE, Defendant and Respondent.

Nos. A078201, A078305.

Court of Appeal, First District, Division 4, California.

May 22, 1998.

As Modified on Denial of Rehearing June 22, 1998.

Review Denied Aug. 19, 1998.

Eugene R. Oreck, Oreck and Oreck, Oakland, for Appellants Sagonowsky et al.

Robert G. Padrick, Law Offices of Robert G. Padrick, San Francisco, for Appellant Mrozowski.

George J. Ziser, Jason E. Lee, Larson & Burnham, Oakland, for Defendant and Respondent.

POCHE, Associate Justice.

This case arising out of a real estate dispute raises the novel claim of whether an award made in a commercial contractual arbitration can form the basis for a subsequent action for malicious prosecution. We hold in the circumstances presented by this case that it cannot.

In January 1991 plaintiff Christina Sagonowsky bought a four-unit apartment in San Francisco. The contract of sale contained a clause providing for commercial arbitration. ¹ In April Sagonowsky entered into a tenancy in common agreement with plaintiff Curtis Kekoa, Jr. (her then fiance), plaintiff Stefan M. Mrozowski (her uncle) and Lynn Searle, who had been a tenant in the building since 1986. ² Under that agreement Sagonowsky assigned to the other three individuals her rights "as buyer for the purchase of the real estate" "all rights, title, and interest in and to said contract [of sale], and to the real estate." The tenancy in common agreement also contained an arbitration clause which provided for binding arbitration to be had through the American Arbitration Association (AAA) or a like entity of "any dispute regarding this Agreement or the duties, obligations and benefits of ownership in the Property."

In January 1995 Searle made a demand for arbitration under the contract of sale and the tenancy in common agreement upon Sagonowsky, Kekoa and Mrozowski. The various causes of action alleged in Searle's claim all arose from her contention that she had been unlawfully induced to advance to Sagonowsky certain sums which were purportedly required for repairs to and seismic upgrade of the building. In Searle's view Sagonowsky had improperly retained $20,000 of $38,000. Searle sought an accounting by Sagonowsky.

Sagonowsky, Kekoa and Mrozowski responded to the demand for arbitration with a complaint naming Searle as defendant that was filed on March 1, 1995, in San Francisco Superior Court. Searle successfully moved to compel arbitration. Most of the claims advanced against Searle derived from the contention that she had underreported the square footage of her unit in the building and accordingly had undercontributed to certain expenses prorated between the tenants in common based upon that percentage of the total square footage of the building represented by each tenant's apartment. The three sought reformation of the tenancy in common agreement to more accurately reflect the percentage of ownership attributable to Searle.

After AAA arbitration, by an award dated October 4, 1995, the arbitrator denied both the claims of Searle and the counter claims of Sagonowsky, Kekoa and Mrozowski.

On September 20, 1996, Mrozowski filed a complaint for malicious prosecution and professional negligence in Alameda Superior Court naming as defendant Antonia More, the attorney who had represented Searle in the arbitration and related proceedings. Six days later Sagonowsky, proceeding in propria persona, filed a similar complaint against attorney More in San Francisco Superior Court. ³

On November 8, 1996, More demurred to both complaints in the respective courts. The three malicious prosecution complaints brought against More were consolidated in Alameda. The court sustained the demurrers without leave to amend and dismissed the complaints. It is from the judgment of dismissal that Mrozowski, Kekoa and Sagonowsky appeal.

Discussion

In reviewing a judgment of dismissal entered after a demurrer has been sustained without leave to amend we determine whether the complaint alleges facts sufficient to state a cause of action, or can be so amended. (Crowley v. Katleman (1994) 8 Cal.4th 666, 672, 34 Cal.Rptr.2d 386, 881 P.2d 1083.) We accept as true all material facts properly pleaded as well as those which may properly be judicially noticed, but not contentions, deductions or conclusions of fact or law. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318, 216 Cal.Rptr. 718, 703 P.2d 58.) It is an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility the defect can be cured by amendment, but the burden remains on the plaintiff to show how the defect could be cured. (Hendy v. Losse (1991) 54 Cal.3d 723, 742, 1 Cal.Rptr.2d 543, 819 P.2d 1.)

At the conclusion of the hearing the court outlined two reasons for sustaining the demurrer as to the cause of action for malicious prosecution: ⁴ "Primarily ... where the parties have come together by contract ... to submit disputes to arbitration as opposed to litigation ... malicious prosecution should not be available to a successful defendant in such an arbitration proceeding. [p] Also, I am persuaded that in this case the arbitrator made a decision, in essence, that nobody prevailed."

In order to state a cause of action for malicious prosecution the plaintiff must allege that the prior action (1) was commenced by or at the direction of the defendant and pursued to a legal termination in plaintiff's favor; (2) was brought without probable cause; and (3) was initiated with malice. (Crowley v. Katleman, supra, 8 Cal.4th 666, 676, 34 Cal.Rptr.2d 386, 881 P.2d 1083, quoting Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608.)

In sum, the court concluded that these plaintiffs were unable to state a cause of action for malicious prosecution for two reasons: first, a prior action which is private, rather than judicial, arbitration to which the parties have bound themselves by contractual agreement will not support a subsequent claim of malicious prosecution; second, that in any event this arbitration did not terminate in favor of plaintiffs Sagonowsky, Kekoa and Mrozowski.

If the arbitration was not terminated in favor of Sagonowsky, Kekoa and Mrozowski then we need not reach the question of whether a private contractual, as distinct from a judicial, arbitration, may be the basis for a cause of action for malicious prosecution. Accordingly, we look first to the favorable termination element of the cause of action.

Favorable Termination

"It is hornbook law that the plaintiff in a malicious prosecution action must plead and prove that the prior judicial proceeding of which he complains terminated in his favor." (Babb v. Superior Court (1971) 3 Cal.3d 841, 845, 92 Cal.Rptr. 179, 479 P.2d 379.) Termination of the prior proceeding is not necessarily favorable simply because the party prevailed in the prior proceeding; the termination must relate to the merits of the action by reflecting either on the innocence of or lack of responsibility for the misconduct alleged against him. (Lackner v. LaCroix (1979) 25 Cal.3d 747, 751, 159 Cal.Rptr. 693, 602 P.2d 393.) Accordingly, sometimes the line between an unfavorable and a favorable termination is drawn between technical or procedural defenses which end the case (e.g. statute of limitations) and substantive defenses which have the same result. (Ibid.) In other situations the conduct of the plaintiff in the prior action permits the inference that the complaint was without merit--for example when a plaintiff voluntarily dismisses or suffers a dismissal for failure to prosecute. (Fuentes v. Berry (1995) 38 Cal.App.4th 1800, 1808, 45 Cal.Rptr.2d 848; Stanley v. Superior Court (1982) 130 Cal.App.3d 460, 464, 181 Cal.Rptr. 878.) Conversely, a dismissal which results from a settlement is usually not a favorable termination because the plaintiff's decision to settle does not reflect the plaintiff's conclusion the action was without merit. (Dalany v. American Pacific Holding Corp. (1996) 42 Cal.App.4th 822, 827, 50 Cal.Rptr.2d 13; Villa v. Cole (1992) 4 Cal.App.4th 1327, 1338, 6 Cal.Rptr.2d 644.)

The arbitration in this case involved both the claims of Searle (breach of contract and of the duty of good faith and fair dealing, conversion, fraud, breach of fiduciary duty and conspiracy), who sought both damages of $27,000 and an accounting and the counter claim of Sagonowsky, Kekoa and Mrozowski ("based on several theories including fraud, mistake and breach of contract"), who sought reformation of the tenancy in common agreement and declaratory relief. ⁵

By his award the arbitrator denied the claims of both sides. In his Discussion of Ruling he concluded that of Searle's various claims only fraud and conversion merited discussion. As to them he found that while "Sagonowsky's acts as to the disclosures of the 'developer's fee' were perhaps fraudulent as to one or more non-parties to this arbitration, there was no fraud on Searle." The arbitrator relied for this finding on the documents in evidence, having concluded the testimony of both sides was self-serving and in conflict. He found that Searle's allegations of fraud and conversion were not proven. Although the arbitrator found that Sagonowsky had been "remiss in providing full and complete accountings," he concluded there was insufficient detriment to Searle to justify "any relief."

Had Searle's claim been brought in a judicial proceeding and resulted after trial in a judgment in favor of Sagonowsky, Kekoa and Mrozowski, we would have no difficulty in concluding that there had been a termination of the prior action favorable to them. After all, the arbitrator found Searle had failed to prove any of...