Combating Bad-faith Litigation Tactics With Claims for Abuse of Process
| Publication year | 2009 |
| Pages | 31 |
2009, December, Pg. 31. Combating Bad-Faith Litigation Tactics With Claims for Abuse of Process
December 2009
Vol. 38, No. 12 [Page 31]
The Civil Litigator articles address issues of importance and interest to litigators and trial lawyers practicing in Colorado courts. The Civil Litigator is published six times a year.
Coordinating Editors
Donald Kelso, Denver, of Holme Roberts and Owen LLP-"(303) 861-7000, donald.kelso@hro.com; Eric Bentley, Colorado Springs, of Holme Roberts and Owen LLP-"(719) 473-3800, eric.bentley@hro.com
About the Author
Matthew Spohn is an Associate at Reilly Pozner LLP, where he focuses his practice on commercial and intellectual property litigation-"(303) 302-7859, mspohn@rplaw.com.
Most civil litigators will at some time encounter bad-faith litigation tactics. When adversaries barrel past Rule 11 and inflict monetary harm, a claim for abuse of process must be considered. This article examines the tort's boundaries and time limitations to help attorneys properly counsel their clients about their options and the risks of questionable litigation tactics.
Imagine that a civil litigator is representing a developer. The client has purchased a large tract of land from a local landowner, and over the past several years has spent millions of dollars to ready the land for an attractive mixed-use development. Just after a local newspaper runs an article describing the client's negotiations with potential business tenants and optimism at obtaining its final financing from the bank, the client is served with a lawsuit started by the prior landowner. The prior landowner claims she was fraudulently induced into selling the land because the client made various verbal promises about how it would use the land and never intended to follow through on those promises. The prior owner makes a claim for rescission of the land sale and files a notice of lis pendens with the county recorder, announcing to all the world that the client's title to the land is in dispute. The client's business tenants learn of the suit and the notice and back out of their deals, and the bank suspends financing. The development is put on hold, costing the client hundreds of thousands of dollars in additional expenses and jeopardizing the millions that already have been invested in the development.
Settlement negotiations begin, but the former landowner will not settle for less than seven figures, which is much more than the land's purchase price. The litigator considers filing a motion to dismiss and seeking sanctions under Rule 11, but realizes she has almost no chance of success, because the landowner has stated a claim and the judge is unlikely to find the suit is completely baseless.
A year later, the practitioner obtains summary judgment for the client and, a year after that, wins the appeal. The client is thrilled and the development has resumed, but now the client wants to recoup all damages resulting from the lawsuit. After doing research, the practitioner discovers that there might be a claim for abuse of process, because it appears that the landowner was advancing a weak claim and filing a notice of lis pendens at a time calculated to cause maximum disruption to the development, while advancing an extortionate settlement demand. However, the statute of limitations ran out while the lawsuit was pending.
In the hope of preventing this scenario, this article discusses the tort of abuse of process and examines the current debate about its First Amendment implications. The article also analyzes the tort's potential applications and important statute of limitations considerations. With this information in mind, Colorado lawyers can fully appreciate this tool for combating bad-faith litigation, and avoid getting on the wrong end of it.
Remedies for Bad-Faith Civil Litigation
As the law stands today, an attorney confronted with any adversary's bad-faith civil litigation tactics has three tools at his or her disposal: (1) Rule 11 and related procedures and sanctions; (2) a tort claim for malicious prosecution; and (3) a tort claim for abuse of process. Each of these options has a different use and application depending on the situation and the goal to be achieved.
Rule 11 and Related Rules and Statutes
When presented with the issue of bad-faith litigation tactics, many practitioners first think of Rule 11 of the Federal or Colorado Rules of Civil Procedure. Each rule contains prohibitions on filing pleadings without a factual or legal basis or with an improper purpose. On motion by a party or on the court's initiative, a litigant and/or an attorney may be sanctioned for violating the rule.(fn1) Though sanctions can be compensatory, making the defendant whole for the expenses incurred by the bad-faith conduct,(fn2) in practice sanctions usually are limited to an award of attorney fees incurred as a result of the violation; a penalty to be paid to the court; or some non-monetary sanction, such as remedial education.(fn3) Colorado statutory law also allows awards of attorney fees for litigation activity that is "substantially frivolous, substantially groundless, or substantially vexatious."(fn4)
These devices are primarily useful to deter bad-faith litigation conduct. If a litigant or attorney nevertheless persists in bad-faith litigation tactics, these devices usually will not provide compensation to the aggrieved party beyond an award of attorney fees.
Malicious Prosecution
Malicious prosecution traditionally was a tort aimed at malicious criminal prosecution. Although it has been expanded to address civil litigation conduct, it is still limited by its roots. The elements of the tort are: (1) the defendant contributed to bringing a prior action against the plaintiff; (2) the prior action ended in favor of the plaintiff; (3) lack of probable cause for the prosecution; (4) malice; and (5) damages.(fn5) The first two elements are self-explanatory. As to the third, lack of probable cause is lack of a good-faith belief that the litigation has a factual or legal basis;(fn6) one can lose a lawsuit but still have had probable cause to initiate it. The subjective element of malice sometimes may be inferred from the lack of probable cause, but the reverse can never be true.(fn7)
Though the tort of malicious prosecution allows the recovery of consequential and punitive damages that are unavailable under Rule 11,(fn8) the tort is limited in its scope in two important ways when applied to bad-faith civil litigation conduct. First, the requirement that the prior legal action be factually or legally baseless limits the tort to rare scenarios that also are subject to Rule 11 deterrence and sanctions. Given the muddiness of the facts of a case and the ambiguities of case law, it can be difficult to prove that a prior legal action was completely without merit.
Second, the tort is limited by its requirement that the prior proceeding was terminated in favor of the party asserting malicious prosecution; many legal proceedings are settled or terminated without a clear winner or loser. Thus, litigants faced with conduct potentially qualifying as malicious prosecution are forced to spend the time and funds to bring that litigation to a favorable conclusion before bringing another suit to recoup the damages caused by the prior litigation. Most litigants do not have the resources or the patience for such a battle plan.
Abuse of Process
The tort of abuse of process serves to fill in the gaps left by Rule 11 and malicious prosecution.(fn9) The elements are: (1) an ulterior purpose in the use of judicial proceedings; (2) willful actions in the use of process that are not proper in the regular course of a proceeding; and (3) damages.(fn10) Each of these elements is addressed below, along with an additional element-"lacking a basis and brought to harass-"that may be required when alleging that the filing of a lawsuit was an abuse of process.
Ulterior Purpose
The ulterior purpose usually is "some form of extortion" or other "coercive goal."(fn11) In practice, this is not substantially dissimilar from the improper purpose that is an element of a Rule 11...
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