Zhang v. Chu, Appellate Case No. B292418
In this newly-published opinion filed March 5, 2020, the Court of Appeal affirmed the trial court’s grant of a Special Motion to Strike a malicious prosecution claim. The Court affirmed the trial court’s ruling that the mal pros plaintiff just wasn’t able to show sufficient evidence of the tricky malice element required to get past the Special Motion to Strike. Per the Zhang Court, “[ma]lice is a vital element of malicious prosecution, and [plaintiff] had no proof of it…. No malice meant no malicious prosecution, which meant defeat for [the mal pros plaintiff].” Zhang at **1, 5.
This is a good example of why malicious prosecution / wrongful use of civil proceedings claims are so difficult to pursue in light of the anti-SLAPP statute and related legal doctrines. Otherwise, the opinion has a useful run-down of malicious prosecution law, particularly in the context of an anti-SLAPP Motion, alter-ego allegations, and settlement discussions during litigation.
Procedural Posture
Zhang was the successful defendant in the preceding action, which apparently was still active and proceeding through the pendency of this appeal. The preceding action was a wage-and-hour case against a tricking company. The wage-and-hour suit was filed by a worker represented by attorney Chu. Acting on the worker’s behalf, Chu sued the trucking company employer and an unrelated individual.
Over the course of the lawsuit, Chu and his client discovered several connections between the trucking company employer and another trucking company, as well as mal pros plaintiff Zhang here. The two companies operated out of the same address, employed the same employees, and shared the same single shareholder, the mal pros plaintiff Zhang here. Zhang admitted to owning the second company, and the second company made substantial money transfers – $90K – to the first trucking company. If this was not enough, the second company even paid for monetary sanctions imposed against the primary named trucking company defendant during this litigation, which check “appeared” to have been signed by mal pros plaintiff Zhang. Chu and his client further discovered a “pattern” whereby mal pros plaintiff Zhang and his son had formed and dissolved multiple corporations operating out of the same address before, which they operated as a single enterprise.
Based on these connections (which are substantial and enumerated in detail in the opinion), Chu brought a combination of alter-ego and single enterprise allegations to seek to impose the trucking company’s liability for the wage-and-hour claims onto the mal pros plaintiff Zhang. Zhang was DOE’d into the proceedings as a DOE Defendant.
In response, Zhang filed a C.C.P. § 128.7 Motion for Sanctions targeting the claims made against him, about three months after being added to the action. Two weeks later, Chu, acting on his client’s behalf, then dismissed Zhang from the case voluntarily, without prejudice. Chu later claimed that he did this because he did not want to “undertake the risk and cost of opposing Zhang’s section 128.7 motion,” which does not make much sense to me but the opinion here does not reveal the contents of the Motion or why it spooked Chu and his client into dropping Zhang as a defendant. Instead, Chu and his client DOE’d in the second trucking company.
Zhang filed his underlying mal pros action against Chu (and not his client) about two months later, presumably as an ill-conceived move to pressure Chu and his client into settling the larger matter (ironic, given the analysis that follows). Chu filed an anti-SLAPP Motion, which was granted by the trial court. This appeal followed.
Analysis
Per Zhang, “the roots of the common law tort of malicious prosecution go deep into the past.” Zhang at *6 (citing Groundless Litigation and the Malicious Prosecution Debate: A Historical Analysis (1979) 88 Yale L.J. 1218, fn. 1 [citing Code of Hammurabi, Babylonia, 2250 B.C.].
The Zhang Court “nickname[d]” the three elements of a malicious prosecution claim as “favorable termination, [lack of] probable cause, and malice.” Zhang at *6. Because the trial court premised its SLAPP ruling here on Zhang’s inability to show prima facie evidence of malice, the appellate court here likewise focused on this element and ignored the others (which are typically the easiest to prove, especially the first one).
Per Zhang, “[t]he malice element… has an elaborated common law meaning. Malice may refer simply to subjective hostility or ill will, but it also has rather different meanings as well….” Zhang at *7.
Quoting Justice Traynor from California’s Supreme Court (which in turn adopted the Restatements 1956 definition of malice): ““The malice required in an action for malicious prosecution is not limited to actual hostility or ill will toward plaintiff but exists when the proceedings are instituted primarily for an improper purpose…. It has been pointed out that the ‘principal situations in which the civil proceedings are initiated for an improper purpose are those in which (1) the person initiating them does not believe that his claim may be held valid; (2) the proceedings are begun primarily because of hostility or ill will; (3) the proceedings are initiated solely for the purpose of depriving the person against whom they are initiated of a beneficial use of his property; and/or the proceedings are initiated for the purpose of forcing a settlement which has no relation to the merits of the claim.’ ” (quoting Albertson v. Raboff (1956) 46 Cal.2d 375, 383, italics added, quoting Rest., Torts, § 676, com. b.)
Further per Zhang at *8 (quoting Rest., Torts & 674, subd. (a)(ii)), another way of phrasing the fourth definition of malice is that “the defendant initiated the lawsuit ‘primarily for a purpose other than that of securing the adjudication of the claim on which the proceedings are based.’” This specific definition “relates to the subjective intent or purpose with which [mal pros defendant] Chu brought [mal pros plaintiff] Zhang into the case” (emphasis in original). Id.
The Zhang Court focused on the fourth definition of malice here because the mal pros plaintiff Zhang apparently presented no “evidence about the first three” in his Opposition to Chu’s anti-SLAPP Motion (whoops). Zhang at *7.
The Zhang Court first explained that “[a]s a matter of law and logic, …it would not be enough for Zhang to show Chu added Zhang… simply to ‘force a settlement[,]’” because every plaintiff in every lawsuit always is trying to “force a settlement.” Zhang at *9 [“Forcing a settlement is the omnipresent and proper goal of litigation. One litigator is constantly trying to convince the other to settle on the one litigator’s terms, on pain of eventual and costly defeat. Parties turn to the force of litigation when less coercive settlement efforts have failed. Attempts to force settlement thus are common”]. Further on this point, “to make it ‘malicious,’ it takes more than a simple desire to win. The attempt to force a settlement must be unrelated to the merits” (emphasis in original). Id.
Here, the Zhang Court explained that for the mal pros plaintiff Zhang to beat Chu’s anti-SLAPP Motion, Zhang had to prove that “Chu’s reason” for adding Zhang to the wage-and-hour case “was not related to the merits….” Zhang at *10. This required Zhang “to prove a negative[,] which “is hard, and intentionally so for this tort, which is disfavored….” Id. (citing Sheldon, supra, 47 Cal.l3d at 872-874).
The Zhang Court explained that in the context of the underlying wage-and-hour case, “searching for alter egos can be, and typically is, on the merits…. A common reason for adding individuals as defendants to wage-and-hour litigation is plaintiffs’ fear of procuring a worthless judgment. A judgment is worthless if it is against an entity that is merely an empty corporate shell. This is not a problem when the defendant is a Fortune 500 corporation and a plaintiff has confidence the corporate entity has substantial assets. But wage-and-hour cases sometimes are against employers of small size or of unknown substance. If a named defendant entity indeed is merely a shell, the supposedly victorious plaintiff can be left with few or no assets against which to levy…. From the plaintiff’s perspective, the litigation would have been in vain. For this reason, it is common in wage-and-hour litigation for plaintiffs to search for people they suspect may be alter egos of corporate shells.” Zhang at **10-11.
Thus here, mal pros plaintiff Zhang had to “disprove” that Chu’s reason for adding him as a DOE Defendant was not to avoid the win of a worthless wage-and-hour judgment against the trucking company. Zhang at *11. “Zhang failed in this quest.” Id.
The Zhang Court shot down most of Zhang’s arguments attacking the trial court’s analysis.
Of note, it emphasized the “probability” part of the SLAPP’s second prong test – Zhang at *11 – instead of relying on the arguably easier-to-meet burden set forth in from Navallier v. Sletten (2002) 29 Cal.4th 82, 89 [claim must have sufficient “minimal merit”].
The parties (and consequently courts) analyzed the respective merits of Chu’s various settlement demands over the course of the litigation, which the Zhang Court ultimately found “shows nothing about Chu’s reason for adding Zhang to the lawsuit…. Chu’s demands may have been accurate reflections of his evolving analyses of the case’s value, or tactical bluffing, or alternating moods of optimism and panic, or a combination of all of the above, or something else entirely.” Id. at *12.
The Court shot down Zhang’s argument that Chu acted with malice by imposing a response deadline to his settlement demands. Zhang at **12-13. Per the Court, this was “routine[]” and “[n]othing about this tactic shows Chu’s subjective mental state when he added Zhang to the case. The inference Zhang urges is free of logical content” (yikes). Id.
Zhang argued that his evidence for lack of probable cause in turn served as evidence of malice. Per the Court, not so – “the two elements are distinct.” Zhang at *14 (citing Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 493).
Given the foregoing facts and analysis, it ironically appears that Chu may have grounds to sue Zhang for malicious prosecution based on Zhang’s mal pros action. It would be confusing, to say the least, to argue, however – “Zhang lacked probable cause to sue Chu because Chu did have probable cause to sue Zhang, etc., etc.” Since Chu will be awarded substantial SLAPP fees for the trial level and appellate level SLAPP work, this presumably won’t happen.
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