Malicious Prosecution

Sometimes employers sue their former employees. One of the ways that these lawsuits come about is when the former employer sues a former employee in response to a lawsuit. Often these retaliatory lawsuits are based on sound legal theories, but are more of a reactionary kind of thing where the former employer is seeking to make the employee pay for suing them in the first place. It is the adult version of a juvenile game of one-upmanship.

There are a few ways to respond to these retaliatory lawsuits. The former employee who is now a defendant in a counter- or cross-action can try to have the cross-complaint dismissed pursuant to anti-SLAPP provisions. Alternatively, the former employee can see the retaliatory claim through to a final ruling. If the retaliatory claim truly lack merit, then the former employee should obtain a dismissal or verdict in the former employee’s favor and against the former employer. Once that outcome has been secured, the former employee may then turn around and file a “malicious prosecution” action against the former employer.

Before embarking on this course of action, it should be noted that malicious prosecution actions are not particularly favored in California. (See Sebastian v. Crowley (1940) 38 Cal.App.2nd 194, 202.) Nevertheless, if a former employee is successful on a malicious prosecution claim, he or she will be able to recover attorneys’ fees and costs. In California, there are usually very few ways for a successful defendant, or in our scenario a successful cross-defendant, to recoup his or her attorneys’ fees and costs incurred in fighting a case that they are ultimately found not to be liable for.

To successfully prosecute an action for malicious prosecution, the former employee who was wrongfully sued in the prior retaliatory action must demonstrate that the prior retaliatory case was commenced by or at the direction of the defendant, was pursued to a legal termination in plaintiff’s favor, was brought without probable cause, and was initiated with malice. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3rd 863.) This requires the plaintiff to show that there was an unsuccessful prosecution of an action (civil or criminal although we will be dealing almost exclusively with the civil side herein), which any reasonable attorney would regard as completely without merit and for the intentionally wrongful purpose of injuring another person. (Downey Venture v. LMI Insurance Company (1998) 66 Cal.App.4th 478.)

For the purpose of establishing a claim for malicious prosecution, the phrase “favorable termination” is defined legal term in the relevant case law. In order for the prior lawsuit to be considered to “favorably terminated” for the purpose of an ensuing malicious prosecution claim, the termination must have been decided on the merits. This means that the underlying facts were considered and the former employee was judged to be innocent of any misconduct alleged in the lawsuit. (Lackner v. LaCroix (1979) 25 Cal.3rd 747.) Usually, a “favorable termination” means that the former employee won on a motion for summary judgment or won at a trial on the merits.

If a “favorable termination” does not relate to the merits, meaning it does not reflect on the innocence of nor responsibility for the alleged misconduct, the retaliatory case will not be considered to have been “favorably terminated” for the purpose of supporting a subsequent action for malicious prosecution.” (Id. at 751.) Where the retaliatory case ended by way of the former employer voluntarily dismissing the case and the allegations that made up the case never get adjudicated, then the Court is charged with reviewing the reasons the case was dismissed and deciding if the dismissal meets the “favorable termination” criteria. It can get really messy when a former employer fears losing and randomly dismisses the retaliatory case before the former employee can win. Then the analysis involves a judge determining if the voluntary dismissal reflects the opinion of “either the trial court or the prosecuting party that the action lacked merit or if pursued would result in a decision in favor of the [former employee].” In such a situation, the court is permitted to make a judgment call on the “opinion of the dismissing party” as to whether the former employer believed he was going to lose the case.” (Contemporary Services Corporation v. Staff Pro Inc. (2007) 152 Cal.App.4th 1043.)

Damages potentially recoverable in a malicious prosecution action are substantial. They include out-of-pocket expenditures, such as attorney’s and other legal fees (Stevens v. Chisolm (1919) 179 Cal. 557, 564-565); business losses (Ray Wong v. Earle C. Anthony, Inc. (1926) 199 Cal. 15, 18); general harm to reputation, social standing and credit (Ibid.); mental and bodily harm (Singleton v. Perry (1955) 45 Cal.2nd 489, 495); and exemplary damages where malice is shown (MacDonald v. Joslyn (1969) 275 Cal.App.2nd 282, 293.)

A former employee can also seek compensatory damages pursuant to California Civil Code § 3333, i.e. “For the breach of an obligation not arising from contract, the measure of damages, except where otherwise expressly provided by this code, is the amount which will compensate for all the detriment proximately caused thereby, whether it could have been anticipated or not” or, in other words out of pocket costs and harm to your client’s reputation.

Punitive damages are also available. (California Civil Code § 3294(a) “[i]n an action for the breach of an obligation not arising from contract, where it is proven by clear and convincing evidence that the defendant has been guilty of oppression, fraud, or malice, the plaintiff, in addition to the actual damages, may recover damages for the sake of example and by way of punishing the defendant.” (See also Singleton v. Singleton (1945) 68 Cal.App.2nd 681, 690 [exemplary damages were allowable in action for malicious prosecution where there was sufficient evidence of malice, oppression and design to injure the plaintiff.]) A successful malicious prosecution action may also allows and the former employee to recover attorneys’ fees and costs for the underlying action. (See California Code of Civil Procedure §1021.)

By Janeen Carlberg