WEST VALLEY TAXPAYERS AND ENVIRONMENT ASSOCIATION v. PARNAS CORPORATION

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Court of Appeal, Sixth District, California.

WEST VALLEY TAXPAYERS AND ENVIRONMENT ASSOCIATION, Plaintiff and Appellant, v. PARNAS CORPORATION, Defendant and Respondent.

No. H005918.

Decided: June 26, 1990

 Ralph B. Wegis, Denise Martin, Klein, Wegis, DeNatale, Hall, Goldner & Muir, Bakersfield, for plaintiff and appellant.  William H. Gavin, III, Mary E. Wrightson, Gassett, Perry & Frank, Robert C. Danneskiold, Ferrari, Alvarez, Olsen & Ottoboni, San Jose, for defendant and respondent.

The trial court dismissed plaintiff West Valley Taxpayers and Environment Association's action for malicious prosecution.   The court held, as a matter of law, that defendant Parnas Corporation had probable cause to bring the underlying libel action.   We reverse.   Although the probable cause element in a malicious prosecution action raises an issue of law to be decided by the trial judge, we conclude that in this case there were threshold factual questions to be decided by the jury.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

In 1978 City of Fremont Mayor Gene Rhodes faced civil and criminal suits regarding his alleged failure to comply with provisions of the Political Reform Act of 1974 (Gov.Code, § 81000 et seq.) and with regulations established by the Fair Political Practices Commission (see Gov.Code, § 83100 et seq.).   In pleadings and in newspaper accounts, Rhodes's alleged conflicts of interest were linked, in part, to his dealings with Parnas Corporation (Parnas), a Bay Area real estate developer.

This link resurfaced two years later in connection with an election in the City of Saratoga.   The election ballot contained “Measure A,” an initiative placing controls on hillside development.   A flier distributed during the campaign was headed, “Protect Your City And Rights:  VOTE ‘YES' ON MEASURE A.”   Under the subheading, “Why is Saratoga Behind Other Cities In Controlling Hillside Developments?,” the flier contained the following:  “Developers such as Parnas Co., that was involved in the Fremont Mayor's conflict of interest, are now developing land in Saratoga's hills․”

In May 1980 Parnas brought a libel action against the three organizations listed at the bottom of the flier and an individual officer of each organization, who were not listed on the flier.   The defendants included West Valley Taxpayers and Environment Association (WVTEA) and Victor Monia, the president of WVTEA.   The complaint alleged that the flier statement regarding Parnas was false and libelous on its face.  “It clearly exposes [Parnas] to  hatred, contempt, ridicule and obloquy, because it accuses [Parnas] of being involved in a conflict of interest situation and committing criminal acts.”

In their answer, WVTEA, Monia, and the other defendants alleged that the flier statement regarding Parnas was not false.  “To the contrary, they were truthful in that [Parnas] did have a connection with the controversy surrounding allegations and charges made against former Mayor Rhodes of Fremont, in that some of the charges made clearly involve plaintiff PARNAS CORPORATION as a party which was both appearing before the Fremont City Council and requesting action, and was then involved or had been in the past involved in land transactions with the then Mayor of Fremont, Mr. Rhodes, and in other particulars to be shown according to proof.”

In February 1983 Parnas's libel suit was dismissed under Code of Civil Procedure section 583, subdivision (a), for lack of prosecution.

In February 1984 WVTEA and Monia filed the instant action for malicious prosecution against Parnas and Parnas's counsel in the libel suit.   The complaint alleged that Parnas lacked probable cause to bring the libel action for several reasons, including the fact that “the statements alleged in the Parnas Complaint to have been the basis for a libel claim were, in fact, true․”  In their answer, Parnas and counsel responded that, “in instituting the prior action, [Parnas] was acting in reliance upon advice of counsel, and [Parnas] maintained and continues to maintain an honest, good faith belief in the liability of defendants [WVTEA and Monia] in the prior action for the conduct therein alleged.”

WVTEA and Monia settled the malicious prosecution action with Parnas's former counsel and proceeded against Parnas alone.   After lengthy in limine proceedings, the trial judge concluded, as a matter of law, that Parnas's libel suit against WVTEA was supported by probable cause.   As a result, the court dismissed WVTEA's malicious prosecution action against Parnas.   Monia's suit against Parnas proceeded to trial.1

WVTEA appeals.

 DISCUSSION

“To establish a cause of action for the malicious prosecution of a civil proceeding, a plaintiff must plead and prove that the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in his, plaintiff's, favor [citations];  (2) was brought without probable cause [citations];  and (3) was initiated with malice [citations].”   (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608.)   The defendant acted with probable cause if he had a reasonable belief in the possibility of success in the underlying suit.  (See 5 Witkin, Summary of Cal.Law (9th ed.1988) § 447, p. 531.)

 In Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 254 Cal.Rptr. 336, 765 P.2d 498, the Supreme Court examined the proper role of judge and jury with respect to the probable cause element of a malicious prosecution action.   The court observed that the determination of probable cause has always been considered a question of law for the court.   But if the facts upon which defendant acted in bringing the prior action are controverted, they must be decided by the jury before the court can rule on probable cause.   (Id. at p. 877, 254 Cal.Rptr. 336, 765 P.2d 498.)   The court reaffirmed the principles set down nearly a century ago in Ball v. Rawles (1892) 93 Cal. 222, 227, 28 P. 937:  “ ‘What facts and circumstances amount to probable cause is a pure question of law.   Whether they exist or not in any particular case is a pure question of fact.   The former is exclusively for the court, the latter for the jury.’ ”

 The court concluded in Sheldon Appel Co. that the trial court erred by submitting the probable cause issue to the jury.  “Although it is sometimes necessary to submit preliminary factual questions to the jury when there is a dispute as to facts which the defendant knew when he instituted the prior action, in this case there was no dispute as to facts of which [defendant law firm] was aware when it brought the prior action on its client's behalf.”   (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at p. 884, 254 Cal.Rptr. 336, 765 P.2d 498.)   There was no controversy over what the law firm learned from the client or what the law firm did as a result.   It was the responsibility of the trial court to rule on probable cause.

Both parties to this appeal rely upon Sheldon Appel Co. to support their positions.   WVTEA maintains that the trial judge erred by failing to submit to the jury the issue of Parnas's knowledge of the truth of the flier statement.   WVTEA contends that Parnas's knowledge is a threshold factual question that must be answered before the court can rule, as a matter of  law, on probable cause.   Parnas argues that “[a] good faith belief in the truth of a defamatory statement is relevant only to the malice element of the malicious prosecution tort․  In Sheldon, the Supreme Court expressly ruled that the malicious prosecution defendant's good faith belief in the validity of the prior claim is not a component for the standard for probable cause.”   According to Parnas, “the only subjective belief which is relevant to the determination of probable cause in the case at hand is [Parnas's] belief that the defamatory statement alleged in the libel action was actually made and published.”   Therefore, Parnas argues, there was no threshold factual question to be submitted to a jury.

Parnas misconstrues Sheldon Appel Co., in which the court sought to clarify the essential nature of the probable cause element of malicious prosecution.   “Whereas the malice element is directly concerned with the subjective mental state of the defendant in instituting the prior action, the probable cause element calls on the trial court to make an objective determination of the ‘reasonableness' of the defendant's conduct, i.e., to determine whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable.   The resolution of that question of law calls for the application of an objective standard to the facts on which the defendant acted.”  (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at p. 878, 254 Cal.Rptr. 336, 765 P.2d 498.)

After acknowledging that its prior cases on the “subjective” versus “objective” nature of probable cause were “not as clear as they might be,” the court sought to end the confusion:  “[W]hile our decisions do indicate that in some cases the defendant's subjective belief may be relevant to the probable cause issue, in all the cases the ‘belief’ in question related to the defendant's belief in, or knowledge of, a given state of facts, and not to the defendant's belief in, or evaluation of, the legal merits of the claim. ”   (Id. at p. 879, 254 Cal.Rptr. 336, 765 P.2d 498.)   Thus, although the probable cause determination is ultimately objective, there is a “subjective” aspect to the inquiry—that is, defendant's belief in facts that support the claims in the underlying lawsuit.

Parnas is correct that defendant's good faith belief in the validity of the prior claim is not a component of probable cause to the extent that such belief relates to the legal merits of the claim.   But to the extent that defendant's good faith belief relates to the factual underpinnings of the legal claim, it is most assuredly a component of probable cause.   In this case, for example, the factual question whether Parnas believed in good faith that the flier  statement was false is a critical component of Parnas's probable cause for filing the libel action.2

Parnas also contends that it acted with probable cause because a reasonable lawyer would have considered the libel claim tenable.   Parnas points out that the statement comes within the purview of libel per se.   Again, Parnas's argument misses the mark.   The designation of a statement as libel per se—that is, defamatory on its face—alleviates the need for proof of special damage, but it does not overcome the fundamental requirement that the statement be false.  (See 5 Witkin, Summary of Cal.Law (9th ed.1988) §§ 480, 481, pp. 564–566.)   A reasonable lawyer would not file a libel action, per se or otherwise, based on a true statement.   While a lawyer might successfully defend a malicious prosecution action by showing that his client misled him as to the truth of the statement, Parnas is presumably in the best position here to know the truth of the flier statement.   That knowledge is a factual issue in this case.

These principles are well illustrated by Franzen v. Shenk (1923) 192 Cal. 572, 221 P. 932, which is the mirror image of Sheldon Appel Co.   In the latter, the Supreme Court held that the trial judge erred in submitting the probable cause determination to the jury because there was no factual dispute regarding probable cause.   In Franzen, the Supreme Court held that the trial judge erred by failing to submit preliminary factual questions to the jury.

Franzen and Shenk had a business and, according to Franzen, a meretricious relationship.   The relationship went awry, and Shenk instituted a proceeding to have Franzen adjudged legally insane.   After the proceeding was dismissed, Franzen sued Shenk for malicious prosecution.   Shenk testified that, prior to the insanity proceeding, he had cancelled a mortgage debt owed him by Franzen under threat of blackmail.   He testified that Franzen had demanded more money and repeatedly threatened that, if he did not comply, “ ‘ “she would get my children and mutilate them so I would never want to look at them again in my life, and she would get my wife.” ’ ”  (Id. at p. 575, 221 P. 932.)   Shenk's attorney testified that Franzen had made similar statements to him regarding Shenk.   Franzen testified that she had never made such statements to Shenk or to anyone else.   She testified that she had not asked Shenk for money and that the cancellation of the mortgage indebtedness was a gift.

 The Supreme Court held that the jury should have decided whether Franzen extorted money and threatened Shenk's family.   Once the factual issues were resolved, then the trial judge would be in a position to decide, as a matter of law, whether Shenk had probable cause to initiate the insanity proceedings.   As the court later observed in Sheldon Appel Co., “when, as in Franzen, there is evidence that the defendant may have known that the factual allegations on which his action depended were untrue, the jury must determine what facts the defendant knew before the trial court can determine the legal question whether such facts constituted probable cause to institute the challenged proceeding.”  (Sheldon Appel Co., supra, 47 Cal.3d at p. 881, 254 Cal.Rptr. 336, 765 P.2d 498.)

The instant case is analogous to Franzen.   In that case, the parties disagreed about facts underlying the prior sanity proceeding—specifically, whether Shenk's claim that Franzen blackmailed him and threatened physical harm to his family was true or false.   In this case, the parties disagree about facts underlying the prior libel action—specifically, whether the statement about Parnas in the pro-“Measure A” flier was true or false.   The existence of this factual dispute is amply demonstrated by the pleadings in Parnas's libel suit and in WVTEA's malicious prosecution action.   Parnas alleges that the statement was false, a critical element in a libel action.  (See Civ.Code, § 45.)   WVTEA alleges that the statement was true.   This factual issue concerning the accuracy of the statement—and, thus, of Parnas's good faith belief in a given state of facts—must be resolved by a jury before the trial court can rule, as a matter of law, on the probable cause element.

The transcript of proceedings below indicates that the trial judge and counsel devoted much time to discussion of the probable cause issue, both on and off the record.   The transcript suggests considerable confusion over the issue.   The trial judge repeatedly lamented that he had no facts upon which to base the probable cause decision.   For example:  “[A]gain we are going around in a circle, because we are coming back in again to what I have before me in the way of facts.   I have no facts before me.   I have never heard the testimony of a single witness.   I have no facts in front of me.   I have an absolute lack of any facts.  [¶] If this case had been tried previously on the merits with respect to the libel action I wouldn't have any problem.”

There are undoubtedly cases in which the court can determine the probable cause issue, as a matter of law, simply by examining the record of the underlying action.   In many cases, however, the record will not be particularly useful.   In order to rule upon the probable cause element, the court may have to hear testimony that would have been presented in the underlying action had it progressed far enough.   In Franzen, for example, the insanityproceeding was dismissed.   Although it is not entirely clear from the Franzen opinion, we suspect that there was no useful record, if any, of the insanity proceeding, which was conducted by a justice of the peace.   In Franzen's malicious prosecution action, the trial court heard testimony from Franzen, Shenk, and his lawyer regarding events leading up to Shenk's initiation of the insanity proceeding.   This evidence was crucial to a determination whether Shenk had probable cause to institute the proceeding.   Similarly, in this case evidence of Parnas's knowledge regarding the truthfulness of the flier statement at the time the libel action was filed is crucial to disposition of the probable cause element in this malicious prosecution action.

Finally, we turn to Leonardini v. Shell Oil Co. (1989) 216 Cal.App.3d 547, 264 Cal.Rptr. 883.   WVTEA devotes most of its reply brief to discussion of Leonardini, which was decided after the filing of WVTEA's opening brief.   Parnas addresses Leonardini at considerable length in a supplemental brief, which we granted permission to file.

Shell Oil, a manufacturer of pipe resin, sued Leonardini for trade libel based upon laboratory findings that Leonardini submitted to a public administrative body regarding the use of plastic pipe for plumbing.   After Shell Oil dismissed the action, Leonardini sued for malicious prosecution.   The Court of Appeal affirmed the trial court's determination that Shell Oil lacked probable cause to bring the trade libel suit.   The court noted that “[i]n this case the state of Shell's factual knowledge was undisputed.”  (Id. at p. 570, 264 Cal.Rptr. 883.)   The court concluded that Shell Oil lacked probable cause, as a matter of law, based upon the relief requested in the trade libel suit.   Shell Oil sought to enjoin Leonardini from further dissemination of information on a public health matter presented to a governmental agency.   Such an injunction would have constituted an unconstitutional prior restraint on speech.   Shell Oil also sought a declaratory judgment that amounted to a scientific pronouncement rather than a declaration of legal rights.

WVTEA suggests that Leonardini is “dispositive of the issue before this court.”   WVTEA maintains that First Amendment considerations are also implicated here because the statement about Parnas was contained in campaign literature regarding a public election.   Although Leonardini may be useful to the trial court in further proceedings in this case, we do not view Leonardini as particularly helpful on this appeal.   The Leonardini court stated:  “A litigant will lack probable cause for his action if he relies upon facts which he has no reasonable cause to believe to be true, or seeks recovery upon a legal theory which is untenable under the facts known to him.”  (216 Cal.App.3d at p. 568, 264 Cal.Rptr. 883.)   What is important for our purposes is  that, under either probable cause analysis suggested in Leonardini, determination of the facts known to defendant when he filed the underlying lawsuit is critical.   In Leonardini, there was no question about the facts known to Shell Oil, and the court could proceed directly to the determination of probable cause, as a matter of law.   In this case, by contrast, there are factual issues that must be resolved before the court can reach the question of law.

DISPOSITION

The judgment in favor of Parnas Corporation and against West Valley Taxpayers and Environment Association is reversed.   Costs on appeal to appellant.

FOOTNOTES

1.   Parnas requests that we disregard certain documents in the parties' Joint Appendix because they relate to proceedings in Monia's action subsequent to the trial court's dismissal of WVTEA's suit.   Although our disposition of this appeal does not depend upon these documents or upon events in the Monia action, we do not entirely agree with Parnas's view that the documents are irrelevant to WVTEA's suit.   For example, Parnas would have us exclude the trial court's judgment on special verdict in the Monia suit, which also constitutes the entry of judgment upon dismissal of WVTEA's suit.

2.   Because Parnas is a corporate entity, when we speak of “knowledge” we refer, of course, to the knowledge of corporate directors, officers, or employees who decided to file the underlying libel action.   In their briefs, the parties mention Par Kamangar, the president of Parnas.   For ease of discussion, we will simply refer to Parnas.

COTTLE, Associate Justice.

CAPACCIOLI, Acting P.J., and ELIA, J., concur.