ISSUES
1. May defendant Jones bring an action for malicious prosecution against plaintiff Pay Or Else and/or their attorneys?2. May defendant Jones bring an action for unfair debt collection practices against plaintiff Pay Or Else and/or their attorneys?
DISCUSSION SUMMARY
1. Perhaps. Ms. Jones may have a claim for malicious prosecution against the White law firm if the debt collection action is resolved in her favor. But the law disfavors malicious prosecution cases, and Ms. Jones may encounter problems proving all of the required elements of the tort. Filing an action for sanctions in connection with defendant's default motion may yield a more satisfactory result.
2. Possibly. Both the federal and state Fair Debt Collection Practices Acts (FDCPA) may potentially fit this case. Some differences exist as to the actions that constitute violations, and which parties are potential violators as "debt collectors."
DISCUSSION
1. Action for malicious prosecution
A. Proceedings on which plaintiff may base action
Actions for malicious prosecution may be predicated on either a malicious criminal prosecution or a malicious civil action. Webb v. Youmans (1967) 248 Cal.App.2d 851, 854. A party cannot base a malicious prosecution action on the institution of a small claims proceeding, because this would force a claimant to consult an attorney before using a statutory process intended as a method of settling disputes over small amounts without an attorney. Black v. Hepner (1984) 156 Cal.App.3d 656, 658-659. But where a party files a claim in the municipal court, based on its overlapping jurisdiction with the small claims court, that party may be subject to a claim for malicious prosecution. Id., at 660. Because the claim here was for less than $5,000, it could have been filed in small claims court, but by filing the claim in municipal court, the White law firm created the potential for a claim for malicious prosecution.
B. Elements of the tort
To establish a cause of action for malicious prosecution, a plaintiff must plead and prove that the prior action: (1) was commenced by or at the defendant's direction; (2) was pursued to a legal termination in plaintiff's favor; (3) was brought without probable cause; and (4) was initiated with malice. Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871. It is also necessary that the plaintiff suffer some injury or damage as a result of the other elements of the cause of action. Maxon v. Security Ins. Co. (1963) 214 Cal.App.2d 603, 613, 29 Cal.Rptr. 586. The plaintiff bears the burden of proving the tort's basic elements. But these same elements, viewed from the defendant's perspective, furnish a complete defense. Jaffe v. Stone (1941) 18 Cal.2d 146, 159.
i. Action initiated by or at the defendant's direction
The gist of a claim for malicious prosecution lies in commencing an action or issuing process without justification. In contrast, abuse of process involves misusing or misapplying process justified in itself for an end other than that for which the process was intended; thus, the purpose for which the process is issued becomes the key element. See Spellens v. Spellens (1957) 49 Cal.2d 210, 232.
Reliance in good faith on counsel's advice is a defense to an action for malicious prosecution, because this demonstrates that probable cause existed to commence the action. Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1556. Thus, the proper defendant in a malicious prosecution action is usually the law firm instituting the action rather than the client.
ii. Favorable termination
The plaintiff in a malicious prosecution action must plead and prove that the prior judicial proceeding of which she complains terminated in her favor. Babb v. Superior Court (1971) 3 Cal.3d 841, 845. Although the termination need not be one that follows a trial on the merits, it must reflect the merits of the underlying action. De La Pena v. Wolfe (1986) 177 Cal.App.3d 481, 484. The favorable termination of the allegedly malicious proceeding need not be a final determination of the controversy: it is sufficient to show that the former proceeding was legally terminated. For example, the plaintiff's voluntary dismissal of a civil action, even though expressly made "without prejudice," is a favorable termination that will support an action for malicious prosecution. MacDonald v. Joslyn (1969) 275 Cal.App.2d 282, 289 (dismissal does not constitute a favorable termination if based on technical or procedural grounds).
Because the action against Ms. Jones is still pending, there has not yet been a favorable termination. See Rich v. Siegal (1970) 7 Cal.App.3d 465, 469. Thus, she must await the outcome of the underlying collection action before filing a malicious prosecution claim.
iii. Lack of probable cause
As it applies to the malicious prosecution of civil actions, "probable cause" is defined as "a suspicion founded on circumstances sufficiently strong to warrant a reasonable man in the belief that the charge is true." Davis v. Local Union No. 11, Int'l Brotherhood of Elec. Workers AFL-CIO (1971) 16 Cal.App.3d 686, 692. Since the existence of probable cause acts as a complete defense to an action for malicious prosecution, it is often the primary issue involved. Id., at 875 (observing that if the court determines probable cause existed to initiate the underlying action, the malicious prosecution suit fails, regardless of whether the initial action was maliciously motivated). The standard for determining probable cause is an objective one: whether any reasonable attorney would have thought the civil claim was tenable. Sheldon Appel Co., supra, 47 Cal.3d at 885-886.
Where there are no disputed facts relied on to show probable cause, the court will use the "reasonable attorney" standard to determine whether probable cause existed. Id., at 876-877. "Where a dispute exists as to the state of the defendant's knowledge and the existence of probable cause turns on that dispute . . . the jury must resolve the threshold question of the defendant's factual knowledge or belief." Id., at 881.
The adequacy of an attorney's research is not relevant to the determination of probable cause, because this improperly shifts the focus of inquiry to the attorney's performance rather than to the claim's objective tenability, and contradicts the rule that the attorney's duty of care runs to his or her client rather than the client's adversary. Id., at 882-883.
The facts of this case suggest that existence of probable cause to institute the action will depend on a determination of the White firm's knowledge concerning Acme's satisfaction of the debt when it filed the complaint. Ms. Jones' declaration reflects that she received the demand letter on September 9, 2000, and told the White firm on September 17, 2001, that she believed Acme had paid her bill in full, but she would look into the matter. Apparently, Ms. Jones did not send documents demonstrating the debt's satisfaction until December 9, 2000. It is unclear when the complaint was actually filed, although her mother received it in the mail on December 28, 2000. Based on the decision in Sheldon Appel Co., the adequacy of the White firm's investigation of the facts is irrelevant. Thus, determination of the issue of actual knowledge will depend on the conduct of discovery, to determine if the White firm did do any independent investigation, received information from other parties, and received the December 9, 2000 letter from Ms. Jones before it filed the complaint.
iv. Malice
The tort of malicious prosecution requires evidence of conduct more blameworthy than mere negligence. Thus, proof of malice becomes necessary. Maxon v. Security Ins. Co. (1963) 214 Cal.App.2d 603, 615. In this context, malice is defined as actual ill will or some proper motive or purpose, express or implied. Grindle v. Lorbeer (1987) 196 Cal.App.3d 1461, 1465.
It is not necessary for the plaintiff to prove that the prosecution was motivated by personal hostility, a grudge, or ill will. It is sufficient if it appears that the previous action was instituted in bad faith to vex, annoy, or wrong the adverse party. Weber v. Leuschner (1966) 240 Cal.App.2d 829, 837. Malice may be inferred from a lack of probable cause to initiate the underlying action where the party's behavior in bringing an action was clearly unreasonable. See Grindle, supra, 196 Cal.App.3d at 1466-1468 (attorney's mere negligence in investigating facts before filing is insufficient to infer malice). The existence of malice is a question of fact. Northrup v. Baker (1962) 202 Cal.App. 2d 347, 354.
The facts of this case suggest that proof of malice in any action for malicious prosecution will likely depend on an inference of bad faith from lack of probable cause. Discovery may reveal that the filing of the lawsuit involved more than mere negligent investigation of the underlying debt's validity. If defendant's actions violated the fair debt collection practices law, plaintiff may be able to claim malice per se.
v. Damages
When proved, the measure of compensatory damages for a civil action's malicious prosecution includes attorney's fees and court costs for defending the prior action and compensation for emotional distress, mental suffering, and impairment to reputation caused by the action's initiation and prosecution. Bertrero v. National Gen. Corp. (1974) 13 Cal.App.3d 43, 51, 59. The plaintiff may also recover damages for loss of time, deprivation of liberty, injury to character, general impairment of business standing, injury to credit, and any losses to plaintiff's business that directly result from the malicious proceedings. Davis, supra, 6 Cal.App.3d at 695-696.
If Ms. Jones' injuries primarily stem from attorney's fees and court costs, filing a motion for sanctions may prove a more effective means of redressing these injuries, particularly since the standard for imposition of sanctions under Code of Civil Procedure §128.7 does not require proof of objective malice. Although budget constraints do not permit researching this alternative in any depth, Ms. Jones could seek sanctions associated solely with the filing of the application for entry of default. There is no time limit on a party's ability to file a motion for sanctions under §128.7, although the court may consider the moving party's diligence. Code Civ. Proc. §128.7(c)(1). The 30-day waiting period imposed on a party between the serving of the motion and its filing in court offers the defendant the opportunity to dismiss its complaint to avoid the imposition of sanctions, but this result may be preferable to spending time and resources on litigating both the collection suit and the subsequent malicious prosecution action.
2. Liability for unfair debt collection practices
A. Persons liable for violations
A substantial body of federal and state law restrains "unfair" or "deceptive" debt collection practices. The facts here narrow the parameters of available causes of action under these laws.
An attorney who collects consumers' debts while engaged in the practice of law (i.e., not operating a debt collection agency) is subject to state bar disciplinary action for collection abuses and may be liable under the Federal Fair Debt Collection Practices Act, 15 U.S.C. §§1692a-1692o. The state FDCPA excludes attorneys from its definition of debt collectors, but apparently includes paralegal and other law firm staff. Civ. Code §1788.2(c); see Carney v. Rotkin, Schmerin & McIntyre (1988) 206 Cal.App.3d 1513, 1525. The state bar requires that law firms and their employees comply with the state FDCPA, and subjects those who do not to disciplinary penalties. Bus. & Prof. Code §6077.5(I).
Thus, in order to bring an action for damages for unfair debt collection practices, Ms. Jones must either rely on the federal act, or file the action against Ms. Green, the White firm paralegal who signed the firm's correspondence with her. A possible exception exists if you can show that the law firm is actually operating as a debt collection agency.
B. Prohibited debt collector activities under the state
act
The state FDCPA prohibits debt collectors from threatening or harassing consumer debtors, limits their communications with debtors and others, and bars them from making false or misleading representations. Civ. Code §§1788.10-1788.13. It also prohibits acts that abuse the judicial process or disregard the attorney-client relationship. Civ. Code §§1788.14-1788.16.
The state FDCPA prohibits a debt collector from falsely representing that attorney fees, investigation fees, finance fees, or other fees may be added to the amount due. Civ. Code §1788.13(e). In order to determine whether the White firm had a proper claim for legal fees, it is necessary to determine the basis for this claim. Attorney's fees are usually collectible only if a contract with the debtor so provides. Civ. Code §§3300-3302. Possibly, such a provision exists as a contractual term in the admission papers to Acme Hospital Ms. Jones signed.
The state FDCA also provides that a false representation that a legal proceeding will be filed unless the debt is paid violates that act. Civ. Code §1788.13(j). But in this case the claim was not false, because a legal action was filed.
The state FDCA prohibits a debt collector from using any judicial proceeding to collect a debt when the collector knows that service of process essential for jurisdiction has not been legally made. Civ. Code §1788.15(a). It is not clear from Ms. Jones' declaration whether the White firm served her with process at an address other than 65 Juno Avenue, that which she gave to Acme Hospital and which is reflected on her bill, and at which the firm initially contacted her by letter. If Ms. Jones' claim that process was improper is based on the fact that she moved, the firm may defend this claim on the basis that the violation was unintentional, and resulted despite procedures reasonably adopted to avoid this violation. Civ. Code §1788.30(e).
C. Damages under the state
act
A debt collector who violates the state FDCPA is liable for the debtor's actual damages, and may also be liable for statutory penalties. Civ. Code §1788.30 (a), (b). If the debtor prevails, she is entitled to collect reasonable attorney's fees and court costs. Civ. Code §1788.30(c).
D. Pleading
considerations
The remedies available are cumulative, and exist in addition to any other provision of law. Civ. Code §1688.32. Thus, a state FDCPA action presumably will not preclude a federal FDCPA action or an independent tort action. The statute of limitations is one year from the date of the violation. Civ. Code §1788.30(g).
If Ms. Jones obtains relief from default, she should file a cross-complaint for violation of the state law FDCPA, and as opposed to waiting to file a malicious prosecution claim. The cross-complaint could provide sufficient leverage to persuade the White firm to drop its claim for fees and interest. Filing this cross-complaint would not preclude filing a claim for sanctions based solely on the motion for entry of default.
Nothing was found giving exclusive federal jurisdiction over a federal FDCPA claim. Thus, Ms. Jones could add a federal claim to her cross-complaint, depending on the facts. The federal act has prohibitions that closely resemble the state act, but may enable her to name the law firm as a defendant more easily. A photocopy of the chapter from the Rutter Group treatise on enforcing judgment and debts that discusses both the state and federal acts will be mailed to you, so that you can check how each statute fits the facts of your situation.
CONCLUSION
The facts suggest that Ms. Jones may have a claim for malicious prosecution, although she must wait to file to see if the underlying debt action is resolved in her favor. The law disfavors malicious prosecution lawsuits, and the proof requirements are stringent. With further investigation of the facts, it may be difficult or impossible to prove that no reasonable cause existed for filing the initial complaint, or that the White firm filed it with the requisite subjective malice.
Pursuing a claim for unfair debt collection practices may be easier, and provide the same result, depending on additional facts you may obtain. Filing this action on a cross-complaint will result in a more expeditious resolution than waiting to file a malicious prosecution action, and the recoverable damages may be the same.
Filing a motion for sanctions under Civil Code §128.7 regarding filing of frivolous pleadings is an option you should also consider. The efficacy of this motion would depend on winning the motion to set aside the default judgment, and would require immediate action to demonstrate diligence. Even if defendant withdraws its complaint during the 30-day safe-harbor period, an immediate end to the proceedings may be worth the trade-off of foregoing an action for fees against defendant in more protracted litigation.