Siebel v. Mittlesteadt

• Decision Date: 16 July 2007
• Docket Number: No. S125590.,S125590.
• Court: California Supreme Court
• Parties: Thomas M. SIEBEL, Plaintiff and Appellant, v. Carol L. MITTLESTEADT et al., Defendants and Respondents.

62 Cal.Rptr.3d 155

41 Cal.4th 735

166 P.3d 527

Thomas M. SIEBEL, Plaintiff and Appellant, v. Carol L. MITTLESTEADT et al., Defendants and Respondents.

No. S125590.

Supreme Court of California.

July 16, 2007.

Blecher & Collins, Maxwell M. Blecher, Ralph C. Hofer, Los Angeles; Greines, Martin, Stein & Richland, Robin Meadow and Laura Boudreau, Los Angeles, for Plaintiff and Appellant.

DLA Piper Rudnick Gray Cary US, Mark H. Hamer and Jarod M. Bona, for National Federation of Independent Business Legal Foundation, as Amicus Curiae on behalf of Plaintiff and Appellant.

Law Offices of Tony J. Tanke, Tony J. Tanke, Davis; Law Offices of Gary L. Sims, Gary L. Simms, San Mateo; Roeca, Haas, Hager, Russell S. Roeca, Daniel W. Hager, San Francisco; Murphy, Pearson, Bradley, Feeney, Timothy J. Halloran and Christine A. Huntoon, San Francisco, for Defendants and Respondents.

CORRIGAN, J.

Here we consider what constitutes a favorable termination of a lawsuit as a predicate for a subsequent malicious prosecution action. We hold that, in this context, a postjudgment settlement constitutes a favorable termination when the malicious prosecution plaintiff received a favorable judgment in the underlying action, and settled without giving up any portion of the judgment in his favor.

FACTUAL AND PROCEDURAL BACKGROUND

Initially, Debra Christoffers sued her employer, Siebel Systems, Inc. (SSI) and the company's chief executive officer, Thomas M. Siebel. Christoffers had been hired by SSI as a sales director. She asserted that Siebel had induced her to leave her previous employer by falsely promising to compensate her with large commissions and lucrative stock options. Once she joined SSI, Christoffers alleged Siebel and the company discriminated against her because of her gender, refused to pay commissions, and fired her to avoid paying both commissions and vested stock options.

Christoffers alleged eight causes of action against Siebel individually. The first six were based on various assertions of gender discrimination and wrongful termination, and were disposed of by demurrer, summary adjudication, or voluntary dismissal before trial.¹ It is these six causes of action that Siebel later relied upon to bring his malicious prosecution suit. Christoffers went to trial on the two remaining fraud allegations against Siebel individually, and on her allegations against SSI for fraud, failure to pay compensation and wrongful termination to avoid those payments.

Christoffers failed to prove fraud or wrongful termination. The jury specifically found that SSI had fired Christoffers because it honestly believed that her job performance was deficient, that neither Siebel nor SSI had made a promise it had not intended to keep, and that neither defendant had concealed a material fact. The jury did find that SSI had failed to pay Christoffers substantial commissions. Accordingly, it awarded her $233,662.25 in damages and prejudgment interest. On SSI's cross-complaint, the jury found that Christoffers had not appropriated any trade secrets, but that she was liable for breach of contract, breach of duty of loyalty, and conversion. It went on to find, however, that SSI had failed to prove that it had suffered any damages.

SSI and Siebel moved for attorney fees under Government Code section 12965 arguing that Christoffers' sex discrimination claims had no foundation in law or fact and were brought in bad faith. The company's motion was denied. As the prevailing party on her unpaid-compensation claim against SSI, Christoffers was awarded costs and attorney fees attributable to that portion of the action. (Lab.Code, § 218.5.) Because Christoffers had failed to recover from Siebel personally, he was granted his litigation costs.

All parties appealed, but later agreed to settle the case. Under the settlement terms, SSI agreed to pay Christoffers approximately 86 percent of the damages and costs she had been awarded. Christoffers agreed to pay Siebel's court-awarded litigation costs. The parties also agreed that Christoffers, and her attorneys, E. Rick Buell II and Carol L. Mittlesteadt, would release Siebel. SSI, and their attorneys from any liability or obligations arising from the case. Siebel, SSI, and their attorneys released Christoffers, but not her attorneys, Buell and Mittlesteadt (collectively, defendants.) The agreement specifically provided that it did not modify "the final termination of the Action entered in favor of Siebel for purposes of pursuing claims against Buell or Mittlesteadt, or otherwise prevent Siebel from pursuing any claims against Buell or Mittlesteadt" based on the underlying judgment.

On October 5, 1999, pursuant to the settlement agreement, the parties voluntarily dismissed their appeals. In July 2000, Siebel, acting as an individual, filed this lawsuit against Buell and Mittlesteadt for malicious prosecution. According to the complaint, upon associating in the case as counsel, Buell had advised Mittlesteadt and Christoffers that the sex discrimination claims were unfounded and should be dropped. He also allegedly told Siebel and SSI's counsel on several occasions that he believed these allegations were "bogus." Nevertheless, the complaint alleged, Buell remained as counsel in the case, then pursued the claims solely to force a settlement. Likewise, Siebel alleged Mittlesteadt knew that the charges were fabricated to extract a settlement using SSI's pending initial public offering as leverage. The complaint also alleged Mittlesteadt had sued Siebel personally to coerce him into a prompt settlement, rather than risk creating an unfavorable reputation in the industry and impair SSI's ability "to recruit and employ talented female personnel."

Siebel further noted that five of Christoffers's first six causes of action had been resolved by pretrial court rulings. Siebel alleged Christoffers voluntarily dismissed the remaining third cause of action before trial, because her counsel had "recognized that the claim was devoid of merit and that a judgment or decision in favor of Siebel was inevitable." Siebel sought both punitive and compensatory damages.

Defendants moved for summary judgment, urging: (1) Siebel could not prove malicious prosecution because there had been no favorable termination; (2) public policy required dismissal because defendants would not be able to defend the lawsuit without violating the attorney-client privilege; and (3) Siebel could not demonstrate that defendants lacked probable cause for prosecuting the underlying action.

The trial court granted defendants' motion on the first ground, did not reach the remaining grounds, and entered judgment for defendants.

The Court of Appeal reversed, concluding that Siebel had obtained a favorable termination.²

DISCUSSION

To establish a cause of action for malicious prosecution, a plaintiff must demonstrate that the prior action (1) was initiated by or at the direction of the defendant and legally terminated in the plaintiffs favor, (2) was brought without probable cause, and (3) was initiated with malice. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 341, 9 Cal.Rptr.3d 97, 83 P.3d 497 (Casa Herrera).)

Malicious prosecution actions have traditionally been disfavored as potentially chilling the right to pursue legal redress and report crime. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 872, 254 Cal.Rptr. 336, 765 P.2d 498). However, we have noted that this principle "`should not be employed to defeat a legitimate cause of action' or to `invent[] new limitations on the substantive right, which are without support in principle or authority.' [Citations.]" (Zamos v. Stroud (2004) 32 Cal.4th 958, 966, 12 Cal. Rptr.3d 54, 87 P.3d 802.) Thus, malicious prosecution suits are not barred simply because they are disfavored. (Casa Herrera, supra, 32 Cal.4th at p. 349, 9 Cal. Rptr.3d 97, 83 P.3d 497.) As we have also observed, "The malicious commencement of a civil proceeding is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice.... [¶] The judicial process is adversely affected ... not only by the clogging of already crowded dockets, but by the unscrupulous use of the courts by individuals `... as instruments with which to maliciously injure their fellow men.' [Citation.]" (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50-51, 118 Cal. Rptr. 184, 529 P.2d 608, fn. omitted.) "[W]hen the litigation is groundless and motivated by malice the balance tips in favor of the policy of redressing the individual harm inflicted by that litigation." (Crowley v. Katleman (1994) 8 Cal.4th 666, 695, 34 Cal.Rptr.2d 386, 881 P.2d 1083.)

Here, the Court of Appeal held that Siebel obtained a favorable termination because the settling parties did not stipulate to a new judgment but agreed instead to dismiss their appeals and allow the existing judgment to become final. "`The theory underlying the requirement of favorable termination is that it tends to indicate the innocence of the accused, and coupled with the other elements of lack of probable cause and malice, establishes the tort [of malicious prosecution].' [Citation.] Thus, `[i]t 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.' [Citation.]" (Casa Herrera, supra, 32 Cal.4th at p. 341, 9 Cal.Rptr.3d 97, 83 P.3d 497.)

To determine whether a party has received a favorable termination, we consider "`the judgment as a whole in the prior action....' [Citation.]" (Casa Herrera, supra, 32 Cal.4th at p. 341, 9 Cal. Rptr.3d 97, 83 P.3d 497.) Victory following a trial on the merits is not required. Rather, "`the termination must reflect the merits of the action and the plaintiffs innocence of the misconduct alleged in the lawsuit.' [Citation.]" (Id. at p. 342, 9 Cal.Rptr.3d 97, 83...