Newsletter – March 2020
Malicious prosecution cases are very difficult to win. To prove a case for malicious prosecution in California, the plaintiff must show that the defendant had malice in bringing claims against the plaintiff in an underlying case. In a recent malicious prosecution suit brought by the owner of a company implicated in an underlying wage and hour action, the California Court of Appeal found that the owner had not shown malice by the attorney prosecuting the wage and hour action. (Zhang v. Chu, No. B292418 (Ct. App. Mar. 5, 2020)).
Facts of the Case
The underlying case began when attorney Anthony Chu, on behalf of his client Jiang Qi, filed a lawsuit against a trucking company called Bluestar. Worker Mr. Qi claimed that Bluestar, along with an individual defendant and some Doe defendants, had violated wage and hour laws.
In wage and hour cases, workers often have legitimate concerns that the corporate entities they sue are mere shells and would not be able to responsive to pay any judgment against them. As a result, plaintiffs’ lawyers often investigate the corporate entities and their owners. They may decide to add the owners as defendants under a legal theory called “piercing the veil”. This is what Chu attempted to do in the underlying case.
Here, attorney Chu investigated Bluestar, discovering that several businesses operated out of the same address. Qingyu Zhang appeared to be signing checks for both Bluestar and another company called New Diamond, and he was listed as New Diamond’s owner. Chu found other dissolved entities using the same address. As a result, Chu added Mr. Zhang as a defendant in Qi’s lawsuit. Zhang quickly filed a motion challenging his addition to the case. To avoid expense and risk, Chu dismissed Zhang from the case, then adding New Diamond as a defendant. Zhang, in response, sued Chu for malicious prosecution.
Zhang Fails to Show that Chu Acted with Malice
As the Court of Appeal succinctly explained, malicious prosecution has three elements: (1) termination of the underlying suit in the malicious prosecution plaintiff’s favor, (2) the defendant had no probable cause for bringing the underlying suit, and (3) the defendant brought the underlying suit with malice. Here, the trial court found that Zhang had not established the third element, malice. This third element, malice is frequently the most difficult to establish against lawyers. Zhang appealed this ruling to the Court of Appeal.
The Court of Appeal affirmed the dismissal of the case. A plaintiff can show malice when the defendant initiates the underlying suit for an improper purpose. There are a few situations in which people have improper purposes in filing suit, such as hostility or ill will. Often the parties in the underlying suit have a long history of ill will against each other. Here, the Court discussed the requirements for showing that the suit was initiated “for the purposes of forcing a settlement which has no relation to the merits of the claim.” To prove this, Zhang would have to show that Chu added him to the lawsuit for simply for the purpose of extracting a settlement from him without any showing that Zhang was responsible for Qi’s wage and hour claims.
The Court found that Zhang did not provide any proof that Chu had acted with an improper purpose. Indeed, as described above, Chu properly searched for alter egos and added Zhang to the case after determining that he signed checks for Bluestar and New Diamond, they operated from the same address along with other dissolved entities, and Zhang owned New Diamond. These actions are extremely common and accepted in wage and hour lawsuits against small corporate defendants. Thus, the Court summarily rejected Zhang’s “scattershot” arguments to the contrary and found in Chu’s favor.
Malicious prosecution is a disfavored tort because it increases litigation and can be hard to prove. That is one reason why the Anti-SLAPP motions are so useful to quickly terminate a malicious prosecution case. The plaintiff must show malice of the defendant in filing an underlying lawsuit. Malice comes in several forms, including trying to force a resolution for some reason unrelated to the underlying suit’s claims. Here, the burden of showing an attorney’s malice in investigating alter egos and adding a company owner to a lawsuit was too high for owner Mr. Zhang. This is a great example of why simple mistakes in naming the wrong party are often insufficient to establish malice.