Toste Farm Corp. v. Hadbury, Inc.

798 A.2d 901, 2002 R.I. LEXIS 127, 2002 WL 1300001

• Court: Supreme Court of Rhode Island
• Decided: June 5, 2002
• Docket: 2000-363-Appeal
• Status: Published

Opinions

OPINION

WILLIAMS, Chief Justice.

The third-party plaintiffs, Richard N. Morash and Hadbury, Inc. (collectively referred to as Morash), appeal from an order of the Superior Court dismissing their complaint against two attorneys and a law firm. Morash alleged that Peter F. Olberg (Olberg) and Eric Shaw (Shaw), on behalf of the law firm of Battle-Fowler, LLP (Battle-Fowler) (collectively referred to as third-party defendants), engaged in a variety of tortious acts toward them in the course of rendering advice to a client, Morash’s former business partner Carl Acebes (Acebes). Morash also alleged that although the third-party defendants no longer represented Acebes in the instant litigation,¹ they continued to direct and finance Acebes’s pursuit of Morash in exchange for Acebes’s agreement not to pursue a legal malpractice claim against them. After careful consideration of the trial justice’s disposition of the third-party complaint below, we conclude that she erred by prematurely dismissing count 3, a cause of action under the doctrine of maintenance. The facts pertinent to this appeal are as follows.

I

Facts and Travel

In June 1991, Morash executed a purchase and sales agreement for a 417-acre farm in Tiverton and Little Compton, Rhode Island. Morash intended to develop the property, and therefore, he listed the property for sale. At the same time, Acebes was looking to acquire land in the Tiverton and Little Compton area. He learned that Morash had acquired the Tosté Farm property (Tosté Farm) and decided to contact Morash about a potential sale. After meeting with Morash, Acebes learned that Morash was unwilling to sell the entire parcel but that Morash was interested in developing the land. Acebes proposed a joint venture, whereby they would jointly acquire and develop Tosté Farm.

Negotiations began in September 1991. By October 1991, Morash began to question Acebes’s true intentions about the future of the partnership. Morash suspected that Acebes would eventually seek to gain control of Tosté Farm for his own purposes, rather than continue to effectuate the original goals of the partnership. Specifically, Morash was suspicious of Acebes’s proposed provision for an auction process in which one of the partners may elect to retire from the partnership and seek to gain control of the partnership through an auction. At this point, Acebes had local Rhode Island counsel preparing the draft agreement. He decided to turn the draft over to the New York law firm of Battle-Fowler to assist him in finalizing the partnership agreement.

Allegedly, Olberg was responsible for ensuring that the agreement gave Aeebes the flexibility he desired, in the event he wished to take control of the property. When Morash’s attorney received Olberg’s revised draft, Morash objected to its terms and sought to terminate the negotiations. Aeebes contacted Morash, and they agreed to continue negotiations. By November 1991, the agreement was finalized.

However, eight months later, Aeebes notified Morash that he intended to retire from the partnership and take advantage of an auction provision in the agreement that would force Morash to bid against Aeebes for sole ownership of the property. The auction was scheduled for September 1992. One day before the auction, Olberg and Aeebes met to prepare an auction bidding strategy. Morash alleges that at the meeting, Olberg realized that he had made a mistake in drafting the auction provision and that Aeebes now had reason to pursue a malpractice claim against him. Despite his negligence, Olberg allegedly advised Aeebes to pursue a bidding strategy unauthorized by the agreement.

At the auction, when Aeebes attempted to pursue his strategy, Mor-ash objected. Eventually, Morash was the highest bidder, which permitted him to elect to continue the partnership under the agreement. Because Morash elected to continue the partnership, Acebes’s only remaining option was to request reimbursement of his financial contribution to the partnership. Olberg then allegedly advised Aeebes to initiate baseless litigation against Morash to persuade Morash to sell his partnership interest. According to Morash, third-party defendants figured that the litigation would eventually wear Morash down and force him to reach a settlement with Aeebes. The third-party defendants hoped that if Aeebes was satisfied, he would not pursue a malpractice claim against them. To encourage Aeebes, third-party defendants offered to finance the litigation, although they were not the counsel of record for the Rhode Island lawsuits.

After two procedurally defective lawsuits failed to succeed in the United States District Court for the District of Rhode Island, Aeebes filed a declaratory judgment action in Superior Court against Morash, asking the trial justice to determine his rights under the partnership. Morash answered the complaint and filed a third-party complaint against third-party defendants. The third-party complaint alleged that third-party defendants (1) tor-tiously interfered with the partnership agreement by knowingly and willfully advising Aeebes to adhere to an auction bidding strategy unsupported by the agreement, (2) committed abuse of process and malicious prosecution by fostering litigation against Morash, (3) were liable for common law maintenance, (4) were liable for slander of title, and (5) were liable for indemnity and contribution.

In February 2000, Aeebes and Morash entered into a settlement agreement resolving the declaratory judgment action. The third-party defendants filed a motion to dismiss the remaining third-party complaint pursuant to Rule 12(b)(6) of the Superior Court Rules of Civil Procedure, arguing that Morash could not prevail on his claims under any set of facts.

The trial justice agreed and granted third-party defendants’ motion to dismiss. Morash timely appealed.²

II

Motion to Dismiss

“[T]he sole function of a motion to dismiss is to test the sufficiency of the complaint.” Rhode Island Employment Security Alliance, Local 401, S.E.I.U., AFL-CIO v. State Department of Employment and Training, 788 A.2d 465, 467 (R.I.2002) (quoting Rhode Island Affiliate, ACLU v. Bernasconi, 557 A.2d 1232, 1232 (R.I.1989)). “The standard for granting a motion to dismiss is a difficult one for the movant to meet.” Pellegrino v. Rhode Island Ethics Commission, 788 A.2d 1119, 1123 (R.I.2002). “When ruling on a Rule 12(b)(6) motion, the trial justice must look no further than the complaint, assume that all allegations in the complaint are true, and resolve any doubts in a [non-movant’s] favor.” Id. (quoting Bernasconi, 557 A.2d at 1232). “The motion may then only be granted if it ‘appears beyond a reasonable doubt that a [non-movant] would not be entitled to relief under any conceivable set of facts.’ ” Id. (quoting Estate of Sherman v. Almeida, 747 A.2d 470, 473 (R.I.2000)). “When this Court reviews a trial justice’s granting of a Rule 12(b)(6) motion, we assume that the allegations contained in the complaint are true, and examine the facts in the light most favorable to the nonmoving party.” Id.

A

Maintenance

In count 3 of their third-party complaint, Morash alleges that third-party defendants committed “actionable maintenance” by funding and prompting Acebes’s litigation against Morash. “As explained by the United States Supreme Court, ‘[p]ut simply, maintenance is helping another prosecute a suit; champerty is maintaining a suit in return for a financial interest in the outcome; and barratry is a continuing practice of maintenance or champerty.’” Osprey, Inc. v. Cabana Limited Partnership, 340 S.C. 367, 532 S.E.2d 269, 273 (2000) (quoting In re Primus, 436 U.S. 412, 424 n. 15, 98 S.Ct. 1893, 1900 n. 15, 56 L.Ed.2d 417, 429 n. 15 (1978)).

The modern trend among many courts is to abolish these causes of action because they have been supplanted by modern tort actions such as malicious prosecution and abuse of process, as well as the code of professional responsibility for attorneys. See Hardick v. Homol, 795 So.2d 1107, 1110-11 (Fla.Dist.Ct.App.2001) (citing Alexander v. Unification Church of America, 634 F.2d 673, 678 (2nd Cir.1980) (interpreting New York law); Security Underground Storage, Inc. v. Anderson, 347 F.2d 964, 969 (10th Cir.1965) (interpreting Kansas law); McCullar v. Credit Bureau Systems, Inc., 832 S.W.2d 886, 887 (Ky.1992); Tosi v. Jones, 115 Ohio App.3d 396, 685 N.E.2d 580, 583 (1996)); see also Saladini v. Righellis, 426 Mass. 231, 687 N.E.2d 1224, 1227 (1997) (citing Rice v. Farrell, 129 Conn. 362, 28 A.2d 7 (1942)).

In this jurisdiction, laws that existed at common law remain applicable in Rhode Island “except as [they have] been changed by local legislation or custom.” Greater Providence Chamber of Commerce v. State, 657 A.2d 1038, 1042 (R.I.1995) (quoting City of Providence v. Comstock, 27 R.I. 537, 543, 65 A. 307, 308 (1906)). Specifically, G.L.1956 § 43-3-1 provides:

“In all cases in which provision is not made herein, the English statutes, introduced before the Declaration of Independence, which have continued to be practiced under as in force in this state, shall be deemed and taken as a part of the common law of this state and remain in force until otherwise specifically provided.”

This Court has previously recognized the common law doctrines of maintenance and champerty. See Kelley v. Blanchard, 34 R.I. 57, 60-61, 82 A. 728, 729 (1912). In Kelley, this Court noted that “[although nearly half a century has elapsed since [Martin v. Clarke, 8 R.I. 389 (1866), the opinion adopting these doctrines], it has never been overruled, doubted or denied, and the same remains the law of the state. Neither has the [L]egislature seen fit to modify the law as expressed in [Martin ].” Kelley, 34 R.I. at 61, 82 A. at 729 (citing Martin, 8 R.I. at 403). Thus, maintenance remains a recognized cause of action in Rhode Island.

Morash alleges that third-party defendants are liable for maintenance because they promised Acebes that they would fund the litigation against Morash to prevent Acebes from pursuing a malpractice claim against them. Specifically, Morash alleges that Olberg and Battle-Fowler advised Acebes to pursue litigation against Morash that they believed was meritless and that they would finance the cost on behalf of Acebes. The third-party defendants were allegedly motivated to do this to avoid defending themselves against Acebes’s malpractice claims. If Morash can prove that third-party defendants engaged in such conduct, the implication is that third-party defendants acted as a party, and not as counsel, in directing the lawsuit to the extent that Acebes needed their approval to finalize the settlement agreement with Morash. This is exactly the type of agreement that is prohibited by the doctrine of maintenance.

Furthermore, we maintain that the existing relationship between third-party defendants and Acebes, whether it was a former or ongoing attorney-client relationship, does not insulate the third-party defendants from liability because when an attorney offers to finance litigation in which he or she is not the attorney of record, the character of the relationship changes such that the priority of the attorney is no longer the client, but instead, the furtherance of his or her own personal interests. In this case, third-party defendants may have been primarily interested in saving themselves from malpractice. Therefore, by allowing Morash to proceed with his maintenance claim, there is no risk to the sanctity of the attorney-client relationship because no attorney-client relationship exists between Acebes and third-party defendants in the instant litigation.

Thus, we conclude that the trial justice erred by dismissing count 3 of Morash’s third-party complaint.

B

Remaining Claims

Tortious Interference with Contract

In count 1 of the third-party complaint, Morash alleges that third-party defendants tortiously interfered with the partnership agreement. “To prevail on a claim alleging tortious interference with contract, a plaintiff must show ‘(1) the existence of a contract; (2) the alleged wrongdoer’s knowledge of the contract; (3) his [her, or its] intentional interference; and (4) damages resulting therefrom.’” UST Corp. v. General Road Trucking Corp., 783 A.2d 931, 937 (R.I.2001) (quoting Belliveau Building Corp. v. O’Coin, 763 A.2d 622, 627 (R.I.2000)). Once the plaintiff establishes the prima facie elements, the burden shifts to the defendant to prove that there was sufficient justification for the interference. See id. (citing Belliveau, 763 A.2d at 627). Further, plaintiff need not prove actual malice or ill will to show the interference was intentional. See id. “Legal malice, ‘an intent to do harm without justification,’ is sufficient.” Id. (quoting Jolicoeur Furniture Co. v. Baldelli, 653 A.2d 740, 753 (R.I.1995)).

To support his claim for tortious interference, Morash alleged that Olberg intentionally interfered with the partnership agreement by “knowingly and willfully advising Acebes to adhere to a bidding strategy unsupported by the agreement at the auction of September 8,1992 in an attempt to cover up his own negligence * * Morash further alleged that Olberg’s actions deprived him of the opportunity to develop Tosté Farm and the title thereto, as well as caused substantial legal expense and other compensatory damages. The third-party defendants argued that Mor-ash had failed to state a claim because absent an attorney-client relationship, he did not have standing to assert the claims of alleged malpractice because third-party defendants owe no duty to non-clients. We agree.

On appeal, third-party defendants argue that an attorney cannot be liable to a third party for acts performed in good faith within the scope of representation to his or her client. We agree that an attorney has no general duty to the opposing party, and therefore, a third party does not ordinarily have standing to pursue a claim for tortious interference against his adversary’s attorney.

In the past, we have recognized that an attorney can be “liable for injuries to third parties when his conduct is fraudulent or malicious.” Nisenzon v. Sadowski, 689 A.2d 1037, 1046 n. 12 (R.I.1997) (quoting Likover v. Sunflower Terrace II, Ltd., 696 S.W.2d 468, 472 (Tex.Cr.App.1985)). Specifically, “[a]n attorney owes a duty to an adverse party not to participate actively in fraudulent conduct.” Nisenzon, 689 A.2d at 1046. This exception is limited, however, to protect the attorney-client relationship.

In this case, count 1 does not contain any allegations of fraudulent conduct that could constitute tortious interference under Nisenzon. Therefore, the trial justice appropriately dismissed count 1 of Mor-ash’s third-party complaint.

Abuse of Process and Malicious Prosecution

To show abuse of process, a plaintiff must demonstrate that “a legal proceeding, although set in motion in proper form, becomes perverted to accomplish an ulterior or a wrongful purpose for which it was not designed.” Clyne v. Doyle, 740 A.2d 781, 783 (R.I.1999) (quoting Hillside Associates v. Stravato, 642 A.2d 664, 667 (R.I.1994)). Malicious prosecution is defined as “a suit for damages resulting from a prior criminal or civfi legal proceeding that was instituted maliciously and without probable cause, and that terminated unsuccessfully for the plaintiff therein.” Kingstown Mobile Home Park v. Strashnick, 774 A.2d 847, 858 (R.I.2001) (quoting Clyne, 740 A.2d at 782). Furthermore, “an action for malicious prosecution based on a prior civil suit may be maintained only where it is established that the prior suit resulted in a special injury to the defendant in that suit.” Ring v. Ring, 102 R.I. 112, 114-15, 228 A.2d 582, 584 (1967). Seizure of property is a special injury. See id. at 115, 228 A.2d at 584.

In his third-party complaint, Morash alleged that because the federal court actions were instituted to circumvent the liability of third-party defendants to Acebes, they constituted an abuse of process and malicious prosecution. The trial justice dismissed the malicious prosecution claim, crediting third-party defendants’ argument that the settlement between the parties extinguishes any malicious prosecution claim. Similarly, she credited third-party defendants’ argument that the abuse of process claim could not stand because Morash did not allege that third-party defendants brought a lawsuit for an ulterior or wrongful purpose.

We agree that count 2 was properly dismissed. Taking the facts in the light most favorable to Morash, it is clear that the trial justice did not err in dismissing the malicious prosecution claim because the dispute between Morash and Acebes was resolved via settlement, and therefore, cannot be said to have terminated either successfully or unsuccessfully for either party. “[A] termination based on a compromise or settlement is not deemed favorable.” Nagy v. McBurney, 120 R.I. 925, 931, 392 A.2d 365, 368 (1978) (citing Moreau v. Picard, 54 R.I. 93, 95, 169 A. 920, 921 (1934)); see also Salvadore v. Major Electric & Supply, Inc., 469 A.2d 353, 357 (R.I.1983).

Furthermore, with respect to both claims, the third-party defendants did not initiate the litigation against Morash. Instead, Acebes initiated both federal court actions and the instant Superior Court action. Although Morash alleges that the third-party defendants possessed an ulteri- or motive, he has failed to allege that the suits were originally instituted in good faith, but then became perverted for some ulterior purpose. Therefore, because Mor-ash could not have prevailed on count 2, it was properly dismissed.

Conclusion

Accordingly, Morash’s appeal from the dismissal of count 3 of the third-party complaint is sustained. Morash’s appeal from the dismissal of counts 1 and 2 is denied and dismissed. The judgment of the Superior Court is affirmed in part and reversed in part. The papers in the case shall be returned to the Superior Court for further proceedings consistent with this opinion.

1 . There is no dispute that third-party defendants are not the attorneys of record in the instant case. Justice Flanders, in his dissenting opinion, correctly points out that it is unclear whether third-party defendants continue to represent Acebes in other forums or matters.

2 . Morash does not contest the trial justice's disposition of count 4, slander of title. In addition, he has failed to brief count 5, indemnity and contribution. Thus, this Court will consider Morash's appeal of count 5 waived. See Wilkinson v. State Crime Laboratory Commission, 788 A.2d 1129, 1131 n. 1 (R.I.2002) (citing O’Rourke v. Industrial National Bank of R.I., 478 A.2d 195, 198 n. 4 (R.I.1984)).