Walford v. Blinder, Robinson & Co., Inc.

• Decision Date: 08 March 1990
• Docket Number: No. 88CA1002,88CA1002
• Citation: 793 P.2d 620
• Parties: Donald L. WALFORD and Walford, Demaret & Co., Inc., Plaintiffs-Appellees and Cross-Appellants, v. BLINDER, ROBINSON & CO., INC., a New York corporation, Defendant-Appellant and Cross-Appellee. . V
• Court: Colorado Court of Appeals

Page 620

793 P.2d 620

Donald L. WALFORD and Walford, Demaret & Co., Inc. Plaintiffs-Appellees and Cross-Appellants, v. BLINDER, ROBINSON & CO., INC., a New York corporation Defendant-Appellant and Cross-Appellee.

No. 88CA1002.

Colorado Court of Appeals Div. V.

March 8, 1990.

Rehearing Denied April 19, 1990.

Certiorari Denied July 9, 1990.

Steve A. Miller, P.C., Steve A. Miller, Denver, for plaintiffs-appellees and cross-appellants.

Philip E. Lowery, P.C., Philip E. Lowery, Denver, Kalmon Glovin, Englewood, for defendant-appellant and cross-appellee.

Opinion by Judge DAVIDSON.

In this malicious prosecution action, defendant, Blinder, Robinson & Co., Inc. (Blinder) appeals the judgment entered on a jury verdict and the assessment of damages against it. Plaintiffs, Walford, Demaret & Co. (Demaret), and Donald L. Walford, cross-appeal the trial court's remittitur of the jury's punitive damages award. We affirm the judgment with respect to defendant's liability and reverse the trial court's grant of remittitur.

At the time of the events giving rise to this suit, Blinder and Demaret were both penny stock brokerage firms, Blinder being one of the largest in the world. In December 1983, the two companies entered into a selected dealers agreement whereby Demaret agreed to purchase for resale to the public two million units of a company known as MAS Industries, the public offering of which was underwritten by Blinder.

After the agreement was executed, Demaret began having difficulty selling the units, and there is evidence in the record to support its assertion that it entered into an agreement with Blinder through Regis Dahl, Blinder's director and vice president for compliance, to reduce its MAS obligation to 177,500 units. In exchange, Demaret agreed to trade off most of its compensation on another deal in which it was co-underwriter with Blinder.

The MAS offering closed on January 9, 1984, and a second offering, for which Blinder and Demaret were co-underwriters, closed on February 6, 1984. On February 13, 1984, Blinder sent Demaret a demand letter for the purchase price of the 1,822,500 MAS units that Demaret had failed to purchase under the original selected dealers agreement. This amounted to $364,500.

Despite conversations between Demaret's board chairman, plaintiff Donald L. Walford, and Blinder's chairman about the agreement's modification, in early March, Blinder filed complaints alleging breach of contract, fraud, and deceit against Demaret in the Denver District Court and claims seeking arbitration with the National Association of Securities Dealers, Inc. Shortly thereafter Blinder filed a third complaint, with the NASD District Business Conduct Committee, alleging that in not honoring the MAS contract, both Walford and Demaret had failed to observe the association's Rules of Fair Practice.

The suits were costly, and publicity about them appeared in both popular and trade papers. At the time they were instituted, Demaret was undertaking a public offering of its stock underwritten by the New Jersey based brokerage firm, Donald & Co. Donald & Co. had anticipated selling between $750,000 and $4,500,000 worth of stock, but its president testified that "with a suit against the company, [Donald & Co.] didn't want to be involved because no one would buy it." As a result, Donald & Co. withdrew from the offering, and in July 1984, after several futile efforts to sell additional securities, Demaret ceased operations.

All three proceedings brought by Blinder were terminated in favor of Walford and Demaret, the court suit on the basis of the extensive arbitration hearing. Subsequently, Demaret and Walford filed the present suit alleging, inter alia, malicious prosecution against Blinder; its president; its executive vice-president, who actually filed the prior cases against plaintiffs; its vice-president for compliance; and its vice-president for corporate finance, Dahl.

The plaintiffs settled with Blinder's executive vice-president before trial, and the malicious prosecution claims against the remaining defendants were tried. The jury found Blinder and Dahl liable and assessed against them a total of $1,450,000 in compensatory and $3,050,000 in punitive damages. In response to post-trial motions, the trial court approved all compensatory damages and the $50,000 punitive damages award against Dahl. However, concluding that the $3,000,000 punitive damages award against the company was out of proportion to its fault, the court remitted it to $200,000.

This appeal by defendant Blinder followed.

I.

Blinder asserts that the trial court erred in numerous ways in refusing to dismiss the malicious prosecution claim as a matter of law. We find no error.

A.

First, Blinder contends that the malicious prosecution claims should have been dismissed because arbitration proceedings may not, as a matter of law, support such claims and because plaintiffs' suit was primarily based on the events before the NASD arbitrators. We reject defendant's legal premise.

To establish a claim for malicious prosecution, a plaintiff must prove by a preponderance of the evidence that the defendant was a party to or assisted in a criminal or civil proceeding against the plaintiff, that the proceeding was resolved in favor of plaintiff, that there was no probable cause for the proceeding, that the defendant was actuated by malice in instituting the proceedings, and that the plaintiff was damaged thereby. See Montgomery Ward & Co. v. Pherson, 129 Colo. 502, 272 P.2d 643 (1954); Slee v. Simpson, 91 Colo. 461, 15 P.2d 1084 (1932); Restatement (Second) of Torts § 674 (1977).

The purposes of the cause of action are:

"to recompense a defendant sued in a malicious and baseless legal action for: (1) his attorney fees; (2) his costs; (3) his psychic damage from the shock of the unfounded allegations in the pleadings; and (4) the loss of his reputation in the community as a result of the filing and notoriety of the base allegations in the pleadings which are public records."

Stanley v. Superior Court, 130 Cal.App.3d 460, 181 Cal.Rptr. 878 (1982). Thus, the focus of an inquiry on whether a particular proceeding may support a malicious prosecution action is whether it caused the kind of damages that the latter action is designed to redress. See Restatement (Second) of Torts § 680 comment b (1977) (adjudicators must have had the power to impose penalties upon or to take other action adversely affecting the legally protected interests of the person against whom the proceedings are brought).

Consistent with this focus, malicious prosecution actions have been based not only on criminal prosecutions, Montgomery Ward & Co. v. Pherson, supra, but also on attachments, Gurley v. Tomkins, 17 Colo. 437, 30 P. 344 (1892), other civil suits and cross-claims, Slee v. Simpson, supra, disciplinary actions, McGuire v. Armitage, 184 Mont. 407, 603 P.2d 253 (1979), administrative proceedings, Melvin v. Pence, 76 U.S.App.D.C. 154, 130 F.2d 423 (1942) and arbitrations. Stanley v. Superior Court, supra; see also Pujol v. Shearson/American Express, Inc., 877 F.2d 132 (1st Cir.1989) (malicious prosecution based on institution of arbitration proceedings should not have been dismissed for failure to join indispensable party).

In spite of this authority, Blinder asserts that arbitrations in general, and the arbitration involved in this case in particular, should not be the basis of a malicious prosecution action because the arbitrators are not required to make findings of fact or conclusions of law and the records may be, as here, incomplete. We disagree.

So long as there is sufficient information in the record of the prior proceeding to determine that it was terminated in favor of the person instituting the malicious prosecution action, it is not necessary that either the record or order therefrom be as detailed as that of a court proceeding. This is because a malicious prosecution action involves not a review of the reasons for the decision in the prior action, but rather an analysis of the circumstances that led the instant defendant to pursue that action. See Flader v. Smith, 116 Colo. 322, 181 P.2d 464 (1947). Hence, the meagerness of the arbitration findings or record does not preclude a subsequent malicious prosecution action.

Finally, both national and local public policy favoring arbitration of disputes, Southland Corp. v. Keating, 465 U.S. 1, 104 S.Ct. 852, 79 L.Ed.2d 1 (1984); Judd Construction Co. v. Evans Joint Venture, 642 P.2d 922 (Colo.1982), also favors allowing the redress of malicious prosecution for misuse of the arbitration forum. With respect to bargained for arbitration clauses, if parties are aware that they will have no redress for abuse of the process they will be less likely to agree to submit potential disputes to arbitration. With respect to legislatively mandated arbitration, see § 13-22-401, et seq., C.R.S. (1987 Repl.Vol. 6A), failure to allow a malicious prosecution action would automatically deprive an abused party of a previously settled common law right purely on the basis of the amount his opponent claims to be owed.

For these reasons, we conclude that a judicially enforceable arbitration proceeding, as is present here, may form the basis for a malicious prosecution action. Accord Stanley v. Superior Court, supra.

B.

Blinder also asserts that the malicious prosecution claims should have been dismissed because the prior actions did not terminate in plaintiffs' favor. The evidence is to the contrary.

The issue before the NASD District Business Conduct Committee was whether plaintiffs in the instant case had violated the Rules of Fair Conduct. It concluded that they had not and dismissed the allegations.

The main issue before the NASD arbitration board was whether plaintiffs had breached the selected dealers agreement entitling Blinder to damages. After four days of hearing, the arbitrators dismissed in all respects...