OGLE v. PRICE POSTEL PARMA (1992)

In June 1984, Frank Brebes, represented by Price, Postel & Parma, and later by Richard A. Carsel, filed a professional malpractice complaint in San Luis Obispo Superior Court (action No. 58802, hereafter referred to as the underlying action) against his former business partners and attorneys, Charles E. Ogle and Ray A. Gallo.¹

In August 1985, Ogle and Gallo filed a cross-complaint against Brebes, Price and Carsel, claiming misrepresentation, breach of fiduciary duties, and abuse of process in filing the underlying action and also a companion action by Evelyn Carver McClure.   After the McClure case was terminated, Ogle and Gallo filed a first amended cross-complaint against Brebes, Price and Carsel alleging malicious prosecution.

On August 19, 1985, Price withdrew from representation of Brebes.   On April 15, 1987, the San Luis Obispo County Superior Court ordered Carsel disqualified to represent Brebes.   Brebes hired new counsel.

On January 20, 1988, in San Luis Obispo, the court granted summary judgment on all issues raised by the complaint in the underlying action in favor of Ogle and Gallo.   Judgment in favor of Ogle and Gallo was prematurely entered on February 10, 1988.

On November 3, 1989, Ogle, Gallo and Brebes entered into a settlement agreement which resolved all claims against Brebes raised by the first amended cross-complaint.   Ogle and Gallo agreed to dismiss without prejudice the cross-complaint against Brebes and also to dismiss without prejudice three complaints for malicious prosecution against Brebes that Ogle and Gallo had filed against the defendants in San Luis Obispo County in February 1989.   By the terms of the settlement agreement, Brebes waived his right to appeal the February 10, 1988, summary judgment in the underlying action.   The settlement agreement was approved by the court as a good faith settlement on February 28, 1990.   The remaining claims against Price and Carsel under the amended cross-complaint in the underlying action were then transferred to Kern County Superior Court and assigned a new case number—No. 206042.   Summary judgment was entered in favor of Price and Carsel on the amended cross-complaint, and the matter is pending on appeal before this court in case No. F016119.

As noted above, in February 1989, Ogle and Gallo filed three new actions in San Luis Obispo County Superior Court against Price and Carsel alleging malicious prosecution (case Nos. 65975, 65976, 65979).   After Brebes was dismissed from the actions, the three cases were transferred to Kern County Superior Court, assigned new numbers, and consolidated by order dated November 16, 1989.²  These are the cases involved in this appeal.

Price and Carsel filed a series of successful attacks on the adequacy of the pleadings which led to the filing of a second amended complaint in each of the three actions in March 1990.   The demurrers to the second amended complaints were overruled on May 18, 1990.   All defendants answered.

On June 18, 1990, Price filed a motion for summary judgment in the three malicious prosecution actions on the grounds that there was and could be no final termination on the merits in favor of Ogle and Gallo in the underlying action (No. 206042).   Carsel joined in the motion.   The motion was argued and submitted, and it was granted.   Ogle and Gallo's motion for reconsideration was denied, and the judgment was entered.   Ogle and Gallo filed a timely notice of appeal in each action (case Nos. 207188, 207190, 207191).

The facts surrounding the underlying action are not relevant to the issues raised on appeal nor was there any significant factual dispute.

DISCUSSION

I. STANDARD OF REVIEW

A defendant seeking summary judgment must affirmatively negate at least one essential element of every cause of action brought by the plaintiff.   (Oprian v. Goldrich, Kest & Associates (1990) 220 Cal.App.3d 337, 342–343, 269 Cal.Rptr. 429.)

On appeal, review is limited to the facts presented to the trial court.   The appellate court must independently review the construction and effect of the supporting and opposing papers and determine whether the moving party is entitled to judgment as a matter of law.  (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1064, 225 Cal.Rptr. 203;  Brooks v. Eugene Burger Management Corp. (1989) 215 Cal.App.3d 1611, 1618, 264 Cal.Rptr. 756.)

II. FINALITY OF THE FEBRUARY 10 JUDGMENT IN THE UNDERLYING ACTION.

 Appellants contend the summary judgment entered on February 10, 1988, was final and established Brebes' action against them had no legal merit.   The judgment clearly established the trial court's conclusion that Brebes' complaint was without merit.³  However, the judgment was premature and not final as a matter of law.

 The general rule in civil litigation is that there may be only one final judgment in an action.   A cross-complaint is not sufficiently independent to allow a final judgment separate and apart from the complaint, unless the judgment sought eliminates all issues as to one party.   (Nicholson v. Henderson (1944) 25 Cal.2d 375, 378–381, 153 P.2d 945;  Fleuret v. Hale Constr. Co. (1970) 12 Cal.App.3d 227, 230, 90 Cal.Rptr. 557;  Crocker–Anglo Nat. Bank v. Kuchman (1961) 194 Cal.App.2d 589, 592, 15 Cal.Rptr. 230.)   If the cross-complaint is still pending, there can be no final judgment and no mature appeal rights.  (Krug v. Meehan (1951) 106 Cal.App.2d 554, 556, 235 P.2d 410, later vacated in (1931) 108 Cal.App.2d 416, 239 P.2d 46 when court found cross-complaint had earlier been dismissed;  see also Tsarnas v. Bailey (1960) 179 Cal.App.2d 332, 337, 3 Cal.Rptr. 629.)

 A final termination favorable to the plaintiff is a necessary element of a malicious prosecution action.  (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608;  Walsh v. Bronson (1988) 200 Cal.App.3d 259, 264, 245 Cal.Rptr. 888.)   Even though there may be full adjudication of all of a plaintiff's claims by virtue of dismissal or partial summary judgment, the termination is not final until the cross-complaint has also been resolved.  (Wilson v. Wilson (1978) 78 Cal.App.3d 226, 230–231, 144 Cal.Rptr. 180;  Rich v. Siegel (1970) 7 Cal.App.3d 465, 469, 86 Cal.Rptr. 665.)

In the instant case, although the trial court ruled in favor of Ogle and Gallo on all of the issues raised in the complaint in the underlying action and by the summary judgment motion, final judgment could not be entered because the cross-complaint was still pending.   Had Brebes attempted to appeal the February 10, 1988, judgment, the appellate court would have rejected the appeal as premature—a pending cross-complaint prevents appeal.  (Fleuret v. Hale Constr. Co., supra, 12 Cal.App.3d at p. 230, 90 Cal.Rptr. 557;  Wilson v. Wilson, supra, 78 Cal.App.3d at pp. 230–231, 144 Cal.Rptr. 180.)   As long as appeal rights existed or had not yet matured, the partial summary judgment won by Ogle and Gallo was not final and would not support a malicious prosecution action.  (Rich v. Siegel, supra, 7 Cal.App.3d at p. 469, 86 Cal.Rptr. 665;  Gibbs v. Haight, Dickson, Brown & Bonesteel (1986) 183 Cal.App.3d 716, 721, 228 Cal.Rptr. 398;  Friedman v. Stadum (1985) 171 Cal.App.3d 775, 778–779, 217 Cal.Rptr. 585.)

This, however, does not end the discussion.   On November 3, 1989, Brebes unequivocally waived his right to appeal the judgment and the cross-complaint was resolved as to Brebes.   No further claims remained unresolved, and he no longer had any appeal rights.   Therefore, as of the time the trial court approved the negotiated settlement agreement between Brebes and appellants, the summary judgment entered on February 10, 1988, was final.   The remaining questions are whether the finality came too late and did the settlement agreement preclude a favorable termination as a matter of law.

III. FAVORABLE TERMINATION

 Respondents contend, and the trial court agreed, that the settlement agreement between Brebes and Ogle and Gallo does not constitute a favorable termination of the merits of the underlying action (case No. 206042) as a matter of law.   We disagree.

 It is well settled there must be a favorable termination of the underlying action before an action for malicious prosecution may lie.   (Lackner v. LaCroix (1979) 25 Cal.3d 747, 749–750, 159 Cal.Rptr. 693, 602 P.2d 393.)   However, a verdict or final determination on the merits is not required;  only a legal termination is required.  (Ibid.;  Minasian v. Sapse (1978) 80 Cal.App.3d 823, 826, 145 Cal.Rptr. 829.)   The theory underlying the favorable termination requirement is that it tends to establish, along with the other elements (lack of probable cause and malice), the tort, i.e., a malicious and unfounded charge has been brought against an innocent person.  (Jaffe v. Stone (1941) 18 Cal.2d 146, 150, 114 P.2d 335.) ⁴

“It is apparent ‘favorable’ termination does not occur merely because a party complained against has prevailed in an underlying action.   While the fact he has prevailed is an ingredient of a favorable termination, such termination must further reflect on his innocence of the alleged wrongful conduct.   If the termination does not relate to the merits—reflecting on neither innocence of nor responsibility for the alleged misconduct—the termination is not favorable in the sense it would support a subsequent action for malicious prosecution.”  (Lackner v. LaCroix, supra, 25 Cal.3d at p. 751, 159 Cal.Rptr. 693, 602 P.2d 393, fn. omitted.)

 Some cases clearly reflect the opinion of the court that the claim lacks merit.  (See Jaffe v. Stone, supra, 18 Cal.2d at p. 151, 114 P.2d 335, and Minasian v. Sapse, supra, 80 Cal.App.3d at p. 827, 145 Cal.Rptr. 829 and cases cited therein.)   Others simply do not reflect on the merits of the case at all.  (See Lackner v. LaCroix, supra, 25 Cal.3d at p. 750, 159 Cal.Rptr. 693, 602 P.2d 393;  Warren v. Wasserman, Comden & Casselman (1990) 220 Cal.App.3d 1297, 1301–1302, 271 Cal.Rptr. 579;  Chauncey v. Niems (1986) 182 Cal.App.3d 967, 976–977, 227 Cal.Rptr. 718;  Asia Investment Co. v. Borowski (1982) 133 Cal.App.3d 832, 838, 184 Cal.Rptr. 317.)   For example, a termination is not favorable if it rests on technical procedural grounds or any other ground inconsistent with guilt or misconduct.  (Asia Investment Co., supra, at p. 838, 184 Cal.Rptr. 317.)   Still others raise questions of fact as to whether there was an opinion reached on the merits of the case.  (See Haight v. Handweiler (1988) 199 Cal.App.3d 85, 88–89, 244 Cal.Rptr. 488;  Weaver v. Superior Court (1979) 95 Cal.App.3d 166, 184–185, 156 Cal.Rptr. 745.)

Respondents cite several cases which state a termination based on a settlement or stipulation between parties does not constitute a “favorable” termination able to support a malicious prosecution action.   It is true there are several cases which state in dicta that when a proceeding terminates by agreement, normally it is not deemed a favorable termination sufficient to support a malicious prosecution action.  (Coleman v. Gulf Ins. Group (1986) 41 Cal.3d 782, 794, fn. 9, 226 Cal.Rptr. 90, 718 P.2d 77;  Oprian v. Goldrich, Kest & Associates, supra, 220 Cal.App.3d at p. 343, 269 Cal.Rptr. 429;  Haight v. Handweiler, supra, 199 Cal.App.3d at pp. 88–89, 244 Cal.Rptr. 488;  Chauncey v. Niems, supra, 182 Cal.App.3d at p. 977, 227 Cal.Rptr. 718;  Weaver v. Superior Court, supra, 95 Cal.App.3d at pp. 184–185, 156 Cal.Rptr. 745;  Eustace v. Dechter (1942) 53 Cal.App.2d 726, 732–733, 128 P.2d 367.)   However, none of the above opinions present the rule as an absolute rather than a generality.   The court in Weaver stated that “when a dismissal results from negotiation, settlement, or consent, a favorable termination is normally not recognized.”  (95 Cal.App.3d at pp. 184–185, 156 Cal.Rptr. 745, emphasis added.)   The same language appears in Chauncey.  (182 Cal.App.3d at p. 977, 227 Cal.Rptr. 718.)   In Minasian, the court stated the dismissal of an action pursuant to a settlement agreement is generally not deemed a favorable termination.  (Minasian v. Sapse, supra, 80 Cal.App.3d at p. 827, fn. 4, 145 Cal.Rptr. 829.)

At oral argument, respondent cited the court to Paskle v. Williams (1931) 214 Cal. 482, 6 P.2d 505.   Although decided some years ago, Paskle appears to remain valid law in California.   We have reviewed Paskle but do not believe it prevents the conclusion we have reached today.

In Paskle, the malicious prosecution action ended with defendant's successful nonsuit at the close of the plaintiff's evidence.   The underlying action ended pursuant to a stipulation between the parties calling for a dismissal of the complaint with prejudice and dismissal of the cross-complaint without prejudice.   By a clause in the agreement, the defendant expressed its intent to proceed on the cross-complaint.   On appeal the court stated the general rule without qualification, i.e., that the termination of a lawsuit which is brought about by compromise and settlement will not support a later action for malicious prosecution.  (214 Cal. at p. 484, 6 P.2d 505.)   The court went on to say, however, it was not necessary to decide the case on this issue because there was clearly probable cause to support the underlying action in the first place and upheld the nonsuit on this ground.   Therefore, in Paskle, the state Supreme Court did not directly decide the issue presented in this case, i.e., will a settlement agreement between the parties after a judicial determination that there is no merit to the underlying action support a malicious prosecution action.

Our review of Paskle leads us to one additional case not cited by either party.  Kinsey v. Wallace, at 36 Cal. 462, was decided by our state Supreme Court in 1868.   In Kinsey, the question was whether the trial court erred when it instructed the jury in a malicious prosecution action that a dismissal signed by both parties with each side bearing their own costs was a favorable termination for the defendants in the underlying action.   The appellant argued, “It seems indisputable, that when a defendant prevails in an action, within the meaning of the rule, it must be either through a verdict or judgment, or through a dismissal or discontinuance by the plaintiff alone;  and that when, as in this case, the action is terminated by a stipulation to which the defendant himself is a party, ‘compromise,’ and not ‘success,’ expresses the result.”  (Kinsey v. Wallace (1868) 36 Cal. 462, 473.)   However, the Supreme Court did not accept appellant's argument;  rather, it affirmed the judgment on the condition a remittitur be filed by respondent on the damages awarded.

Although we recognize the headnotes inserted by the Reporter of Decisions are not part of the court's opinion, we find it interesting that in Kinsey the headnote from the opinion states:

“Dismissal of Suit.—A dismissal of an action under the circumstances shown by the record in this case, by a stipulation signed by both parties, which provide that each party shall pay his own costs, is such a determination of the action in favor of the defendant as will enable him to maintain an action for malicious prosecution.”  (Kinsey v. Wallace, supra, 36 Cal. at p. 463.)

As in Paskle, the Kinsey court was not faced with an earlier judicial determination which preceded the stipulated dismissal.

More recently, several courts have expressly rejected the bright line rule proposed by respondents.   In Weaver, the court held the reasons which motivate a party to abandon an earlier suit before legal termination of the proceeding are relevant to whether the resulting dismissal is a favorable termination on the merits.  (95 Cal.App.3d at p. 185, 156 Cal.Rptr. 745.)   In Haight, the court stated dismissal resulting from a settlement generally does not constitute a favorable termination because the dismissal reflects ambiguously on the merits of the action and leaves open the question of a defendant's guilt or innocence.  (199 Cal.App.3d at p. 88, 244 Cal.Rptr. 488.)   The court went on in Haight, however, to state a termination must be examined to see if it reflects the opinion of either the court or the prosecuting party that the action will not succeed.   In reaching its decision, the court considered circumstances of the particular settlement before it.

 In most situations, a settlement agreement is a true compromise of conflicting claims and interests and does not reflect on the merits of the claims made and settled.   However, just because termination of a claim is a result of a party's consent or agreement does not preclude a finding that the termination was favorable.   In the absence of a final legal termination of a proceeding, the court must examine the nature of the termination and decide whether it reflects on the merit of the case.

This is the core concept of any analysis on this issue.  (Warren v. Wasserman, Comden & Casselman, supra, 220 Cal.App.3d at p. 1301, 271 Cal.Rptr. 579;  Lackner v. LaCroix, supra, 25 Cal.3d at pp. 750–751, 159 Cal.Rptr. 693, 602 P.2d 393;  Oprian v. Goldrich, Kest & Associates, supra, 220 Cal.App.3d at p. 337, 269 Cal.Rptr. 429.)   Some methods of resolution are so clear as to their grounds they conclusively establish, or disestablish, that the prior action was favorably determined on its merits.   Other methods of resolution, however, are ambiguous.   When naming the type of resolution itself does not conclusively determine the reasons for termination, it is necessary to look to the facts giving rise to the termination as established either at trial or by summary judgment.

To adopt a per se rule, as respondents have suggested, would ignore the underlying purposes of the favorable termination rule and our state Supreme Court's pronouncement on this issue.  (Jaffe v. Stone, supra, 18 Cal.2d at pp. 151, 159–160, 114 P.2d 335.)   It would also discourage settlement of cases in which the plaintiff acknowledges there is no merit to the initial claim and wishes to cut his losses in any cross-complaint or related actions.  (See Leonardini v. Shell Oil Co. (1989) 216 Cal.App.3d 547, 571, 264 Cal.Rptr. 883;  Oprian v. Goldrich, Kest & Associates, supra, 220 Cal.App.3d at p. 344, 269 Cal.Rptr. 429.)   It would also discourage losing parties from agreeing after trial to forgo an appeal they do not believe will be successful in exchange for a reduction in the money judgment.   If respondents' position is adopted, any settlement or compromise, no matter what its content or motivation, prevents a favorable termination sufficient to support a malicious prosecution action.

The settlement agreement in this case is not a true compromise of the initial claim.   The court had already decided the underlying action had no merit.   It had entered “final” summary judgment on the merits, albeit prematurely.   It is significant that when Brebes negotiated the settlement agreement there were multiple actions pending against him for abuse of process and malicious prosecution—the viable cross-complaint in case No. 206042 and the three new actions, case Nos. 207188, 207190 and 207191.   Brebes' motivation to settle these remaining claims was his undoubted recognition of the court's unequivocal holding when granting summary judgment that the allegations in the underlying action (No. 206042) were without merit and his belief the ruling was valid.

In the agreement, Brebes acknowledged the validity of the court's findings and order for summary judgment and waived any right to appeal.   The finality of the termination prior to the agreement becomes irrelevant once Brebes waived his appeal rights.   The key fact is that before the agreement was negotiated, the court had found against Brebes on the merits of the claim and the opinion became final once the agreement was executed.   Even though at the time the malicious prosecution cases were filed (Nos. 207188, 207190, 207191) the settlement negotiations had not yet been finalized, they were final and the resulting agreement confirmed at the time respondents' motion for summary judgment in the present actions was heard.

The judgment is reversed, and the matter is remanded for further proceedings.   Appellants to recover costs.

FOOTNOTES

FOOTNOTE.  

1.   The defendants were named as Charles E. Ogle, Charles E. Ogle, a California professional corporation, Ray A. Gallo, Ray A. Gallo, a California professional corporation, Judith Gallo, and Ogle, Gallo & Merzon, a California partnership of professional corporations.   For ease of discussion, we refer to the above identified group as either “Gallo and Ogle” or “appellants.”   Richard A. Carsel is sued as an individual and as Richard A. Carsel, a California professional corporation.   We will refer to both as “Carsel.”   In addition to the firm of Price, Postel & Parma, two individual attorneys were named—Gary R. Ricks and J. Terry Schwartz.   For purposes of discussion, the firm and the two attorneys are identified collectively as “Price.”

2.   The complaints are identical except that the named plaintiffs are different.   Ray A. Gallo, Ray A. Gallo, Inc., a professional corporation, and Judy Gallo brought case No. 207188.   Ogle, Gallo & Merzon brought case No. 207190.   Charles E. Ogle and Charles E. Ogle, a professional corporation, brought case No. 207191.

3.   It did not grant summary judgment on the statute of limitations argument as respondents contend.

4.   Although Jaffe was a criminal case, it is well settled its holding applies in civil actions as well.  (Babb v. Superior Court (1971) 3 Cal.3d 841, 846, 92 Cal.Rptr. 179, 479 P.2d 379.)

FRANSON, Associate Justice Assigned.* FN* Retired Presiding Justice of the Court of Appeal, Fifth District, sitting under assignment by the Chairperson of the Judicial Council.

MARTIN, Acting P.J., and HARRIS, J., concur.