October 12th Newsletter

In Siebel v. Mittlesteadt 2007 Daily Journal D.A.R 10802, the Supreme Court of the State of California stated:

Here we consider what constitutes a favorable termination of a lawsuit as a predicate for a subsequent malicious prosecution action. We hold that, in this context, a postjudgment settlement constitutes a favorable termination when the malicious prosecution plaintiff received a favorable judgment in the underlying action, and settled without giving up any portion of the judgment in his favor.

Initially, Debra Christoffers sued her employer, Siebel Systems, Inc. (SSI) and the company's chief executive officer, Thomas M. Siebel. Christoffers alleged eight causes of action against Siebel individually. The first six were based on various assertions of gender discrimination and wrongful termination, and were disposed of by demurrer, summary adjudication, or voluntary dismissal before trial. It is these six causes of action that Siebel later relied upon to bring his malicious prosecution suit. Christoffers went to trial on the two remaining fraud allegations against Siebel individually, and on her allegations against SSI for fraud, failure to pay compensation and wrongful termination to avoid those payments.

Christoffers failed to prove fraud or wrongful termination. The jury specifically found that SSI had fired Christoffers because it honestly believed that her job performance was deficient, that neither Siebel nor SSI had made a promise it had not intended to keep, and that neither defendant had concealed a material fact. The jury did find that SSI had failed to pay Christoffers substantial commissions. Accordingly, it awarded her $233,662.25 in damages and prejudgment interest. As the prevailing party on her unpaid-compensation claim against SSI, Christoffers was awarded costs and attorney fees attributable to that portion of the action. (Labor Code, § 218.5.) Because Christoffers had failed to recover from Siebel personally, he was granted his litigation costs.

All parties appealed, but later agreed to settle the case. SSI agreed to pay Christoffers approximately 86 percent of the damages and costs she had been awarded. Christoffers agreed to pay Siebel's court-awarded litigation costs. Siebel, SSI, and their attorneys released Christoffers, but not her attorneys, Buell and Mittlesteadt (collectively, defendants.) The agreement specifically provided that it did not modify “the final termination of the Action entered in favor of Siebel for purposes of pursuing claims against Buell or Mittlesteadt, or otherwise prevent Siebel from pursuing any claims against Buell or Mittlesteadt” based on the underlying judgment. On October 5, 1999, pursuant to the settlement agreement, the parties voluntarily dismissed their appeals.

In July 2000, Siebel, acting as an individual, filed this lawsuit against Buell and Mittlesteadt for malicious prosecution. Defendants moved for summary judgment, urging: (1) Siebel could not prove malicious prosecution because there had been no favorable termination; (2) public policy required dismissal because defendants would not be able to defend the lawsuit without violating the attorney-client privilege; and (3) Siebel could not demonstrate that defendants lacked probable cause for prosecuting the underlying action. The trial court granted defendants' motion on the first ground, did not reach the remaining grounds, and entered judgment for defendants. The Court of Appeal reversed, concluding that Siebel had obtained a favorable termination, and the Supreme Court affirmed the decision of the Court of Appeal.

To establish a cause of action for malicious prosecution, a plaintiff must demonstrate that the prior action (1) was initiated by or at the direction of the defendant and legally terminated in the plaintiff's favor, (2) was brought without probable cause, and (3) was initiated with malice. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 341 (Casa Herrera).)

Here, the Court of Appeal held that Siebel obtained a favorable termination because the settling parties did not stipulate to a new judgment but agreed instead to dismiss their appeals and allow the existing judgment to become final. “ ‘The theory underlying the requirement of favorable termination is that it tends to indicate the innocence of the accused, and coupled with the other elements of lack of probable cause and malice, establishes the tort [of malicious prosecution].’ [Citation.] Thus, ‘[i]t is hornbook law that the plaintiff in a malicious prosecution action must plead and prove that the prior judicial proceeding of which he complains terminated in his favor.’ [Citation.]” (Casa Herrera, supra, 32 Cal.4th at p. 341.)

To determine whether a party has received a favorable termination, “we consider ‘ “the judgment as a whole in the prior action. . . .” [Citation.]’ (Casa Herrera, supra, 32 Cal.4th at p. 341.) Victory following a trial on the merits is not required. Rather, ‘ “the termination must reflect the merits of the action and the plaintiff's innocence of the misconduct alleged in the lawsuit.” [Citation.]’ ”

Defendants' primary contention was that the Court of Appeal failed to apply what they term the “settlement rule” set forth in Ferreira v. Gray, Cary, Ware & Freidenrich (2001) 87 Cal.App.4th 409 (Ferreira). “Defendants' reliance on Ferreira is misplaced.” In Ferreira, “[t]he parties settled after entry of judgment. Terms of the subsequent settlement provided that Ferreira prevailed on certain claims and was awarded damages, but that he would accept $1 from each of the three opposing parties in satisfaction of the judgment. In exchange, Rushing and her family members agreed they would not appeal. An amended judgment reflecting the terms of the settlement was entered. Ferreira then sued Gray Cary for malicious prosecution.”

The Supreme Court observed that in this matter, the Court of Appeal had “distinguished Ferreira because, procedurally, the parties in that case agreed to a new disposition and an amended judgment. Ultimately that amended judgment, not the jury verdict, ended the litigation. Conversely, Siebel and Christoffers accepted different rights and obligations between themselves, but did not stipulate to a new judgment. The agreement to abandon their appeals allowed the existing judgment to become final.”

Defendants challenged the attempt to distinguish Ferreira. They urged Ferreira was not based on whether the original judgment was left intact, but focused on whether “both sides [gave] up something of value to resolve the matter.” Defendants asserted “that both sides here relinquished something valuable to end the litigation. They compromised certain awards to avoid the costs and uncertainty of their appeals.” The Court rejected this assertion, concluding that the Court of Appeal’s analysis was correct and that adopting defendants' position would foreclose a malicious prosecution action whenever a case is resolved by agreement.

Such a conclusion would run counter to the policy favoring negotiated dispositions. A blanket rule could also bar legitimate malicious prosecution actions, allowing unscrupulous parties and/or their attorneys to hide behind its shield. “The action for malicious prosecution is a recognition of the right of an individual to be free from unjustifiable litigation. . . . [¶] The purpose of the action is to compensate a wronged individual for damage to his reputation and to reimburse him for the expense of defending against the unwarranted action.” [Citation.] (Cowles v. Carter (1981) 115 Cal.App.3d 350, 354.)

----Andrea Lynn Rice