Frivolous Arguments Lead To Sanctions And Attorney Fee Award Against Defendant And His Law Firm

After protracted litigation in a probate matter was resolved in his favor, the trustee of an estate sued a trust beneficiary and his law firm for malicious prosecution.  The defendants made a special motion to strike under the anti-SLAPP law, asserting that the malicious prosecution claim was aimed at suppressing their free speech rights.  The trial court denied the motion and awarded attorney fees to the trustee as sanctions against the defendants.  The defendants appealed the denial of the motion.  The appellate court affirmed the trial court’s decision, finding defendants’ arguments frivolous and misleading and requiring the defendants to pay attorney fees and costs to the trustee and compensate the appellate court for the costs of processing the motion.  (Kleveland v. Siegel & Wolensky, LLP (--- Cal.Rptr.3d ----, Cal.App. 4 Dist., April 17, 2013).

Facts

Chester and Jeanne Kleveland established a family trust in 1995, specifying that upon both of their deaths that their property be divided equally between their two children, Kendall and Janis.  After the death of the last surviving spouse, Chester, in 2003, the trust provided that Kendall became successor trustee, empowered with discretion to divide the trust estate in any manner, provided that it resulted in an equal division between himself and his sister.  The trust assets consisted of a house in Encinitas worth at least $400,000; various liquid assets including bank accounts, life insurance, and a $107,000 debt that Kendall owed his parents; and some personal property including a car.  Kendall discussed plans for a property division with Janis, and the two came to a tentative plan in which Janis would receive the Encinitas house, its furnishings, and most of the personal property, while Kendal would receive the liquid assets, plus an equalization payment to Kendall to balance the property division.  A valuation prepared by an accountant and attorney on behalf of the trust estimated the payment to be about $65,000. 

At the time Kendall and Janis discussed the plan, Janis was ill and unemployed.  She explained to Kendall that she needed time to investigate property tax issues and to determine whether her receiving the house would jeopardize her government health care benefits.  Kendall agreed to give her time to resolve these issues, and allowed her and her extended family and friends to live in the Encinitas house and use the car.  Unbeknownst to Kendall, Janis was dying of lung cancer and eventually determined not to resolve the matter.  She and her extended family even consulted with an attorney regarding possible outcomes if she chose not to resolve the trust property division before her own death, which occurred in 2005.  Her son, Scott, became executor of her estate, of which the only asset was her interest in the family trust.

Scott began to pressure his uncle, Kendall, to convey the house to him without an equalization payment, despite the terms of the trust requiring an equal property division.  Scott’s attorney sought details on an accounting for the trust, as well as documentation on the loan Kendall had gotten from his parents and any loan payments he had made.  Scott then filed a petition for breach of trust and removal of successor trustee against Kendall, alleging that Kendall had not substantiated the trust accounting and that he misrepresented the amount of his debt to the trust in the accounting.  Scott’s attorney sent a letter to Kendall’s attorney threatening him with long and expensive litigation if he did not agree to transfer the house to Scott without the equalization payment.  Kendall petitioned the probate court for instructions, requesting sale of the Encinitas house, a final accounting and equal division of the assets, and an order for Scott to vacate the house and pay back rent.  Scott then filed a second petition, seeking to have the house distributed to himself and requesting attorney fees and costs.

The trial court issued a detailed statement of decision, ruling in Kendall’s favor on all petitions.  The trial court found that Scott had filed and prosecuted the petitions in bad faith and awarded Kendall attorney fees and costs from Scott’s portion of the estate.  The trial court stated that while Kendall had acted in good faith in allowing his sister to live in the home and delaying the trust distribution at her request, Scott had acted in bad faith and for an improper purpose by attempting to use the threat of litigation to force Kendall to convey the house and make an unequal division of trust assets in Scott’s favor.

Kendall then filed a complaint for malicious prosecution against Scott and his attorneys, Siegel & Wolensky, LLP; Boris Siegel; Lewis M. Wolensky; and Joshua J. Herndon (“Attorney Defendants”).  The Attorney Defendants then filed a special motion to strike the complaint under the state law prohibiting Strategic Lawsuits Against Public Participation (“anti-SLAPP”).  The anti-SLAPP law is aimed at preventing parties from using lawsuits to undermine free speech rights.  The trial court found that the complaint did arise from the exercise of free speech or petition rights, but that Kendall met his legal burden of showing that his lawsuit was likely to succeed, and so the trial court denied the Attorney Defendants’ special motion to strike.  In doing so, the trial court sanctioned Scott for abusive discovery in addition to finding he had litigated in bad faith and for an improper purpose.

The Attorney Defendants appealed the trial court’s order denying their special motion to strike.

Decision

The Fourth District Court of Appeal noted that an anti-SLAPP motion to strike requires a trial court to perform a two-step analysis:  first, to decide whether the lawsuit is covered by the anti-SLAPP statute and arises from protected free speech or petition rights, and second, to determine whether the plaintiff is likely to prevail in the lawsuit.  Regarding the first step, the court stated that as a general rule, a malicious prosecution lawsuit falls under the anti-SLAPP law because such a proceeding is by definition a challenge to speech and petition activities that were involved in the prior allegedly malicious lawsuit.  Therefore, the appellate court proceeded quickly to the second step in the analysis, whether Kendall was likely to win his malicious prosecution claim against the Attorney Defendants.  The court explained that this second step has three prongs that a plaintiff such as Kendall had to prove in order to defeat the motion and proceed with a lawsuit:  1) was the prior court action started by the defendant, but pursued to a legal conclusion in the plaintiff’s favor; 2) brought without probable cause; and 3) “initiated with malice.”

Regarding the first prong, the Attorney Defendants argued that the prior court action had not been resolved in Kendall’s favor because the trust asset division had not been finally determined.   The court rejected that reasoning, stating that Scott’s litigation had been focused on allegations of breach of trust and seeking removal of Kendall as the trustee, and that litigation had been clearly resolved in Kendall’s favor because both the trial court and appellate court denied Scott’s petitions.  The appellate court highlighted that the Attorney Defendants’ argument cited no legal authority, was not supported by the record in the case, and was “demonstrably frivolous.”

On the second prong, whether Scott’s prior court action was brought without probable cause, the appellate court observed that this evaluation required it to apply an objective standard as to whether any reasonable attorney would find the claim “tenable” considering both the facts and the legal theory argued in the case.  The appellate court stated that even though it was required by the anti-SLAPP law to consider the complaint in the light most favorable to the Attorney Defendants, Kendall clearly established that they lacked probable cause in bringing Scott’s petitions.

The appellate court recited the trial court’s findings in the prior case, detailing how Scott had attempted to use the trustee removal litigation to pressure Kendall to convey the house to Scott and how the Attorney Defendants had made abusive discovery demands.  The appellate court chided the Attorney Defendants for failing to address the trial court’s findings against them in their briefs.  The appellate court was also unpersuaded by the Attorney Defendants reliance on the trial court’s finding that Kendall had committed an innocent breach as trustee when he made use of some of the estate’s liquid assets before the final division of the trust property.  The appellate court noted that Kendall was not a professional fiduciary and that he had made the expenditures at a time when he believed that he and his sister had an agreement about how the property would be divided.  Further, the minor breach was not related to the allegations Scott had raised in his petition, which instead had alleged that Kendall inaccurately reported the $107,000 debt he owed the estate.

Additionally, the appellate court was “troubled” by the Attorney Defendants’ argument that the equalization payment should have been estimated at $26,000, not $65,000.  The appellate court reminded the Attorney Defendants that the trial court had found its expert’s testimony on the $29,000 unreliable because the Attorney Defendants had withheld relevant information from the expert.  The appellate court was unequivocal in finding that Attorney Defendants lacked probable cause in bringing the prior court action and had “misrepresented the record, ignored both clear authority and the trial court's findings, and failed to provide a single cogent argument.”

The appellate court quickly addressed the third prong of the analysis of whether Kendall would be likely to prevail in the malicious lawsuit, finding that Kendall “easily demonstrated” that the Attorney Defendants acted with malice in initiating the prior court action because the purpose of the litigation had been improper- to pressure Kendall to capitulate to a property division that was not supported by the legal merits of the case.

The appellate court also rejected the Attorney Defendants’ assertion that the trial court abused its discretion in awarding attorney fees and costs to Kendall in order to sanction Scott.  The appellate court found that the trial court had performed its duty to support its finding with specific facts and legal authority supporting the sanctions. 

Finally, the appellate court imposed its own sanctions on the Attorney Defendants, ordering them to pay Kendall $52,727.46 in attorney fees and costs and to pay the appellate court $8,500 to compensate the court for the cost “of processing a frivolous appeal.”  The appellate court noted that the state Supreme Court has held that appellate sanctions should only be applied when an appeal is brought for an improper motive or when it “indisputably has no merit.”   Even considering this high standard, the appellate court found that sanctions against the Attorney Defendants were warranted given their egregious actions in misrepresenting the record in the case, attempting to reargue already-decided factual issues, and ignoring relevant law.  The appellate court also stated that the sanctions were needed to discourage future similar conduct and enforce the standards of the legal profession, stating that “seven pairs of legally trained eyes” had failed to spot the distorted, misleading pleadings submitted to the court.  The appellate court found that the sanctions were also justified because the frivolous litigation had harmed taxpayers and legitimate litigants by adding to the burdens of a strained and underfunded court system.

Topics:  Anti-SLAPP, Attorney's Fees, First Amendment, Free Speech, Frivolous Lawsuits, Malicious Prosecution, Motion To Strike, Sanctions

Published In: Business Torts Updates, Constitutional Law Updates, Wills, Trusts, & Estate Planning Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Kronick, Moskovitz, Tiedemann & Girard | Attorney Advertising

Don't miss a thing! Build a custom news brief:

Read fresh new writing on compliance, cybersecurity, Dodd-Frank, whistleblowers, social media, hiring & firing, patent reform, the NLRB, Obamacare, the SEC…

…or whatever matters the most to you. Follow authors, firms, and topics on JD Supra.

Create your news brief now - it's free and easy »