Malicious prosecution case creates conflict in case law

Last week, the 2nd District Court of Appeal, Division 3, issued Roger Cleveland Golf Company Inc. v. Krane & Smith APC, 2014 DJDAR 4715. The case analyzed the applicable statute of limitations and tolling periods in a malicious prosecution cause of action against attorneys and found that Code of Civil Procedure Section 340.6 - the legal malpractice statute of limitations - did not apply, but held the plaintiff did not show minimal merit as to the malice element of the tort. Accordingly, the Court of Appeal affirmed the granting of the attorneys' anti-SLAPP motion.

In Roger Cleveland, two attorneys represented Sportsmark Trading Inc. against Roger Cleveland Golf Company Inc. (RCG) in an action arising out of the breach of a distributorship agreement. After ensuing litigation, the trial court granted RCG's motion for nonsuit. In April 2010, the trial court signed a written order granting nonsuit and dismissing the complaint. In June 2010, Sportsmark appealed. The appeal was dismissed in February 2011, and the remittitur issued the same day. In May 2011, RCG filed a malicious prosecution complaint against Sportsmark and its attorneys based on prosecuting the underlying proceeding without probable cause. The attorneys filed an anti-SLAPP motion contending the malicious prosecution complaint was time barred under the one-year statute of limitations, that there was probable cause, and that they had no malice. The trial court granted the special motion to strike based on the statute of limitations and RCG appealed.

The Court of Appeal held CCP Section 335.1 - the personal injury statute of limitations - as opposed to Section 340.6, is "the applicable statute of limitations for malicious prosecution claims, irrespective of whether the party being sued for malicious prosecution is the former adversary or the adversary's attorneys." This means that a two-year statute of limitations applies, and that tolling of the statute for a pending appeal would apply in malicious prosecution cases, whereas it would not be applicable in legal malpractice cases. See Laird v. Blacker, 2 Cal. 4th 606, 609 (1992) (holding that the legal malpractice statute of limitations commences on entry of an adverse judgment or final order of dismissal in the trial court, unless another exception to 340.6 applies, such as continuing representation).

Malicious Prosecution Statute of Limitations

As to Section 335.1 applying rather than 340.6, the Roger Cleveland court "respectfully disagree(d)" with Vafi v. McCloskey, 193 Cal. App. 4th 874 (2011), another 2nd District (Div. 8) case and Yee v. Cheung, 220 Cal. App.4th 184 (2013), a 4th District (Div. 1) case, which both concluded that Section 340.6 was the applicable statute. Roger Cleveland explained that imposing separate statutes of limitation on a client and his or her attorney leads to an absurd result in which the client can be sued for following the attorney's advice, long after the client's attorney ceases to be potentially liable for recommending the cause of action. It would seem that the Supreme Court will ultimately weigh in on this conflict in case law, but it is likely that will have to wait because the defendant attorneys in Roger Cleveland actually prevailed based on their lack of malice.

Turning back to the statute of limitations, the Court of Appeal relied on Gibbs v. Haight, Dickson, Brown & Bonesteel, 183 Cal. App. 3d 716 (1986), and its own opinion of Rare Coin Galleries Inc. v. A-Mark Coin Co. Inc., 202 Cal. App.3d 330 (1988), which refined the "start/stop computation" of Gibbs, to hold that the filing of an appeal of an underlying action precludes a malicious prosecution plaintiff from alleging favorable termination. This is different from the legal malpractice lack of tolling rule set forth in Laird. Thus, the statute of limitations is tolled and recommences when the appellate process has been exhausted, i.e., the remittitur has been issued.

In holding that Section 340.6 does not apply, Roger Cleveland stated "if the Legislature had intended section 340.6 subdivision (a) to apply to malicious prosecution actions against attorneys, then Gibbs or our decision in Rare Coin, refining the Gibbs accrual rule, would have prompted legislative action or consideration." This seems to be an assumption without a foundation. First, malicious prosecution is not specified in any statute of limitations, including Section 335.1. Indeed, prior to the personal injury statute in 2002 being changed to two years from one year, malicious prosecution claims, which are a creature of common law and not the Legislature, were subject to a one-year statute of limitations, although cases such as Rare Coin added a tolling provision. See also White v. Lieberman, 103 Cal. App. 4th 210, 216 (2002).

Moreover, as the Roger Cleveland court acknowledged, malicious prosecution is a "disfavored tort." Accordingly, it seems illogical to conclude that the statute of limitations for a disfavored tort should be longer than the statute of limitations for a non-disfavored tort, such as legal malpractice. Additionally, in rejecting the notion that malicious prosecution actions increase malpractice insurance premiums (a rationale for Section 340.6), Roger Cleveland] correctly noted that "insurers generally do not indemnify attorneys for their acts of malicious prosecution." However, missing from the analysis is that professional liability insurers are often required to defend malicious prosecution cases. See, e.g., Downey Venture v. LMI Ins. Co., 66 Cal. App. 4th 478, 507-08 (1998). Further, the notion that malicious prosecution is a "personal injury" is a fiction where the plaintiff is a corporation, as was the case in Roger Cleveland, and therefore is incapable of recovering emotional distress damages.

Although not articulated by Roger Cleveland, perhaps the rationale for the decision is that the court does not want an underlying defendant to interfere with the relationship between an underlying plaintiff and its counsel when they have appealed from an adverse trial court result in the underlying action. Of course, as the court noted, "the trial court has discretion to stay the malicious prosecution complaint pending resolution of the (underlying) appeal."

Malice

The Court of Appeal initially found that RCG met its minimal burden on the lack of probable cause element. The court noted that "malice is established by circumstantial evidence and inferences drawn from the evidence." "The absence of probable cause will support an inference of malice, but lack of probable cause is not sufficient by itself." The presence of malice must be established by additional evidence. Malice is present when proceedings are initiated for an improper purpose.

RCG contended that "Attorneys on behalaf of Sportsmark initiated the lawsuit for the improper purpose of forcing a settlement that had no relation to the merits of the complaint." Per RCG's evidence, in response to an inquiry from Sportsmark's attorney as to why Cleveland Golf was refusing to pay any money to settle the (underlying) case, RCG's attorney allegedly told Sportsmark's attorney the case was frivolous and demanded that the lawsuit be dismissed. In response, Sportsmark's attorney allegedly stated "that may be true, but all I have to do is get the case to a jury." Significantly, the Court of Appeal found this was not enough for RCG to meet its minimal burden to show the attorneys acted with malice in filing or continuing to litigate the Sportsmark action for an improper purpose because "[T]hese comments were typical of comments attorneys make to one another during the course of litigation." Consequently, the Court of Appeal affirmed the granting of the anti-SLAPP motion.

Roger Cleveland is an important case in the malicious prosecution arena, both for its holding as to the statute of limitations and the malice element of the tort. There is now a split of authority as to the appropriate statute of limitations in malicious prosecution actions against attorneys. The question is what will occur first, the Lakers making the playoffs again or the Supreme Court taking up this issue?