PGE v. Bear Stearns (Part 2)

California Anti-SLAPP Project

Pacific Gas & Electric v. Bear Stearns & Co. (concluded)

PG & E claims that the cost of defending the contract in the declaratory relief action brought by the Agency is an actual disruption, in that it has made performance more expensive or burdensome. [FN10] PG & E is entitled to the quiet enjoyment of its contract, and we may have some sympathy with its claim that Bear Stearns's actions have interfered with its contractual relations by forcing it into a costly legal battle the loss of which would deprive it of very valuable expectancies. Nonetheless, the question remains whether inducing a third party to bring litigation on a colorable claim can be the basis for tort liability.

[FN10] Only the continuation of the power sales contract gives PG & E economic advantage, and it is not disrupted. There is no separate economic advantage to PG & E secured by the statement accompanying the bond issue or the bond resolution, nor have the bonds been called.

No California case upholding a claim for interference with contract or prospective advantage has involved this kind of conduct. Under existing law, the only common law tort claim that treats the instigation or bringing of a lawsuit as an actionable injury is the action for malicious prosecution. The actionable harm is in forcing the individual to expend financial and emotional resources to defend against a baseless claim. (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50, 118 Cal.Rptr. 184, 529 P.2d 608.) The bringing of a colorable claim is not actionable; plaintiff in a malicious prosecution action must prove that the prior action was brought without probable cause and was pursued to a legal termination in plaintiff's favor. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871, 254 Cal.Rptr. 336, 765 P.2d 498; Bertero v. National General Corp., supra, 13 Cal.3d at p. 50, 118 Cal.Rptr. 184, 529 P.2d 608.) [FN11] We have joined other courts in recognizing the cause of action as a disfavored one because it may deter judicial resolution of differences. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp. 872, 875, 254 Cal.Rptr. 336, 765 P.2d 498.) In fact we have recently refused to vest the jury with the task of determining whether plaintiff has demonstrated that the prior action was brought without probable cause; a court must make the determination "[t]o avoid improperly deterring individuals from resorting to the courts for the resolution of disputes...." (Id. at p. 875, 254 Cal.Rptr. 336, 765 P.2d 498.) The probable cause requirement is essential to assure free access to the courts; the cause of action is the result of an accommodation "between the freedom of an individual to seek redress in the courts and the interest of a potential defendant in being free from unjustified litigation." (Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc. (1986) 42 Cal.3d 1157, 1169, 232 Cal.Rptr. 567, 728 P.2d 1202.) Obviously if the bringing of a colorable claim were actionable, tort law would inhibit free access to the courts and impair our society's commitment to the peaceful, judicial resolution of differences.

[FN11] The instigator, as well as the party, may be liable. A person who is injured by groundless litigation may seek compensation from any person who procures or is actively instrumental in putting the litigation in motion or participates after the institution of the action. (Jacques Interiors v. Petrak (1987) 188 Cal.App.3d 1363, 1371-1373, 234 Cal.Rptr. 44; Lujan v. Gordon (1977) 70 Cal.App.3d 260, 263, 138 Cal.Rptr. 654; 5 Witkin, Summary of Cal.Law (1988) Torts, s 431, at p. 514; Rest.2d Torts, supra, s 674, at p. 452, and coms. a & b.)

Other jurisdictions have perceived the same danger in allowing a petition for judicial or administrative relief to be the basis for a claim of interference with contract or prospective advantage. In Baker Driveaway Co., Inc. v. Bankhead Enterprises (E.D.Mich.1979) 478 F.Supp. 857, the district court dismissed a count alleging interference with prospective economic advantage because it was based solely on defendant's intervention in an administrative proceeding. Plaintiffs had sought to patent a trailer design and defendant had formally intervened in the patent office proceedings with the intent to delay them (and thus avoid the obligation to pay royalties); this intervention could not be the basis for a claim of interference with prospective advantage. "Our system of government places a high value on the freedom of the public to petition the government, and such activity will not be curtailed without some extraordinary showing of abuse." (Id. at p. 859.) The court concluded that the cause of action closely resembled one for malicious prosecution and that it was premature since the patent office action had not concluded.

Similarly in Blake v. Levy (1983) 191 Conn. 257, 464 A.2d 52, 55-56, the Connecticut Supreme Court held that pursuing litigation, unless the litigation is terminated in plaintiff's favor, cannot be the basis for a cause of action for interference with a business relationship. There, plaintiff and a third party had negotiated a merger. On the day it was to be consummated defendant demanded a broker's commission. Plaintiff refused and defendant sued for the fee and ultimately settled. Plaintiff then sued in turn, claiming that defendant's act of filing suit and pursuing it to settlement was tortious interference with plaintiff's contractual relations under the merger agreement. The court disagreed. It compared the torts of malicious prosecution and interference with prospective economic advantage, and said that in order to protect free access to the courts, the same limitation that the prior "interfering" action must have concluded in plaintiff's favor should apply to both.

Our concern with assuring free access to the courts has extended to the privilege for statements made in the course of litigation. We assure all participants in litigation, including litigants, prospective witnesses and counsel, "the utmost freedom of access to the courts without fear of being harassed subsequently by derivative tort actions" by extending a broad privilege for publications made in the course of litigation. (Silberg v. Anderson (1990) 50 Cal.3d 205, 213, 266 Cal.Rptr. 638, 786 P.2d 365; see Civ.Code, s 47, subd. 2.) The policy of encouraging free access to the courts is so important that the litigation privilege extends beyond claims of defamation to claims of abuse of process, intentional infliction of emotional distress, negligent misrepresentation, invasion of privacy, fraud, and to the torts alleged here: interference with contract and prospective economic advantage. (50 Cal.3d 205, 215, 266 Cal.Rptr. 638, 786 P.2d 365 and cases cited.) [FN12] In fact, the privilege applies to any action except one for malicious prosecution. (Silberg v. Anderson, supra, 50 Cal.3d at p. 216, 266 Cal.Rptr. 638, 786 P.2d 365; Ribas v. Clark (1985) 38 Cal.3d 355, 364, 212 Cal.Rptr. 143, 696 P.2d 637.) [FN13]

[FN12] The privilege does not apply to bar liability here, as the Court of Appeal correctly determined, because the gravamen of the complaint was not a communication but a course of conduct. (See White v. Western Title Ins. Co. (1985) 40 Cal.3d 870, 888, 221 Cal.Rptr. 509, 710 P.2d 309 [settlement offers may be evidence of course of conduct in breach of covenant of good faith and fair dealing in insurance context]; see also Westlake Community Hosp. v. Superior Court (1976) 17 Cal.3d 465, 482, 131 Cal.Rptr. 90, 551 P.2d 410; Rosenfeld, Meyer & Susman v. Cohen (1983) 146 Cal.App.3d 200, 234, 194 Cal.Rptr. 180.) Thus, while it could be argued that an exhortation to sue might be privileged, financing and otherwise promoting the litigation would not be.

[FN13] We have shown a similar concern for assuring free access to the courts in deciding upon what showing an attorney may be sanctioned for bringing a frivolous appeal. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 647, 183 Cal.Rptr. 508, 646 P.2d 179.)

Our concern with protecting free access to the courts has also led us to refuse to expand the tort of abuse of process to include the alleged improper filing of a lawsuit. (Oren Royal Oaks Venture v. Greenberg, Bernhard, Weiss & Karma, Inc., supra, 42 Cal.3d at p. 1170, 232 Cal.Rptr. 567, 728 P.2d 1202.) We observed that if the filing of a action for an improper ulterior purpose were sufficient to state a claim, the probable cause element of the malicious prosecution tort would be negated. This would upset the established balance between the interest in being free from unjustified litigation and the interest in free access to the courts. [FN14]

[FN14] The tension between the causes of action at issue here and the limitations of the tort of malicious prosecution has been noted for some time. (See Note (1947) 56 Yale L.J. 885, 889; Perlman, Interference with Contract and Other Economic Expectancies: A Clash of Tort and Contract Doctrine (1982) 49 U.Chi.L.Rev. 61, 77.)

The concern we express here, that to permit either cause of action in this context would impair free access to the courts, has led other courts to establish that the scope of the interference torts is limited by the constitutional right to petition for redress of grievances. [FN15] Beginning with Sierra Club v. Butz (N.D.Cal.1972) 349 F.Supp. 934, courts have applied the Noerr-Pennington doctrine to shield good faith litigants from tort liability for bringing a lawsuit. This doctrine relies on the constitutional right to petition for redress of grievances to establish that there is no antitrust liability for petitioning any branch of government, even if the motive is anticompetitive. (California Motor Transport v. Trucking Unlimited (1972) 404 U.S. 508, 510-511, 92 S.Ct. 609, 611-612, 30 L.Ed.2d 642; United Mine Workers v. Pennington (1965) 381 U.S. 657, 670, 85 S.Ct. 1585, 1593, 14 L.Ed.2d 626; Eastern Railroad Presidents Conference v. Noerr Motor Freight (1961) 365 U.S. 127, 136-137, 81 S.Ct. 523, 529-530, 5 L.Ed.2d 464.) The exception is for sham petitions, brought without probable cause for the purpose of harassment. (Bill Johnson's Restaurants, Inc. v. NLRB (1983) 461 U.S. 731, 741, 103 S.Ct. 2161, 2169, 76 L.Ed.2d 277; California Motor Transport v. Trucking Unlimited, supra, 404 U.S. at pp. 512, 515, 92 S.Ct. at pp. 613, 616.)

[FN15] The right to petition for redress of grievances is a basic right guaranteed by the state and federal Constitutions (U.S. Const., 1st Amend.; Cal. Const., art. I, s 3.) "The right of petition, like the other rights contained in the First Amendment and in the California constitutional Declaration of Rights, is accorded 'a paramount and preferred place in our democratic system.'" (City of Long Beach v. Bozek (1982) 31 Cal.3d 527, 532, 183 Cal.Rptr. 86, 645 P.2d 137, judg. vacated and cause remanded (1983) 459 U.S. 1095, 103 S.Ct. 712, 74 L.Ed.2d 943, reiterated (1983) 33 Cal.3d 727, 190 Cal.Rptr. 918, 661 P.2d 1072.)

In the seminal case, the Sierra Club and four individuals sought injunctive relief against a timber company to prohibit logging in a certain area pending consideration of the area for wilderness status. Three days after the filing of this claim, the lumber company cross-complained, alleging that plaintiffs' lawsuit was an intentional interference with contract in that it attempted to induce the United States to breach its contract with the company, and that it was an intentional interference with prospective economic advantage. The lumber company sought injunctive relief and compensatory and punitive damages. The district court concluded that the cross-complaint failed to state a cause of action. The district court found that the Noerr-Pennington doctrine suggests that the right to petition is of such paramount stature that it would prohibit tort liability in the absence of some claim that the petition was a sham. In order to provide sufficient "breathing space" for the constitutional right, "liability can be imposed for activities ostensibly consisting of petitioning the government for redress of grievances only if the petition is a 'sham,' and the real purpose is not to obtain governmental action, but to otherwise injure the plaintiff." (Sierra Club v. Butz, supra, 349 F.Supp. at pp. 938-939.) The court concluded that state civil law cannot constitutionally impose liability for a party's successful attempt to influence administrative action or for bona fide litigation. (Ibid.)

The same analogy to the Noerr-Pennington doctrine has persuaded many courts to similar holdings. In State of South Dakota v. Kansas City Southern Industries (8th Cir.1989) 880 F.2d 40, certiorari denied 493 U.S. 1023, 110 S.Ct. 726, 107 L.Ed.2d 745, the state brought an interference-with-contract claim against a railroad company that had sought judicial and administrative relief in an effort to get the state to terminate its at-will contract with a pipeline company to build a coal pipeline. The court applied the Noerr-Pennington doctrine to establish a privilege for bringing lawsuits, and reversed a judgment in favor of plaintiff on the ground that there was insufficient evidence that defendant's pursuit of judicial and administrative relief was so clearly baseless as to amount to an abuse of process. (Id. at pp. 50-51; see also In re IBP Confidential Business Documents Litigation (8th Cir.1985) 755 F.2d 1300, 1312-1313, and cases cited.)

Similarly, in Brownsville Golden Age Nursing Home, Inc. v. Wells (3d Cir.1988) 839 F.2d 155, the court relied on Sierra Club v. Butz, supra, 349 F.Supp. 934, to establish that defendants could not be held liable for intentional interference with business relations for bringing a nursing home's illegal practices to the attention of state and federal administrative authorities. In the same vein, the Seventh Circuit relied on Sierra Club and the Noerr-Pennington doctrine to establish that individuals' complaints to the Securities and Exchange Commission, and their filing of a lawsuit to bar a public offering of stock, could not be actionable as an interference with business relations. Unless the complaints and lawsuit were a sham, in the sense that they involved baseless claims that were not genuinely aimed at securing the government action petitioned for, they were privileged. (Havoco of America Ltd. v. Hollobow (7th Cir.1983) 702 F.2d 643; see also Suburban Restoration Co., Inc. v. Acmat Corp. (2d Cir.1983) 700 F.2d 98; King v. Levin (1989) 184 Ill.App.3d 557, 132 Ill.Dec. 752, 540 N.E.2d 492; Citizens National Bank of Grant County v. First West National Bank in Marion (1975) 165 Ind.App. 116, 331 N.E.2d 471, 484; Trepel v. Pontiac Osteopathic Hospital (1984) 135 Mich.App. 361, 354 N.W.2d 341, 350; Protect Our Mountain v. District Court (Colo.1984) 677 P.2d 1361, 1367; Anchorage Joint Venture v. Anchorage Condominium Association (Colo.Ct.App.1983) 670 P.2d 1249.)

Although this court has not spoken on the precise issue, we have been guided by the constitutional right to petition for relief of grievances in interpreting the reach of the cause of action for malicious prosecution. Thus, in City of Long Beach v. Bozek, supra, 31 Cal.3d at page 539, 183 Cal.Rptr. 86, 645 P.2d 137, we held that a municipality may not state a cause of action for malicious prosecution against a citizen who unsuccessfully sues the city. We reached the conclusion that the government may not respond to any lawsuit with an action for malicious prosecution, because such an action would unduly chill the citizen's constitutional right to seek redress of grievances. [FN16] (Accord, Cate v. Oldham (Fla.1984) 450 So.2d 224.) And more directly to the point, a concern with assuring the constitutional right to petition the courts and administrative tribunals has led the Court of Appeal to conclude that an applicant for a liquor license may not bring a cause of action for intentional interference with prospective economic advantage against a group of competitors who had brought an unsuccessful administrative protest against the granting of the license. (Matossian v. Fahmie (1980) 101 Cal.App.3d 128, 161 Cal.Rptr. 532.) [FN17]

[FN16] Our conclusion was based in part on independent state grounds. (See City of Long Beach v. Bozek, supra, 33 Cal.3d at p. 728, 190 Cal.Rptr. 918, 661 P.2d 1072.)

[FN17] The same concern for the citizen's right to seek judicial redress led the Court of Appeal to interpret relevant statutes to allow mass filings in small claims court even though the consolidated value exceeded the jurisdictional amount applicable to that forum. (City and County of San Francisco v. Small Claims Court (1983) 141 Cal.App.3d 470, 477, 190 Cal.Rptr. 340.) The court also relied on the constitutional doctrine to affirm the right of the small claims petitioners to consult with counsel, despite a statute that appeared to limit that right. (Id. at pp. 479-480, 190 Cal.Rptr. 340.)

These cases, of course, protect the litigant from liability for undertaking to bring a colorable claim to court. Bear Stearns is not the litigant. Nonetheless, the constitutional doctrine assuring the right to petition may "impose the outer limits upon the category of conduct that may be subject to liability on the basis of common law doctrine, and thus serve to shape the doctrine itself." (Environmental Planning & Information Council v. Superior Court, supra, 36 Cal.3d at p. 195, 203 Cal.Rptr. 127, 680 P.2d 1086.) Our concern not to chill the right to petition the courts for redress of grievances must inform our view of whether the act of inducing litigation is a tort.

Not every person who wishes to achieve the object of a lawsuit, or who is involved in the bringing of a lawsuit, is a named party. [FN18] In fact we have no public policy against the funding of litigation by outsiders. (See, e.g., Abbott Ford, Inc. v. Superior Court (1987) 43 Cal.3d 858, 883, 885, and fn. 26, 239 Cal.Rptr. 626, 741 P.2d 124 [settlement agreement structured as loan repayable out of recovery from nonsettling defendant].) If any person who induced another to bring a lawsuit involving a colorable claim could be liable in tort, free access to the courts could be choked off with an assiduous search for unnamed parties. It is important to remember what PG & E is trying to achieve through this lawsuit. It seeks to enjoin Bear Stearns from further participation in the lawsuit in order to avert what it considers to be the irreparable harm of an adverse judgment. It is essentially seeking to abort the lawsuit by starving the litigant of funds. In Sierra Club v. Butz, supra, 349 F.Supp. 934, too, there were doubtless persons who induced the representatives of the club to bring the action, and who provided financial assistance in support of the lawsuit, who were not named parties. Yet it would defeat the purpose of assuring free access to the courts, and cause a flood of oppressive derivative litigation, to assess tort liability for their activities. [FN19]

[FN18] In Noerr itself, the railroad industry mounted a publicity campaign against the trucking industry designed to foster indirectly the adoption and retention of laws destructive of the trucking industry. (Eastern Railroad Presidents Conference v. Noerr Motor Freight, supra, 365 U.S. 127, 81 S.Ct. 523, 5 L.Ed.2d 464; see also NAACP v. Claiborne Hardware (1982) 458 U.S. 886, 915, 102 S.Ct. 3409, 3426, 73 L.Ed.2d 1215; Missouri v. National Organization for Women (8th Cir.1980) 620 F.2d 1301, 1315.)

[FN19] We are aware that such counterclaims are a standard tactic in environmental litigation. (See Note, Counterclaim and Countersuit, Harassment of Private Environmental Plaintiffs: The Problem, Its Implications and Proposed Solutions (1975) 74 Mich.L.Rev. 106, 110-111; Pell, SLAPPed Silly (Feb.1990) Cal.Law., at p. 24; Sive, Countersuits, Delay, Intimidation Caused by Public Interest Suits (June 19, 1989) National L.J., at p. 26; Zweig, A Slap in the Face (May 29, 1989) Forbes, at p. 106.)

The torts of inducing breach of contract and interference with prospective advantage have been criticized as protecting the secure enjoyment of contractual and economic relations at the expense of our interest in a freely competitive economy. (See Perlman, Interference with Contract and Other Economic Expectancies; A Clash of Tort and Contract Doctrine, supra, 49 U.Chi.L.Rev. 61, 78-79.) [FN20] We have been cautious in defining the interference torts, to avoid promoting speculative claims. Thus, in Youst v. Longo, supra, 43 Cal.3d 64, 233 Cal.Rptr. 294, 729 P.2d 728, we refused to recognize the cause of action in the sporting context. We also refused to extend the tort to protect expectancies beyond those involved in ordinary commercial dealings -- a person's expectancy in the outcome of a government licensing proceeding is not protected against outside interference. (Blank v. Kirwan, supra, 39 Cal.3d at p. 330, 216 Cal.Rptr. 718, 703 P.2d 58.) Given the criticism of these causes of action and the dangers inherent in imposing tort liability for competitive business practices, we have no motivation to expand these torts so that they begin to threaten the right of free access to the courts. Our legal system is based on the idea that it is better for citizens to resolve their differences in court than to resort to self-help or force. It is repugnant to this basic philosophy to make it a tort to induce potentially meritorious litigation. To permit a cause of action for interference with contract or prospective economic advantage to be based on inducing potentially meritorious litigation on the contract would threaten free access to the courts by providing an end run around the limitations on the tort of malicious prosecution.

[FN20] Professor Perlman argues that while contract doctrine promotes economic efficiency and competition by minimizing transaction costs and encouraging "efficient breach," the interference torts thwart this goal by punishing efficient breaches even when no improper means are alleged. (Op. cit. supra, at p. 79.)

We are satisfied that the malicious prosecution cases strike the appropriate balance between the right to free access to the court and the interest in being free from the cost of defending litigation. We conclude that a plaintiff seeking to state a claim for intentional interference with contract or prospective economic advantage because defendant induced another to undertake litigation, must allege that the litigation was brought without probable cause and that the litigation concluded in plaintiff's favor.

III.

Since it is not alleged that Bear Stearns's conduct has made PG & E's enjoyment of the benefits of its contract more expensive and burdensome, apart from forcing PG & E to defend a costly lawsuit, and since it is not alleged that the lawsuit was brought without probable cause and that it terminated in plaintiff's favor, plaintiff has not stated a cause of action for intentional interference with contractual relations or prospective economic advantage. It is evident from the face of the complaint that plaintiff cannot allege termination of the prior action in its favor since that action is still pending. Therefore, the judgment of the Court of Appeal is reversed. The cause is remanded to the Court of Appeal with directions to affirm the judgment of the trial court dismissing the action.

WE CONCUR:

LUCAS, C.J., MOSK, EAGLESON, KENNARD and ARABIAN, JJ., and PUGLIA [FN*], J. Pro Tem., concur.

[FN*] Honorable Robert K. Puglia, Presiding Justice, Court of Appeal, Third Appellate District, assigned by the Chairperson of the Judicial Council.

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