Wrongful Institution of Civil Proceedings Under Arizona Law

Arizona first recognized a claim for civil malicious prosecution in 1932. See Ackerman v. Kaufman, 41 Ariz. 110, 112-114, 15 P.2d 966, 967 (1932).

While often called malicious prosecution, that term actually applies to the criminal context, and the proper term in the civil context is the wrongful institution (or use) of civil proceedings (“WICP”). See Bradshaw v. State Farm Mut. Auto. Ins. Co., 157 Ariz. 411, 414 n.1, 758 P.2d 1313, 1316 n.1(1988); Smith v. Lucia, 173 Ariz. 290, 291 n.1, 842 P.2d 1303, 1304 n.1 (Ct. App. 1992).

WICP “is a cause of action not favored by the law.” Nataros v. Superior Court, 113 Ariz. 498, 500, 557 P.2d 1055, 1057 (1976).

To prove a claim for wrongful institution of civil proceedings, the plaintiff must prove the defendant: (1) instituted a civil action (2) without probable cause (3) that was motivated by malice, (4) terminated in the plaintiff’s favor, and (5) damaged the plaintiff. See Bradshaw, 157 Ariz. at 416-17, 758 P.2d at 1318-19 (citing Carroll v. Kalar, 112 Ariz. 595, 596, 525 P.2d 411, 412 (1976)). See also RAJI (Civil), 5th Intentional Torts 19 (Malicious Prosecution) (citations omitted).

Each of these five elements is discussed in turn in detail below.

The term instituted is not synonymous with commence, and may also encompass instigating, continuing, prolonging or procuring the previous civil action. See Cain v. Fidelity Nat. Title Ins. Co., 2013 Ariz. App. Unpub. LEXIS 362, at *14-15 (Mar. 12, 2013) (citing McClinton v. Rice, 76 Ariz. 358, 367, 265 P.2d 425, 431 (1953); Restatement (Second) of Torts § 674 & cmt. c).

Accordingly, the instigator of the previous civil action can be held liable as an initiator, even though the previous civil action was actually filed with permission in someone else’s name. See Bradshaw, 157 Ariz. at 415, 417, 419, 758 P.2d at 1317, 1319.

However, merely providing information that ultimately led to the filing of the previous civil action does not qualify as instituting the previous civil action. See Betty v. State Farm Fire & Cas. Co., 2014 Ariz. App. Unpub. LEXIS 198, at *14-15 (Feb. 18, 2014).

Finally, a “civil action” is one commenced in court and does not, for example, include “[p]eer review proceedings conducted by a private association.” Goodman v. Samaritan Health Sys., 195 Ariz. 502, 508 n.8, 990 P.2d 1061, 1067 n.8 (Ct. App. 1999).

“The failure to establish a lack of probable cause is a complete defense to an action for” WICP. Carroll, 112 Ariz. at 412, 545 P.2d at 412. (citing Slade v. City of Phoenix, 112 Ariz. 298, 541 P.2d 550 (1975); McClinton, 76 Ariz. 358, 265 P.2d 425).

Probable cause exists if a defendant who initiates or continues proceedings against a plaintiff correctly or reasonably believes: (1) the plaintiff has acted or failed to act in a particular manner; (2) those acts or omissions constitute the civil wrong that the defendant charges against the plaintiff; and (3) the defendant is sufficiently informed as to the law and the facts to justify him in initiating or continuing the proceedings. See RAJI (Civil), 5th Intentional Torts 21 (Existence of Probable Cause) (citing Restatement (Second) of Torts § 662).

“Whether the facts in a particular case are sufficient to constitute probable cause is a question of law to be determined by a reasonable man test. ‘[U]pon the appearances presented of the defendant, would a reasonably prudent man have instituted or continued the proceeding?’” Carroll, 112 Ariz. at 596, 545 P.2d at 412 (quoting McClinton, 76 Ariz. at 367, 265 P.2d at 431).

Whether a given set of facts constitutes probable cause is always a question of law to be determined by the court. The only function of the jury is to determine what the actual facts are if the facts are conflicting. If from the set of facts the conclusion can be inferred that probable cause exists, and from another that it does not, it is for the jury to determine the true state of facts.

Id. at 598-99, 545 P.2d at 414-15.

Whether the defendant’s state of mind was such that he or she had probable cause of initiating the lawsuit is ordinarily a question for the jury. See Id. at 599, 545 P.2d at 415.

Probable cause does not exist “as a matter of law merely because at the time of filing an action there is some evidence that will withstand a motion for summary judgment” under Ariz. R. Civ. P. 56. Bradshaw, 157 Ariz. at 417, 758 P.2d at 1319. Similarly, the denial of a motion for judgment as a matter of law under Ariz. R. Civ. P. 50 is not conclusive evidence of probable cause. Chalpin v. Snyder, 220 Ariz. 413, 419, 207 P.3d 666, 672 (Ct. App. 2008). “Such rulings may be considered in determining probable cause, but they are not conclusive.” Id. at 419, 207 P.3d at 672.

The proper test for probable cause is both subjective and objective: “The initiator of the action must honestly believe in its possible merits; and, in light of the facts, that belief must be objectively reasonable.” Bradshaw, 157 Ariz. at 417, 758 P.2d at 1319 (citations omitted) (emphasis in original). To put it another way, the “test is: (1) whether the claim is objectively reasonable; and (2) whether the proponent of the claim had a subjective belief in its merits.” Wolfinger v. Cheche, 206 Ariz. 509, 516, 80 P.3d 783, 788 (Ct. App. 2003).

The court must first consider objective probable cause, and if there is no objective probable cause, then the court may examine if there is subjective probable cause. See Id. at 509-510, 80 P.3d at 788-89. “In effect, a party’s subjective belief in the merits of a claim only becomes an issue if there is no objective probable cause.” Chalpin, 220 Ariz. at 419, 207 P.2d at 672.

The test for objective probable cause is: “[U]pon the appearances presented . . . would a reasonably prudent [lawyer] have instituted or continued the proceeding?” Smith, 173 Ariz. at 297, 842 P.2d at 1310. This question can be determined by applying the three-prong test used for Ariz. R. Civ. P. 11, which finds an attorney violates the objective standard of an attorney’s conduct if: (1) there was no reasonable inquiry into the basis for a pleading or motion; (2) there was no chance of success under existing precedent; and (3) there was no reasonable argument to extend, modify, or reverse the controlling law. See Id. at 297, 842 P.2d at 1310. The only difference between the test under Ariz. R. Civ. P. 11 and the test used for objective probable cause for a WICP claim is that for the second element the test is “no good chance” of success, and not “no chance” of success. See Chalpin, 220 Ariz. at 420-21, 207 P.2d at 673-74.

The use of the test under Ariz. R. Civ. P. 11—reasonable inquiry, chance of success, or modification of existing law—for objective probable cause does not mean that the failure to seek and obtain sanctions under Ariz. R. Civ. P. 11 in the underlying proceeding bars the plaintiff by issue preclusion from alleging the defendant lacked probable cause in the WICP matter. See Cain, 2013 Ariz. App. Unpub. 362, at *21-24.

For the first prong of objective probable cause, the defendant need only make a reasonable pre-filing inquiry and “is entitled to fully develop the facts through discovery.” Smith, 173 Ariz. at 298, 842 P.2d at 1311. Thus, the defendant “need not exhaust the available witnesses before filing.” Hatton v. Ariz. Dep’t of Revenue, 2007 Ariz. App. Unpub. LEXIS 456, at *9-10 n.3 (Feb. 22, 2007) (citing Smith, 173 Ariz. at 297, 842 P.2d at 1310).

For the third prong of objective probable cause, an attorney does not act unreasonably by following the minority view in the United States. See Smith, 173 Ariz. at 299, 842 P.2d at 1312.

“[T]he defeat of a motion for summary judgment is a factor that the court should consider in determining whether there is or is not an objectively reasonable basis for a claim or defense; the denial is not, standing alone, dispositive of the issue as a matter of law.” Wolfinger, 206 Ariz. at 791-92, 80 P.3d at 512-13.

However, the prior adjudication by the trial court in favor of the defendant (albeit reversed), is sufficient as a matter of law to establish probable cause. See Visco v. First Nat’l Bank of Ariz., 415 P.2d 902, 906 (Ariz. Ct. App. 1966).

The test for subjective probable cause “is whether the initiator ‘reasonably believes that he has a good chance of establishing [his case] to the satisfaction of the court or the jury.’” Bradshaw, 157 Ariz. at 417, 758 P.2d at 1319 (citation omitted). In other words, the defendant “did not have to be certain it would prevail; rather, it only had to reasonably believe in the possibility that the court would find its claim valid.” Id. at 418, 758 P.2d at 1320 (citing Restatement (Second) of Torts §§ 674, cmt. e-f and 675, cmt. c). “The initiator may realize that the fight will be difficult and the battle uphill, but so long as it honestly believes it may establish its case, it satisfies the subjective portion of the probable cause test.” Id. at 418, 758 P.2d at 1320 (citing Restatement (Second) of Torts § 675, cmt. c and f). See, e.g., Id. at 418, 758 P.2d at 1320 (concluding appellate court incorrectly held probable cause existed as a matter of law where evidence permitted inference that case was filed not because defendant believed it might be found meritorious but to intimidate plaintiffs and coerce plaintiffs into settling claim for less).

In order to determine the defendant’s knowledge and state of mind with respect to the merits of the previous action, evidence related to settlement negotiations is admissible and Ariz. R. Evid. 408 precluding such evidence to prove the validity of the underlying claim or amount is inapplicable. See Id. at 420, 758 P.2d at 1322 (citations omitted).

Also, “the advice of a duly-licensed attorney given after full and truthful disclosure of the facts is sufficient to establish probable cause even if the lawyer’s advice was erroneous.” Joseph v. Markovitz, 551 P.2d 571, 573 (Ariz. Ct. App. 1976) (affirming summary judgment where record is avoid of any evidence showing defendants in filing third-party complaint did anything other than follow attorney’s advice in good faith after full disclosure of all facts). See also RAJI (Civil), 5th Intentional Torts 22 (Probable Cause for Prosecution – Advice of Counsel) (citations omitted).

However, a lawyer’s expert opinion on the question of probable cause is not admissible. See Carroll, 112 Ariz. at 599, 545 P.2d at 415 (citing Baker v. Leight, 91 Ariz. 112, 370 P.2d 268 (1962)); Smith, 173 Ariz. at 298, 842 P.2d at 1311; Bird v. Rothman, 128 Ariz. 599, 603, 627 P.2d 1097, 1101 (Ct. App. 1981).

Finally, “one cannot infer a lack of probable cause from the existence of malice,” the next element discussed below. Smith, 173 Ariz. at 297, 842 P.2d at 1310 (citing McClinton, 76 Ariz. at 366, 265 P.2d at 431).

“The malice element in a civil malicious prosecution action does not require proof intent to injure. Instead, a plaintiff must prove that the initiator of the action primarily used the action for a purpose ‘other than that of securing the proper adjudication of the claim.’” Id. at 418, 758 P.2d at 1320 (citing Restatement (Second) of Torts § 676 & cmt. c).

Malice exists where one initiates a civil action to force a settlement upon an unwilling opponent or files a counterclaim to delay the expeditious treatment of the original claims rather than to obtain a proper adjudication of the merits asserted in the counterclaim. See Id. at 419, 758 P.2d at 1321.

Malice also exists when the defendant is aware that its claim is not meritorious or the previous civil action is begun primarily because of hostility or ill will. See Cain, 2013 Ariz. App. Unpub. 362, at *25 (citing Restatement (Second) of Torts § 676, cmt. c).

“Lack of probable cause may give rise to an inference of malice . . . .” Smith, 173 Ariz. at 297, 842 P.2d at 1310 (citing McClinton, 76 Ariz. at 366, 265 P.2d at 431).

If a wrongful institution of civil proceedings “action is filed prior to favorable termination of the proceedings, the action is premature and subject to dismissal.” Nataros, 113 Ariz. at 500, 557 P.2d at 1057.

A wrongful institution of civil proceedings claim is premature and subject to dismissal if an appeal is pending. Frey v. Stoneman, 150 Ariz. 106, 109-110, 722 P.2d 274, 277-78 (1986) (citing Moran v. Klatzke, 140 Ariz. 489, 490, 682 P.2d 1156, 1157 (Ct. App. 1984)).

A wrongful institution of civil proceedings claim is also premature and subject to dismissal if it is asserted as a counterclaim in the original action. See Id. at 110, 722 P.2d at 278 (citing Nataros, 113 Ariz. at 500, 557 P.2d at 1056).

“On the other hand, a judgment on the merits after a trial is always a favorable termination.” See Id. at 110, 722 P.2d at 278 (citing Restatement (Second) of Torts § 674 cmt. j).

A Rule 68 judgment is a judgment on the merits. See Traasdahl v. Romfo, 2012 Ariz. App. Unpub. LEXIS 457, at *11-12 (Apr. 12, 2012) (citation omitted). Whether or not the Rule 68 judgment is a favorable termination depends on the circumstances. See, e.g., Betty, 2014 Ariz. App. Unpub. LEXIS 198, at *5-9 (finding Rule 68 judgment awarding $250,000 to plaintiffs on defendant’s counterclaim (in addition to plaintiffs’ claims) was a termination in plaintiffs’ favor, but dismissing WICP claim based on res judicata doctrine given broad language in Rule 68 judgment); Traasdahl, 2012 Ariz. App. Unpub. LEXIS 457, at *13-14 (holding summary judgment was properly entered against plaintiffs because Rule 68 judgment in which plaintiffs were required to pay defendants one dollar was not a termination in plaintiffs’ favor).

“Where there has been no adjudication on the merits the existence of a ‘favorable termination’ of the prior proceedings generally must be found in the substance rather than the form of prior events and often involves questions of fact.” Frey, 150 Ariz. at 111, 722 P.2d at 279.

Id. at 111, 722 P.2d at 279 (citing Restatement (Second) of Torts § 673 cmt. e).

In this type of case, while the “ultimate legal decision with respect to what constitutes a favorable termination rests with the judge,” who will often have to consider extrinsic evidence, the fact finder must determine any ambiguous “circumstances surrounding the termination of the prior proceedings.” Id. at 111, 722 P.2d at 679 (citing Restatement (Second) of Torts §§ 673, 674 and 681(B)(2)(c)).

Based on the foregoing test, a settlement may be a favorable termination. Bradshaw, 157 Ariz. at 419, 758 P.2d at 1321 (citing Frey, 150 Ariz. at 110-11, 722 P.2d at 278-79). Whether a settlement constitutes a termination in the plaintiff’s favor depends on the “true facts, not the form of disposition.” Id. at 419, 758 P.2d at 1321. See, e.g., Id. at 419, 758 P.2d at 1321 (holding jury could find favorable termination where the defendant withdrew the prior action, paid the plaintiff $60,000 of $100,000 insurance policy and stipulated to dismiss its complaint with prejudice); Giles v. Hill Lewis Marce, 195 Ariz. 358, 363, 988 P.2d 143, 148 (Ct. App. 1999) (concluding trial court erred in dismissing plaintiffs’ claim for lack of favorable termination since record was insufficient to determine as a matter of law whether settlement, in which plaintiffs received more than $40,000, was favorable to plaintiffs because record did not indicate what relief plaintiffs sought in underlying action or their reasons for accepting settlement).

Likewise, “a plaintiff’s dismissal of a civil action may under some circumstances be considered a termination of the action in favor of a defendant, [but] not all voluntary dismissals constitute favorable termination.” Lane v. Terry H. Pillinger, P.C., 189 Ariz. 152, 154, 157, 939 P.2d 430, 432 (Ct. App. 1997) (citing Frey, 150 Ariz. at 110, 722 P.2d at 278; Restatement (Second) of Torts § 674, cmt. j) (emphasis in original). See, e.g., Id. at 153-54, 157, 939 P.2d at 431-32, 435 (holding jury could not find favorable termination where defendant’s uncontroverted affidavit attested he dismissed suit approximately four months after filing complaint, and without serving plaintiff with complaint, after concluding prosecuting case would be extremely difficult, time consuming and expensive, and any damages would be difficult to collect given defendants were numerous and dispersed across country).

“When a termination or dismissal indicates in some fashion that the accused is innocent of wrongdoing it is a favorable termination. However, if it is merely a procedural or technical dismissal it is not favorable.” Id. at 154, 839 P.2d at 432 (quoting Frey, 150 Ariz. at 110, 722 P.2d at 278). “Thus, a dismissal pursuant to a statute of limitations is not a favorable termination.” Frey, 150 Ariz. at 110, 722 P.2d at 278 (citation omitted).

Likewise, a parties’ stipulated judgment stating it was a voluntary compromise, with neither party admitting fault, and leaving each to bear their own costs and fees, is procedural and is not a termination in favor of the plaintiff to sustain a WICP claim. See Best v. State of Arizona, 2013 Ariz. App. Unpub. LEXIS 421, at *2, 6 (Apr. 16, 2013).

However, a “dismissal for failure to prosecute is not procedural, and is a favorable termination which indicates the innocence of the accused if it reflects on the merits of the action.” Frey, 150 Ariz. at 110, 722 P.2d at 278 (citation omitted) (emphasis in original). See, e.g., Wolfinger, 206 Ariz. at 516, 80 P.3d at 795 (holding dismissal for failure to prosecute could be termination in plaintiffs’ favor given “length of time the case was prosecuted [i.e., three years], the extent of the discovery, the evidence of improper purpose for the filing of the suit [i.e., to obtain further information against other parties and facilitate a settlement against them], and the prospect of a failure to meet the burden of proof.”).

A plaintiff may be damaged by being “upset and intimidated” by the underlying action or “worn down by the stress and delays” of the underlying action, which causes them to accept a settlement far less than what he or she could have received. See Id. at 417, 758 P.2d at 1319.

Damages may also include emotional distress and medical expenses, so long as there is evidence of such actual damage, like a medical report from a physician and receipts. See Jaffe v. Empirian Prop. Mgmt., Inc., 2012 Ariz. App. Unpub. LEXIS 291, at *15 (Mar. 6, 2012).

A plaintiff may also be damaged if the defendant causes unnecessary delays to the plaintiff’s business activities. See Hatton, 2007 Ariz. App. Unpub. LEXIS 456, at *10.

The plaintiff may also seek punitive damages, but proof of WICP does not automatically justify an award of punitive damages. Bradshaw, 157 Ariz. at 422, 758 P.2d at 1324.

The plaintiff must prove the defendant’s conduct was guided by an evil mind, such as facts showing the defendant intended to cause injury, facts showing that the defendant’s wrongful conduct was motivated by spite or ill will, or facts showing the defendant acted to serve his or her own interests, having reason to know and consciously disregarding a substantial risk that his conduct might significantly injure the rights of others. See Id. at 422, 758 P.2d at 1324 (citations omitted).

Such factors constituting an evil mind may be inferred from the evidence, including proof that the defendant’s conduct was outrageous in nature. See Id. at 422, 758 P.2d at 1324 (citation omitted).

A wrongful institution of civil proceedings claim is subject to a one-year statute of limitations: “There shall be commenced and prosecuted within one year after the cause of action accrues, and not afterward, the following actions: 1. For malicious prosecution ...” A.R.S. § 12-541(1).

A wrongful institution of civil proceedings “claim accrues when the prior proceedings have terminated in the defendant’s favor.” Nataros, 113 Ariz. at 500, 557 P.2d at 1057.

If an appeal is taken, a favorable termination of the prior proceedings occurs upon the termination of the appeal proceedings and not upon the rendition of the final judgment in the prior proceedings. See Moran, 140 Ariz. at 490-91, 682 P.2d at 1157-58.

In sum, a plaintiff may bring a wrongful institution of civil proceedings claim against a defendant, but must prove that the defendant instituted a previous civil action without objective and subjective probable cause that was motivated by malice, terminated in the plaintiff’s favor, and caused the plaintiff damages.