Aranson v. Schroeder

THAYER, J.,

dissenting: Because I believe the majority’s recognition of a tort of malicious defense is unwise as a matter of policy, I respectfully dissent.

In Rockhouse Mountain Property Owners Association, Inc. v. Town of Conway, 127 N.H. 593 , 503 A.2d 1385 (1986), this court acknowledged that recognition of a new cause of action is a question of policy that turns on whether the interest asserted by the plaintiffs should be legally recognized, and, if so, whether the relief sought is the appropriate way to recognize the interest. Id. at 597-98 , 503 A.2d at 1387-88 . The defendants in this case do not dispute that the plaintiffs have a legitimate interest in pursuing a civil suit “without confronting falsified testimony or evidence.” The question to be addressed, then, is whether allowing a separate cause of action for malicious defense is an appropriate recognition of this interest. For two reasons, I believe it is not. First, plaintiffs who face a malicious and unfounded defense already have at their disposal adequate remedies for the injuries they may suffer. Second, the differences between a malicious prosecution and a malicious defense fully warrant the existing discrepancy in remedies.

We have long recognized a court’s inherent power to award attorney’s fees “where one party has acted ‘in bad faith, vexatiously, wantonly, or for oppressive reasons,’ where the litigant’s conduct can be characterized as unreasonably obdurate or obstinate, and where it should have been unnecessary for the successful party to have brought the action.” Harkeem v. Adams, 117 N.H. 687, 690-91 , 377 A.2d 617, 619 (1977) (citations omitted). More generally, we have observed that “a constitutionally created court [has the] power to award counsel fees in any action commenced, prolonged, required or defended without any reasonable basis in the facts provable by evidence, or any reasonable claim in the law as it is, or as it might arguably be held to be.” Keenan v. Fearon, 130 N.H. 494, 502 , 543 A.2d 1379, 1383 (1988). Thus, under existing law, a plaintiff aggrieved by a maliciously interposed defense normally has recourse to a motion for attorney’s fees. In addition, sanctions may be imposed for out-of-pocket expenses associated with the litigation. See Emerson v. Town of Stratford, 139 N.H. 629, 632-33 , 660 A.2d 1118, 1121 (1995). Sanctions based on attorney’s fees and out-of-pocket costs, along with statutory costs, will usually compensate a *372 plaintiff for all or most of the damage resulting from a malicious defense.

Furthermore, under appropriate circumstances an opposing party’s attorney may be held personally liable for counsel fees. In Keenan , for example, we ruled that a plaintiff’s attorney who filed an appeal unauthorized by the plaintiff was personally liable for the defendant’s resulting counsel fees. As the majority suggests, there may be ample reason to extend such sanctions to an attorney who knowingly raises or participates in raising an unfounded defense.

A plaintiff is also protected from malicious defense by the court’s discretion to set aside a fraudulently obtained judgment. “A judgment may always be annulled for sufficient cause. Fraud to which the mover is not a party . . . may afford such a sufficient cause.” Lamarre v. Lamarre, 84 N.H. 441, 444 , 152 A. 272, 274 (1930) (citations omitted). Finally, although offering no direct relief to plaintiffs, misconduct of the type complained of in this case may be deterred by the possibility of criminal sanctions where perjury is part of the malicious defense, see, e.g., State v. Sands, 123 N.H. 570 , 467 A.2d 202 (1983), or by the threat of professional disciplinary proceedings, see, e.g., Jones’ Case, 137 N.H. 351 , 628 A.2d 254 (1993).

The majority correctly observes that the damages potentially available in an action for malicious prosecution, see Hogan v. Robert H. Irwin Motors, Inc., 121 N.H. 737, 742 , 433 A.2d 1322, 1326 (1981); RESTATEMENT (SECOND) OF TORTS §681 (1976), exceed those currently available through an award of sanctions to a plaintiff aggrieved by a malicious defense. This discrepancy, however, is fully justified by the differences between a malicious prosecution and a malicious defense.

The malicious plaintiff in a civil action institutes proceedings without probable cause and with malice. ERG, Inc. v. Barnes, 137 N.H. 186, 190 , 624 A.2d 555, 558 (1993). Because the defendant is haled into court, all of the defendant’s resulting financial, emotional, and reputational injuries are attributable to the plaintiff’s malicious conduct. The malicious defendant, in contrast-raises or continues an ungrounded and malicious defense merely to resist the claim of a plaintiff already before the court. Unlike the defendant targetecTby a malicious prosecution, the plaintiff who encounters a malicious defense voluntarily entered the judicial system and must be held to accept, to some degree, the costs and risks of litigation. When this plaintiff ultimately prevails in the action, at best only a portion of the plaintiff’s litigation costs and damages can be attributed to the malicious defense.

*373 These differences in the position of a plaintiff and a defendant with regard to the institution of civil proceedings, the willingness of the involvement in the litigation, and the amount of damages attributable to the malicious conduct of the opposing party, are appropriately recognized by the existing discrepancy in remedies.

The majority’s similar treatment of parties in dissimilar positions may have untoward consequences. Plaintiffs dissatisfied with an award in the underlying suit will be sorely tempted to initiate a malicious defense proceeding in order to augment their recovery. Also, when the defendant in the underlying action is judgment-proof, the plaintiff may view a malicious defense action as a vehicle for extending the reach of liability to attorneys, their firms, and, possibly, third parties. The potential for increased litigation is obvious.

Recognition of a tort of malicious defense may also undermine “the right of a defendant, involuntarily haled into court, to conduct a vigorous defense.” Bertero v. National General Corporation, 529 P.2d 608, 615 (Cal. 1975). The possibility that a vigorous defense may later be characterized as malicious could have a chilling effect on some legitimate defenses and perhaps drive a wedge between defendants seeking zealous advocacy and defense attorneys who fear personal liability in a second action. This potential for conflict between the interests of defendants and their attorneys can only be expected to undermine the goals of New Hampshire Rules of Professional Conduct 1.6 and 1.7. Attorneys may give priority to their own interests when formulating defense strategies, and they may be tempted to disclose the client’s role in pursuing specific defense tactics in order to shield themselves from personal attack.

In addition, a tort of malicious defense may threaten our rule that “statements made in the course of judicial proceedings are absolutely privileged from civil actions, provided they are pertinent to the subject of the proceeding.” McGranahan v. Dakar, 119 N.H. 758, 763 , 408 A.2d 121, 124 (1979); see generally 60A AM. JUR. 2D Perjury § 132 (1988) (noting that “[a]s a general rule, no civil action lies for damages resulting from false statements under oath constituting perjury”). The purpose of this rule is “to encourage participants in litigation, parties, attorneys, and witnesses, to speak freely in the course of judicial proceedings.” McGranahan, 119 N.H. at 763 , 408 A.2d at 124 . Where the alleged misconduct consists in part of false statements made in the underlying proceedings, as in the instant case, allowing an action for malicious defense may counteract our stated policy.

A tort of malicious defense may also further erode the attorney-client privilege, as amply demonstrated by the case at bar. In *374 McGranahan , we observed that “[t]he attorney-client privilege may not be absolute when there is a compelling need for the information and no alternative source is available.” Id. at 764 , 408 A.2d at 125 . This court today finds an implied waiver of the privilege in circumstances “in which the privilege-holder injects the privileged material itself into the case.” The newly-minted tort of malicious defense will probably involve, in most cases, a claim by the plaintiff that the defendant is liable for all or a portion of the plaintiff’s attorney’s fees from the underlying action. This in turn will require an inquiry into the portion of these fees that is in fact attributable to the malicious defense. It is difficult to imagine how such an inquiry could be conducted without a highly invasive review of documents normally protected by the attorney-client privilege.

The tort of malicious defense as adopted by the majority suffers from an additional defect. The majority defines malicious defense to require that the underlying proceedings have terminated in the plaintiff’s favor. In other words, the plaintiff has to win the initial suit in order to take advantage of this newly created cause of action. Thus, a defendant whose egregious conduct is unsuccessful in obtaining a defendant’s verdict may be subject to a malicious defense action, but a defendant whose egregious conduct successfully defeats the plaintiff’s suit is not liable. This unlikely result gives the remedies available through a malicious defense action only to those plaintiffs who least need it, i.e., those who prevailed despite the malicious defense.

That malicious defense is not a desirable addition to the tort law of New Hampshire is evidenced by the fact that no other jurisdiction in the country has explicitly recognized this cause of action. In Eastin v. Bank of Stockton, 4 P. 1106, 1109-10 (Cal. 1884), the California Supreme Court rejected in dicta the concept of a malicious defense action. That court repeated this rejection in Bertero v. National General Corporation, 529 P.2d 608 , and a California appeals court recently stated flatly: “Broadly but nevertheless accurately speaking, there is no tort of ‘malicious defense.’” California Physicians’ v. Superior Court, 12 Cal. Rptr. 2d 95, 96 (Ct. App. 1992). The Supreme Court of Kansas explicitly rejected a proposed malicious defense action in Baxter v. Brown, 111 P. 430 (Kan. 1910). In an oft-quoted passage in Ritter v. Ritter, 46 N.E.2d 41, 44 (Ill. 1943), the Supreme Court of Illinois held:

Under our jurisprudence the defendant joaay. present any defense to such an action that he may have or that he may deem expedient, and in so doing he will not be subjecting himself to a second suit by the plaintiff based on the *375 wrongful conduct of the defendant in causing the plaintiff to sue him or in defending the action. The rule is the same even though the wrongful conduct of the defendant is willful, intentional, malicious or fraudulent.

An Indiana court recently endorsed this passage in Levinson v. Citizens National Bank of Evansville, 644 N.E.2d 1264, 1268 (Ind. Ct. App. 1994).

For all of the foregoing reasons, I respectfully dissent.