Opinion
E064163
12-13-2017
LAWRENCE PASTERNACK, Plaintiff and Appellant, v. VISION WEST INVESTMENTS, LLC et al., Defendants and Respondents.
Hatton, Petrie & Stackler, Gregory M. Hatton, Arthur R. Petrie II, and John A. McMahon for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup, and Bartley L. Becker for Defendants and Respondents Thomas B. McCullough, Jr., A Professional Corporation and Thomas B. McCullough, Jr. Nethery/Mueller/Olivier, D. Martin Nethery, D. Martin Nethery, Martin A. Mueller, and Jacqueline E. Bailey for Defendant and Respondent David McFarland.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super.Ct.No. INC1201882) OPINION APPEAL from the Superior Court of Riverside County. John G. Evans, Judge. Affirmed. Hatton, Petrie & Stackler, Gregory M. Hatton, Arthur R. Petrie II, and John A. McMahon for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, Roy G. Weatherup, and Bartley L. Becker for Defendants and Respondents Thomas B. McCullough, Jr., A Professional Corporation and Thomas B. McCullough, Jr. Nethery/Mueller/Olivier, D. Martin Nethery, D. Martin Nethery, Martin A. Mueller, and Jacqueline E. Bailey for Defendant and Respondent David McFarland.
I. INTRODUCTION
Plaintiff and appellant, Lawrence Pasternack, filed this malicious prosecution action against four defendants: Vision West Investments, LLC (VWI) (the plaintiff in the underlying action), and defendants and respondents, David McFarland (a VWI principal), Thomas B. McCullough, Jr. (VWI's attorney in the underlying action), and Thomas B. McCullough, Jr., A Professional Corporation (McCullough's law practice, McCullough APC.) In the underlying action or "collection action," VWI sought to recover $65,000 plus interest, costs, and attorney fees from Pasternack. The $65,000 sum was the price Pasternack agreed to pay VWI for constructing a bedroom addition on a newly constructed Palm Desert home that Pasternack purchased from VWI for $7,065,000 pursuant to a residential purchase agreement (the RPA). The bedroom addition was built after the escrow closed on the purchase and sale of the home, and after VWI had been paid $7 million of the $7,065,000 purchase price. Pasternack threw VWI off the jobsite in early March 2007, after the bedroom addition had been substantially completed but before VWI and defendants filed the collection action on March 20, 2007. Pasternack cross-complained against VWI in the collection action, alleging there were construction defects in the home and he had been fraudulently induced to enter into the RPA.
VWI was in default at the time of trial and is not a party to this appeal. McFarland, McCullough, and McCullough APC each participated in the trial.
Two issues in this malicious prosecution action were bifurcated and tried first: (1) whether defendants had probable cause to file and maintain the collection action (the probable cause element); and (2) whether the collection action was terminated in favor of Pasternack (the favorable termination element). If necessary, the malice and damages elements of Pasternack's malicious prosecution claim were to be tried later. Following the trial, the jury made 16 factual findings concerning what defendants—McFarland, McCullough, and McCullough APC—knew and believed at the time they filed the collection action in March 2007 and at later points through the time the collection action was voluntarily dismissed in January 2009. (CACI No. 1501.) After the jury returned its factual findings, the court made additional factual findings and found numerous facts to be undisputed. The court then determined defendants had probable cause to bring and maintain the collection action through the time of its dismissal, notwithstanding the jury's factual findings concerning defendant's subjective beliefs. Thus, it was unnecessary for the court to determine, and the court did not determine, whether the collection action was terminated favorably to Pasternack, and the malice and damages elements were never tried. Judgment was entered in favor of defendants.
Pasternack appeals, claiming the court erroneously determined defendants had probable cause to bring and maintain the collection action for two essential reasons. First, he claims the record does not support a finding of probable cause "independent of, or external to defendants' subjective belief that they could not prove core elements" of their collection claim. Second, he claims the court erroneously "severed" the $65,000 portion of the RPA for the bedroom addition from the entire $7,065,000 RPA for the purchase of the home, and as a result erroneously excluded evidence that, at the time the collection action was filed, defendants knew there were construction defects in the home and knew they had fraudulently induced Pasternack into entering into the RPA. We find no merit to these claims of error and affirm the judgment.
II. BACKGROUND
A. The Collection Complaint
On May 20, 2007, McCullough, on behalf of VWI, filed the collection action, asserting causes of action for breach of contract and account stated and seeking to collect the principal sum of $65,000 plus interest, costs, and attorney fees from Pasternack (the collection complaint). (Vision West Investments, LLC v. Pasternack (Riverside County Superior Court case No. INC065760).) In the collection complaint, VWI alleged that in October 2006 Pasternack, as buyer, and VWI, as seller, entered into the RPA for the purchase of the Palm Desert home, together with joint escrow instructions. VWI had recently constructed the home through its general contractor, Easton Builders Corporation (Easton Builders). The purchase price for the home was $7,065,000, and Pasternack deposited this entire sum into escrow.
Although Pasternack's former wife purchased the home with Pasternack, for ease of reference we will refer to Pasternack as the buyer of the home.
We grant Pasternack's unopposed request that we take judicial notice of the collection complaint in the underlying action which includes copies of the RPA and the joint escrow instructions as exhibits A and B. (Evid. Code, §§ 452, subd. (d), 459, subd. (a).) Pasternack's appellant's appendix includes a copy of the collection complaint, but that copy does not include copies of the RPA or the joint escrow instructions. We also grant Pasternack's request to take judicial notice of Pasternack's cross-complaint in the collection action, in which Pasternack alleged claims against VWI for construction defects in the home and for fraud, and the minute order, judgment, and verdicts following the trial of the cross-complaint. On his cross-complaint in the underlying action, Pasternack was awarded over $4 million in damages against VWI for factual misrepresentations concerning the sale of the home and for construction defects in the home. We deny Pasternack's request to take judicial notice of the court records attached as exhibits D, E, F, and G to his request on the ground these records were not presented to the trial court in this action and are not relevant to any disputed issue in this appeal. (Scruby v. Vintage Grapevine, Inc. (1995) 37 Cal.App.4th 697, 701, fn. 1.)
In November 2006, escrow closed on the purchase of the home and $7 million of the $7,065,000 purchase price was released from escrow and paid to VWI. The RPA provided that the remaining $65,000 portion of the purchase price would be "set aside and retained in escrow" pending VWI's design and construction of a bedroom addition to the home. Forty percent or $26,000 of the $65,000 sum was to be released to VWI upon its completion of the framing portion of the additional bedroom. Within five days after the escrow company received a "Certificate of Occupancy" issued by the City of Palm Desert (the City) "for the Additional Bedroom" (italics added), VWI and Pasternack were to conduct a "walk-through" of the additional bedroom, and upon "confirmation of completion" of the additional bedroom, the balance of the $65,000 sum, or $39,000, was to be released and paid to VWI. VWI alleged it completed the bedroom addition in February 2007, "in a satisfactory and workmanlike manner," but Pasternack failed and refused to authorize the escrow company to release any part of the $65,000 sum to VWI. In a separate cause of action, VWI sued the escrow company, Sundance Escrow, alleging it had breached the escrow contract by failing to release the $65,000 sum to VWI.
Easton Builders, the general contractor who built the home and bedroom addition for VWI, was a second plaintiff in the collection complaint and sued Pasternack in the third cause of action, alleging Pasternack owed Easton Builders $3,600.42 for a gas utility bill Easton Builders paid on behalf of Pasternack in connection with the construction of the bedroom addition. (See Pasternack v. McCullough (2015) 235 Cal.App.4th 1347, 1351-1352, 1356-1357 [holding Pasternack's malicious prosecution complaint was premature because he could not show the collection action was terminated in his favor when his cross-complaint was still pending in the collection action].) The third cause of action was adjudicated in favor of Pasternack (see id. at p. 1352) and was not in issue in this trial on Pasternack's malicious prosecution complaint.
Joint escrow instructions provided that "the parties" (VWI and Pasternack) were to deposit with Sundance Escrow a copy of "the job card signed off by the City of Palm Desert," and approved by the parties, for the "bedroom addition permit." The escrow instructions also provided that, upon the completion of the bedroom, VWI was to obtain a "Certificate of Occupancy" and deliver a copy of it to Sundance Escrow along with an original "Notice of Completion" for recording in Riverside County. Lastly, Pasternack was to deposit "written confirmation of acceptance of the structure and authorization to release" the remaining portion of the $65,000 to VWI. B. The Trial Court's Factual Findings
In its statement of decision and judgment following the bifurcated trial in this malicious prosecution action, the court made numerous factual findings and found other facts to be undisputed concerning the collection complaint. Pasternack does not dispute any of the court's factual findings, which include the following:
On February 19, 2007, the City "signed off" on the "Rough Framing" for the additional bedroom, and Pasternack e-mailed his "Punch List" for the additional bedroom to McFarland, VWI's principal. On February 22, VWI sent an invoice to Sundance Escrow seeking release of the $26,000 for the "completed framing," Sundance Escrow forwarded the invoice to Pasternack, but Pasternack orally instructed Sundance Escrow not to release any funds to VWI "because of problems." On February 26, the City "sign[ed] off" on the "Job Card" for the additional bedroom permit. The parties had a joint obligation to deliver the job card to escrow. A notice of completion and a certificate of occupancy were submitted to Sundance Escrow "before the escrow on the main house closed" in November 2006. "There was no evidence offered that the City of Palm Desert required the issuance of a Certificate of Occupancy or a Certificate [Notice] of Completion for a bedroom addition."
The court additionally found that, from the time escrow closed in November 2006 and "at all times relevant to the Collection Action" Pasternack was the owner and occupant of the home. "Pasternack was dissatisfied with VWI and that is part of the reason he kicked them off the job . . . site on March 12, 2007." Before McCullough filed the collection complaint on March 20, 2007, Sundance Escrow advised McCullough that Pasternack would not release any part of the $65,000 to VWI. "Pasternack did not believe that as of March 8, 2007, there were any problems with the bedroom addition which justified not releasing any portion of the $65,000." In October 2007, the parties submitted amended escrow instructions to Sundance Escrow, and in December 2007 Sundance Escrow released the $65,000 to VWI. On January 9, 2009, the day after McFarland's deposition was taken, VWI dismissed the collection complaint. "The Collection Matter remained dormant from the time the $65,000 was released in December 2007, until the time McFarland's deposition was noticed for January 8, 2009." C. The Malicious Prosecution Complaint
On January 15, 2009, six days after VWI voluntarily dismissed the collection complaint, Pasternack filed this malicious prosecution action against VWI, its principal McFarland, its attorney McCullough, and McCullough's law firm, McCullough APC. Pasternack alleged defendants filed the collection complaint with malice and without probable cause, and "knowingly and intentionally made the false allegation that [Pasternack] owed [VWI] damages of $65,000, plus costs and fees . . . ." Pasternack alleged VWI "never presented the escrow company with the required documentation" for the release of the $65,000 sum. Instead of providing the required documentation to the escrow, VWI filed the collection complaint and prosecuted it until January 9, 2009, when it was voluntary dismissed. Pasternack sought compensatory damages, including attorney fees and costs, damages for emotional distress and mental suffering, impairment to his personal and business reputation, and loss of time, and punitive damages. D. The Jury's Factual Findings
This malicious prosecution action was originally filed in Los Angeles County. (Pasternack v. Vision West Investments LLC (Los Angeles County Superior Court case No. BC405635.) It was later transferred to Riverside County and became Riverside County Superior Court case No. INC1201882. (Pasternack v. McCullough, supra, 235 Cal.App.4th at p. 1352, fn. 2.) --------
Following the presentation of the evidence in this trial, 16 questions were submitted to the jury (see CACI No. 1501), and the jury answered each question "yes" or "no." Most of the questions involved what McFarland and McCullough subjectively believed at the time the collection complaint was filed in March 2007, after VWI received the $65,000 from Sundance Escrow in December 2007, and at the time the collection complaint was dismissed in January 2009.
The jury found the following: As of March 20, 2007, the date the collection complaint was filed, McFarland believed VWI had completed the bedroom addition and that VWI had done everything required of it for release of the $26,000 sum from escrow, but McFarland did not believe VWI had done everything required of VWI for release of the entire $65,000 price for the bedroom addition (questions 1-3). Neither McCullough nor McCullough APC believed, as of March 20, 2007, that VWI had completed construction of the additional bedroom or that VWI had done "everything required of it" for release of the $26,000 or the entire $65,000 sum from escrow (questions 4-6). After VWI received the $65,000 sum (in December 2007), neither McFarland, McCullough, nor McCullough APC believed VWI was entitled to recover interest, costs, or attorney fees from Pasternack (questions 7-12). None of defendants believed the collection complaint was dismissed (in January 2009) "because it did not make economic sense for [VWI] to continue to pursue the [collection complaint]" (questions 13 & 16). McFarland did not rely on McCullough's legal advice to pursue the collection complaint (question 15), but McFarland "ma[d]e a full and honest disclosure" to McCullough "of all of the important facts known" to McFarland (question 14). E. The Court's Probable Cause Determination
In its statement of decision, the court concluded: "Based upon the jury's finding and the Court's consideration of the undisputed facts and the Court's factual findings, the Court finds there was probable cause to file and maintain the Collection Action until the date it was dismissed." The court explained the bases of its probable cause determination in its statement of decision, which we discuss below. F. Relevant Trial Testimony
Curtis Dunham was a principal of VWI and Easton Builders, the contractor who built the home for VWI. Dunham testified that the bedroom addition had been completed when the collection complaint was filed on March 20, 2007. No separate certificate of completion or certificate of occupancy concerning the bedroom addition, as distinct from the main house, was available. McFarland, a principal of VWI, sent Sundance Escrow a $26,000 invoice for the framing portion of the bedroom addition after the framing was completed, but escrow did not release the $26,000 sum. The decision to file the collection complaint was jointly made by Dunham, McFarland, and McCullough. McFarland received a draft of the collection complaint before it was filed and confirmed the accuracy of its allegations.
McCullough is an attorney, founded VWI, and represented VWI in the collection action. Before McCullough APC drafted the collection complaint, McCullough was told that VWI had completed all of the work required for the bedroom addition, and McCullough asked for and received all relevant documents pertaining to the construction of the bedroom addition. Dunham told McCullough that everything on Pasternack's "Punch List" concerning the bedroom addition had been handled. McCullough testified it was impossible to conduct a "walk-through" of the bedroom addition or obtain a certificate of occupancy for the bedroom because Pasternack had denied access to the home.
Pasternack admitted that, as of March 8, 2007, there were no problems with the bedroom addition that precluded release of the $65,000 deposit he had made into escrow. As of that time, the problems with the bedroom addition had been "[f]ully handled." No payment was made by or on behalf of Pasternack for the bedroom addition until Pasternack signed amended escrow instructions and a $65,000 check was sent to VWI from Sundance Escrow on December 26, 2007, over nine months after the collection complaint was filed.
VWI received the $65,000 from escrow in December 2007. Just over a year later, on January 9, 2009, the causes of action asserted by VWI against Pasternack in the collection complaint were voluntarily dismissed. McCullough believed VWI was entitled to receive interest and costs as of the time of the January 2009 dismissal because only the principal sum of $65,000 had been paid. But McCullough advised McFarland it would not be cost effective for VWI to pursue the collection complaint just to recover interest and costs. McFarland believed VWI was entitled to interest on the $65,000 sum from February 2007. But McFarland and Dunham agreed to drop the collection action, as McCullough recommended. McCullough had advised McFarland and Dunham that it was not economical to pursue the claims for interest and costs. G. The Judgment
Judgment on Pasternack's malicious prosecution complaint was entered in favor of VWI, McFarland, McCullough, and McCullough APC. The court also found defendants were the prevailing parties on the malicious prosecution complaint. Pasternack timely appealed.
III. DISCUSSION
A. The Record Supports the Court's Determination That There Was Probable Cause to File and Maintain the Collection Complaint Through the Time of Its Dismissal
Pasternack claims the court erroneously concluded there was probable cause to file and maintain the $65,000 collection complaint from the time it was filed in March 2007 through its January 2009 dismissal. Although he does not dispute any of the court's factual findings, Pasternack claims the record does not support a finding of probable cause "independent of, or external to defendants' subjective belief that they could not prove core elements" of their collection claim. As we explain, the record supports the court's conclusion that there was probable cause to bring and maintain the collection complaint—from an objective standpoint, and regardless of what any of the defendants subjectively knew or believed at any time.
1. Applicable Legal Principles/the Probable Cause Element
The common law tort of malicious prosecution affords a remedy for persons who have had to defend against a maliciously instituted or maintained civil action where there was no probable cause to bring or maintain the action. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871 (Sheldon Appel); Zamos v. Stroud (2004) 32 Cal.4th 958, 973 [malicious prosecution includes "continuing to prosecute a lawsuit discovered to lack probable cause."].) To establish a cause of action for malicious prosecution, the plaintiff must show that the prior action—the underlying action—was: "(i) initiated or maintained by, or at the direction of, the defendant, and pursued to a legal termination in favor of the malicious prosecution plaintiff; (ii) initiated or maintained without probable cause; and (iii) initiated or maintained with malice." (Parrish v. Latham & Watkins (2017) 3 Cal.5th 767, 775-776.) The plaintiff must also show resulting damages. (Pasternack v. McCullough, supra, 235 Cal.App.4th at p. 1355.)
Whether the underlying action was brought with probable cause is a question of law to be determined by the court; it is not a question of fact for the jury. (Sheldon Appel, supra, 47 Cal.3d at p. 875.) "The question of probable cause is 'whether, as an objective matter, the prior action was legally tenable or not.'" (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 292.) As explained in Sheldon Appel: "The question whether, on a given set of facts, there was probable cause to institute an action requires a sensitive evaluation of legal principles and precedents, a task generally beyond the ken of lay jurors, and courts have recognized that there is a significant danger that jurors may not sufficiently appreciate the distinction between a merely unsuccessful and a legally untenable claim. To avoid improperly deterring individuals from resorting to the courts for the resolution of disputes, the common law affords litigants the assurance that tort liability will not be imposed for filing a lawsuit unless a court subsequently determines that the institution of the action was without probable cause. [Citations.] 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. [Citations.]" (Sheldon Appel, supra, at p. 875.)
2. The Collection Complaint Was Legally Tenable When Filed
Pasternack claims that the $65,000 collection complaint was not legally tenable at the time it was filed on March 20, 2007, because VWI had not complied with three provisions of the escrow instructions governing the release of the $65,000 sum to VWI, namely, the submission to escrow of (1) the job card, (2) the certificate of occupancy, and (3) the notice of completion for the bedroom addition. Pasternack points out that VWI did not submit the job card to escrow upon the completion of the framing portion of the bedroom addition—a condition of Sundance Escrow's release of $26,000 of the $65,000 sum—and VWI also did not submit the certificate of occupancy or the notice of completion to escrow upon the full completion of the bedroom addition—conditions for the release of the balance of the $65,000 sum.
We reject these claims. In sum, the court found and the record shows that when VWI filed the collection action on March 20, 2007, it had at least a tenable argument that these three conditions to the release of the $65,000 sum were either a mutual obligation of VWI and Pasternack, were excused, or were impossible for VWI to perform. (See Civ. Code, §§ 1434-1441.) VWI had substantially, if not fully, completed the bedroom addition and was excused from performing any uncompleted "Punch List" items at the time it filed the $65,000 collection complaint, because Pasternack had kicked Easton Builders off the job site and would not allow VWI to complete the punch list items. The record thus supports the court's determination that the collection action was legally tenable when filed.
(a) The Job Card Was a Mutual Obligation of VWI and Pasternack
Regarding the job card, the court found and the record shows that the parties had a joint obligation to deliver the job card to escrow upon the completion of the $26,000 framing portion of the bedroom addition. The escrow instructions provided that "[u]pon completion of the framing portion of the additional [bedroom] the parties will deposit with Escrow Holder a copy of the job card signed off by the City of Palm Desert and approved by [the parties]." (Italics added.) It was also undisputed that, on February 19, 2007, the City signed off on the "Rough Framing" for the additional bedroom, and Pasternack e-mailed his "Punch List" for the additional bedroom to McFarland. On February 26, the City "sign[ed] off" on the job card for the bedroom addition. On March 12, Pasternack kicked VWI off the jobsite, preventing VWI from completing any uncompleted "Punch List" items. At the time the collection complaint was filed on March 20, Pasternack had not deposited his "written confirmation" of his "acceptance" of the bedroom addition or his "authorization to release" any part of the $65,000 sum to VWI, as the escrow instructions required. And before the collection complaint was filed, Sundance Escrow advised McCullough that Pasternack would not authorize the escrow company to release any portion of the $65,000 sum to VWI.
Thus, VWI's failure to deliver the job card to escrow did not render the $65,000 collection complaint untenable. As the court explained: "Whether the 'Job Card' was on the property and Pasternack prevented VWI from entering the property or was available at the City of Palm Desert Building Department, Pasternack was in breach of his obligation to present the 'Job Card' to escrow. The suit does not become untenable just because VWI had the same obligation. The obligation was mutually enforceable." As the court also found, "[e]ven if a 'Job Card' had been deposited into escrow prior to the filing of the Collection Action, Pasternack had already instructed Sundance Escrow not to release [any] funds and had barred VWI from entering upon his property." And Sundance Escrow had advised VWI that it would not release any funds from escrow without Pasternack's approval. Thus, the court correctly concluded that "VWI had a legally tenable claim to sue Pasternack to recover the $26,000 framing draw since Pasternack's instruction [to escrow not to release any funds to VWI] was not contingent on delivery of the Job Card, but instead was due to problems."
(b) The Certificate of Occupancy and Notice of Completion Were Excused
VWI had a legally tenable claim that it was excused from providing a certificate of occupancy and a notice of completion to Sundance Escrow upon VWI's completion of the bedroom addition. As the court found, "the escrow instructions were poorly drafted because they required VWI to deliver both a [notice] of Completion and a Certificate of Occupancy related to the completion of the bedroom addition." The court also found that both of these documents were submitted to escrow "before the escrow on the main house closed" in November 2006, and no evidence was presented that the City required the same documents to be issued upon the completion of the bedroom addition. On this basis, the court implicitly and correctly concluded that VWI was excused from providing the certificate or the notice to escrow as a condition of the release of the rest of the $65,000 sum.
(c) Pasternack's Initial Failure to Approve the Release of the $65,000 Sum
The court found that, "without the agreement of Pasternack and VWI to waive the [job card, certificate, and notice] requirement[s] and authorize release of the funds, Sundance Escrow would not release any funds from escrow. [¶] . . . VWI could not force Pasternack to waive the escrow conditions. Even as late as October 22, 2007, Pasternack was still demanding Sundance Escrow produce the Certificate of Occupancy and the Job Card before Sundance Escrow released the $65,000 to VWI." The court further found that Pasternack kicked VWI off the jobsite on March 12, 2007, "because of problems" unrelated to the job card, the certificate of occupancy or the notice of completion, or any other "problems with the bedroom addition." The record thus supports a reasonable inference that Pasternack would not have authorized Sundance Escrow to release any portion of the $65,000 to VWI even if VWI had delivered the job card, the certificate of occupancy, and the notice of completion to Sundance Escrow.
3. The Collection Complaint Was Legally Tenable Through Its Dismissal
Pasternack claims the $65,000 collection complaint was legally untenable after the $65,000 sum was paid to VWI in December 2007. He argues that after December 2007 and continuing through January 9, 2009, when VWI voluntarily dismissed the complaint, VWI had no legally tenable claim to interest, costs, or attorney fees on the $65,000 sum. We disagree. As the court found: "VWI's maintenance of the Collection Action following payment of the $65,000 [was] objectively reasonable. By July 18, 2007, Pasternack's cross-complaint [against VWI] was on file. . . . VWI's claim that it was entitled to costs of suit and interest [was] tenable, even though the jury found that both McFarland and McCullough did not believe that VWI was entitled to collect attorney's fees, costs of suit and/or interest. . . . [O]bjectively, it was reasonable to believe that VWI was the prevailing party [on the collection complaint] and might be entitled to interest and costs."
It was also objectively reasonable to believe VWI might be entitled to attorney fees on its collection claim. Thus, VWI's prayer seeking attorney fees in the collection complaint does not support Pasternack's malicious prosecution claim. As the court found, the attorney fee prayer was legally tenable, "[e]ven if the [attorney fee] remedy [was] ultimately not available because VWI did not demand arbitration before filing [the collection action, as the RPA required]." (The RPA included an attorney fee provision, but provided that attorney fees would be unavailable to "any party [who] commences an action without first attempting to resolve the matter through mediation.") We agree with the court that "[t]here [was] no harm in asking [for attorney fees]," particularly because VWI had a legally tenable claim for the $65,000 sum when the collection complaint was filed. Given Pasternack's unconditioned and continuing refusal, until October 2007, to authorize Sundance Escrow to release any part of the $65,000 sum to VWI, VWI had at least a tenable claim that it was excused from pursuing mediation and was entitled to attorney fees. We also agree with the court's conclusion that maintaining the collection action "in hopes of obtaining a [general] release of claims," encompassing Pasternack's cross-complaint, "is an ordinary occurrence" and an acceptable legal practice, when, as here, VWI had legally tenable claims for interest, costs, and attorney fees to offset the claims alleged in Pasternack's cross-complaint against VWI.
4. The Record Supports the Court's Probable Cause Determination, Notwithstanding the Jury's Factual Findings
Pasternack claims the court's probable cause determination is inconsistent with the jury's factual findings concerning what McFarland, McCullough, and McCullough APC knew and subjectively believed when they caused VWI to file the collection complaint in March 2007 through the time the collection complaint was dismissed in January 2009. This argument misunderstands the objective nature of the probable cause determination.
When as here, undisputed facts or other evidence shows there was an objectively reasonable basis for initiating or maintaining the underlying action, a party's or attorney's knowledge or subjective beliefs are irrelevant to the question of whether there was a legally tenable basis to initiate or maintain the action. (Hufstedler, Kaus & Ettinger v. Superior Court (1996) 42 Cal.App.4th 55, 62; Zamos v. Stroud, supra, 32 Cal.4th at p. 973; Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 496-498.) The court's factual findings, which Pasternack does not dispute, support the court's determination that there was an objectively reasonable or legally tenable basis for filing the collection complaint and for maintaining it through the time of its dismissal—notwithstanding the jury's factual findings concerning defendants' knowledge and subjective beliefs.
To begin with, the jury found that, as of March 20, 2007, the date the collection complaint was filed, McFarland believed VWI had completed the bedroom addition and had done everything required of it for release of $26,000 from escrow, but the jury also found McFarland did not believe VWI had done everything required of it for the release of the $65,000 from escrow (questions 1-3). The jury additionally found that neither McCullough nor McCullough APC believed VWI had "completed construction" of the bedroom addition, and did not believe VWI had done "everything required of it" for release of the $26,000 or the entire $65,000 sum, at the time the collection complaint was filed (questions 4-6).
At most, these findings indicate the jury believed defendants believed VWI had an obligation to deliver the job card, certificate of occupancy, and notice of completion to Sundance Escrow as a condition for the release of the full $65,000, as the escrow instructions required. But the court found and the record shows that VWI had a legally tenable basis for believing it was excused from delivering these documents to escrow—even if McFarland, McCullough, and McCullough APC did not subjectively share that belief. In this case, the contrary subjective beliefs of defendants are "'a classic case of "no harm, no foul."'" (Hufstedler, Kaus & Ettinger v. Superior Court, supra, 42 Cal.App.4th at p. 64.)
The jury's findings also show the jury believed that McFarland, but not McCullough or McCullough APC, believed VWI had completed the bedroom addition by March 20, 2007. But the court found and the record also shows that Pasternack kicked VWI and its contractor, Easton Builders, off the jobsite on March 12, 2007, preventing them from doing any further work. Further, Pasternack had delivered his "Punch List" for the bedroom addition to McFarland by e-mail in February 2007. Thus, the record supports the court's finding that, from an objective standpoint, VWI had a legally tenable basis for filing the $65,000 collection complaint on March 20, 2007, even if some of Pasternack's "Punch List" items had not been completed.
The jury further found that, after VWI received the $65,000 (in December 2007), neither McFarland, McCullough, nor McCullough APC subjectively believed that VWI was entitled to recover interest, costs, or attorney fees from Pasternack (questions 7-12). Additionally, none of defendants believed the collection complaint was dismissed (in January 2009) "because it did not make economic sense for [VWI] to continue to pursue the [collection complaint]" (questions 13 & 16) and McFarland did not rely on McCullough's legal advice to pursue the collection complaint (question 15). But as the court found and the record shows VWI had a legally tenable basis for maintaining its collection complaint through January 2009, after it received the $65,000 sum from Sundance Escrow in December 2007, in order to recover interest, costs, and attorney fees on the collection complaint—even if it did not make economic sense to do so. As the court pointed out, Pasternack's cross-complaint was on file by July 2007 and VWI had a legally tenable basis for pursuing its interest, costs, and attorney fees as an offset to the construction defect and fraudulent inducement claims alleged in the cross-complaint. B. The Court Properly Excluded Evidence Defendants' Knew There Were Construction Defects in the Home and Fraudulently Induced Pasternack to Enter into the RPA
Before trial, the court rejected Pasternack's proposed jury questions concerning whether defendants believed they were in compliance with the entire $7,065,000 RPA when they filed the collection complaint for the $65,000 portion of the RPA in March 2007. Instead, the court limited the jury questions and the scope of the evidence to whether McFarland, McCullough, and McCullough APC believed VWI was in compliance with the $65,000 portion of the RPA pertaining to the bedroom addition and the portion of the escrow instructions pertaining to the release of the $65,000 sum.
Pasternack claims that in making these rulings the court erroneously "rewrote" the underlying collection complaint by limiting it to the $65,000 portion of the RPA, and erroneously excluded evidence pertaining to the entire RPA—namely, that defendants knew there were construction defects in the home when VWI sold it to Pasternack in November 2006, and that defendants, through VWI, fraudulently induced Pasternack to enter into the RPA in October 2006. In sum, Pasternack argues the court prejudicially erred in excluding evidence defendants knew about the construction defects in the home and knew they had fraudulently induced Pasternack to enter into the RPA at the time defendants caused VWI to file the collection complaint in March 2007. Pasternack argues this evidence was relevant and admissible to show that the $65,000 collection claim was legally untenable, and it is reasonably probable he would have prevailed on the probable cause element of his malicious prosecution claim had the evidence been admitted and the jury been allowed to make findings concerning defendants' knowledge about the construction defects and defendants' fraud. (People v. Watson (1956) 46 Cal.2d 818, 836.)
We find no abuse of discretion in the court's orders excluding evidence that defendants knew there were construction defects in the home when they caused VWI to file the $65,000 collection complaint in March 2007, or that defendants fraudulently induced Pasternack to enter into the RPA for the sale of the home in October 2006. The court could have reasonably concluded that this evidence was not relevant to whether the collection complaint was legally tenable when it was filed in March 2007—even if defendants knew or should have known the collection claim was likely to be, or would be, offset by Pasternack's construction defect and fraudulent inducement claims.
"Of course, only relevant evidence is admissible (Evid. Code, § 350), and relevance is defined as [evidence] 'having any tendency in reason to prove or disprove any disputed fact that is of consequence to the determination of the action' (id. § 210). The trial court has broad discretion to determine the relevance of evidence [citation], and we will not disturb the court's exercise of that discretion unless it acted in an arbitrary, capricious or patently absurd manner [citation]." (People v. Jones (2013) 57 Cal.4th 899, 947.) "A claim that is legally sufficient and can be substantiated by competent evidence is . . . one that a 'reasonable attorney would have thought . . . tenable.'" (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 821, quoting Sheldon Appel, supra, 47 Cal.3d at p. 886.) Indeed, "[a] litigant or attorney who possesses competent evidence to substantiate a legally cognizable claim for relief does not act tortiously by bringing the claim, even if also aware of evidence that will weigh against the claim. Plaintiffs and their attorneys are not required, on penalty of tort liability, to attempt to predict how a trier of fact will weigh the competing evidence, or to abandon their claim if they think it likely the evidence will ultimately weigh against them. They have the right to bring a claim they think unlikely to succeed, so long as it is arguably meritorious. (Sheldon Appel, supra, 47 Cal.3d at p. 885.)" (Wilson v. Parker, Covert & Chidester, supra, at p. 822, fn. omitted.)
Further, VWI's $65,000 collection complaint was limited to the $65,000 portion of the RPA, and did not pertain to the entire RPA for the sale of the home. The court could have reasonably concluded that admitting any evidence of the construction defects in the home, or evidence that defendants fraudulently induced Pasternack to enter into the RPA, would have confused the issues for the jury, and prejudiced the jury's factual determinations concerning what defendants knew about the completion of the bedroom addition, VWI's compliance with the escrow instructions pertaining to the release of the $65,000, and the validity of VWI's $65,000 claim. (Evid. Code, § 352.)
In sum, the trial court correctly concluded, based on the undisputed evidence, the court's factual findings, and the jury's factual findings, that Pasternack failed to establish the probable cause element of his malicious prosecution claim. As explained in Sheldon Appel, the probable cause element "imposes no improper or unjustified hardship on a malicious prosecution plaintiff. If a court finds that the initial lawsuit was in fact objectively tenable, the court has determined that the fundamental interest which the malicious prosecution tort is designed to protect—'the interest in freedom from unjustifiable and unreasonable litigation' [citation]—has not been infringed by the initial action. Under such circumstances, it is not unfair to bar a plaintiff's [malicious prosecution] suit for damages even if the plaintiff can show that its adversary's law firm did not realize how tenable the prior claim actually was, since the plaintiff could properly have been put to the very same burden of defending an identical claim if its adversary had simply consulted a different . . . attorney. This is a classic case of 'no harm, no foul.'" (Sheldon Appel, supra, 47 Cal.3d at p. 882.)
IV. DISPOSITION
The judgment is affirmed. The parties shall bear their costs on appeal. (Cal. Rules of Court, rule 8.278.)
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
FIELDS
J. We concur: McKINSTER
Acting P. J. MILLER
J.