Source: http://californiaslapplaw.com/2020/05/a-huge-anti-slapp-victory-by-morris-stone-in-the-court-of-appeal/
Timestamp: 2020-07-09 21:06:59
Document Index: 209670928

Matched Legal Cases: ['§ 6200', '§ 6204', '§ 6203', '§ 1141', '§ 6201', '§ 6202']

A Huge Anti-SLAPP Victory by Morris & Stone in the Court of Appeal - California SLAPP LawCalifornia SLAPP Law
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So I’m looking at Dorit’s complaint dumbfounded, and as I have said here before, if you hand me a ham sandwich, I’ll analyze it to see if it is a SLAPP. I quickly determined that Dorit’s lawsuit was a SLAPP, since it sought to challenge Jack’s use of “any other official proceeding authorized by law,” namely, the MFAA process. Dorit’s lawsuit was the quintessential SLAPP, because he was suing Jack for utilizing the very process created for fee disputes. If allowed, then the MFAA process might as well be scrapped. No rational client would arbitrate a fee dispute if they faced a potential malicious prosecution action. I could not let Dorit’s action stand, and I wanted to create a precedent so other attorneys would not follow his example.
Here is how the Court of Appeal walked the opinion through this conundrum:
Courts have held that a malicious prosecution claim cannot be based on private [contractual] arbitration but can be based on judicial arbitration. (Stanley v. Superior Court (1982) 130 Cal.App.3d 460.) As a result, the parties have vigorously disputed whether MFAA arbitration is closer to judicial arbitration or private arbitration.
MFAA proceedings do not fit cleanly into either category. For example, Brennan’s conclusion that malicious prosecution cannot follow a private arbitration rested in part on the voluntary nature of private arbitration and the finality of private arbitration awards. (Brennan, 25 Cal.4th at p. 315.) Considerations such as voluntariness and finality do not easily apply to MFAA arbitration. (See Schatz, 45 Cal.4th at pp. 564–565 [distinguishing between MFAA arbitration and private arbitration on these factors].) By default, MFAA arbitration is voluntary for clients but mandatory for attorneys, while attorneys and clients may voluntarily agree in their fee agreements to require MFAA arbitration. (§ 6200, subd. (c); see Benjamin, Weill & Mazer v. Kors (2011) 195 Cal.App.4th 40, 54–55 [parties can contractually agree to non-binding MFAA arbitration].) Likewise, MFAA arbitration awards by default are not final, in that either party can request a trial de novo. (§ 6204, subd. (a).) But parties can agree to make the award binding after a dispute arises, and an award can become binding if no party requests a trial de novo within the statutory time period, as happened here. (§§ 6203, subd. (b), 6204, subd. (a).)
MFAA arbitration also does not squarely fit the mold of judicial arbitration. In judicial arbitration, relatively small cases filed in court are subject to mandatory diversion for non-binding arbitration before being allowed to proceed to trial. (Mercury Ins. Group v. Superior Court (1998) 19 Cal.4th 332, 343; see also Code Civ. Proc., § 1141.11 [establishing criteria for cases subject to judicial arbitration].) This serves as an aid to settlement of litigation by giving the parties an arbitrator’s neutral view of all the issues in a case, including damages and costs. (Stanley, supra, 130 Cal.App.3d at p. 471; Sagonowsky v. More (1998) 64 Cal.App.4th 122, 131.) If no party requests a trial de novo after the arbitration, the decision of the arbitrator becomes final and binding. (Stanley, at p. 465; see also Sagonowsky, at p. 131.) MFAA arbitration may also be viewed as an aid to settlement of disputes by similarly providing a neutral evaluation of a party’s claim. But where an MFAA arbitration occurs, it necessarily precedes any litigation; this sequence, as we explain below, is a significant difference for purposes of malicious prosecution. Additionally, while MFAA arbitration, like judicial arbitration, can be binding if not challenged via a request for a trial de novo, there is no statutory requirement mandating MFAA arbitration of all fee disputes and there is no limit to the size of fee disputes that parties can take to MFAA arbitration.
The Opinion Cometh
Most interesting to me, the Court completely sidestepped the issue we had devoted so much time to. It did not think the contractual / judicial distinction was necessary to decide.
Fortunately, there is no need to shoehorn MFAA arbitration into either of these two categories. As Brennan recognized, the ultimate questions are whether the nature of MFAA arbitration suits the purpose of the malicious prosecution tort and whether the tort suits the purpose of MFAA arbitration. (See Brennan, 25 Cal.4th at p. 313.) After examining those questions directly, we conclude MFAA arbitration cannot serve as the predicate for a malicious prosecution claim.
The Court concluded that Dorit simply could not establish the elements of Malicious Prosecution, and that the trial court therefore should have found in Jack’s favor on the second prong.
As noted above, the tort of malicious prosecution serves two purposes: (1) preventing unscrupulous individuals from using the courts for nefarious ends, thereby clogging crowded court dockets; and (2) compensating wronged individuals. (Bertero, supra, 13 Cal.3d at pp. 50–51.) MFAA arbitrations are not court proceedings, so allowing malicious prosecution based on an MFAA arbitration would not serve the first purpose. A client waives the right to MFAA arbitration by filing a suit, and a lawyer must give the client the right to request MFAA arbitration before filing a claim in court. (§ 6201, subds. (a), (d); Aguilar v. Lerner (2004) 32 Cal.4th 974, 987.) Thus, MFAA arbitration necessarily precedes court litigation, and the Legislature created it in the hope that it would serve as a substitute for court litigation. (Liska, supra, 117 Cal.App.4th at pp. 281–282.) It is true that a party can request a trial de novo in superior court and thereby trigger the concern of malicious prosecution with abuse of the judicial process. But if this were to occur, the defendant in the trial de novo could then file a malicious prosecution claim based on the court proceedings. Allowing the defendant in MFAA arbitration to file a malicious prosecution claim based only on the arbitration contributes nothing towards the goal of deterring abuse of the court system.
Allowing malicious prosecution claims based on MFAA arbitrations would also do little to advance the second purpose of the tort, compensating wronged individuals. While the “right to redress for malicious conduct should not depend upon the form of the proceeding by which the injury is inflicted” (Hardy v. Vial (1957) 48 Cal.2d 577, 581), MFAA arbitrations do not impose the same injury as most types of civil actions or proceedings. A malicious prosecution claim allows a plaintiff to recover the costs and attorney’s fees incurred in defending the prior, baseless suit, as well as harm to the plaintiff’s reputation and mental or emotional distress. (Bertero, supra, 13 Cal.3d at pp. 50–51.) As Jack points out, Dorit represented himself in the arbitration here, and the proceeding was confidential. (See Bar Association of San Francisco, Rules of Procedure, Arbitration and Mediation of Attorney/Client Fee Disputes, rule 9(H)(1), at p. 12 [arbitrations are closed to the public and the arbitration case file and the award are confidential].) The arbitrator also allocated the filing fee to Jack. As a result, Dorit’s costs from the arbitration itself were low and the risk of harm to his reputation was minimal. (Cf. Trope v. Katz (1995) 11 Cal.4th 274 [self-represented attorneys cannot collect attorney’s fees as prevailing parties].) These facts undercut the need for his malicious prosecution claim.
The arbitration here seems typical in these respects. MFAA arbitration was created specifically to avoid the need for clients to hire attorneys. (Liska, supra, 117 Cal.App.4th at p. 284.) Because the proceeding is intended to be informal and expeditious (id. at pp. 281, 287), attorneys will likely choose not to hire separate counsel, as Dorit did here. Most bar associations’ MFAA arbitrations are also confidential. The State Bar Guidelines for local bar associations’ MFAA programs require the associations to preserve the confidentiality of attorney-client privileged and work-product protected documents disclosed during an arbitration. (Bar Guidelines, ¶6; § 6202.) Bar associations may choose to maintain the confidentiality of the entire proceeding to meet this requirement.
Without attorney’s fees or harm to reputation, the only damage from MFAA arbitration is likely to be the defendant’s emotional distress. We do not doubt that defending an unjustified demand for MFAA arbitration will often be stressful to the unfortunate defendant of the action. Nonetheless, we expect the limited nature of the claims subject to MFAA arbitration, the limited relief available, and the expeditious nature of the proceedings will mitigate the emotional toll MFAA arbitration imposes on defendants.
Other courts have limited the availability of malicious prosecution after proceedings that would not advance the purposes of the tort. Black v. Hepner (1984) 156 Cal.App.3d 656, 659, held that a small claims action could not support a malicious prosecution claim, in part because “the small claims process eliminates, or at least considerably diminishes, the extent of harm to a litigant by its malicious commencement.” Similarly, Siam v. Kizilbash (2005) 130 Cal.App.4th 1563, 1573, held that a civil harassment restraining order could not support a malicious prosecution claim in part because the harm from maliciously motivated requests for such restraining orders “should be fairly minimal.” The court noted that hearings on civil harassment petitions, like small claims actions, are designed to be simple and expeditious, resolved without the need for a lawyer in a few weeks. (Ibid.) As a result, “[t]here is no risk of incarceration or financial ruin” for defendants in such hearings, and they are unlikely to incur substantial attorney’s fees. (Ibid.) The same is true of most MFAA proceedings. Although there is no cap on the amount of fees subject to MFAA arbitration, the amounts in dispute are likely to be small, given that they historically did not warrant hiring an attorney to collect them. (See Liska, supra, 117 Cal.App.4th at p. 282 [MFAA enacted because cost of attorney to litigate fee dispute often equaled or exceeded the amount in controversy].) Because the financial exposure of defendants in MFAA arbitrations, whether they be clients or attorneys, should not be severe in most cases, the remedy of a malicious prosecution claim is unnecessary.
By contrast, judicial arbitration can support a malicious prosecution claim precisely because by the time a case is resolved in judicial arbitration, the defendant has already suffered much of the harm that malicious prosecution guards against. As noted by the court in Stanley, supra, 130 Cal.App.3d at p. 468, judicial arbitration follows the filing of a normal civil action with a public complaint, the hiring of attorneys, and potentially extensive discovery. Attorneys also try the judicial arbitration itself, using formal rules of evidence. (Ibid.) When a party has already incurred such costs, it makes sense not to allow the plaintiff to escape liability by accepting an adverse judicial arbitration award to end the action. (Id. at pp. 471–472.) By the same rationale, because parties will not incur such costs in MFAA arbitration, the purposes of malicious prosecution are not advanced by permitting such claims to be based on MFAA proceedings.
In addition to being unnecessary to serve the purposes of the tort, malicious prosecution following MFAA arbitration is undesirable because it would conflict with the central purpose of MFAA arbitration. Pace v. Hillcrest Motor Co. (1980) 101 Cal.App.3d 476 is instructive in this regard. The court there held that a malicious prosecution claim would not lie following a small claims action because it threatened to undermine the purpose of small claims court. (Id. at pp. 478–479.) The court noted that there are no attorneys, pleadings, legal rules of evidence, juries, or formal findings in small claims court because of the theory that “ordinary litigation ‘fails to bring practical justice’ when the disputed claim is small, because the time and expense required by the ordinary litigation process is so disproportionate to the amount involved that it discourages legal resolution of the dispute.” (Id. at p. 478.) Pace therefore concluded, “To permit an action for malicious prosecution to be grounded on a small claims proceeding would frustrate the intent of the Legislature in adopting an expeditious and informal means of resolving small disputes, would inject into a simple and accessible proceeding elements of time, expenses, and complexity which the small claims process was established to avoid, and would require a prudent claimant to consult with an attorney before making use of this supposedly attorney-free method for settling disputes over small amounts.” (Id. at p. 479; see also Black v. Hepner, supra, 156 Cal.App.3d at pp. 659–660 [agreeing with Pace that “any deviation from [small claims court’s] summary nature because some defendants may be recipients of such abuse [from malicious claims] would countervail the reason for its existence”].)
Siam v. Kizilbash, supra, 130 Cal.App.4th at p. 1573, reached the same conclusion in the context of civil harassment protective order hearings under Code of Civil Procedure section 527.6. In addition to rejecting malicious prosecution claims based on such hearings because of the minimal harm to the defendant, as discussed above, the court concluded that allowing such claims would frustrate the streamlined hearing procedure. The court noted that it would cause parties to seek legal advice before seeking protective orders, and the risk of malicious prosecution liability might dissuade harassment victims from seeking protection. (See also Robinzine v. Vicory (2006) 143 Cal.App.4th 1416, 1423–1424 [following Siam v. Kizilbash as to substantially similar workplace violence protective order hearings under Code of Civil Procedure section 527.8].)
As Jack points out, this concern applies to MFAA proceedings as well. Like small claims court, the Legislature created MFAA arbitration in response to concerns that the amounts in controversy in fee disputes and the uneven playing field between clients and counsel were not a good fit with the high costs of normal litigation procedures. (Liska, supra, 117 Cal.App.4th at p. 282.) Exposing MFAA arbitration parties to malicious prosecution liability would discourage the use of MFAA arbitration altogether, thereby tilting the playing field back in favor of attorneys. Clients would either refrain from pursuing meritorious fee disputes or return to their former practice of appending malpractice claims to fee disputes in court in order to justify the cost of counsel, thereby driving up attorney’s malpractice insurance premiums. (See ibid.) Attorneys and clients would both suffer. “In order to maintain the informality and economy of the [MFAA] arbitration proceedings, both the client and the attorney must be assured that the consequences of the arbitration will extend no further.” (Liska, supra, 117 Cal.App.4th at p. 287.)
Especially gratifying was the Court’s concluding thoughts, which adopted a novel theory we had argued. As I mentioned earlier when I was mansplaining the MFAA process, by statute nothing from the arbitration can be used for other purposes. A claim of malicious prosecution requires the plaintiff to allege and prove that he, she or it prevailed in the underlying action. But if nothing from the arbitration can be used, then how would Dorit ever be able to establish that he prevailed? As the Court of Appeal stated:
One other aspect of MFAA arbitrations makes them an unsound basis for malicious prosecution claims. To establish a malicious prosecution claim, a plaintiff must prove the underlying proceeding terminated in his or her favor. (Siebel v. Mittlesteadt, supra, 41 Cal.4th at p. 740.) “It is apparent ‘favorable’ termination does not occur merely because a party complained against has prevailed in an underlying action. While the fact he has prevailed is an ingredient of a favorable termination, such termination must further reflect on his innocence of the alleged wrongful conduct. If the termination does not relate to the merits—reflecting on neither innocence of nor responsibility for the alleged misconduct—the termination is not favorable in the sense it would support a subsequent action for malicious prosecution.” (Lackner v. LaCroix (1979) 25 Cal.3d 747, 751, fn. omitted.)
Dorit cannot satisfy this element because the Legislature has strictly limited the admissibility and effect of MFAA arbitration awards. Section 6204, subdivision (e) states, “Except as provided in this section, the award and determinations of the arbitrators shall not be admissible nor operate as collateral estoppel or res judicata in any action or proceeding.” The legislative history confirms this plain language, as an analysis of the bill that created the MFAA system explained, “ ‘Except for the purpose of determining whether to award attorney’s fees, the award and determination of the arbitrators are not admissible in a subsequent judicial proceeding.’ (Legis. Analyst, analysis of Sen. Bill No. 1351 (1977–1978 Reg. Sess.) as amended June 14, 1978, p. 3.)” (Liska, supra, 117 Cal.App.4th at p. 287.)
Liska held this provision prevented the defendant law firm in an MFAA arbitration from using the arbitration award in its favor for issue preclusion in a subsequent action by the client against the firm and its individual attorneys. (Liska, supra, 117 Cal.App.4th at pp. 287–288.) The court stated that “where the Legislature intended to permit the court to consider the findings of the arbitrators, it said so explicitly, but it otherwise limited the binding effect to which the parties might agree to the award itself—i.e., to the amount of attorney fees (and/or costs) to which the attorney is entitled (or must refund).” (Id. at pp. 285–286.) Thus, while the award prevented the client from challenging the amount of fees to which the attorneys were entitled, it did not prevent the client from requesting other forms of relief or establishing the facts for such relief, even though those facts might overlap with his earlier fee arbitration claim. (Id. at p. 287.)
The same principle prevents Dorit from proving that the arbitration’s termination in his favor demonstrated his innocence of any wrongdoing. The mere fact that Dorit prevailed and was not required to refund any of his fees to Jack is not sufficient to prove the MFAA arbitration terminated in his favor for malicious prosecution purposes. The specific basis of the arbitrator’s ruling in Dorit’s favor is essential to prove Dorit was innocent of Jack’s claims of wrongdoing. The only way to determine the basis for the ruling is to examine the arbitrator’s findings and conclusions. Because section 6204, subdivision (e) bars precisely that type of examination, Dorit cannot succeed with his malicious prosecution suit.
Kurz v. Syrus Systems, LLC (2013) 221 Cal.App.4th 748 supports this conclusion. That court held that an employer could not prove a former employee’s unemployment benefits claim and appeal terminated in the employer’s favor because Unemployment Insurance Code section 1960 prohibited use of the board’s decision as evidence in any later action between the employer and employee. (Id. at p. 766.) As a result, the court reversed the trial court’s denial of an anti-SLAPP motion and remanded with an order to grant the motion. Section 6204, subdivision (e) embodies a similar prohibition against the use of an MFAA arbitration award, so it, too, cannot be used to support a malicious prosecution claim.
In the end, I achieved all three goals. Dorit was stopped, the client was saved from protracted litigation, and a precedent now exists that will prevent attorneys from suing their clients for utilizing the MFAA process. The case of J. Niley Dorit v. Noe is also discussed here.
And a shout out to Phillip Sandoval, who assisted with his brilliant legal analysis and research on this matter, even though he initially thought we could not prevail.
Posted in Anti-SLAPP motion, Case Results | Tags: J Niley Dorit, Phillip Sandoval
One Response to “A Huge Anti-SLAPP Victory by Morris & Stone in the Court of Appeal”
J. Niley Dorit v. Noe - Major Anti-SLAPP Victory for Morris & Stone - Internet Defamation BlogInternet Defamation Blog:
[…] A more detailed discussion of J. Niley Dorit v. Noe, with the added reasoning of the court, can be found here. […]