In Sheldon Appel Co. v. Albert & Oliker, supra, 47 Cal.3d 863, the Supreme Court rejected the objective/subjective approach to a probable cause
determination. Probable cause is to be determined in all instances by an
objective standard, that is, whether the prior action was objectively
reasonable. [FN7] If it was objectively reasonable then the defendant is entitled to judgment in the malicious prosecution action regardless of what his subjective belief or intent may have been. (Id. at pp. 878-879.) Of course, there may be factual questions which require resolution before the objective standard can be applied. For instance, there may be evidentiary disputes over the information and facts known to the defendant when it brought the prior action or it may be claimed the defendant was aware of information that established the lack of truth in his factual allegations. In such circumstances the threshold question of the state of the defendant's knowledge of the facts must be resolved by the jury before application of the objective probable cause standard. But when the state of the defendant's knowledge of the facts has been determined or is undisputed then his subjective belief in the legal validity of his claim is irrelevant and the only question is whether, based upon his knowledge, his action was objectively reasonable. (Id. at p. 881.) That determination is always to be made by the court and not by the jury. (Ibid.)
Shell next argues that even if the judge properly decided the question of probable cause, his instruction to the jury misstated the law and was both argumentative and prejudicial. Although the instruction was prolix, it did serve its function of informing the jury that the "Court finds, as a matter of law that there was no probable cause for the bringing of the Federal suit brought by the Shell Oil Company against Raymond J. Leonardini." Whether the instruction misstated the law and hence was prejudicial to Shell depends upon whether the trial court correctly concluded that Shell lacked probable cause to bring its federal lawsuit against plaintiff. It is to that issue that we next turn.
Before addressing the probable cause question it is necessary to note that we reject plaintiff's attempt to construe Shell's federal complaint with undue rigidity. Three sound but separate policies compel liberality in construction of the pleadings. First, we have already noted the policy which favors open access to the courts for the resolution of conflicts. This policy is inconsistent with a rigid construction of the prior pleadings to support a malicious prosecution action. Second, the law favors the early resolution of disputes, including voluntary dismissal of suits when the plaintiff becomes convinced he cannot prevail or otherwise chooses to forego the action.
This policy would be ill served by a rule which would virtually compel the plaintiff to continue his litigation in order to place himself in the best posture for defense of a malicious prosecution action. (See Asevado v. Orr, supra, 100 Cal. at pp. 298-299.) Finally, and in any event, in this state pleadings are required to be liberally construed in favor of the pleader. (Code Civ. Proc., @ 452; 4 Witkin, Cal. Procedure (3d ed. 1985) Pleading, @ 396, pp. 446-447.) The factual allegations of the complaint are controlling over the title or label given the pleading and over the prayer or demand for relief. (Id. at @ 405, p. 454.) In these respects federal rules of pleading are similar. (4 Witkin, supra, at @@ 333, 367, pp. 383-385, 420-421.) Together these policies compel the conclusion that Shell's federal complaint must be construed liberally in determining whether the action was legally tenable.
While we reject plaintiff's effort to construe the pleading with undue rigidity, we do not imply that a defendant can avoid liability for malicious prosecution by pointing to some undisclosed and unlitigated, but tenable, claim for relief. (Williams v. Coombs, supra, 179 Cal.App.3d at p. 644.) Probable cause for the initiation of an action depends upon the legal tenability of the action which was actually brought. (Ibid.) We hold only that in assessing the tenability of the action which was brought the complaint must be construed liberally in favor of the pleader rather than restrictively in favor of the malicious prosecution plaintiff.
In its federal court complaint Shell sought an injunction enjoining plaintiff "from further publishing and communicating CAL's test results and conclusions regarding the presence of DEHP in polybutylene pipe." It also sought a declaratory judgment that polybutylene resin and pipe "does not contain concentrations of DEHP at levels sufficient to represent a danger to human health, or at 50-500 parts per million, or at all." In Shell's view, the complaint as reasonably construed charges plaintiff with disparagement of Shell's product by falsely claiming it contains carcinogenic chemicals and thus it seeks to enjoin future disparagement and to obtain a declaration that plaintiff's conduct was tortious. It is these claims upon which the probable cause determination must be based.
We agree with plaintiff that Shell cannot avoid liability for malicious prosecution by asserting that plaintiff's conduct would have left him vulnerable to a trade libel suit for money damages. It is generally true that when a complaint seeks equitable relief which is unavailable the complaint will still state a cause of action if it shows a right to money damages. (4 Witkin, Cal. Procedure, Pleading, supra, pp. 63-65.) However, a cause of action for damages for trade libel requires pleading and proof of special damages in the form of pecuniary loss. (Guess, Inc. v. Superior Court (1986) 176 Cal.App.3d 473, 479 [222 Cal.Rptr. 79].) Shell neither pled, nor attempted to prove, specific pecuniary loss. Consequently, the determination whether Shell had probable cause for its action must focus upon its request for injunctive and declaratory relief rather than upon some unasserted claim for monetary damages.
B. Probable Cause to Bring Action for Trade Libel
The Restatement Second of Torts, has described the tort of "trade libel" as "[t]he particular form of injurious falsehood that involves disparagement of quality...." (Rest.2d Torts, @ 626, com. a, at p. 346.) It is there defined as "the publication of matter disparaging the quality of another's land, chattels or intangible things, that the publisher should recognize as likely to result in pecuniary loss to the other through the conduct of a third person in respect to the other's interests in the property." (Rest.2d Torts, @ 626, p. 345.) California has adopted the Restatement formulation. (Erlich v. Etner (1964) 224 Cal.App.2d 69, 73 [36 Cal.Rptr. 256].) Trade libel has also been defined as encompassing all false statements concerning the quality of services or product of a business which are intended to cause that business financial harm and in fact do so. (Comment, Development in the Law, Competitive Torts (1964) 77 Harv.L.Rev. 888, 893.)
In the view of one reviewing court, trade libel "is a confusing concept that has not been subjected to rigorous judicial analysis in California." (Polygram Records, Inc. v. Superior Court (1985) 170 Cal.App.3d 543, 548 [216 Cal.Rptr. 252].) Be that as it may, it is nonetheless a well recognized tort in this state. (See, e.g., Hoffman Co. v. E. I. Du Pont de Nemours & Co. (1988) 202 Cal.App.3d 390, 397 [248 Cal.Rptr. 384]; Guess, Inc. v. Superior Court, supra, 176 Cal.App.3d at pp. 478-479; Nichols v. Great American Ins. Companies (1985) 169 Cal.App.3d 766, 773 [215 Cal.Rptr. 416]; Erlich v. Etner, supra, 224 Cal.App.2d at p. 73; 5 Witkin, Summary of Cal. Law, Torts, supra, pp. 661-671; 3 Levy et al., Cal. Torts (1989) @ 40.70 et seq., pp. 40-121 -- 40-127.) To constitute trade libel, a statement must be false, but need not be malicious except in the sense that it was not privileged. (See Gudger v. Manton (1943) 21 Cal.2d 537, 543 [134 P.2d 217], disapproved on other grounds in Albertson v. Raboff (1956) 46 Cal.2d 375, 381 [295 P.2d 405].)
Although there is some misleading similarity, trade libel must be distinguished from the defamatory torts of libel and slander. "Thus, despite the fact that what has come to be known as 'trade libel' is similar to defamation in that both involve the imposition of liability for injuries sustained through publication to third parties of a false statement affecting the plaintiff, the two torts are distinct; that is, 'trade libel' is not true libel and is not actionable as defamation." (Polygram Records, Inc. v. Superior Court, supra, 170 Cal.App.3d at p. 549.) The basic difference between the two torts, it has been noted, is that an "action for defamation is designed to protect the reputation of the plaintiff, and the judgment vindicates that reputation, whereas the action for disparagement is based on pecuniary damage and lies only where such damage has been suffered." (5 Witkin, Summary of Cal. Law, Torts, supra, pp. 661-662, italics in original.)
In its federal court action, Shell complained that plaintiff was disseminating the false claim that its polybutylene products contained DEHP at hazardous levels. Despite the jury's finding of malice in bringing the lawsuit, we think Shell had reason to believe plaintiff's claims were not true. It does not add DEHP to polybutylene resin, which is the sole ingredient of polybutylene pipe. Nothing is added to the resin in the extrusion process and in fact National Sanitation Foundation rules forbid the addition of any substance during the extrusion process. Shell obtained affidavits from its extruder customers stating that they do not add DEHP to polybutylene and in fact do not have DEHP in their extrusion plants. Moreover, Shell could reasonably believe that the CAL test was an anomaly. Numerous other scientific tests of which plaintiff and Shell were aware failed to identify DEHP associated with polybutylene pipe at other than background levels, if at all, and certainly not approaching the relatively high concentrations asserted by plaintiff.
Notwithstanding this assessment, Shell did not make out a claim for trade libel. First, Shell neither alleged nor sought pecuniary damages in its federal complaint attributable to Leonardini's dissemination of the CAL report or any of its contents. The claimed damages, according to the complaint, proximately resulted not from Leonardini's actions but rather from "CAL's publication of its report and its later refusal to reconsider it,..." Second, Shell alleged that plaintiff had disseminated the CAL report or its material findings "from on or about January, 1981 to the present," a period which encompassed the hearings before the Commission. The Commission was a public body created by the Legislature and charged with the duty of conducting hearings and making recommendations on the plastic pipes, the subject of the CAL report. Accordingly, the allegations embrace communications which are arguably privileged and which could not form the basis of a trade libel. (Cf. Block v. Sacramento Clinical Labs, Inc. (1982) 131 Cal.App.3d 386 [182 Cal.Rptr. 438].) Lastly, even if Shell might have had a claim for damages, that fact would not defeat a malicious prosecution action predicated upon the untenable claim for injunctive relief. A malicious prosecution action "lies when but one of alternate theories of recovery is maliciously asserted...." (Bertero v. National General Corp., supra, 13 Cal.3d at p. 57, fn. 5; see also Balog v. LRJV, Inc. (1988) 203 Cal.App.3d 1343, 1352-1357 [250 Cal.Rptr. 766].) Thus, the probable cause question in this case is a more narrow one, and turns on whether injunctive and declaratory relief was available under the circumstances of this case.
One of the important differences between trade libel on the one hand and defamation on the other, is said to be that "because of the economic interest involved, the disparagement of quality may in a proper case be enjoined, whereas personal defamation can not [sic]." (Rest.2d Torts, @ 626, com. b, p. 346.) The crux of this appeal, therefore, is whether the trade libel action filed by Shell in the federal court was a proper case for injunctive relief. Shell claims that an injunction was available as a remedy for the alleged trade libel committed by plaintiff and that it had probable cause to seek that relief. In support of its position, Shell first cites to the quoted Restatement comment that a trade libel may be enjoined in a proper case. But it fails to note the Restatement's discussion of the constitutional constraints on the issuance of injunctions. "One of the public interests most frequently encountered in the determination of the appropriateness of injunction against tort is that in the freedom of speech and of the press. The public interest, long established in common-law policy, is today held to be embodied in the First Amendment and made applicable to the states by the Fourteenth Amendment.... [para.] These constitutional restrictions have in recent years materially affected certain substantive rules of the law of torts.... [para.] Since the decision of the Supreme Court in Near v. Minnesota, (1931) 283 U.S. 697,it has been recognized that there are constitutional restrictions that must be considered before an injunction may be granted against the exercise of speech. Prior restraint of certain types of communications runs afoul of the restrictions of the First Amendment, even though the enjoined conduct would be tortious in nature." (Rest.2d Torts, @ 942, com. e, p. 588.)
In further support of its claim to entitlement of injunctive relief, Shell relies upon the statement in Witkin that "[a]n injunction may be granted to protect various kinds of interests in business and personal property. The following are important examples: . . . [para.] (i) Trade libel. (See 6 U.S.F.L.Rev. 418.)" (6 Witkin, Cal. Procedure, Provisional Remedies, supra, pp. 226-227.) But the cited law review article, dealing with preliminary injunctions against trade libel, notes that the "courts use the traditional rule that equity will not enjoin a personal libel when ruling that a preliminary injunction against trade libel is unobtainable. As already noted, the main ground for refusing to grant the preliminary injunction is that the constitutional guarantees of freedom of the press and freedom of speech would be infringed." (Comment, The Availability of Preliminary Injunctions Against Trade Libel (1972) 6 U.S.F. L.Rev. 418, 419-420, fn. omitted.)
Shell's final support for its claim is placed on the cases of Martin v.
Reynolds Metals Company (D.Ore. 1963) 224 F.Supp. 978, and Black & Yates v. Mahogany Ass'n (3d Cir. 1942) 129 F.2d 227 [148 A.L.R. 841]. But the first case manifests the same constitutional concern. In Martin, the owner of an alumina reduction plant sought a preliminary injunction requiring removal of a large billboard sign on a nearby ranch, proclaiming that poison from the plant killed cattle and endangered human health. Recognizing that the majority American rule is that equity will not enjoin a trade libel, the Martin court nonetheless concluded that an injunction may be proper in an appropriate case. In its view, "[i]n considering whether equity will enjoin trade libel (libel of a business or property interest), the better-reasoned opinions weigh two factors: [para.] 1) The adequacy or inadequacy of the remedy at law; and [para.] 2) The possible encroachment on free speech which might result from the injunction." (224 F.Supp. at p. 984.) Citing Near v. Minnesota (1931) 283 U.S. 697 [75 L.Ed. 2d 1357, 51 S.Ct. 625] the court conceded that equity will not enjoin a trade libel because "where the publication is about something which is of public interest, then the party libeled must turn to law for his relief." (224 F.Supp. at p. 985.) Concluding that the conduct at issue was not a matter of public interest because the sign was an outgrowth of a controversy between two private parties, dealt with only the interests of those parties and was erected to publicize the rancher's lawsuit against the plant owner, the Martin court ruled that an injunction was proper. (Ibid.) But implicit in the Martin court's formulation of the rule is that if the issue had been one of public interest, injunctive relief would not have been available. The second case relied upon by Shell, Black & Yates v. Mahogany Ass'n, supra, 129 F.2d 227, did not deal with any public interest questions and hence casts no light on the issue in this case. It merely held that an ordinary trade libel may be enjoined and does not purport to deal with the constitutional issues posed by this case. This brings us to the crux of plaintiff's case. Plaintiff asserts that the prior action was without any basis because the primary relief sought, an injunction, would constitute a prior restraint against speech in violation of the free speech clause of the First Amendment which, plaintiff maintains, is never permissible. [FN8]
It is indisputable that publications designed to influence government constitute a form of communication protected by the First Amendment. In the words of the United States Supreme Court, "[t]he general proposition that freedom of expression upon public questions is secured by the First Amendment has long been settled by our decisions. The constitutional safeguard, we have said, 'was fashioned to assure unfettered interchange of ideas for the bringing about of political and social changes desired by the people.' 'The maintenance of the opportunity for free political discussion to the end that government may be responsive to the will of the people and that changes may be obtained by lawful means, an opportunity essential to the security of the Republic, is a fundamental principle of our constitutional system.'" (New York Times Co. v. Sullivan (1964) 376 U.S. 254, 269 [11 L.Ed.2d 686, 700, 84 S.Ct. 710, 95 A.L.R.2d 1412], citations omitted.)
Moreover, it has been repeatedly held by the federal high court that the First Amendment generally prohibits prior restraints upon the freedom of speech and of the press. [FN9] (See, e.g., Organization for a Better Austin v. Keefe (1971) 402 U.S. 415, 419-420 [29 L.Ed.2d 1, 5-6, 91 S.Ct. 1575]; Carroll v. Princess Anne (1968) 393 U.S. 175, 181 [21 L.Ed.2d 325, 331, 89 S.Ct. 347]; Bantam Books, Inc. v. Sullivan (1963) 372 U.S. 58, 70 [9 L.Ed.2d 584, 593, 83 S.Ct.631]; Near v. Minnesota, supra, 283 U.S. 697, 715-716 [75 L.Ed. 1357, 1367].) In Near, the seminal prior restraint decision, the court held that a state statute authorizing an action to enjoin, as a public nuisance, the publication or the circulation of any "malicious, scandalous and defamatory" newspaper or other periodical violated the First Amendment. The high court declared that "it is the chief purpose of the [First Amendment] guaranty to prevent previous restraints upon publication." (283 U.S. at p. 713 [75 L.Ed. at p. 1366].) "These principles have retained their vigor from 1931 to date. From Near to Times-Picayune Pub. Corp. v. Schulingkamp (1974) 419 U.S. 1301, 1307 [42 L.Ed.2d 17, 22, 95 S.Ct. 1], it has been consistently held that any prior restraint on expression bears a heavy presumption against its constitutional validity." (Wilson v. Superior Court (1975) 13 Cal.3d 652, 657 [119 Cal.Rptr. 468, 532 P.2d 116].) Underlying the First Amendment's prohibition against prior restraints is the "profound national commitment to the principle that debate on public issues should be uninhibited, robust and wide-open,..." (New York Times Co. v. Sullivan, supra, 376 U.S. at p. 270 [11 L.Ed.2d at p. 701].)