According to the testimony of Dr. Richard F. Schimbor, the former manager of
Shell's polybutylene business, during the spring and summer of 1981 Shell began to receive reports of consumer fear over the reports that its product contained carcinogens. A number of polybutylene pipe extruders were reporting a substantial impact on their business. Additionally Shell obtained information that plaintiff was actively distributing the CAL report of December 31, 1980, as alleged proof that polybutylene pipe in fact contained substantial levels of DEHP. Among other things he sent the report to the Commission and also distributed or caused it to be distributed at a meeting of the International Association of Plumbing and Mechanical Officials, spoke with reporters, distributed his booklet from his office, and wrote to various local officials referring to "substantial evidence that polybutylene pipe contains toxic and carcinogenic chemicals."
In June 1981, Shell sent a mailgram to CAL and advised it that its report was being circulated in support of a claim that polybutylene pipe contained DEHP at dangerous levels. Shell sought to meet with representatives from CAL to discuss its report. CAL replied that it would not discuss the
report with anyone but its client, and that if the report were being circulated Shell should discuss it with plaintiff. One of Shell's attorneys spoke with Dr. Lappe. According to Dr. Lappe: "Mr. Holliman called and spoke to me, I thought very candidly and personally, and said, Look there is some additional trouble that is brewing about this D.E.H.P. issue. [para.] He expressed some gratification about the way I was handling the issue at that time. And then said, however, there are some boys in Houston -- that was his phrase -- who were playing hardball, and that also was his phrase, and that they are very concerned about people, specifically Mr. Leonardini, who are going on and describing D.E.H.P. as a health threat or publicly disclosing or discussing D.E.H.P. in what Mr. Holliman felt to be greatly exaggerated terms. [para.] And that it was beginning to hurt Shell economically to have these discussions and that something was going to have to be done to dampen or quiet these kinds of outspoken statements." Holliman also mentioned that there was talk about bringing a lawsuit.
In August 1981, Shell filed a complaint in the United States District Court for the Eastern District of California invoking the court's jurisdiction on grounds of diversity of citizenship. (28 U.S.C. @ 1332.) The complaint sought to enjoin trade libel and to obtain declaratory relief against CAL and plaintiff. Shell made the following allegations in its complaint: It is the sole manufacturer of polybutylene resin which is processed into finished pipe. In November 1980, the Commission approved the use of polybutylene pipe as a conduit for potable water. In December 1980, CAL conducted tests and reported that polybutylene contained 50 to 500 ppm DEHP. Tests prior to the CAL tests had shown that DEHP can cause cancer in laboratory animals and at the levels reported by CAL the presence of DEHP in pipe could represent a danger to human health according to some studies. CAL reported its conclusions to plaintiff who thereafter willfully, intentionally, without justification or privilege, and in reckless disregard of the truth, published, communicated, and caused to be published and communicated the CAL report and material findings thereof. The report was false as neither polybutylene resin nor the pipe tested contains DEHP. CAL and plaintiff had been informed that independent laboratory analysis had concluded that DEHP was not present in polybutylene pipe and was found, if at all, only in pipe leachate at levels associated with laboratory background environments and at levels not dangerous to human health. Defendant had asked CAL to retest polybutylene pipe but CAL had either refused to test or had failed to report results. CAL had twice been asked to retract its conclusions. CAL and plaintiff knew or reasonably should have known that third persons to whom they communicated their claims would rely upon it. CAL and plaintiff have disparaged and continue to disparage defendant's product by disseminating and publishing the report that polybutylene pipe made from defendant's resin contains DEHP. As a result prospective customers have been and will be deterred from buying polybutylene pipe and resin.
Shell sought an injunction to restrain CAL and plaintiff from further publishing and communicating CAL's results and conclusions regarding the presence of DEHP in polybutylene pipe. Shell also sought a declaratory judgment declaring that polybutylene resin and pipe does not contain DEHP in levels sufficient to present a danger to human health, at 50 to 500 ppm, or at all. Leonardini filed an answer to the complaint and then hired independent counsel to represent him. Although he feared he would be deluged with such things as paperwork, interrogatories, depositions, and inspections of his records, Leonardini was never subjected to discovery or other processes. During the fall of 1981 Shell was negotiating a settlement with CAL. In early 1982 Leonardini's attorney wrote to Shell's counsel to request a dismissal. Counsel replied that he expected to settle with CAL and would probably then dismiss as to Leonardini. Shell eventually entered into a settlement with CAL. Shell and CAL signed a mutual release and agreed to a joint statement. The joint statement stated that the December 31, 1980, report was intended only as a survey for the gross presence of substances in the particular samples tested and was not intended to reflect exact amounts of particular substances in the samples or in polybutylene pipe in general. CAL acknowledged that its findings were the result of testing of one sample and recommended that further testing be conducted before definitive conclusions were drawn. CAL stated that it has no opinion whether polybutylene pipe presents a hazard to human health and no opinion whether DEHP exists in polybutylene pipe in general. Shell stated that it has no reason to believe that CAL is other than a responsible, independent laboratory.
Leonardini then filed a motion to dismiss the complaint. He argued there that Shell's claim for injunctive relief failed to state a claim because an injunction would constitute an unconstitutional prior restraint on freedom of speech and because the statements in question were absolutely privileged. He further argued that the claim for declaratory relief similarly failed because there was no case or controversy alleged and because declaratory relief was inappropriate where the issue was already the subject of administrative proceedings. Shell filed opposition to the motion, but then filed its own motion to dismiss the action as to Leonardini. That motion was granted on May 10, 1982. On April 15, 1983, Leonardini filed this action for malicious prosecution.
As we have recounted, the jury found in favor of Leonardini. It awarded him damages of $22,000 for attorney fees incurred in the federal action, $175,000 general damages, and $5 million punitive damages. Shell's motion for new trial was denied and this appeal followed.
I. Probable Cause to File Federal Lawsuit
Plaintiff's theory of this case is that Shell filed its federal lawsuit against him for an improper purpose and with an ulterior motive. Plaintiff asserts that Shell wished polybutylene pipe to be approved without public scrutiny of its health consequences and to that end filed the suit to muzzle his advocacy, or to prevent him from stumbling onto the trioxane problems involved with polyacetal fittings. To further this malicious aim, Shell filed the federal action without probable cause.
It is in this context that Shell argues that the trial court, as a result of its misapprehension of the law of probable cause in a malicious prosecution action, erroneously directed a verdict against it on this issue. In doing so, according to Shell, the court ignored established law which mandates that the jury determine the facts underlying probable cause before the court decides the legal issue. As Shell sees it, numerous factual conflicts existed about the accuracy, truth, distribution and privileged nature of plaintiff's statements which should have been resolved by the jury. Moreover, even if there were no factual conflicts, the court still erred in directing a verdict on probable cause because there was a reasonable basis to bring the trade libel action. In Shell's view, plaintiff committed a trade libel against it for which injunctive relief was an appropriate remedy. Finally, it claims that its declaratory relief cause of action was also brought properly. We begin with the determination of probable cause.
A. Probable Cause Determination
Following the presentation of evidence the trial court granted plaintiff's motion for a directed verdict on the issue of probable cause to bring the federal action. [FN5] The court instructed the jury that plaintiff was required to prove that Shell acted without probable cause and with malice in initiating the federal court action. On the question of probable cause the court instructed: "To constitute probable cause for the initiation or maintenance of the Federal civil suit against the plaintiff in this case, the evidence must establish: [para.] One, Shell ... had an actual, honest, and good faith belief in that action it brought. [para.] Two, that such belief if held by Shell ... was a reasonable belief based upon the facts and the law. [para.] In its Federal suit against [plaintiff], Shell ... sought an injunction to prevent further dissemination of the California Analytical Laboratory report dated December 30, 1980, which report had been entered into the public record of the State of California and involved a matter of public debate and controversy. [para.] Shell['s] ... suit further sought a declaration by the court concerning the presence or absence of D.E.H.P. in its resin or in pipe made by others from its resin. [para.] The law of the State of California and of the United States does not permit any court to issue an injunction to prevent the dissemination of such a report under the circumstances shown by the evidence in this case. [para.] Further, the declaratory relief sought or claimed as a basis for Shell's Federal suit could not legally be used for a finding of a scientific fact by a court in the manner in which Shell's action sought the use of such relief. [para.] Accordingly, you are instructed that this Court finds, as a matter of law, that there was no probable cause for the bringing of the Federal suit brought by Shell ... against [plaintiff]."
In a malicious prosecution action the plaintiff must prove that the prior action (1) was commenced by or at the defendant's direction and terminated in plaintiff's favor; (2) was brought without probable cause; and (3) was initiated with malice. (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].) [FN6] Malicious prosecution is a disfavored action. (Babb v. Superior Court (1971) 3 Cal.3d 841, 847 [92 Cal.Rptr. 179, 479 P.2d 379]; Cooper v. Pirelli Cable Corp. (1984) 160 Cal.App.3d 294, 298 [206 Cal.Rptr. 581]. See also Bertero v. National General Corp., supra, 13 Cal.3d at p. 53.) This is due to the principles that favor open access to the courts for the redress of grievances. In fact, it has been held that access to the courts is a constitutional right founded upon the First Amendment to the United States Constitution. (California Transport v. Trucking Unlimited (1972) 404 U.S. 508, 510-511 [30 L.Ed.2d 642, 646, 92 S.Ct. 609]; Taylor Drug Stores v. Associated Dry Goods (6th Cir. 1977) 560 F.2d 211, 213; Pennwalt Corp. v. Zenith Laboratories, Inc. (E.D. Mich. 1979) 472 F.Supp. 413, 424.) But regardless of any constitutional basis for the policy, it is beyond dispute that the strong public policy of this state favors open access to the courts for the resolution of conflicts. (Grindle v. Lorbeer (1987) 196 Cal.App.3d 1461, 1467 [242 Cal.Rptr. 562]; Norton v. Hines (1975) 49 Cal.App.3d 917, 922 [123 Cal.Rptr. 237].) "The courts of the state are open to every citizen for the redress of his wrongs, and unless he is at liberty to seek such redress without rendering himself liable in damages to the defendant, in case he shall fail to establish his complaint, this right would in many instances be a barren privilege." (Asevado v. Orr (1893) 100 Cal. 293, 297 [34 P. 777].) Accordingly, litigants have the right to present issues that are arguably correct even if it is extremely unlikely they will win. (In re Marriage of Flaherty (1982) 31 Cal.3d 637, 650 [183 Cal.Rptr. 508, 646 P.2d 179]; see also Williams v. Coombs (1986) 179 Cal.App.3d 626, 640 [224 Cal.Rptr. 865].) In view of these considerations the California Supreme Court has recently refused to abandon or relax traditional limitations on malicious prosecution recovery. (Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 863-874 [254 Cal.Rptr. 336, 765 P.2d 498].)
Plaintiff expended much effort in the trial court and on appeal attempting to define the issues as he perceived them. He asserts that the case is not about DEHP or other chemicals. To the extent he considers chemicals to be in issue he focuses on polyacetal fittings and trioxane rather than DEHP in polybutylene pipe. "This case," he avers, "is not about chemicals. Nor is it about the dangers presented to the public by the unrestricted use of plastic pipe for drinking water. While such dangers are serious and form the backdrop against which this case was tried, the issues below are more fundamental to our society than the dangers posed to millions of Californians by toxic chemicals in their drinking water. [para.] The Shell Oil Company advocated, in California, the unrestricted use of a polybutylene pipe system for drinking water in homes without any testing whatsoever by public officials. Ray Leonardini advocated that the public bodies charged with the responsibility for health and safety independently test and examine the polybutylene pipe system before exposing millions of Californians to the unknown consequences of such use. In the midst of the ongoing public debate regarding the policies that California governmental bodies should follow, the Shell Oil Company sued its most effective political opponent and the independent and reputable laboratory that provided him technical and scientific assistance." He goes on to portray Shell as a huge and evil corporation attempting to foist a dangerous product on the public; Shell sued him because he was an obstacle to that purpose and could have stumbled onto the real problem (polyacetal). However, these claims are relevant only on the question of malice. The probable cause determination, which is an essential element of a cause of action for malicious prosecution, must be based upon the prior action which was in fact instituted by Shell. And the prior action was about, and was only about, plaintiff's dissemination of the claim that polybutylene pipe contains high levels of DEHP.
The probable cause element of a malicious prosecution action requires an objective determination of the "reasonableness" of the defendant's prior lawsuit, i.e., whether, on the basis of the facts known to the defendant, the institution of the prior action was legally tenable. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp. 868, 886.) A lack of probable cause is an element separate from the requirement of malice. While a lack of probable cause may be inferential evidence of malice, the converse is not true; a lack of probable cause cannot be inferred from a showing of malice. (Williams v. Coombs, supra, 179 Cal.App.3d at p. 639, fn. 8.) "This is so because even 'though malice is inferred from want of probable cause, still where probable cause does exist, malice, even affirmatively shown, will not entitle the plaintiff to a verdict.'" (Ibid., quoting from Lacey v. Porter (1894) 103 Cal. 597, 607 [37 P. 635].) In other words, when the prior action was objectively reasonable the malicious prosecution defendant is entitled to prevail regardless of his subjective intent. "If the court determines that there was probable cause to institute the prior action, the malicious prosecution action fails, whether or not there is evidence that the prior suit was maliciously motivated." (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at p. 875.)
In considering the issue of probable cause there is an analytical dichotomy which arises due to the factual/legal duality involved in virtually all lawsuits. In a typical case the merits of the lawsuit depend upon the factual circumstances established by the evidence and the legal theory upon which relief is sought. A litigant will lack probable cause for his action if he relies upon facts which he has no reasonable cause to believe to be true, or seeks recovery upon a legal theory which is untenable under the facts known to him. The probable cause analysis may differ depending upon where the alleged deficiency lies. Here, only the latter deficiency is implicated and thus the question is whether Shell had probable cause to file its federal lawsuit on the facts known to it.
In any lawsuit the courts must determine whether relief is legally available on the facts established. In a malicious prosecution action the legal aspect of probable cause requires a determination whether the prior claim for relief was legally tenable. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp. 885-886.) Consideration of this question requires that the court take account of the evolutionary potential of legal principles and any uncertainty which might be embedded there. (Ibid.) "To hold that the person initiating civil proceedings is liable unless the claim proves to be valid, would throw an undesirable burden upon those who by advancing claims not heretofore recognized nevertheless aid in making the law consistent with changing conditions and changing opinions. There are many instances in which a line of authority has been modified or rejected. To subject those who challenge this authority to liability for wrongful use of civil proceedings might prove a deterrent to the overturning of archaic decisions." (Rest.2d Torts, @ 675, com. f, at p. 460. See also Williams v. Coombs, supra, 179 Cal.App.3d at p. 640.) In order to avoid chilling the assertion of novel or debatable legal claims the California Supreme Court has adopted, with appropriate modifications, the standard for determining whether an appeal is frivolous (In re Marriage of Flaherty, supra, 31 Cal.3d at p. 650), as the standard for determining probable cause in a malicious prosecution action. (Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d at pp. 885-886.) Under this standard a claim is not lacking in probable cause if any reasonable attorney would have thought the claim tenable. Ibid. See also Murdock v. Gerth (1944) 65 Cal.App.2d 170, 179 [150 P.2d 489] [applying a "fairly debatable" standard].)
In malicious prosecution actions the courts have seldom expressly recognized that the factual/legal aspects of the prior suit require a factual/legal analysis of the probable cause issue. Instead the factual/legal dichotomy implicit in prior actions has found expression in an inappropriate "objective subjective" view of probable cause. This in turn has led to confusion over the proper roles of the court and jury in the probable cause determination. Specifically, some appellate decisions have indicated that probable cause is a mixed objective/subjective standard; the objective part to consider whether a reasonable person would have believed in the merits of the claim and the subjective part to focus upon whether the malicious prosecution defendant honestly believed in the merits of the claim. (See Bertero v. National General Corp., supra, 13 Cal.3d at p. 55; Franzen v. Shenk (1923) 192 Cal. 572, 576 [221 P. 932].) The subjective portion, involving as it would the defendant's state of mind, was regarded as a factual issue for the jury. (Ibid.)