DUPLAIN v. MEYERS BIANCHI McCONNELL MALLON (1988)

This is an appeal by Russell and Anita DuPlain from the trial court's dismissal of their suit for abuse of process and malicious prosecution.   The issues on appeal are (1) whether, in granting respondents' motion for summary judgment, the trial court erred in ruling that the element of “favorable termination” in appellants' cause of action for malicious prosecution could not be proved as a matter of law, and (2) whether the trial court erred in sustaining without leave to amend respondents' demurrer to appellants' abuse of process cause of action.   We affirm the dismissal of the abuse of process cause of action, but reverse the granting of respondents' summary judgment motion.

Background

Manuel and Celia DeLeon operated a restaurant which was located on property they leased from Joseph Collins.   The DeLeons did not have a liquor license.   When they decided to sell their business and entered into a purchase contract and lease assignment agreement with appellants, the sale was made contingent on appellants' procurement of a liquor license from the Department of Alcoholic Beverage Control (ABC).   Collins opposed the sale of alcoholic beverages on his property and actively campaigned against appellants' application to the ABC.   Subsequently, appellants filed a notice of withdrawal of their ABC application, citing as their reason, “Landlord Protested Application as well as other citizens.”

Following the failure of the liquor license contingency, the purchase contract was cancelled.¹

Thereafter, the DeLeons filed a complaint against Collins for interference with contract.   They alleged that Collins' protests to the ABC rendered appellants' pursuance of the liquor license application too costly and time consuming, thereby causing the failure of the receipt of the license and hence the failure of the contract.   Appellants were not named as codefendants.

Collins' liability insurance carrier retained respondent law firm of Meyers, Bianchi and McConnell.   On behalf of Collins, respondents answered the complaint and filed a cross-complaint against appellants for implied partial indemnity.   As cross-plaintiff, Collins contended that appellants breached the contract of sale and therefore were wholly responsible for any damages suffered by the DeLeons.   According to respondents, this anticipatory breach occurred as the result of appellants' voluntary withdrawal of the liquor license application prior to the ABC's review process.

The matter was arbitrated.   At the hearing, respondents declined to present any evidence on the cross-complaint.   The arbitrator denied the DeLeons' claim against Collins, finding that, although “it seems obvious to this arbitrator that Collins did everything he could to try to avoid the sale of this business and lease to [appellants],” the DeLeons failed to carry their burden of proof concerning the actual cause of the contract's cancellation.   The arbitrator further “denied” Collins' cross-complaint against appellants.   The arbitrator noted that he “did not consider” the cross-complaint “because factually and legally, it was not attempted during the presentation of the hearing.  ․ I awarded costs to the cross-defendant, ․ on the grounds that I think something should have been done factually to better present that cross-complaint.”

Thereafter, appellants filed their complaint against respondents for abuse of process and malicious prosecution.   They alleged that respondents filed the cross-complaint knowing it was entirely groundless and for the purpose of coercing appellants into testifying against the DeLeons in the original action.

Respondents successfully demurred to appellants' cause of action for abuse of process.

Subsequently, respondents' motion for summary judgment on the remaining cause of action for malicious prosecution was granted.   The trial court agreed with respondents that the arbitrator's decision in favor of Collins on the DeLeons' complaint left nothing for the arbitrator to determine on the merits of the cross-complaint for indemnity, therefore rendering a favorable termination on the cross-complaint legally impossible.   The court stated:  “Creation of a contrary rule would create serious problems for a defendant considering whether to file a cross-complaint for indemnification․  The calculus, whereby a defendant's risk of suit for malicious prosecution is greater in cases in which the likelihood or degree of his fault is lesser, indicates that the equation is bad from a public policy point of view․  Such an automatic exposure to the risk of liability in case a defendant succeeded in defeating the complaint would have too chilling an effect on the freedom to file cross-complaints․  [¶] Further, as demonstrated by this case, the rule urged by cross-defendant would tend to put defendant and defendant's attorney in a conflict of interest, ․”

DISCUSSION

Appellants contend that the trial court overstated the consequences of a ruling in their favor on the summary judgment motion and, more importantly, effectively prevented appellants from obtaining a remedy against respondents, no matter how unjustified or malicious respondents' motive was in filing the cross-complaint.   Appellants also contend that the arbitrator's decision in denying Collins relief under the cross-complaint was indeed a decision in their favor, reflecting the arbitrator's opinion that Collins' action lacked merit.

Respondents argue that the arbitrator's decision on the cross-complaint was not favorable to appellants on its merits because the award on the complaint made the cross-complaint no longer relevant or “functus officio.” ²  As such, they contend, there were no factual or legal issues to resolve on the cross-complaint and therefore the decision to deny it merely signified a procedural victory for appellants.

 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 and pursued by defendant to a legal termination in plaintiff's favor, (2) was brought without probable cause, and (3) was initiated with malice.  (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608.)   The theory underlying the requirement of favorable termination is that it tends to indicate the innocence or absence of liability of the defendant in the underlying civil action.  (Stanley v. Superior Court (1982) 130 Cal.App.3d 460, 463, 181 Cal.Rptr. 878, citing Jaffe v. Stone (1941) 18 Cal.2d 146, 150, 114 P.2d 335;  Lackner v. LaCroix (1979) 25 Cal.3d 747, 751, 159 Cal.Rptr. 693, 602 P.2d 393.)   A dismissal on technical or procedural grounds does not constitute a favorable termination.  (Jaffe v. Stone, supra.)   However, so long as freedom from liability is indicated, a termination without a trial on the merits may be a favorable termination of the litigation.  (Stanley v. Superior Court, supra, 130 Cal.App.3d pp. 463–464, 181 Cal.Rptr. 878;  Lackner v. LaCroix, supra, 25 Cal.3d p. 750, 159 Cal.Rptr. 693, 602 P.2d 393.)

In the present case, the trial court evidently decided that, since all three elements must be proved, any lack of probable cause by respondents in filing the cross-complaint was irrelevant in view of its opinion that appellants could not prove the favorable termination element.   We disagree with this analysis, both in terms of the favorable termination element and the inferred irrelevancy of the probable cause element.

 The record supports a contrary inference to the one that the arbitrator considered the cross-complaint to be merely procedurally defective.   The arbitrator emphasized that Collins had not presented any factual or legal material to support his cross-claim.   Consequently, the resultant “denial” of the cross-complaint may reasonably be interpreted to incorporate the arbitrator's opinion that the cross-action lacked merit, or that the failure to present any evidence to support the cross-claim signified that appellants were innocent of the alleged wrongdoing.  (See Stanley v. Superior Court, supra, 130 Cal.App.3d 464–465, 181 Cal.Rptr. 878.)   Thus, summary judgment cannot be granted because respondents have not conclusively negated a necessary element of appellants' case that the arbitrator's award was a favorable termination.   (See id., p. 465, 181 Cal.Rptr. 878;  Barbary Coast Furniture Co. v. Sjolie (1985) 167 Cal.App.3d 319, 330, 213 Cal.Rptr. 168;  Grindle v. Lorbeer (1987) 196 Cal.App.3d 1461, 1465, 242 Cal.Rptr. 562.)

Minasian v. Sapse (1978) 80 Cal.App.3d 823, 145 Cal.Rptr. 829, is instructive.   The appellate court in Minasian held that a favorable termination arises from a dismissal for failure to prosecute under Civil Procedure Code section 583, subdivision (a).  (P. 827, 145 Cal.Rptr. 829.)   In so holding the court wrote:  “Undoubtedly the failure to prosecute may occasionally be attributable to other than a complainant's implicit concession as to the merits of the action.   But it is impossible to see how, at least at the pleading stage, the one complaining of the malicious prosecution can do more than to allege the fact that an action was brought against him and subsequently dismissed because it was not pursued.   Should a conflict arise as to the circumstances explaining the failure to prosecute, the trier of fact must exercise its traditional role in deciding the conflict.”  (P. 828, 145 Cal.Rptr. 829.)   Likewise here, a conflict arose concerning the circumstances explaining the failure to offer any evidence in support of the cross-complaint.   Therefore, it was up to the trier of fact, and not the judge in a pretrial motion, to decide the factual dispute underlying the favorable termination issue.  (See Sheldon Appel Co. v. Albert & Oliker, 89 Daily Journal D.A.R. 487, 489 (filed Jan. 12, 1989.)

The most compelling problem with the trial court's and respondents' interpretation of the arbitrator's decision to deny Collins' cross-claim is that it ignores the independent existence and viability of the cross-complaint.   Case and statutory law recognize that a cross-complaint creates an action separate and distinct from a complaint.  (Bertero v. National General Corp., supra, 13 Cal.3d at 52, 118 Cal.Rptr. 184, 529 P.2d 608.)   The finding here that the denial of the cross-complaint was merely a follow-up procedural step treats the cross-complaint as only an ancillary, integral part of the complaint.   By so doing, its effect is to forever preclude an action for malicious prosecution on a cross-complaint for indemnity.

This result is against public policy.   In Bertero v. National General Corp., supra, pages 50–51, 118 Cal.Rptr. 184, 529 P.2d 608, the California Supreme Court ruled:  “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 harm to society and to the individual cross-defendant caused by the filing of a cross-pleading without probable cause and with malice is substantially similar to that occasioned by the filing of a complaint or other initial pleading known to be false or meritless․  The cross-defendant, like the defendant in an original cause maliciously prosecuted, is compelled to expend attorney's fees in defending against the false charge and may suffer the same mental or emotional distress and possible loss of reputation and standing in the community․  [¶] ․ [N]o sound reason appears for treating a cause of action initiated by a cross-pleading as only an integral part of that cause initiated by the complaint.  ․ ‘ “[T]hese cross-actions ․ are still distinct and independent causes of action, ․” ’ ”  (Emphasis added.)

The trial court's concern that denying respondents' summary judgment motion on the favorable termination issue would itself jeopardize public policy is unfounded.   Allowing the action to proceed does not automatically subject respondents to liability since appellants still have the burden of proving respondents acted without probable cause and with malice, the gist of an action for malicious prosecution.   Furthermore, the risk of being sued for malicious prosecution and the concomitant potential for creating a conflict of interest between attorney and client is ever present, regardless of whether an action is commenced and pursued as a complaint or cross-complaint.   In other words, the risk of being subjected to a malicious prosecution suit is no greater in filing a groundless complaint as it is in filing a meritless cross-complaint.

This also is true whether or not the cross-action seeks indemnity.   It makes no sense from a public policy standpoint to immunize a cross-claim from an action for malicious prosecution simply because the cross-complaint seeks indemnity from a party not named in the complaint.

 Respondents contend that Collins' cross-complaint sought no affirmative relief.   However, the obligation of indemnity is the duty of the wrongdoer to pay the loss or damages incurred by another.  (E.L. White, Inc. v. City of Huntington Beach (1978) 21 Cal.3d 497, 506, 146 Cal.Rptr. 614, 579 P.2d 505;  Herrero v. Atkinson (1964) 227 Cal.App.2d 69, 74, 38 Cal.Rptr. 490.)   Indemnity therefore is as much a form of affirmative relief, and requires as much of a defense, as a claim for damages.  (See Simon Hardware Co. v. Pacific Tire, etc., Co. (1962) 199 Cal.App.2d 616, 619, 19 Cal.Rptr. 12.)   Further, “probable cause” to file an action within the meaning of malicious prosecution relates to the circumstances warranting a reasonable belief in the truth of the alleged claim or wrongdoing.  (Hudson v. Zumwalt (1944) 64 Cal.App.2d 866, 872, 149 P.2d 457;  Weaver v. Superior Court (1979) 95 Cal.App.3d 166, 188, 156 Cal.Rptr. 745.)   It does not relate to the reasonableness of the belief in the propriety of the particular remedy sought.

The public policy harm applicable to this case lies in denying a litigant the right to pursue a legitimate claim for malicious prosecution by treating a cross-complaint as a subordinate, dependent pleading.  (Bertero v. National General Corp., supra, 13 Cal.3d at 51, 118 Cal.Rptr. 184, 529 P.2d 608.)   In this regard, respondents' utilization of the term “functus officio” is irrelevant.   The Supreme Court has decided that a cause of action for malicious prosecution can be predicated on a claim for affirmative relief in a cross-pleading no matter how “intimately” that claim relates to a claim asserted in the complaint.  (Id., p. 53, 118 Cal.Rptr. 184, 529 P.2d 608.)   This is so because “[i]t is not the assertion of a claim that is actionable, but rather the malicious character of that assertion.”  (Id., p. 52, 118 Cal.Rptr. 184, 529 P.2d 608.)

 Respondents' reliance on Hale v. Laden (1986) 178 Cal.App.3d 668, 224 Cal.Rptr. 182 is misplaced.   In Hale, the appellate court ruled that the power of trial courts to strike irrelevant matters pursuant to Civil Procedure Code sections 436 and 187 is appropriately exercised when a trial judge strikes a cross-complaint following a good faith settlement, once determining that the issues of the cross-action are irrelevant to the resolution of the remaining issues.  (P. 673, 224 Cal.Rptr. 182.)   However, good faith settlement presents an entirely different picture in the context of a malicious prosecution action than the circumstances existing in this case.   When an action is dismissed as the result of negotiation, settlement or consent, the law normally does not recognize a favorable termination because the dismissal reflects ambiguously on the merits of the action.  (Weaver v. Superior Court, supra, 95 Cal.App.3d at 184–185, 156 Cal.Rptr. 745.)

Respondents' argument that Hale is applicable because, similarly, there was nothing in this case to decide on the cross-complaint once the complaint was resolved, is misleading.   Apart from ignoring the strong inference that the arbitrator's decision reflected on appellants' innocence, respondents' argument erroneously suggests that it is the cross-plaintiff's innocence as the defendant in the original action that is of concern here.   On the contrary, a malicious prosecution action based on a cross-pleading is not concerned with the cross-plaintiff's nonliability in the proceeding instituted by the complaint, but with the cross-defendant's lack of responsibility for the alleged misconduct in the action initiated by the cross-claim.

 Respondents' next claim, that the logical consequence of a ruling in favor of appellants on the favorable termination issue would encourage the multiplicity of actions whenever a claim for indemnity attaches to a complaint, explaining that future defendants would thereby be pressured to avoid seeking indemnity in a cross-claim until they are found liable on issues raised by a complaint.   This position is unavailing as it contradicts respondents' primary argument that a cross-complaint for indemnity is moot once the underlying action is resolved in favor of the defendant/cross-plaintiff.   In other words, if a cross-complaint may become “moot,” why plead a cross-claim until the underlying action is terminated?   A cross-claim against a stranger to the original action is not compulsory but permissive, and need not be filed during the original proceedings, even though to do so would be more expeditious.   (Insurance Co. of North America v. Liberty Mutual Ins. Co. (1982) 128 Cal.App.3d 297, 303, 180 Cal.Rptr. 244;  Code Civ. Proc., §§ 426.30, subd. (a);  428.10, subd. (b).)  In addition, an indemnity claim asserted in a cross-pleading may be tried with the issues raised by the complaint or severed therefrom.  (5 Witkin, Cal. Procedure (3d ed. 1985) Pleading, §§ 1078, p. 498;  1092, p. 514;  American Motorcycle Assn. v. Superior Court (1978) 20 Cal.3d 578, 606, 146 Cal.Rptr. 182, 578 P.2d 899.)   Frivolous claims for indemnity, like other frivolous complaints, should be discouraged.

The final question in this appeal concerns whether the trial court erred in sustaining without leave to amend respondents' demurrer to appellants' cause of action for abuse of process.   Appellants contend that they sufficiently stated an ulterior and improper purpose by respondents in using the judicial process, which was to coerce appellants into not testifying in favor of the DeLeons in their complaint against Collins for interference with contract.   Respondents argue that appellants' allegation of improper use is illogical, since the cross-complaint compelled testimony rather than coercing appellants to abstain from testifying.

 The function of a demurrer is to test the sufficiency of the complaint by raising questions of law.  (Rader Co. v. Stone (1986) 178 Cal.App.3d 10, 20, 223 Cal.Rptr. 806.)   On appeal, the court is not concerned with plaintiff's difficulty or inability to prove the allegations of the complaint, but whether entitlement to some relief has been shown by the facts alleged.   (Ibid.)  A reviewing court must make its own independent determination whether the complaint shows that some relief properly can be given.  (Ibid.)

 Exercising our independent judgment, we conclude that the trial court properly sustained respondents' demurrer without leave to amend.   The essential elements of an action for abuse of process are:  (1) an ulterior purpose, and (2) the wilful use of the judicial process in an improper or wrongful manner.  (Spellens v. Spellens (1957) 49 Cal.2d 210, 232, 317 P.2d 613;  Seidner v. 1551 Greenfield Owners Assn. (1980) 108 Cal.App.3d 895, 903, 166 Cal.Rptr. 803.)   The absence of any allegation essential to the cause of action makes the complaint vulnerable to a demurrer.  (Banerian v. O'Malley (1974) 42 Cal.App.3d 604, 610–611, 116 Cal.Rptr. 919.)   Here, appellants have not alleged the essential element of the improper use of the judicial proceeding.

“Some definite act or threat not authorized ․ or ․ not legitimate in the use of the process, is required;  and there is no liability where the defendant has done nothing more than carry out the process ․ with bad intentions.   The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club.   There is, in other words, a form of extortion, ․”  (Spellens v. Spellens, supra, 49 Cal.2d at 232, 317 P.2d 613.)

The form of coercion alleged by appellants is not actionable as the tort of abuse of process because it does not relate to a collateral advantage not connected with the proceeding, instead relating directly to the litigation itself.

This case is similar to Seidner v. 1551 Greenfield Owners Assn., supra, where the appellate court rejected a contention that filing a lawsuit in order to pressure a party into settling another lawsuit constituted abuse of process.   The court wrote:  “It is quite evident from the cases cited by appellant, ․ that the parties who have abused or misused the process, have gone beyond the mere filing of a lawsuit.  [¶] Appellant would have us believe that the filing of the corporate lawsuit in the action before us is of such a significant posture that a threat, or collateral advantage is to be ascribed to those parties․  Is it not true that in any lawsuit there is a [sic ] element of threat or coercion?   It is difficult for us to determine the improper purpose to which the process, filing the corporate suit, is put so as to pressure the appellant to settle the partnership suit.   If he feels pressure, that may be his subjective feelings or thoughts.   If he does not wish to settle, it is doubtful if any further lawsuits will cause him to want to settle.”  (108 Cal.App.3d at 904–905, 166 Cal.Rptr. 803.)

So too here, we find it impossible to determine how the cross-complaint would have pressured appellants into acting differently during the legal proceedings than if the cross-action had not been filed.   The essence of appellants' suit is that they were needlessly forced to defend an action brought for a malicious purpose.   This type of complaint, based alone on the improper filing or maintenance of a lawsuit, constitutes an action for malicious prosecution rather than abuse of process.  (See Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1169, 232 Cal.Rptr. 567, 728 P.2d 1202;  Christensen v. Younger (1975) 47 Cal.App.3d 613, 617, 120 Cal.Rptr. 923.)

Respondents' request for sanctions against appellants for filing a frivolous appeal is denied.   That portion of the judgment dismissing appellants' abuse of process cause of action is affirmed.   The other portion of the judgment dismissing appellants' cause of action for malicious prosecution is reversed, and the case is remanded to superior court for further appropriate proceedings.

The parties are to pay their own costs on appeal.

FOOTNOTES

1.   It is unclear by whom, but presumably by both parties to the contract.

2.   Black's Law Dictionary defines “functus officio” as “[h]aving fulfilled the function, discharged the office, or accomplished the purpose, and therefore of no further force or authority.   Applied ․ to an instrument, power, agency, etc., which has fulfilled the purpose of its creation, and is therefore of no further virtue or effect.”

STEVEN J. STONE, Presiding Justice.

GILBERT and ABBE, JJ., concur.