This is one of a series of articles under the by line "Butler on Bad Faith" originally published in Mealey's Litigation Report: Insurance Bad Faith, Vol. 13, #16, p. 25 (December 21, 1999). © Copyright Butler 1999.
The tort of malicious prosecution is well established in the law. It began as a remedy for defendants who had been damaged by unjustifiable criminal proceedings. Gradually the tort was expanded to include unjustifiable civil suits as well. That explains why, in many jurisdictions, it still is called malicious prosecution, although that is a misnomer.
Generally, civil actions filed without probable cause and motivated by malice toward the defendant, will give the victorious defendant a cause of action for malicious prosecution against the vexatious plaintiff. See, e.g., Peerson v. Ashcraft Cotton Mills, 78 So. 204 (Ala. 1917). The public policy underlying this tort is an attempt to balance competing interests. See, e.g., Cate v. Oldham, 450 So.2d 224 (Fla. 1984). On one hand, there is the interest in plaintiffs having access to the courts without fear of recrimination. On the other hand, there is the interest in protecting citizens from harassment by meritless litigation. See Prosser & Keeton On Torts, Section 120 (5th ed., West 1984).
For some while, plaintiff attorneys and a few commentators have urged application of this concept to the creation of a new tort for malicious defense of civil litigation. See Van Patten & Willard, The Limits Of Advocacy: A Proposal For The Tort Of Malicious Defense in Civil Litigation, 35 Hastings L.J. 891 (July, 1984). Some courts have been persuaded to do so.
Is a plaintiff less aggrieved when the groundless claim put forth in the courts is done defensively rather than affirmatively in asserting a worthless lawsuit for improper purposes? We think not.
. . .
If a factual predicate exists to support liability and a measure of the damages thus exacerbated, the plaintiffs are entitled to a remedy to that extent.
Aranson v. Schroeder, 671 A.2d 1023, 1027-1028 (N.H. 1995). Most courts have declined to follow along. See e.g., Triplett v. Farmers Insurance Exchange, 29 Cal. Rptr. 2d 741 (1994). In any event, this article will argue that - at least in the context of suits against insurance companies - adopting a tort of malicious defense is unjustified and a bad idea.
ALLEGED POLICY JUSTIFICATIONS FOR A NEW TORT
Van Patten & Willard put forth several policies which would be served, allegedly, by the tort of malicious defense. They contend for instance that the creation of this tort would deter "bad faith conduct" by defendants. Purportedly, "[i]f a defendant knows he cannot be held liable for the expenses a plaintiff incurs contesting a frivolous defense, there is little to inhibit such conduct." 35 Hastings L.J. at 917.
This is unpersuasive - at least in the context of suits against insurance companies. For one thing it confuses "bad faith conduct" with malice. That is a very dangerous confusion. Judicial formulations of a malicious prosecution tort uniformly have included an element of "malice." See, e.g., Lindeman v. C.J. Stoll, Inc., 490 So.2d 101 (Fla. 2d DCA 1986). But the formulation of malicious defense, drawn from Van Patten & Willard and adopted in Aranson, substitutes for "malice" a requirement that the defense of a civil action was initiated, continued or procured
primarily for a purpose other than that of securing the proper adjudication of the claim and defense thereto, such as to harass, annoy or injure, or to cause unnecessary delay or needless increase in the cost of litigation.
Aranson, 671 A.2d at 1029. This is a much softer standard than "malice." All plaintiff need allege is that defendant raised an otherwise legitimate defense "primarily" to "annoy" plaintiff. For that reason, the tort of malicious defense as outlined in Aranson tramples on a party's right to a vigorous defense.
For another thing, notwithstanding the assertion of Van Patten & Willard, there is much to inhibit such "bad faith conduct" already. The majority of jurisdictions have a cause of action for bad faith of one kind or another. See, e.g. Nelson v. State Farm Mut. Auto. Ins. Co., 988 F. Supp. 527, 533-534 (E.D. Penn. 1997). Although few jurisdictions have allowed litigation conduct to be evidence of bad faith, the bad faith denial of a valid insurance claim in the first place will give rise to liability. Surely this is provides a strong inhibition on "bad faith conduct."
Rule 11, Federal Rule of Civil Procedure, also inhibits "bad faith conduct" in litigation. Rule 11 authorizes Federal courts on motion, or on the court's own initiative, to impose sanctions on parties and their attorneys for filing papers or advocating positions for any improper purpose.
Many state courts have similar rules. For example Section 57.105, Florida Statutes, provides:
(1) Upon the court's initiative or motion of any party, the court shall award a reasonable attorney's fee to be paid to the prevailing party in equal amounts by the losing party and the losing party's attorney on any claim or defense at any time during a civil proceeding or action in which the court finds that the losing party or the losing party's attorney knew or should have known that a claim or defense when initially presented to the court or at any time before trial:
(a) Was not supported by the material facts necessary to establish the claim or defense; or
(b) Would not be supported by the application of then-existing law to those material facts.
. . .
(3) At any time in any civil proceeding or action in which the moving party proves by a preponderance of the evidence that any action taken by the opposing party . . . was taken primarily for the purpose of unreasonable delay, the court shall award damages to the moving party for its reasonable expenses incurred in obtaining the order, which may include attorney's fees, and other loss resulting from the improper delay.
This kind of rule is a clear inhibition on "bad faith conduct" in litigation. A new tort is not needed to do the same thing.
Additionally, 28 U.S.C. Section 1927 provides:
Any attorney or other person admitted to conduct cases in any court of the United State of any Territory thereof who so multiplies the proceedings in any case unreasonably and vexatiously may be required to satisfy personally the excess costs, expenses and attorney fees reasonably incurred because of such conduct.
Federal judges have not hesitated to impose Section 1927 liability where warranted. See, e.g., Carlucci v. Piper Aircraft Corp., 775 F.2d 1440 (11th Cir. 1985).
In a recent unpublished (as yet) opinion, United States District Judge David C. Paine held plaintiffs' counsel personally liable under Section 1927 for the attorney fees of Defendant. The amount still is in litigation but is expected to exceed one million dollars. Judge Paine outlined the basis for his ruling:
In the present case, the undisputed record establishes that Plaintiff's counsel in this action pursued this action when the facts known to him could not sustain a valid legal claim under well-established law. He further instructed his client not to cooperate with the Defendant's pre-suit investigation and not to answer relevant questions during discovery. He also identified himself as a witness with the most knowledge of the facts underlying the insurance claim and then asserted attorney-client privilege and refused to answer discovery questions. By becoming a witness in this matter when the only 'facts' he possessed relevant to the insurance claim were given to him by his client and or created by him in preparation for litigation, [Plaintiff's counsel] improperly vouched for his client's frivolous claim. It is also true that, notwithstanding the weakness of his client's claim on the facts under the law, he drafted threatening letters to defense counsel, each time increasing the amount demanded without ever offering proof of any [legitimate claim].
Dictiomatic, Inc. et al. v. U. S. F. & G. Co., Case No. 93-2123 consolidated with Case No. 94-1692, United States District Court for the Southern District of Florida (June 15, 1999). This is just the sort of thing which, if done by defense counsel, would equate to "bad faith conduct" in litigation. Certainly Section 27 applies equally to plaintiff and defendant. This too, then, is a powerful inhibition. With all these inhibitions in place, a malicious defense tort is unnecessary.
Another policy mentioned by Van Patten & Willard is "maintenance of the integrity of the judicial process." Courts cannot "permit themselves to become agents for the commission of recognized wrongs. . . . If a defendant may use the judicial process to delay, diminish or even defeat a valid claim, then the court has in effect become a partner in the abuse." 35 Hastings L.J. at 917.
These words are, of course, laughable to anyone familiar with the real-world antics of plaintiff attorneys. But the simple answer to Van Patten & Willard's policy justification has been given above already. Sanctions under Rule 11 and its State law analogues, as well as sanctions under U.S.C. 28 Section 1927, provide a court ample ammunition to protect itself from complicity in "abuse."
A third policy advanced by Van Patten & Willard to support recognition of a malicious defense tort is "the preservation of judicial economy." Purportedly, the threat that a defendant might be sued later for raising baseless defenses will cause prompt payment of claims thus unburdening the civil courts. To this writer, it seems more likely the opposite will occur. One reason is because the tort of malicious defense, unlike malicious prosecution, is tautological. It "chases its own tail." When plaintiff prevails in the underlying action, he or she may file another one for malicious defense. If he or she wins that case, he or she then may file a third for malicious defense of the malicious defense, and so on. This hardly would promote judicial economy.
Another reason why a malicious defense tort would not promote judicial economy is that its existence could discourage settlement of civil actions. It is unclear whether settlement would equate to "termina[tion] in favor of the party bringing the malicious defense action." Aranson, 671 A.2d at 1029. But it has been held, in a malicious prosecution action, that voluntary dismissal by plaintiff constituted a bona fide termination in favor of defendant. If that logic be applied in reverse to a malicious defense action, defendants would be incented to litigate all defenses to verdict. This would promote the opposite of judicial economy.
ARGUMENTS AGAINST A NEW TORT
Aside from the lack of affirmative justification, here are a number of persuasive reasons why the tort of malicious defense ought not be recognized. One arises from the difference between the way plaintiffs and defendants become involved in a suit. A plaintiff, in most instances, has lots of time to prepare and file a suit. He or she is constrained only by the statute of limitations. A defendant, on the other hand, must evaluate the case, prepare its responses and raise, or possibly waive, all available defenses within a short time - typically twenty days. To impose upon that timetable the fear of a malicious defense action if some apparently sound position turns out to be unsound (or vice versa), would chill the right to zealous representation protected by our legal system and required under the rules of professional conduct. As even Van Patten & Willard acknowledge:
The threat of inhibiting an apparently unmeritorious defense that later proves to be meritorious may be a persuasive argument against adoption of a malicious defense tort. In such circumstances, a defendant's rights may be denied from fear of asserting them. Neither party to a suit should be deterred by the threat of monetary damages from asserting its position in a forceful or even aggressive manner.
35 Hastings L.J. at 919.
A second reason why the tort of malicious prosecution ought not be recognized has to do with the way plaintiffs and defendants obtain legal representation under the American tort system. As a practical matter, most plaintiffs - at least in suits against insurance companies - are represented by counsel on a contingent fee basis. Thus, the hardship of paying ongoing attorney fees during a vigorously defended suit does not fall upon the plaintiff. And the attorney usually advances the costs as well. This is not so for defendant. Insurance companies typically are represented by counsel who bill periodically on an hourly fee basis. Thus, there is a built in disincentive for defendants to litigate frivolous positions. Moreover, in most jurisdictions, plaintiffs can recover costs and interest on judgments. In many jurisdictions, plaintiffs can recover attorney fees also. See e.g., Section 627.428 Florida Statutes. All these discourage unmeritorious defenses.
Adoption of a malicious defense tort also would impose large hidden costs on the insurance industry, just as the rise of bad faith litigation has done. An insurance company that settles civil litigation today - particularly first party litigation - often pays some premium, usually unspecified, for release of all claims, including bad faith claims, no matter how slight the chance of a successful action on that theory. The very existence of such cause of action has value to a plaintiff. The marketplace of civil lawsuits factors it in. And it would be the same with malicious defense.
There is another argument against creating this tort which arises out of the typical nature of the parties. Plaintiff, in a civil suit against an insurance company, is likely to be an individual person. An insurance company, of course, is an institution. Thus plaintiffs, in the main, are far less collectible than defendants. Historically this has provided a deterrent to the filing of malicious prosecution actions by insurance companies against unsuccessful tort plaintiffs. That would not be the case in reverse regarding malicious defense actions. Thus plaintiffs and defendants - at least in suits against insurance companies - would not have an equal benefit from the reciprocal causes of action.
Perhaps the most persuasive argument against a malicious defense tort is the familiar one that plaintiff files the suit, not defendant. Defendant is hailed into court and
[r]egardless of whether defendant has a meritorious defense to a suit, the decision to defend rather than settle an action has long been recognized as a matter vested solely in the defendant's discretion. . . . The plaintiff sets the law in motion; if he does so groundlessly and maliciously, he is the cause of the defendant's damage. But the defendant stands only on his legal rights - - the plaintiff having taken his case to court, the defendant has the privilege of calling upon him to prove it to the satisfaction of the judge or jury, and he is guilty of no wrong in exercising this privilege.
Triplett v. Farmers Insurance Exchange, 29 Cal. Rptr. 2d 741, 744 (1994), quoting Eastin v. Bank of Stockton, 66 Cal. 123, 127 (1884). In other words, defendant is entitled to hold plaintiff to his or her proof.
The soundness of this argument is apparent when one considers a malicious prosecution action. We have seen that the tort of malicious prosecution in a civil action evolved from the tort based on malicious prosecution of a criminal charge. But has it ever been contended seriously that the State should be able to sue, under any circumstances, a convicted criminal defendant for the costs of the prosecution? Of course it has not. The reason is that, before the power of the State may be exercised to deprive a defendant of rights, the defendant is entitled to be proven guilty or liable. It does not seem to this writer to matter whether the power of the State is exercised through criminal penalties or through enforcement of civil judgments by garnishment, levy, revocation of licensure and so on. There should be no recrimination for a defendant who refuses voluntarily to give up its rights.
There is no need for an additional tort based on malicious defense. As a policy matter, such a tort would be redundant because there are numerous mechanisms already in place to deal with "malicious" or "bad faith" conduct in litigation. Also, to recognize such a tort would increase, not diminish, the burden on the legal system. And the hidden costs of such a tort would be unmeasurable but large. Moreover the system has built in disincentives to frivolous litigation by defendants. Finally, and most importantly, a defendant has the right to raise vigorous and unfettered opposition to the suit, which it did not initiate.