Stanley v. Superior Court

• Decision Date: 02 April 1982
• Citation: 181 Cal.Rptr. 878,130 Cal.App.3d 460
• Court: California Court of Appeals Court of Appeals
• Parties: Jerome STANLEY and Stanley & Wing, Inc., Petitioners, v. The SUPERIOR COURT OF the State of California In and For the COUNTY OF SACRAMENTO, Respondent; SNOWFALL CORPORATION, Real Party in Interest. Civ. 21026.

Page 878

181 Cal.Rptr. 878

130 Cal.App.3d 460

Jerome STANLEY and Stanley & Wing, Inc., Petitioners, v. The SUPERIOR COURT OF the State of California In and For the COUNTY OF SACRAMENTO, Respondent SNOWFALL CORPORATION, Real Party in Interest.

Civ. 21026.

Court of Appeal, Third District, California.

April 2, 1982.

Hearing Denied June 23, 1982.

Hardy, Erich & Brown and William A. Wilson and Roger T. Stewart, Sacramento, for petitioner.

No appearance for respondent.

Greisen & Stewart and Paul H. Greisen, Sacramento, for real party in interest.

DOZIER, Associate Justice. ^*

Jerome Stanley and Stanley & Wing, Inc., (hereinafter referred to collectively as Stanley) were the attorneys for the plaintiffs in a municipal court action against Snowfall Corporation. That litigation ended with an award in a judicial arbitration proceeding by which the plaintiffs' claim was denied. The arbitrator did not award costs to either party. Thereafter Snowfall filed a suit for malicious prosecution against the municipal court plaintiffs and their attorney, Stanley. After unsuccessfully moving for summary judgment Stanley petitioned this court for a writ of mandate directing the superior court to grant the motion for summary judgment.

ISSUE NO. 1

THE NOVEL ISSUE PRESENTED IS WHETHER THE CIVIL SUIT ENDING IN A JUDGMENT FOR THE DEFENDANT PURSUANT TO THE JUDICIAL ARBITRATION AWARD IS A PROCEEDING WITH A FAVORABLE TERMINATION THAT WILL PERMIT AN ACTION FOR MALICIOUS PROSECUTION BY SAID DEFENDANT.

In order to establish a cause of action for malicious prosecution of a civil suit a plaintiff must plead and prove (1) a prior judicial proceeding, (2) favorably terminated, and (3) that the proceeding was brought maliciously and without probable cause. (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608; Minasian v. Sapse (1978) 80 Cal.App.3d 823, 825, 145 Cal.Rptr. 829.) An attorney who prosecutes a civil action may be subject to suit for malicious prosecution where he either proceeds with a claim that a reasonable lawyer would not regard as tenable or proceeds with the action after unreasonably neglecting to investigate the facts and the law. (Norton v. Hines (1975) 49 Cal.App.3d 917, 924, 123 Cal.Rptr. 237.)

The purpose of the requirement of a favorable termination is that it tends to indicate the innocence of the accused in a criminal case, or the absence of defendant's liability in a civil case, and coupled with the other elements of lack of probable cause and malice establishes the tort. (Jaffe v. Stone (1941) 18 Cal.2d 146, 150, 114 P.2d 335; Minasian v. Sapse, supra, 80 Cal.App.3d at p. 826, 145 Cal.Rptr. 829.) It is not necessary that there be a verdict or final determination on the merits, it is sufficient that it be shown that the former proceeding has been legally terminated. (Ibid.) A termination without a trial on the merits may be a favorable termination of the litigation if it is of such a nature as to indicate the innocence or freedom from liability of the defendant. However, a termination on technical grounds, for procedural reasons, or for any other reason not inconsistent with guilt is not a favorable termination such as will support an action for malicious prosecution. (Jaffe, at p. 150, 114 P.2d 335.)

On initial consideration it seems obvious that the proceeding in question here falls within the classical framework of the malicious prosecution tort. A civil suit was brought for damages by plaintiff against defendant. At the request of the plaintiff it was submitted to statutory judicial arbitration (see Code Civ.Proc., §§ 1141.10-1141.32). The arbitration decided plaintiff recover nothing. Plaintiff did not exercise his statutory and unconditional power to reject the arbitration award so judgment was entered for defendant. Defendant claims the original action was brought maliciously and without probable cause. All the prerequisites of a malicious prosecution seem to be present.

Defendant in the malicious prosecution action, however, attacks this syllogism on the asserted basis the civil action did not have the "favorable termination" for the original defendant required in an action for malicious prosecution.

The type of litigation terminations which may be considered favorable to the defendant may be illustrated through example. In Jaffe v. Stone, supra, 18 Cal.2d at pages 149-152, 114 P.2d 335, the court held a dismissal of a criminal action by a magistrate for lack of probable cause is a favorable termination even though the action may be recommenced by complaint or indictment. In MacDonald v. Joslyn (1969) 275 Cal.App.2d 282, 289, 79 Cal.Rptr. 707, the court held a voluntary dismissal without prejudice of a civil suit is a favorable termination. In Minasian v. Sapse, supra, 80 Cal.App.3d at page 827, 145 Cal.Rptr. 829, the court held a dismissal for failure to prosecute under Code of Civil Procedure section 583, subdivision (a), is a favorable termination of the litigation.

The reason the terminations in Jaffe, MacDonald, and Minasian, were considered favorable terminations is because they reflected the opinion of someone, either the trial court or the prosecuting party, that the action lacked merit or if pursued would result in a decision in favor of the defendant. (See Lackner v. LaCroix (1979) 25 Cal.3d 747, 750, 159 Cal.Rptr. 693, 602 P.2d 393.)

Where the termination cannot be so construed then it is not a favorable termination. Thus, a judgment of dismissal on the ground of the statute of limitations is not a favorable termination for the defendant within the context of a malicious prosecution action because it does not reflect at all upon the substantive merit of the alleged claim. (Id., at pp. 751-752, 159 Cal.Rptr. 693, 602 P.2d 393.)

When the reasoning of the above cases is applied to the issue in question it is clear defendant has merely demonstrated that a factual dispute exists as to whether the arbitration award (and judgment) was decided on a basis that constituted a termination favorable to the defendant in the original civil suit. Thus, summary judgment cannot be granted because the arbitration award may or may not be a "favorable termination" depending upon the resolution of the factual dispute at trial.

Judicial arbitration in a municipal court action proceeds pursuant to local rule requiring such arbitration. (Code Civ.Proc., § 1141.11, subd. (c); Cal.Rules of Court, rule 1600(e).) The decision of the arbitrator is a decision upon the law and the facts of the case and determines all issues properly raised by the pleadings, including damages and costs where appropriate. (Cal.Rules of Court, rules 1614(a)(7) and 1615(a).) If the losing plaintiff chooses not to request a trial de novo within 20 days after the arbitration award is filed, the decision of the arbitrator becomes final and has the same force and effect as a judgment in the action. (Code Civ.Proc., §§ 1141.20, 1141.23.) Where, as here, the decision of an arbitrator in favor of the defendant is allowed to become final it reflects the opinion of the arbitrator that the plaintiffs' claim is without merit, and the lack of a request for a trial de novo, like a voluntary dismissal, reflects the opinion of the plaintiff further prosecution is not wise or useful. It is thus logically a favorable termination for purposes of a malicious prosecution action. (See Lackner v. LaCroix, supra, 25 Cal.3d at p. 750, 159 Cal.Rptr. 693, 602 P.2d 393.)

However, in support of the motion for summary judgment, Stanley asserted the arbitration award should not be construed as a finding in favor of Snowfall because it merely reflected his inability to prove damages and not a finding that Snowfall was not guilty of misconduct. He further asserted that his failure to request a trial de novo should not be construed as a belief the suit lacked merit, since he had discovered Snowfall was a shell corporation without assets, and thus judgment proof, and he simply determined further prosecution was not worthwhile in view of his inability to satisfy a resulting judgment. However, these arguments merely raise a factual issue as to the reasons for the termination of the litigation. A conflict which is a question of fact is not a predicate for summary judgment. (See Weaver v. Superior Court (1979) 95 Cal.App.3d 166, 186-187, 156 Cal.Rptr. 745.)

ISSUE NO. II

SHOULD AN EXCEPTION TO THE AVAILABILITY OF A MALICIOUS PROSECUTION ACTION BE JUDICIALLY CREATED IF A CIVIL SUIT TERMINATES IN ACCORDANCE WITH A JUDICIAL ARBITRATION AWARD?

Stanley asserts that even if a decision in a judicial arbitration proceeding is a favorable termination of the litigation it should not support an action for malicious prosecution for policy reasons. He relies upon Pace v. Hillcrest Motor Co. (1980) 101 Cal.App.3d 476, 161 Cal.Rptr. 662. There, Hillcrest had pursued a small claims action against Pace for $167.33, and after judgment was entered in his favor Pace brought a malicious prosecution action against Hillcrest for $105,000. The court of appeal held that the institution of a small claims proceeding will not support an action for malicious prosecution. (Id., at p. 479, 161 Cal.Rptr. 662.) Stanley contends the policy factors which applied in Pace to small claims actions apply as well to judicial arbitration.

In reaching its decision in Pace the court noted that small claims proceedings are designed to provide an inexpensive and expeditious means to settle small disputes, because when small amounts are involved ordinary litigation fails to achieve practical justice since the time and expense involved is so disproportionate to the amount at issue that legal resolution of the dispute is discouraged. (Id., at p. 478, 161 Cal.Rptr. 662.) As a result a small claims action is designed to be quick and informal; there are no attorneys involved, no pleadings, no legal rules of evidence, no juries and no formal findings. (Id., at p. 479, 161...