Opinion
A126187
07-22-2011
WEST BAY BUILDERS, INC. et al., Plaintiffs and Appellants, v. STANDARD ELEVATOR CO. et al., Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
(Marin County Super. Ct. No. C090327)
This case is the third in a series of cases between the parties.
In the first case, general contractor West Bay Builders, Inc. (West Bay) sued subcontractor Standard Elevator Company/Standard Metal Fabrications (Standard) for fraudulently submitting a bid on a public works project (Project). Standard had been removed from the Project because it was unlicensed, lied about its references, and could not secure bonds for its work. West Bay substituted other subcontractors to complete the Project, then sued Standard to recover as damages the amount paid to complete the work above the amount bid by Standard. The Contra Costa County Superior Court entered judgment for West Bay following a bench trial. An appeal was taken but it was dismissed as untimely. (West Bay Builders, Inc. v. Standard Elevator Co., Inc. (May 3, 2006, A110384 [nonpub. opn.].)
In the second case, Standard sued West Bay upon allegations that West Bay illegally substituted subcontractors, both itself and others, on the Project. Standard alleged that West Bay violated the California False Claim Act (Gov. Code, § 12650 et seq.) (CFCA) because West Bay made claims for payment on the Project that were accompanied by certification of legal compliance, and that certification was false given the illegal subcontractor substitutions. The Marin County Superior Court granted summary judgment to West Bay. The court found that the allegations in Standards CFCA complaint were not actionable because they were a repetition of information publicly disclosed in prior civil litigation, including Standards own unsuccessful cross-complaint against West Bay in the first case. (Gov. Code, § 12652, subd. (d)(3)(A).) The court further found that Standards CFCA complaint was brought in retaliation for the first case, ruled the CFCA action frivolous and harassing, and awarded attorney fees to West Bay. (Former Gov. Code, § 12652, subd. (g)(9).) The appeal of the judgment and fee order is filed under even date herewith. (State of California ex rel. Standard Elevator Co. v. West Bay Builders, Inc. (July ____, 2011, A124892 & A125340) ____ Cal.App.4th ____.)
In this third case, West Bay sued Standard for malicious prosecution of the CFCA action. This case was also brought in the Marin County Superior Court but was heard by a judge different from the CFCA judge. Standard filed a motion to strike the complaint as a strategic lawsuit against public participation (SLAPP). (Code Civ. Proc., § 425.16.) Standard argued that the malicious prosecution complaint arose from protected speech and petitioning activity (the CFCA case) and that West Bay could not show a probability of prevailing on the merits. Before the anti-SLAPP motion could be heard, Standard filed a notice of appeal from the judgment in the underlying CFCA case. West Bay informed the court that the filing of an appeal in the underlying case made its malicious prosecution action premature, and asked the court to stay the action until the appeal was resolved. The court refused to stay the action and reached the merits of the anti-SLAPP motion.
The trial court ruled that the malicious prosecution action arose from protected speech and petitioning activity, and West Bay failed to show a probability of prevailing on the claim. (Code Civ. Proc., § 425.16.) There was no probability of prevailing on the claim, the court concluded, because a malicious prosecution claim requires a favorable termination on the merits reflecting innocence of the misconduct alleged in the underlying lawsuit, and resolution under the public disclosure bar is not a substantive determination of innocence.
We conclude that the trial court abused its discretion in refusing to stay the malicious prosecution action until the appeal in the underlying CFCA action was completed. The error, however, is harmless because the court rightly determined that West Bays malicious prosecution case is a SLAPP. We affirm the order.
I. FACTS
In May 1999, general contractor West Bay prepared a bid for the Project (construction of a school). West Bay listed its subcontractors, including Standard. West Bay removed Standard from the Project when it learned that Standard was unlicensed for steel work, lied about its references, and could not secure bonds for its work. West Bay substituted other subcontractors to complete the project. West Bay sued Standard to recover as damages the amount paid to complete the work above the amount bid by Standard. Standard cross-complained upon allegations that West Bay replaced Standard and other subcontractors in violation of the Public Contract Code, which sets requirements for the substitution of subcontractors on a public works project. The court found Standard liable for fraud in its bid submission and rejected claims of improper substitution of subcontractors. West Bay was awarded damages in a judgment entered in September 2004.
In March 2005, Standard filed a lawsuit against West Bay and its principal Paul Brian Thompson (collectively, West Bay) under the CFCA upon allegations that West Bay violated the Public Contract Code in substituting subcontractors and that those violations rendered false West Bays certification of legal compliance when submitting payment claims. The CFCA action is the case underlying this malicious prosecution action.
In the underlying CFCA action, the trial court granted summary judgment to West Bay upon evidence that allegations described in Standards CFCA complaint were not new assertions of fraud but a repetition of information publicly disclosed in prior civil litigation, including Standards own prior cross-complaint against West Bay. (Gov. Code, § 12652, subd. (d)(3)(A)). The CFCA provides that "[n]o court shall have jurisdiction" over a CFCA action based upon the public disclosure of allegations or transactions in a civil hearing or other specified fora unless plaintiff is an original source of the information. (Gov. Code, § 12652, subd. (d)(3)(A)). Judgment was filed on January 20, 2009.
A week later, on January 27, 2009, West Bay filed this malicious prosecution action. West Bay sued Standard Elevator Company; Standard Elevator Company, doing business as Standard Metal Fabrication; and Nari Ramchandani, the principal of both business entities (collectively, Standard). West Bay also sued Standards attorney in the CFCA action, George William Wolff. West Bay alleged that Standard and Attorney Wolff acted maliciously in bringing the CFCA action in that the sole motive for filing the action was retaliation for West Bays successful damages action following West Bays substitution of Standard as a subcontractor.
On March 13, 2009, Standard and Attorney Wolff filed motions to strike the malicious prosecution complaint as a SLAPP. (Code Civ. Proc., § 425.16.) A cause of action against a defendant "arising from" its acts in furtherance of its "right of petition or free speech . . . in connection with a public issue" is subject to "a special motion to strike" unless plaintiff establishes a probability of prevailing on the claim. (Code Civ. Proc., § 425.16, subd. (b)(1).) Defendants Standard and Attorney Wolff asserted that the malicious prosecution cause of action arose from their speech and petitioning acts in the CFCA action and that plaintiff West Bay could not establish a probability of prevailing on the claim because a favorable termination of the underlying case is a prerequisite to a malicious prosecution action, and there was no favorable termination of the CFCA action. Defendants first noted that there was no final termination in the underlying case because Standard filed a motion for new trial on February 10, 2009, that was still pending. Even if that motion were denied (as it subsequently was), defendants argued that there was no favorable termination on the merits because the underlying CFCA action was resolved on a procedural basis (the public disclosure bar) without any adjudication of West Bays innocence.
Defendants presented other arguments as to the improbability of West Bay prevailing on its malicious prosecution claim, including assertions that the underlying CFCA action was brought with probable cause and without malice. We need not, and do not, reach those issues.
West Bay filed opposition to the anti-SLAPP motions on March 27, 2009. At that time, Standards motion for new trial in the underlying CFCA action had been denied, but Standard had filed notice of appeal from the judgment. West Bay asked the court to suspend ruling on the anti-SLAPP motions and to abate the malicious prosecution action until final termination of the CFCA action by resolution of the pending appeal. West Bay also argued that, should the court reach the issue of West Bays probability of prevailing, the court should find in West Bays favor because resolution of the CFCA claim under the public disclosure bar was a favorable termination on the merits sufficient to support a malicious prosecution claim.
Standard filed a reply brief in which it argued that its notice of appeal of the underlying CFCA case—filed after West Bay sued Standard—rendered West Bays malicious prosecution claim premature. While agreeing with West Bay that the malicious prosecution action was premature, Standard disagreed with West Bays insistence that the court should stay the action pending resolution of the appeal in the underlying case and maintained that the prematurity of the malicious prosecution claim subjected the claim to dismissal "via dispositive motion, namely [Standards] anti-SLAPP motion."
The anti-SLAPP motions were heard on April 30, 2009. The court noted that Standard had filed a notice of appeal in the underlying case and stated: "upon a proper request, this action would be abated pending the decision on the underlying appeal." (Capitalization altered.) But the court found no proper request by the parties and declared a waiver, or forfeiture, of the issue of abatement. The court stated that "a plea in abatement must be raised in the answer or by demurrer, or is waived," and noted that
Standard had "not asserted a plea in abatement in [its] answer or by demurrer." (Capitalization altered.) The court also stated that West Bay "has not filed a request to stay/abate its own action pending the appeal" in the underlying CFCA case. (Capitalization altered.) As noted above, West Bay did request abatement in its opposition brief but the court did not acknowledge that fact in its ruling. Reaching the merits of the motion, the court struck the malicious prosecution complaint because the action arose from protected speech and petitioning activity, and West Bay failed to show a probability of prevailing on the claim. (Code Civ. Proc., § 425.16.) There was no probability of prevailing on the claim, the court concluded, because a malicious prosecution claim requires a favorable termination on the merits reflecting innocence of the misconduct alleged in the underlying lawsuit, and resolution under the public disclosure bar is "a procedural technicality of lack of jurisdiction " rather than a substantive determination of innocence.
Standard had not yet filed an answer or demurrer. Standards first action in the case was to file an anti-SLAPP motion to strike West Bays complaint. In its briefing on that motion Standard did assert that West Bays complaint was premature but asked for dismissal with prejudice under the anti-SLAPP statute rather than abatement.
On May 15, 2009, West Bay moved for reconsideration. West Bay called the courts attention to a recent postjudgment order in the underlying CFCA case in which the court had awarded West Bay attorney fees. In the CFCA case, the court awarded fees under a statutory provision that, at the time, permitted an award of fees "if the defendant prevails in the action and the court finds that the claim was clearly frivolous, clearly vexatious, or brought solely for purposes of harassment." (Former Gov. Code, § 12652, subd. (g)(9) & see Historical and Statutory Notes, 32E Wests Ann. Gov. Code foll. § 12652; Stats. 2009, ch. 277 (AB 1196) [recently amended to substitute "primarily" for "solely"].) The CFCA court ruled that it had jurisdiction to award fees because its summary judgment order "essentially" found that Standard "lacked standing to sue" under the public disclosure bar rather than finding a lack of jurisdiction "in the fundamental sense." (Capitalization altered.) The CFCA court also found that West Bay was the prevailing party "even though this courts summary judgment did not declare defendants innocence." (Capitalization altered.) The CFCA court reasoned that the judgment established West Bay as the prevailing party because it "completely freed [West Bay] from any obligation to pay [Standard] for these claims." (Capitalization altered.) The court proceeded to find that Standards CFCA claim was utterly lacking in legal merit, and thus clearly frivolous, because "the same or substantially similar allegations and transactions relied upon by [Standard] in the [CFCA] action were raised in prior" actions, including allegations of violations of the Public Contract Code that Standard itself made (and lost) in a prior cross-complaint. (Capitalization altered.) The court also found that the CFCA action was "brought deliberately to harass" West Bay. (Capitalization altered.)
The trial court presiding over this malicious prosecution action denied West Bays motion for reconsideration of Standards anti-SLAPP motion. The court reasoned that the CFCA courts ruling on attorney fees could not "interfere[]" with its own previous ruling that the CFCA judgment was not a judgment on the merits. (Capitalization altered.) The court awarded Standard attorney fees incurred on the anti-SLAPP motion. (Code Civ. Proc., § 425.16, subd. (c).) Attorney fees totaling $33,790.50 were assessed. West Bay filed a timely appeal.
We see no interference given the different contexts of the two courts rulings. As we discuss later, one may be a prevailing party for attorney fee purposes yet not have obtained a favorable termination for malicious prosecution purposes. (Casa Herrera, Inc. v. Beydoun (2004) 32 Cal.4th 336, 342 (Casa Herrera).)
One of the respondents argues that the appeal is untimely. Respondent is mistaken. Appellant West Bays motion for reconsideration extended the time to appeal. (Cal. Rules of Court, rule 8.108(e).) The notice of appeal was filed on August 14, 2009, within 90 days after the motion for reconsideration was filed on May 15, 2009. (Cal. Rules of Court, rule 8.108(e)(2).)
II. DISCUSSION
A. The trial court erred in denying a stay but the error was harmless
West Bay argues that the trial court erred in refusing to stay the malicious prosecution action until Standards appeal of the underlying judgment was resolved. The argument has merit. "A cause of action for malicious prosecution accrues . . . upon entry of judgment in the underlying action." (Drummond v. Desmarais (2009) 176 Cal.App.4th 439, 457.) Judgment in the underlying CFCA case was entered on January 20, 2009. West Bays malicious prosecution action was filed a week later, on January 27, 2009. The action was properly brought at that time—West Bay was not required to wait until the time for appeal of the underlying case had expired. (Id. at p. 458.) However, the malicious prosecution case was effectively—and retroactively— rendered "premature" when Standard later filed notice of appeal in the underlying CFCA case in March 2009 because West Bay could no longer assert favorable termination of that case. (Id. at pp. 457-458.) The remedy in such a situation is to abate or stay the malicious prosecution action until the appeal of the underlying action is resolved. (Id. at pp. 458-459.) Some early cases adopted the remedy of dismissing the malicious prosecution case, at least where the malicious prosecution case was premature at the outset because an appeal of the underlying case was already pending when the malicious prosecution complaint was filed. (Id. at p. 458, discussing Friedman v. Stadum (1985) 171 Cal.App.3d 775, 779.) Courts generally enter dismissals without prejudice, and the malicious prosecution case could have been filed anew when the appeal of the underlying case was completed. (Drummond, supra, at p. 458.) This approach has serious disadvantages that make a stay or abatement a preferred remedy. (Id., at pp. 458-459; Feld v. Western Land & Development Co. (1992) 2 Cal.App.4th 1328, 1335-1336 (Feld).)
The trial court here understood and adopted these principles. The court stated that "a notice of appeal has been filed by defendant Standard . . . in the underlying" CFCA action and, "upon a proper request, this action would be abated pending the decision on the underlying appeal." (Capitalization altered.) The court cited Feld, supra, 2 Cal.App.4th at pp. 1335-1336 in support of that determination. These statements make it clear that the trial court did not, as respondents suggest, exercise a discretionary choice to dismiss rather than to stay the action. The court said it would have abated the action had there been a proper request but, finding none, concluded that abatement was waived. The pertinent question, therefore, is whether abatement was waived.
The courts finding that West Bay "waived," or forfeited, a request for abatement or stay is impossible to reconcile with the record before us. In opposition to Standards motions to strike, West Bay filed a brief asking the court to suspend ruling on the anti-SLAPP motions and to abate the malicious prosecution action until resolution of the underlying CFCA appeal. It is not clear if the court overlooked that request or deemed it inadequate in some way, perhaps because West Bay did not file a separate document requesting abatement. Whatever the trial courts reasoning, we have found no support in the record for declaring forfeiture given a clearly stated request that was made in advance of the hearing on the motion.
Although the court erred, we find the error harmless and thus not reversible because the court rightly determined that West Bays malicious prosecution case is a SLAPP. (Cal. Const., art. VI, § 3.) Had a stay been granted, resolution of the anti-SLAPP motion would have been deferred, not avoided. (See Liu v. Moore (1999) 69 Cal.App.4th 745, 751 [merits of motion heard as predicate to fee award even if complaint dismissed].) To be sure, a stay would have served useful purposes in allowing the appellate decision in the underlying appeal to clarify issues impacting the trial courts determination of the motion and in avoiding the wasteful consumption of time and resources expended on this appeal. But it serves no purpose to remand the case for imposition of a stay now and require the trial court to decide the motion anew. We therefore turn to the merits of the motion.
B. The trial court rightly determined that plaintiff West Bays malicious prosecution action is a SLAPP
A cause of action against a defendant "arising from" its acts in furtherance of its "right of petition or free speech . . . in connection with a public issue" is subject to "a special motion to strike" unless plaintiff establishes a probability of prevailing on the claim. (Code Civ. Proc., § 425.16, subd. (b)(1).) Standard made a threshold showing that the challenged cause of action is one arising from protected activity, namely Standards speech and petitioning activity in prosecuting the CFCA case. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal.4th 728, 733-741.) West Bay was then required to demonstrate a probability of prevailing on the claim, which it failed to do. (Id. at p. 741.) "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 plaintiffs favor, (2) was brought without probable cause, and (3) was initiated with malice." (Siebel v. Mittlesteadt (2007) 41 Cal.4th 735, 740 (Siebel).) West Bay fails on the first element. The CFCA action was not legally terminated in West Bays favor within the meaning of malicious prosecution law.
"To determine whether there was a favorable termination, we look at the judgment as a whole in the prior action . . . . " (Casa Herrera, supra, 32 Cal.4th at p. 341.) " [I]n order for the termination of a lawsuit to be considered favorable to the malicious prosecution plaintiff, the termination must reflect the merits of the action and the plaintiffs innocence of the misconduct alleged in the lawsuit. " (Id. at pp. 341-342.) "[A] "favorable" termination does not occur merely because a party complained against has prevailed in an underlying action. . . . 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. [Citation.] Thus, a technical or procedural [termination] as distinguished from a substantive termination is not favorable for purposes of a malicious prosecution claim." (Id. at p. 342.) Examples include dismissals under a statute of limitations or on grounds of laches. (Ibid.) "A termination unrelated to the merits fails to show the innocence of the defendants in the underlying action," and thus does not qualify as a favorable termination sufficient to support a malicious prosecution action. (Siebel, supra, 41 Cal.4th at p. 744.)
In the underlying CFCA action here, West Bay obtained summary judgment under the public disclosure bar, which precludes private CFCA actions based upon the public disclosure of allegations or transactions in a civil hearing or other specified fora unless plaintiff is an original source of the information. (Gov. Code, § 12652, subd. (d)(3)(A).) A judgment entered on the basis of the public disclosure bar is not a favorable termination for purposes of a malicious prosecution claim. Such a judgment does not adjudicate the innocence of the CFCA defendant, nor even immunize the CFCA defendant from liability. The public disclosure bar simply precludes a private party from prosecuting false claim allegations.
West Bay insists that it did obtain a favorable termination on the merits in the underlying CFCA action, and points to the CFCA courts ruling on attorney fees in which the court found West Bay to be a prevailing party eligible for fees. But one may be a prevailing party for attorney fee purposes yet not have obtained a favorable termination for malicious prosecution purposes. (Casa Herrera, supra, 32 Cal.4th at p. 342.) "[A] „ "favorable" termination does not occur merely because a party complained against has prevailed in an underlying action. . . . 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. " (Ibid.) The termination under the public disclosure bar did not reflect on West Bays innocence of, nor responsibility for, the alleged misconduct of submitting false claims to the government. The CFCA courts ruling on attorney fees supports this conclusion. In awarding fees, the court found that the judgment established West Bay as the prevailing party because it "completely freed [West Bay] from any obligation to pay [Standard] for these claims" but also acknowledged that "this courts summary judgment did not declare defendants innocence." (Capitalization altered.)
It also does not aid West Bay to argue, as it does, that the CFCA bar is "substantive." To be sure, the CFCA "speaks to the substantive rights of the parties. " (See Rockwell International Corp. v. United States (2007) 549 U.S. 457, 468 [interpreting similar federal statute].) But the characterization of a rule of law in one context is not dispositive in another context. (Casa Herrera, supra, 32 Cal.4th at p. 343.) Although the CFCA public disclosure bar is substantive in its effect upon the rights of the CFCA plaintiff to bring an action, it is not substantive in the malicious prosecution context. The public disclosure bar does not free the CFCA defendant from liability under the law—it only prevents a private party from enforcing the law.
This is not to say that a private party plaintiff is free to bring a CFCA claim in flagrant violation of the public disclosure bar without consequences. If the plaintiff brings a frivolous CFCA claim, the defendant may recover its attorney fees incurred in defending against the claim. (Former Gov. Code, § 12652, subd. (g)(9).) Such is the case here, where the CFCA court awarded West Bay its attorney fees upon finding Standards action to be clearly frivolous and brought solely for purposes of harassment.
III. DISPOSITION
The order is affirmed. Respondents shall not recover attorney fees on appeal under Code of Civil Procedure section 425.16, subdivision (c). The parties shall bear their own costs and attorney fees incurred on appeal.
Sepulveda, J. We concur: Ruvolo, P. J. Rivera, J.