Bertero v. Nat'l Gen. Corp. - 13 Cal. 3d 43, 118 Cal. Rptr. 184, 529 P.2d 608 (1974)

Rule:

Malicious prosecution is not a tort "favored by the law." Public policy, however, does not limit the right to seek redress for the malicious abuse of the judicial process; such abuse cannot be sanctioned either in the assertion of affirmative claims in initiating proceedings or in the affirmative assertion of such claims after the initiation of proceedings. 

Facts:

Bertero was elected president of National General Corporation (National) in 1958, culminating a lengthy association as an executive of both that company and of NGC's predecessor in interest, Fox West Coast Theatres Corporation (Fox), a controlled subsidiary. In 1959, following a power struggle within National, Bertero resigned his office but retained his seat on its board of directors. Coincident with the resignation Bertero entered into a 10-year employment contract with National. Under the terms of the agreement, which superseded an existing employment contract, he was to serve as a part-time executive for five years followed by five years of service as an advisor and consultant. The agreement was unanimously ratified by the board of directors (including Klein) and Fox guaranteed National's performance. Klein, a major shareholder in National, became its president in early 1961. He and Bertero had previously disagreed over matters of company policy and their discord rapidly dissolved into animosity. Bertero resigned from his directorship in June of that year but rebuffed efforts to buy the remainder of the 1959 employment contract or to induce him to surrender stock options which he had obtained prior to 1959. On March 13, 1962, after Klein had secured control of National's board of directors, Bertero surrendered a portion of his stock options. On March 29, Klein attempted to persuade Bertero to divest himself of his remaining stock options and to terminate the 1959 employment agreement. Bertero refused to acquiesce. Klein expressed his displeasure and in a letter dated that same day informed Bertero that the 1959 agreement was "invalid, unenforceable and an imposition upon the company." He simultaneously ordered Bertero's salary, life and health insurance benefits and stock options terminated.

In June of 1962 Bertero initiated an action against National and Fox seeking declaratory relief as to the 1959 agreement and the stock options purportedly terminated by Klein, as well as damages for unpaid salary from the date of repudiation. The trial court ruled in his favor. The judgment declared the stock options and the 1959 employment agreement to be valid, and the cross-complaint was dismissed with prejudice. The judgment was affirmed on appeal. Bertero received $ 607,069 in immediate satisfaction of the judgment and in excess of $ 50,000 in installments of salary thereafter becoming due. Bertero thereupon instituted the instant action seeking damages for the malicious prosecution of the cross-complaint. At the pleading and pretrial stages he proceeded on three separate theories within the rubric of malicious prosecution, but the case was eventually presented to the jury solely on the theory that the cross-complaint had been maliciously prosecuted. The Superior Court of Los Angeles County awarded compensatory and punitive damages to him for malicious prosecution.

Issue:

Can an action for malicious prosecution arise on the filing of a cross-pleading?

Answer:

Yes.

Conclusion:

The malicious commencement of a civil proceeding is actionable because it harms the individual against whom the claim is made, and also because it threatens the efficient administration of justice. The individual is harmed because he is compelled to defend against a fabricated claim which not only subjects him to the panoply of psychological pressures most civil defendants suffer, but also to the additional stress of attempting to resist a suit commenced out of spite or ill will, often magnified by slanderous allegations in the pleadings. In recognition of the wrong done the victim of such a tort, settled law permits him to recover the cost of defending the prior action including reasonable attorney's fees, compensation for injury to his reputation or impairment of his social and business standing in the community, and for mental or emotional distress. The judicial process is adversely affected by a maliciously prosecuted cause not only by the clogging of already crowded dockets, but by the unscrupulous use of the courts by individuals ". . . as instruments with which to maliciously injure their fellow men." 

The harm to society and to the individual cross-defendant caused by the filing of a cross-pleading without probable cause and with malice is substantially similar to that occasioned by the filing of a complaint or other initial pleading known to be false or meritless. The malicious cross-plaintiff, like the malicious plaintiff, uses the judicial process as a vehicle for harassing or vexing his adversary or as a means of coercing the settlement of a collateral matter. The cross-defendant, like the defendant in an original cause maliciously prosecuted, is compelled to expend attorney's fees in defending against the false charge and may suffer the same mental or emotional distress and possible loss of reputation and standing in the community.

It is further of no significance that the contents of a cross-pleading may allege a transactional counterclaim as defendants contend in this case. Even if this were true Bertero was still compelled to defend against a possible $ 104,000 judgment and he was potentially subjected to liability for additional attorney fees as well as to the fears and traumas attendant to defendant status. The contention that defendants were compelled to assert their cause of action under threat of being deemed to have waived it is not responsive to the issue. A litigant is never compelled to file a malicious and fabricated action. It is not the assertion of a claim that is actionable but rather the malicious character of the assertion.

Lastly, defendants' claim that their cross-pleading was merely defensive and that a penalty should not be imposed for aggressively defending against the charges asserted in a complaint was devoid of merit. Defendants invoke a line of cases headed by Eastin v. Bank of Stockton, supra, 66 Cal. 123, in which various courts have refused to recognize a tort of malicious defense. The court does not propose to establish such a tort by its holding. The Eastin-Ritter cases protect the right of a defendant, involuntarily haled into court, to conduct a vigorous defense. By seeking affirmative relief, however, defendants in the instant case did more than attempt to repel Bertero's attack; they took the offensive in attempting to prosecute a cause of action of their own. When such action is prompted by malice and is not based on probable cause, it is actionable as in the case of other affirmative, malicious prosecutions.