November 2012 - Malicious Prosecution Exposure of Passive Counsel: “Stand By” for Liability
by Howard J. Klein
Civil litigators, even those of an aggressive bent (perhaps especially those of an aggressive bent) typically don’t give a lot of thought to malicious prosecution exposure. After all, such actions, while not infrequently threatened, are not commonly filed, and even less commonly result in judgment for the plaintiff. Such actions, when they are filed, are usually brought against the lawyer who aggressively pursues an action that results in a successful outcome for the defendant. Thus, the lawyer (or law firm) who takes a subordinate role to lead counsel may believe that passivity in the underlying action will provide cover in a subsequent malicious prosecution action. A recent case from a California court of appeal should shatter any such complacency.
In Cole v. Patricia A. Meyer & Associates, APC, 206 Cal. App. 4th 1095 (2012) the plaintiff (Cole) sued several law firms for malicious prosecution. In the underlying suit (Bains v. Moores, 172 Cal. App. 4th 445 (2009)) Cole was sued for fraud and fraud-related causes of action by shareholders in a publicly-traded corporation, of which he had been president. Plaintiffs’ counsel of record in that suit was Meyer & Associates (the “Meyer defendants”). The Boucher law firm (the “Boucher defendants”) and attorney Ottilie also appeared on the pleadings, but took no active part in the litigation; they were “stand-by” counsel to handle the trial of the action, in the event it went to trial. In Bains, the trial court granted Cole’s motion for summary judgment, a decision affirmed on appeal. The appellate court concluded that the plaintiffs failed to raise any genuine issue of fact relating to any fraud or fraud-related claim. Bains, 172 Cal. App. 4th at 455.
In April 2010, after the court of appeal rendered its decision in Bains, Cole sued all the attorneys of record in Bains for malicious prosecution and defamation. The Meyer defendants, the Boucher defendants, and Ottilie filed anti-SLAPP motions to strike Cole’s claims under California Code of Civil Procedure (C.C.P.) § 425.16 (West 2012). The trial court granted the anti-SLAPP motions of the Boucher defendants and Ottilie to strike the malicious prosecution claim against them on the grounds that they did not participate in Bains but were only associated into the case as potential trial counsel. The court denied the anti-SLAPP motion to strike by the Meyer defendants. Cole appealed the grant of the motion to strike by the Boucher defendants and Ottilie, and the Meyer defendants cross-appealed the denial of their motions to strike.
Malicious Prosecution Primer
The court of appeal first considered the denial of the Meyer defendants’ motion to strike the malicious prosecution claim. In doing so, the court provided a useful summary of the law of malicious prosecution.
The court of appeal ruled that, to prevail in his malicious prosecution claim, Cole was required to demonstrate that the Bains action “(1) was commenced by or at the direction of the defendant[s] and was pursued to a legal conclusion favorable to [Cole]; (2) was brought without probable cause; and (3) was initiated with malice.” Cole, 206 Cal. App. 4th at 1105 (citing Soukup v. Law Offices of Herbert Hafif, 39 Cal. 4th 260, 292 (2006)). Alternatively, Cole could prevail “by showing that defendants maliciously continued to prosecute the case against him, in the trial court and on appeal, without probable cause.” Id. (citing Zamos v. Stroud, 32 Cal. 4th 958, 969, 973 (2004)).
There being no question but that Bains was commenced by or at the direction of the Meyer defendants, and that the court’s ruling in Bains resulted in a legal termination favorable to Cole, the only questions remaining were whether the claim was brought without probable cause and whether it was initiated or prosecuted with “malice.”
As to probable cause, the court stated that probable cause exists “when a lawsuit is based on facts reasonably believed to be true, and all asserted theories are legally tenable under the known facts.” Id. at 1106. Thus, Cole needed only to make “a prima facie showing that any one of the theories in Bains was legally untenable or based on facts not reasonably believed to be true.” Id. The court held that the defendants failed “to demonstrate that the fraud allegations against Cole were supported by probable cause at any time.” Id. at 1107. According to the court, the defendant attorneys, in fact, “drew logically flawed inferences from known facts or stretched those facts to fit their fraud-based claims.” Id. After reviewing the allegations in the complaint against Cole in Bains, the court determined that the allegations were merely “conclusory,” and “do not establish that the attorneys had probable cause to believe” that Cole had committed the fraudulent acts alleged. Id. at 1111.
The court explained that in a malicious prosecution case such as this, “where the issue is the insufficiency of the facts known to the defendant,” the establishment of probable cause for bringing the action “requires evidence sufficient to prevail in the action or at least information reasonably warranting an inference that there is such evidence.” Id. at 1113 (citing Puryear v. Golden Bear Ins. Co., 66 Cal. App. 4th 1188, 1195 (1998)). The court acknowledged that C.C.P. § 128.7(b)(3) allows allegations lacking evidentiary support if there is a reasonable belief that such support would be found through investigation or discovery. Id. at 1113 n.6. The court, however, denied the defendants the benefit of this provision, finding that the complaint in Bains “did not specifically identify the factual allegations for which support was reasonably expected to develop through additional discovery.” Id.
According to the court, Cole had made a prima facie showing that the Meyer defendants had no evidence implicating him in the fraudulent scheme that they had alleged, nor did the Meyer defendants show possession of “any information that reasonably led them to believe that there was such evidence.” Id. at 1113. Thus the court ruled Cole had made the requisite prima facie showing that the causes of action against him in Bains were not supported by probable cause. Id.
Malice Through Indifference
The court then turned to the element of malice, stating that this element “goes to the defendants’ subjective intent for instituting the prior case.” Id. (citing Soukup, 39 Cal. 4th at 292). Malice can stem from any attitude ranging from “open hostility to indifference” on the part of the attorneys. Id. at 1114 (citing Soukup, 39 Cal. 4th at 292). The court further stated, “Malice may be inferred from . . . defendants’ lack of probable cause, supplemented with proof that the prior case was instituted largely for an improper purpose.” Id. (citing Daniels v. Robbins, 182 Cal. App. 4th 204, 225 (2010)).
The Meyer defendants relied on Daniels for the proposition that an attorney’s inability to provide support for a client’s allegations does not give rise to an inference of lack of probable cause for prosecuting an action based on those allegations. See 182 Cal. App. 4th at 227. They sought to rely on the holding in Daniels that an attorney’s failure to conduct a factual investigation to develop evidence to support the client’s allegations was insufficient to establish that the attorneys knew the claims they were pursuing lacked probable cause. See id. at 226-227. The court of appeal rejected that argument, explaining that “the holding in Daniels was premised on the assumption that the . . . claim was based on the plaintiff’s allegations, which the attorneys were entitled to believe.” Cole, 206 Cal. App. 4th at 1115. By contrast, the Meyer defendants, in the court’s view, “offered no evidence that the allegations in Bains represented what their clients told them.” Id. According to the court, the Meyer defendants provided “very little evidence beyond the conclusory averment that they relied on information developed through investigation and discovery and drew reasonable inferences from it.” Id. The court concluded that the Meyer defendants had “not rebutted Cole’s showing that they alleged the fraud and fraud-related claims against him without direct or circumstantial evidence to support them. This, coupled with the dearth of evidence about their actual investigation and their apparent tendency to exaggerate, is sufficient to overcome their anti-SLAPP motion as to Cole’s malicious prosecution claims.” Id.
Potential Liability of Stand-by Counsel
The court then turned to perhaps the more interesting aspect of this case: the liability of the Boucher defendants and Ottilie. These defendants argued that no liability for malicious prosecution should attach to them because they did no actual work in Bains; their only involvement was allowing themselves to be identified as counsel of record in the pleadings. The court held that it could not “conclude as a matter of law that these attorneys may avoid liability for malicious prosecution by learning nothing or close to nothing about the Bains case, throughout which they allowed themselves to be consistently identified as counsel of record.” Id. at 1115–16.
The Boucher defendants and Ottilie argued that their involvement in Bains was limited to participating at trial, should that case have gone to trial. The Boucher defendants declared that they “did not sign, draft, prepare, review, serve, approve, or discuss the contents of any pleading in Bains or participate in the case in any way,” and that because they never actually acted as trial counsel, their duty to inquire into the existence of probable cause never arose. Id. at 1116. Ottilie declared that he was not involved in “determining whether probable cause existed to sue” Cole or in any decision made in Bains, and that he billed no time in the case. The court was not persuaded, stating that as counsel of record, these defendants “had a duty of care to their clients that encompassed ‘both a knowledge of the law and an obligation of diligent research and informed judgment.’” Id. (citing Wright v. Williams, 47 Cal. App. 3d 802, 809 (1975)).
The defendants attempted to rely on Rule 3-110(C) of the California Rules of Professional Conduct, which allows an attorney who lacks sufficient learning and skill to provide competent representation to associate with or consult another attorney reasonably believed to be competent. The court didn’t buy this argument, stating that even when work “is performed by an experienced attorney, competent representation still requires knowing enough about the subject matter to be able to judge the quality of the attorney’s work.” Id. at 1117. It was apparent to the court that “the Boucher defendants knew nothing about the merits of the Bains case, and that Ottilie . . . did not understand the theories asserted in the case sufficiently to be able to judge their merits.” Id. The court concluded that an attorney “whose name appears on all filings” in a case that may have been maliciously prosecuted cannot avoid liability for malicious prosecution “by intentionally failing to learn anything about” the case. Id.
Citing C.C.P. § 128.7(b), the court further reasoned that “an attorney has a responsibility to avoid frivolous or vexatious litigation.” Id. Furthermore, because the Boucher defendants and Ottilie allowed their names to be on all of the filings, the inference could be drawn that they “presented these filings to the court and thus initiated and prosecuted Bains along with the Meyer defendants.” Id. at 1118. Thus, these defendants “cannot avoid liability for malicious prosecution by claiming to have been ignorant of the merits of the allegations made against Cole . . . .” Id.
The court relied on Sycamore Ridge Apartments LLC v. Naumann, 157 Cal. App. 4th 1385 (2007) in turning away the defendants’ claim that their lack of active participation in Bains shielded them from liability. Sycamore Ridge held that by associating into a case as co-counsel, an attorney becomes a proponent of all of the client’s claims, including those that are untenable on their face, and that by maintaining a case an attorney knows, or should know, is untenable, the attorney “continues to harm the defendant as long as the case remains open, since the defendant must continue to prepare a defense . . . .” 157 Cal. App. 4th at 1410. Thus, the court here concluded “Sycamore Ridge provides authority for holding an attorney liable for the very act of associating into a case containing frivolous claims.” Cole, 206 Cal. App. 4th at 1119.
Reasoning that because the Boucher defendants and Ottilie had “not shown they had any knowledge of the claims asserted against Cole . . . or made any effort to independently investigate the validity of these claims,” the court concluded that these defendants “lent their names to the case with indifference to its actual merit.” Id. at 1120. On this basis, the court ruled that Cole’s malicious prosecution claim against the Boucher defendants and Ottilie should have survived their anti-SLAPP motion to strike.
In reaching its conclusion, the court offered the following advice to attorneys who wish to avoid malicious prosecution liability without having to work substantively on a case in which their role is tangential or contingent: attorneys in that position should “refrain from formally associating in it until their role is triggered,” or at least “refrain from lending their names to pleadings or motions about which they know next to nothing.” Id. at 1119.
Howard J. Klein is a Partner at Klein, O’Neil & Singh, LLP and a registered patent attorney. His practice areas include patent and trademark prosecution, licensing, infringement and validity opinions, and litigation support. Mr. Klein can be reached at HowardJKlein@koslaw.com.