Klotz v. Averitt

Filed 11/30/05 Klotz v. Averitt CA4/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FOURTH APPELLATE DISTRICT

DIVISION THREE

IRVING KLOTZ, Plaintiff and Appellant, v. DAN AVERITT, Defendant and Respondent.

G034642 (Super. Ct. No. 04CC06718) O P I N I O N

Appeal from an order of the Superior Court of Orange County, David T. McEachen, Judge. Reversed.

Law Offices of Douglas G. Matsui and Douglas G. Matsui for Plaintiff and Appellant.

Murtaugh Meyer Nelson & Treglia, Jillisa L. O’Brien and Douglas V. Parker for Defendant and Respondent.

Plaintiff Irving Klotz appeals from the trial court’s order granting defendant Dan Averitt’s special motion to strike brought under the anti-SLAPP statute^[1] (Code Civ. Proc., § 425.16).^[2] Klotz contends he met his burden of demonstrating a probability of success on his malicious prosecution action by showing (1) a favorable termination of the cross-complaint filed against him by Averitt in a previous action, (2) Averitt’s cross-complaint in the previous action lacked merit, and (3) Averitt filed the cross-complaint with malice. We agree and reverse the trial court’s order.

Factual and Procedural Background

Averitt, Klotz, and Jack Benvevento were shareholders in Dabmar, Inc., which served as general partner of Fullerton Self Storage LLP (FSS) from 1983 to 2001. Although Klotz was Dabmar’s original president, Averitt later took over that role. In November 2001, the limited partners of FSS voted to replace Dabmar as general partner, and shortly thereafter, FSS informed Averitt that it was withholding his quarterly partnership distributions pending an investigation into his activities concerning FSS.

In response, Averitt filed a complaint (Averitt complaint) against FSS, FSS Management Corporation, and 30 limited partners for breach of contract, breach of fiduciary duty, dissolution and accounting, alleging that defendants wrongfully withheld Averitt’s partnership distributions. Shortly thereafter, FSS and the other defendants filed a cross-complaint against Averitt and Dabmar (FSS cross-complaint), seeking declaratory relief, an accounting, and damages for breach of contract and breach of fiduciary duty. The FSS cross-complaint essentially alleged that Averitt engaged in a series self-dealing acts and theft damaging FSS and its partners.

Averitt filed a first amended cross-complaint (Averitt cross-complaint) against Dabmar, Klotz, and Benvevento for equitable indemnity and declaratory relief, generically alleging the cross-defendants were liable for the acts alleged against Averitt in the FSS cross-complaint. Klotz, ostensibly notified of the FSS cross-complaint by substitute service, did not respond. In November 2002, Averitt took Klotz’s default.

In early 2003, all of the parties to the FSS action, except Klotz, stipulated to appoint a special master to analyze the business and partnership issues involved. The special master prepared a report that included a lengthy discussion of the partnership background, its management, and his opinions and conclusions from his investigation. The report noted that Averitt controlled every aspect of Dabmar’s operation of FSS, and sustained most of the allegations made in the FSS cross-complaint.

After the trial court refused to adopt the special master’s report as the findings of the court, the parties to the FSS action, except for Klotz, mediated their dispute. At the mediation’s conclusion, on September 12, 2003, the parties reached a settlement requiring FSS to pay Averitt $342,000 in exchange for his interest in FSS. The settlement also called for the dismissal of the Averitt complaint, FSS cross-complaint, and Averitt cross-complaint with prejudice as to all parties, with the exception of the Averitt cross-complaint against Klotz. The parties excluded these claims because the trial court had earlier entered a default against Klotz.

Klotz first learned of the default taken against him when, as a partner of FSS, he was asked to vote on the settlement in October 2003. Shortly thereafter, the court, on Klotz’s application, vacated the default and set a trial date of May 17, 2004. Klotz then propounded written discovery on Averitt and filed a motion for summary judgment. On March 25, 2004, the parties to the settlement filed dismissals of the Averitt complaint, FSS cross-complaint, and Averitt cross-complaint. Averitt also dismissed the Averitt cross-complaint against Klotz.

Klotz then filed the present malicious prosecution action against Averitt, but the trial court granted Averitt’s motion to strike Klotz’s complaint under the anti-SLAPP statute. This appeal followed.

Standard of Review

An order granting an anti-SLAPP motion to strike is appealable. (§ 425.16, subd. (i).) We review a trial court’s ruling on a motion to strike under section 425.16 de novo, “conducting an independent review of the entire record.” (HMS Capital, Inc. v. Lawyers Title Co.(2004) 118 Cal.App.4th 204, 212 (HMS.)

Discussion

To prevail on an anti-SLAPP motion, the movant must first make “‘a threshold showing the challenged cause of action’ arises from an act in furtherance of the right of petition or free speech in connection with a public issue. . . .” (Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 192.) Once the movant meets this burden, the plaintiff must demonstrate “‘a probability of prevailing on the claim.’” If plaintiff fails to do so, the cause of action must be stricken. (Ibid.)

Klotz does not dispute the threshold showing has been met. Indeed, virtually every lawsuit involves an act in furtherance of the right to petition or free speech; therefore the initial threshold showing required for a motion to strike is met in all malicious prosecution actions. (See Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 734-735, 742 fn. 6.) Klotz instead challenges the trial court’s order by contending he met his burden of demonstrating a probability of success on the merits.

To establish a probability of prevailing on a claim, the plaintiff “‘must demonstrate that the complaint is both legally sufficient and supported by a sufficient prima facie showing of facts to sustain a favorable judgment if the evidence submitted by the plaintiff is credited.’” (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821 (Wilson).) In doing so, the trial court considers the pleadings and evidentiary submissions of both the plaintiff and the defendant. Although “the court does not weigh the credibility or comparative probative strength of competing evidence, it should grant the motion if, as a matter of law, the defendant’s evidence supporting the motion defeats the plaintiff’s attempt to establish evidentiary support for the claim.” (Ibid.) Moreover, the plaintiff cannot rely on the allegations of the complaint, but must produce evidence that would be admissible at trial. (HMS, supra, 118 Cal.App.4th at p. 212.) In reviewing plaintiff’s evidence, the court does not weigh it; rather, it simply determines whether plaintiff has made a prima facie showing of facts necessary to establish its claim at trial. (ComputerXpress, Inc. v. Jackson (2001) 93 Cal.App.4th 993, 1010.)

1. Klotz Has Demonstrated a Probability of Success on the Issue of Favorable Termination

“To establish a cause of action for malicious prosecution, a plaintiff must prove that the prior action (1) had been commenced at the direction of the defendant and was pursued to a legal termination in the plaintiff’s favor, (2) was brought without probable cause, and (3) was initiated with malice.” (George F. Hillenbrand, Inc. v. Insurance Co. of North America (2002) 104 Cal.App.4th 784, 799 (George F. Hillenbrand).)

Klotz contends the voluntary dismissal of Averitt’s cross-complaint with prejudice demonstrated Averitt’s belief his cross-complaint lacked merit and therefore constituted a favorable termination supporting a claim for malicious prosecution. Averitt, however, contends the dismissal was a business decision to avoid further legal fees and costs, and thus should not be considered a favorable termination.

In determining whether a voluntary dismissal constitutes a favorable termination, we start with the basic rule that “[w]here a proceeding is terminated other than on the merits, the reasons underlying the termination must be examined to see if it reflects the opinion of the court or the prosecuting party that the action would not succeed.” (Fuentes v. Berry (1995) 38 Cal.App.4th 1800, 1808.) “‘In most cases, a voluntary unilateral dismissal is considered a termination in favor of the defendant in the underlying action . . . .’” (Ibid.) In contrast, “a dismissal resulting from a settlement generally does not constitute a favorable termination.” (Ibid.) “If a conflict arises as to the circumstances explaining a failure to prosecute an action further, the determination of the reasons underlying the dismissal is a question of fact.” (Ibid.)

The present case presents just such a conflict. In his declaration, Averitt provides the following explanation for dismissing his cross-complaint as to Klotz: “As of February of this year, I turned 80 years old. After receiving $342,000 from Fullerton Self Storage and the other limited partners, I no longer had the desire or motivation to continue on with the prosecution of the Cross-Complaint against Mr. Klotz as an individual. After meeting with my new attorneys, . . . I made the business decision to voluntarily dismiss my Cross-Complaint as against Mr. Klotz due to the fact that any likely monetary recovery would be outweighed by the amount of money I would have to spend in attorneys’ fees to continue to prosecute the action”

The dismissal of an action solely as a business decision to avoid further expense, particularly in the face of a satisfactory recovery from other defendants, would not constitute a favorable termination for a defendant contemplating a future malicious prosecution claim. As we observed in Oprian v. Goldrich, Kest & Associates (1990) 220 Cal.App.3d 337, 344-345: “It would be a sad day indeed if a litigant and his or her attorney could not dismiss an action to avoid further fees and costs, simply because they were fearful such a dismissal would result in a malicious prosecution action. It is common knowledge that costs of litigation, such as attorney’s fees, costs of expert witnesses, and other expenses, have become staggering. The law favors the resolution of disputes. ‘This policy would be ill-served by a rule which would virtually compel the plaintiff to continue his litigation in order to place himself in the best posture for defense of a malicious prosecution action.’” Certainly, the timing of Averitt’s dismissal of Klotz, concurrent with the dismissal of all the related actions, would support a finding that Averitt was satisfied with his recovery from the other defendants, and did not want to incur additional attorney fees by litigating a claim against a party who had previously defaulted. If this was the only evidence before us, we would have no hesitation declaring Averitt’s dismissal did not qualify as a favorable termination for malicious prosecution purposes.

Klotz introduced contrary evidence, pointing out that Averitt filed the dismissal just two months before trial, after (a) Klotz propounded written discovery to Averitt, requiring him to justify the claims he had brought, and (b) Klotz had filed a motion for summary judgment. Accordingly, Klotz’s evidence suggests Averitt dismissed his cross-complaint because Averitt knew he could not justify his claims in response to the discovery or summary judgment motion. If so, Averitt’s dismissal would constitute a favorable termination for malicious prosecution purposes.

Thus, the question whether Averitt’s dismissal constituted a favorable termination is one of fact to be determined on conflicting evidence. As noted above, we do not weigh the evidence presented, but determine only whether Klotz has presented evidence that, if believed by the trier of fact, is sufficient to support a finding of favorable termination. Klotz has satisfied this burden.

2. Klotz Has Demonstrated a Probability of Success as to Lack of Probable Cause

The “lack of probable cause” element of a malicious prosecution action requires an objective determination of the “reasonableness” of the defendant’s prior lawsuit, i.e., whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 868, 886 (Sheldon Appel).) A lack of probable cause is an element separate from the requirement of malice. While a lack of probable cause may furnish evidence of malice, the converse is not true; a lack of probable cause cannot be inferred from a showing of malice. (Williams v. Coombs (1986) 179 Cal.App.3d 626, 639, fn. 8, disapproved on other grounds in Sheldon Appel, supra, 47 Cal.3d at pp. 881-884.) “If the court determines that there was probable cause to institute the prior action, the malicious prosecution action fails, whether or not there is evidence that the prior suit was maliciously motivated.” (Sheldon Appel, supra, 47 Cal.3d at p. 875.).

The existence or nonexistence of probable cause is a legal question to be resolved by the court, not a jury. (Wilson, supra, 28 Cal.4th at p. 817.) Probable cause is determined under an objective standard, equivalent to that used in determining whether an appeal is frivolous: “[P]robable cause exists if ‘any reasonable attorney would have thought the claim tenable.’” (Ibid.)

“This rather lenient standard for bringing a civil action reflects ‘the important public policy of avoiding the chilling of novel or debatable legal claims.’ [Citation.] Attorneys and litigants . . . ‘“have a right to present issues that are arguably correct, even if it is extremely unlikely that they will win . . . .”’ [Citation.] Only those actions that ‘“any reasonable attorney would agree [are] totally and completely without merit”’ may form the basis for a malicious prosecution suit. [Citation.]” (Wilson, supra, 28 Cal.4th at p. 817.)

In support of his allegations regarding lack of probable cause, Klotz declares that he did not participate in the management of FSS or Dabmar during the time Averitt allegedly engaged in the acts of self-dealing outlined in the FSS cross-complaint, and thus Averitt knew Klotz could not be required to indemnify Averitt for liability arising out of such acts. Averitt, however, outlines in his declaration Klotz’s participation in the operation and management of Dabmar, supported with copies of various documents. But none of Averitt’s evidence demonstrates Klotz’s participation in the acts outlined in the FSS cross-complaint.

Specifically, the FSS cross-complaint alleges Averitt: (1) increased his partnership share in FSS from 5.4 to 11.3865 percent without the knowledge or approval of the other FSS partners; (2) used FSS funds to hire his wife and son to perform services which should have been performed by Averitt as part of his 6 percent management fee; (3) took customers’ personal property from storage units; (4) engaged in workplace harassment; (5) used partnership funds for personal expenses; and (6) used partnership funds to construct unpermitted storage structures, using the structures to store personal items, and failing to remove the structures when required to do so by the city. Although Averitt provided evidence of Klotz’s general participation in the operation of Dabmar, he introduced no evidence showing Klotz approved, ratified, or even knew of any of these acts alleged in the FSS cross-complaint.

Averitt also contends he had probable cause to file his cross-complaint based on the advice of his counsel. “‘Probable cause may be established by the defendants in a malicious institution proceeding when they prove that they have in good faith consulted a lawyer, have stated all the facts to him, have been advised by the lawyer that they have a good cause of action and have honestly acted upon the advice of the lawyer.’” (Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1556.) Reliance on the advice of counsel, however, is not a defense if the defendant knows he does not have probable cause to file suit. (George F. Hillenbrand, supra, 104 Cal.App.4th at p. 814.) In his declaration, Klotz states that Averitt knew of Klotz’s limited involvement in Dabmar, and that no basis existed for seeking indemnity from him.

Moreover, even if a party believed probable cause supported filing the underlying action, liability for malicious prosecution arises if that party continues to prosecute the action after discovering probable cause did not exist. (Zamos v. Stroud (2004) 32 Cal.4th 958, 973.) Here, Averitt received the special master’s report in June 2003. The report sustained most of the allegations of the FSS cross-complaint, and concluded Averitt “was completely in charge of the management of both the partnership and [its] property.” At that point, Averitt should have understood the nature and factual basis for each of the claims made against him in the FSS cross-complaint, and should have known whether Klotz had any involvement with them. Nevertheless, Averitt continued to pursue his cross-complaint against Klotz until March 2004. Even now, Averitt is apparently unable to articulate any cognizable basis for his indemnity claim against Klotz.

We conclude Klotz has presented evidence sufficient to support a determination that Averitt lacked probable cause in bringing his cross-complaint against Klotz.

3. Klotz Has Demonstrated a Probability of Success on the Issue of Malice

“‘The malice element of the malicious prosecution tort goes to the defendant’s subjective intent in initiating the prior action. [Citations.] It is not limited to actual hostility or ill will toward the plaintiff. Rather, malice is present when proceedings are instituted primarily for an improper purpose. Suits with the hallmark of an improper purpose are those in which: “‘. . . (1) the person initiating them does not believe that his claim may be held valid; (2) the proceedings are begun primarily because of hostility or ill will; (3) the proceedings are initiated solely for the purpose of depriving the person against whom they are initiated of a beneficial use of his property; (4) the proceedings are initiated for the purpose of forcing a settlement which has no relation to the merits of the claim.’”’” (George F. Hillenbrand, supra, 104 Cal.App.4th at p. 814.)

Because malice is based on the defendant’s subjective intent, it is usually proved by circumstantial evidence. (Padres L.P. v. Henderson (2004) 114 Cal.App.4th 495, 522 (Padres).) “Although a lack of probable cause, standing alone, does not support an inference of malice, malice may still be inferred when a party knowingly brings an action without probable cause.” (Ibid.) Whether a defendant acted with malice in bringing the prior action is a question of fact properly determined by a jury. (Sheldon Appel, supra, 47 Cal.3d at p. 874.) Unlike malice required for punitive damages, a determination of malice for malicious prosecution need be proved by only a preponderance of the evidence. (Padres, supra, at p. 522.)

Klotz contends Averitt filed the cross-complaint against him out of personal hostility and ill will. In support, Klotz describes the following incident in his declaration: “In late 2001, the limited partners voted to remove Dabmar and Dan Averitt from their management positions. I voted with the limited partners to remove Averitt. Prior to the vote, Dan Averitt contacted me several times, trying to persuade me to support him and to vote to keep him, his son, James, and Dabmar, Inc. in their positions. When I refused to support him, Averitt told me that I would ‘regret it’ if I voted against him. I asked him what he meant by that, but he refused to explain his threat.” Klotz also asserts Averitt demonstrated malice by failing to personally serve Klotz and taking his default when Averitt knew Klotz was out of the state for an extended period of time.

Averitt counters any notion of personal hostility or ill-will toward Klotz by noting his cross-complaint also named Dabmar and Benvevento as defendants. Averitt further notes that his “cross-complaint contained no slanderous allegations towards Klotz” and “was a ‘vanilla’ cross-complaint for indemnity and declaratory relief . . . .” Although the lack of invective and slanderous statements against Klotz might be evidence of a lack of malice, it does not preclude a malice finding. (See George F. Hillenbrand, supra, 104 Cal.App.4th at pp. 816-827 [upholding jury finding of malice in malicious prosecution based on declaratory relief complaint concerning insurance coverage issues].)

We conclude Klotz has presented evidence sufficient to support a determination that Averitt pursued his cross-complaint against Klotz with malice.

4. Klotz’s Request for Attorney Fees Must Be Made to the Trial Court in Accordance with Section 128.5

Klotz requests this court to award attorney fees under section 425.16, subdivision (c), which provides: “If the court finds that a special motion to strike is frivolous or is solely intended to cause unnecessary delay, the court shall award costs and reasonable attorney's fees to a plaintiff prevailing on the motion, pursuant to Section 128.5.” Any request for attorney fees under this provision must be addressed to the trial court on remand. (See Gallimore v. State Farm Fire & Casualty Ins. Co. (2002) 102 Cal.App.4th 1388, 1401.) We express no opinion on the merits of such a request, if made.

Disposition

The order granting Averitt’s special motion to strike is reversed. Klotz is entitled to his costs on appeal.

ARONSON, J.

WE CONCUR:

SILLS, P. J.

FYBEL, J.

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^[1] SLAPP is acronym for strategic lawsuit against public participation, first coined by two University of Denver professors. (See Comment, Strategic Lawsuits Against Public Participation: An Analysis of the Solutions (1990/1991) 27 Cal. Western L.Rev. 399.)

^[2] Unless otherwise indicated, all further statutory references are to the Code of Civil Procedure.