How Real Is ‘The Threat’? What Mediators Should Know About Malicous Prosecution

First published by ICM Update, February 2003.

Mediators routinely hear an attorney on one side or the other, or on all sides, make The Threat. And when it comes, it is often accompanied by a raised voice and index finger, either jamming down staccato-like on the table or wagging around. The attorney’s voice drops to effectively communicate readiness to use this ultimate weapon in the arsenal of law and revenge. Should a settlement not be reached in this mediation, the attorney intones, the opposition and their attorneys can expect to be served right after this case with a Malicious Prosecution lawsuit.

Malicious Prosecution targets the opposing parties and/or their legal advisors who did not prevail in a prior legal action.

The Threat is often made deep into the mediation. By this time, the client has progressively relinquished, in a series of steps, more and more dollars or claims in the name of negotiation. The Threat is an attorney’s way of proving undying loyalty to the client and aggressiveness for the cause during the difficult stages of compromise. Or, The Threat is made to motivate the opposition, or at least the mediator, to somehow close the deal on the last offer made. That’s how mediators often see it. Nothing more.

But, there is something more. It’s not just threats. Malicious prosecution cases are being filed in ever-increasing record numbers. Attorneys and their former clients are being reunited as defendants in lawsuits. The risk of claims against an attorney by third parties (people who the attorney does not represent) is at an all-time high. The biggest peril of litigation facing a lawyer practicing in Los Angeles now is no longer a legal malpractice claim by his or her client – it is a malicious prosecution action by the disgruntled opposing litigant who was named as a party in that client’s unsuccessful prior lawsuit.

Some bitterly bemoan the rise in popularity of this once universally disfavored claim as further evidence of the decline in civility among lawyers. Others applaud how these cases succeed in getting frivolous litigants and their greedy trial lawyers to pay the attorneys’ fees and costs incurred by the innocent and, potentially, punitive damages. Either way, a mediator should understand certain points about malicious prosecution.

The essential elements of a Malicious Prosecution claim are: (1) that the prior action was initiated by or at the defendant’s direction and was terminated in plaintiff’s favor; (2) was brought without probable cause; and (3) was commenced with malice.

Settlements entered into at mediations typically include a dismissal of claims. Such a dismissal cannot be the basis for a malicious prosecution action. The red flag is raised however where a claim is dismissed either by the court or voluntarily by a party outside of a mediation and not in furtherance of a settlement. Under certain circumstances, determined by case law, such dismissal can be the basis for a Malicious Prosecution action. This is another reason why mediators should encourage parties to conclude with an agreement or memorandum of settlement in writing. It avoids any ambiguity down the road that the dismissal was filed pursuant to a settlement.

California attorneys are often caught off guard on a number of matters when sued for malicious prosecution. First, although professional liability insurance can cover defense costs in a malicious prosecution action, it will not indemnify the attorney for damages. This could place the sued attorney on the hook personally if a jury finds him liable for his client’s prior unsuccessful lawsuit. Second, he may not be able to waive the attorney – client privilege even though that may be the only effective way to mount a defense. Third, when a party gets sued in a malicious prosecution action, that party frequently turns around and cross complains against his attorney.

Finally, an attorney defendant may be found liable for Malicious Prosecution on the basis of merely one of many causes of action from his complaint in the underlying action. It just takes one bad apple — even where all the other causes of action in the bunch are found to be good or, as a court would say, objectively tenable. Many attorneys overplead their clients’ cases in complaints and do not appreciate the risk.

While Malicious Prosecution claims are hard to prove (e.g., malice or ill will is tough to show), an attorney defendant is particularly motivated to settle to prevent his fate from being decided by a jury which may harbor negative stereotypes about trial lawyers. There is a relatively new weapon to stave off a frivolous malicious prosecution claim. Under California Code of Civil Procedure § 425.16, called the anti-SLAPP statute, the defendant can challenge an action for malicious prosecution within 60 days after the complaint is served, during which time all discovery is stayed unless “good cause” is shown. Unless the plaintiff establishes “reasonable probability” of success on the merits, the case is dismissed – and the prevailing defendant is entitled to recover attorneys’ fees.

But, a significant number of malicious prosecution cases are not being stricken thorough this special challenge. Case in point: I recently mediated a malicious prosecution of a malicious prosecution case. The dispute that started the entire litigation seemed to be ancient history.

So the next time The Threat of malicious prosecution is made in a mediation of any dispute, a mediator just might, given the circumstances, guide the opposition in giving it a second thought.

                       

Daniel Ben-Zvi

Daniel Ben-Zvi is a mediator and arbitrator with ADR Services, Inc, based in Los Angeles. He has mediated more than 2,000 disputes.  Mr. Ben-Zvi is co-author of the book "Inside the Minds – Alternative Dispute Resolution" [Aspatore Press, Boston 2004]. Admitted to five Bars, he draws on 20 years as a… MORE >