Wichansky v. Quinlan

• Court: District Court, D. Arizona
• Decided: February 26, 2020
• Docket: 2:19-cv-05087
• Status: Unknown

Opinion

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA

9 Marc A. Wichansky, No. CV-19-05087-PHX-JJT

10 Plaintiff, ORDER

11 v.

12 William J. Quinlan, et al.,

13 Defendants. 14 15 At issue is Defendants’ Motion to Dismiss Or, In The Alternative, For A More 16 Definite Statement (Doc. 9, Mot.), to which Plaintiff filed a Response (Doc. 14, Resp.) and 17 Defendants filed a Reply (Doc. 15, Reply). For the reasons that follow, the Court dismisses 18 all claims against Defendants but grants Plaintiff leave to amend the Complaint. 19 I. BACKGROUND 20 This matter is the latest in a long and tumultuous line of cases stemming from a 21 business dispute between Plaintiff Marc A. Wichansky and his former business partner, 22 David Zowine. The Court summarizes in relevant part that dispute and ensuing legal 23 battles, as alleged in the Complaint and asserted in the briefing. 24 Plaintiff and Zowine were equal owners of a company called MGA Employee 25 Services, Inc. (Doc. 1, Compl. ¶ 12.) At some point, Plaintiff determined that Zoel Holding 26 Company, Inc. (“Zoel”), an MGA subsidiary managed at the time by Zowine, was 27 improperly billing the State of Arizona for home healthcare services provided to Arizona 28 Medicaid recipients. Plaintiff began investigating, at which point the relationship between 1 Plaintiff and Zowine soured to irreconcilability. Thereafter, Plaintiff attempted to “place 2 Zowine on leave.” (Compl. ¶ 22.) After Zowine refused, a lawsuit was initiated in state 3 court in 2011, seeking dissolution of the partnership (the “Termination Action”).1 4 Ultimately, Zowine bought out Plaintiff’s ownership in Zoel and Plaintiff went to work for 5 a competitor, Team Select Home. In 2013, Zowine and Zoel sued Plaintiff and Team Select 6 Home in state court for misappropriation of trade secrets (the “Misappropriation Action”). 7 Collectively, the Court refers to these two cases as the “State Court Actions.” 8 While the State Court Actions were proceeding, Plaintiff filed an action in federal 9 court in 2013 alleging various claims against Zowine and other defendants (the “Federal 10 Action”). Also around this time, Plaintiff filed a qui tam action against MGA, Zowine, Zoe 11 Holding Company, Inc. (formerly Zoel or otherwise related to Zoel), and other defendants. 12 In 2016, Plaintiff obtained a $27.5 million jury verdict—and later, judgment—in the 13 Federal Action. The bulk of the liability and verdict was levied against Zowine, who then 14 filed for bankruptcy. Zowine also appealed the result of the Federal Action to the Ninth 15 Circuit Court of Appeals. While that appeal was pending, the Termination Action and 16 Misappropriation Action were dismissed off the state court’s Dismissal Calendar on March 17 12 and August 14, 2018, respectively. (See Doc. 9-1 Exs. 3 & 4.)2 18 As Zowine’s bankruptcy case wended through the system, Plaintiff, Zowine, Zoe 19 Holding Company, and several other parties reached a “Global Settlement,” which settled 20 and resolved all aforementioned lawsuits: the two State Court actions, the Federal Action, 21 the qui tam action, and the bankruptcy action. The agreement set forth two conditions 22 precedent to its enforceability: (1) the bankruptcy court’s approval of the settlement 23 agreement and Zowine’s bankruptcy plan, and (2) Plaintiff’s dismissal of the qui tam 24 action. According to the Complaint, those conditions were respectively satisfied on

25 1 The Complaint alleges Zowine initiated the lawsuit, (Compl. ¶ 38), while Defendants’ Motion states Plaintiff brought the suit and Zowine counterclaimed for 26 wrongful termination. (Mot. at 3.)

27 2 Plaintiff does not dispute that the State Court Actions were dismissed as a procedural matter from the Dismissal Calendar. The Court can therefore take judicial notice 28 of these public records without converting the motion to dismiss into a motion for summary judgment. See Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). 1 September 5 and September 19, 2018. On October 20, 2018, the Ninth Circuit dismissed 2 the appeal from the Federal Action. 3 The present Defendants William Quinlan and the Quinlan Law Firm’s roles in this 4 extensive history were as legal counsel for Zowine and Zoel (and other same-side parties) 5 in both State Court Actions and the Federal Action.3 Plaintiff now sues Defendants, raising 6 claims of (1) malicious prosecution, (2) abuse of process, and (3) aiding and abetting 7 tortious conduct, for their role in representing Zowine and Zoel. Plaintiff filed this action 8 on September 4, 2019. Defendants move to dismiss all claims against them. 9 II. LEGAL STANDARD 10 Federal Rule of Civil Procedure 12(b)(6) is designed to “test[] the legal sufficiency 11 of a claim.” Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). A dismissal under Rule 12 12(b)(6) for failure to state a claim can be based on either (1) the lack of a cognizable legal 13 theory or (2) insufficient facts to support a cognizable legal claim. Balistreri v. Pacifica 14 Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990). When analyzing a complaint under Rule 15 12(b)(6), the well-pled factual allegations are taken as true and construed in the light most 16 favorable to the nonmoving party. Cousins v. Lockyer, 568 F.3d 1063, 1067 (9th Cir. 2009). 17 Legal conclusions couched as factual allegations are not entitled to the assumption of truth, 18 Ashcroft v. Iqbal, 556 U.S. 662, 680 (2009), and therefore are insufficient to defeat a 19 motion to dismiss for failure to state a claim, In re Cutera Sec. Litig., 610 F.3d 1103, 1108 20 (9th Cir. 2010). On a Rule 12(b)(6) motion, Rule 8(a) governs and requires that, to avoid 21 dismissal of a claim, Plaintiff must allege “enough facts to state a claim to relief that is 22 plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). 23 . . . . 24 . . . . 25 . . . . 26 3 Defendants assert they were no longer counsel for Zoel by the time the 27 Misappropriation Action was dismissed. Defendants do not appear to claim involvement in the bankruptcy action or the Global Settlement, although Plaintiff alleges they were still 28 representing Zowine when he filed for bankruptcy. 1 III. ANALYSIS 2 A. Malicious Prosecution 3 To state a claim for malicious prosecution of a civil proceeding,4 Plaintiff must 4 sufficiently allege Defendants “(1) instituted a civil action which was (2) motivated by 5 malice, (3) begun without probable cause, (4) terminated in plaintiff’s favor and (5) 6 damaged plaintiff.” Bradshaw v. State Farm Mut. Auto. Ins. Co., 758 P.2d 1313, 1319 7 (Ariz. 1988). 8 The Court notes at the outset that neither the Complaint nor the Response states 9 which civil action(s) forms the basis of Plaintiff’s malicious prosecution claim—a 10 deficiency the Court will discuss more fully below. The Complaint cursorily mentions the 11 State Court Actions brought by Zowine while represented by Defendants. (Compl. ¶¶ 38, 12 40.) Later, directly under a reference to the Federal Action, which Plaintiff brought, the 13 Complaint alleges Defendants filed “multiple, frivolous claims.” (Compl. ¶ 43.) The Court 14 will analyze a claim for malicious prosecution first in the context of the State Court Actions 15 and then briefly in the context of the “multiple, frivolous claims,” to the extent they refer 16 to claims filed by Defendants in the Federal Action. 17 1. Statute of Limitations 18 A cause of action for malicious prosecution has a one-year limitations period and 19 accrues when the underlying civil action terminates in Plaintiff’s favor and all appeals have 20 concluded. See Nataros v. Super. Ct. Maricopa Cty., 557 P.2d 1055, 1057 (1976); A.R.S. 21 § 12-541. Focusing on the fourth element, Defendants argue that even if the dismissals of 22 the State Court Actions from the Dismissal Calendar could be considered a “favorable” 23 termination for Plaintiff, which Defendants deny, the terminations themselves occurred on 24 March 12 and August 14, 2018. Therefore, a claim for malicious prosecution could have 25 accrued no later than each dismissal, and was time-barred as of March 12 and August 14, 26 2019, respectively.

27 4 Civil malicious prosecution is often and perhaps more properly referred to as “wrongful institution of civil proceedings.” Chalpin v. Snyder, 207 P.3d 666, 672 n.5 (Ariz. 28 Ct. App. 2008). Because the parties consistently use the term malicious prosecution, the Court does as well. 1 Plaintiff focuses on post-dismissal events, arguing all the underlying litigation, 2 including the two State Court Actions, terminated in his favor with the Global Settlement. 3 Specifically, either the bankruptcy court’s approval of the Global Settlement on 4 September 5, 2018, the dismissal of the qui tam action on September 19, 2018, or the Ninth 5 Circuit’s October 20, 2018, dismissal of the Federal Action appeal supplies the favorable 6 termination date.5 The present action was filed within one year of all three dates. 7 The Court finds that the State Court Actions terminated upon their dismissals from 8 the Dismissal Calendar on March 12 and August 14, 2018. At the moment of each 9 dismissal, the civil actions that form the first element of a claim for malicious prosecution 10 were over. A later settlement purporting to settle and release at least five outstanding legal 11 disputes between the underlying parties may or may not have resulted in a favorable 12 outcome in general for Plaintiff. But the post-dismissal settlement was not a favorable 13 termination of the State Court Actions themselves for the simple reason that they had 14 already been terminated by final written order. (See Doc. 9-1 Exs. 3 & 4 (dismissing 15 without prejudice all claims in the State Court Actions by “final written Order of the Court” 16 and entering final judgment pursuant to Arizona Civil Rule of Procedure 54(d)).) The 17 settlement’s reference to the State Court Actions did not resurrect or extend their life.6 To 18 hold otherwise would enable the accrual date on a potential malicious prosecution claim to 19 be extended indefinitely, so long as a settlement—or any other reference to the underlying 20

21 5 It is unclear how the Ninth Circuit dismissal of the Federal Action relates to termination of the State Court Actions. Again, Plaintiff’s filings lack precision as to which 22 civil proceedings form the basis of his malicious prosecution claim. The Court presumes the reference to this Ninth Circuit dismissal pertains to a claim for malicious prosecution 23 related to claims brought on behalf of Zowine in the Federal Action.

24 6 Plaintiff’s argument that the “dismissals could have been set aside and the actions reinstated upon request of either party” is unavailing. (See Resp. at 11.) The fact that the 25 underlying proceeding could have been refiled following a dismissal or withdrawal does not preclude a subsequent malicious prosecution action. See Overson v. Lynch, 317 P.2d 26 948, 950–51 (Ariz. 1957). The Arizona Supreme Court cited Jaffe v. Stone for this rule. There, the California Supreme Court held, “It is immaterial whether the termination is a 27 bar to any further prosecution for the same offense, or whether the accused may be charged and tried anew. Only if the new proceeding is already instituted can the accused be 28 precluded from suing for malicious prosecution. This view is supported by the great weight of authority.” Jaffe v. Stone, 114 P.2d 335, 341 (Cal. 1941). 1 proceeding—purported to address the legal dispute that was the subject of the underlying 2 proceeding. 3 Plaintiff argues that had he brought the present case before the Global Settlement 4 was approved or the qui tam action dismissed, Defendants would have moved to dismiss 5 “on the basis that his claim was not ripe because the litigation was not terminated.” (Resp. 6 at 13.) In addition to this being speculation, whether Defendants would have moved to 7 dismiss on ripeness grounds does not mean the claim would in fact be unripe. Contrary to 8 Plaintiff’s statement, the litigation was terminated, and the settlement occurred after that 9 termination. Aside from hypothetical motions to dismiss, nothing precluded Plaintiff from 10 filing a claim for malicious prosecution after the State Court Actions were dismissed. 11 Plaintiff also posits that a termination date predicated on the dismissals would raise 12 factual disputes that cannot be resolved on a motion to dismiss. (Resp. at 14.) This 13 argument conflates whether a termination is favorable with when the termination occurred. 14 Plaintiff is correct that determining whether a dismissal is a favorable termination, as 15 opposed to a procedural or technical occurrence, may require a look into “the substance 16 rather than the form of prior events and often involves questions of fact.” See Frey v. 17 Stoneman, 722 P.2d 274, 279 (Ariz. 1986). This is because factors that are distinct from 18 merits—such as funding, emotional costs, or forgiveness—may be at play in abandoning 19 or withdrawing the underlying proceeding. See id. But whether the dismissals from the 20 Dismissal Calendar substantively reflected on the merits is irrelevant if they occurred more 21 than one year before a malicious prosecution claim is brought. 22 To the extent Plaintiff’s malicious prosecution claim is aimed at the State Court 23 Actions Defendants brought on behalf of Zowine, it is time-barred. Accordingly, the Court 24 dismisses with prejudice the claim with respect to the State Court Actions. 25 2. Failure to State a Claim 26 The Complaint refers to “multiple, frivolous claims” Defendants made in what 27 appears to be the Federal Action that Plaintiff brought against Defendants. (Compl. ¶ 43.) 28 Under the Restatement, followed by Arizona courts, “one who files a counterclaim to a 1 cause of action initiates a civil proceeding.” Restatement (Second) of Torts § 674 cmt. a. 2 Thus, while Plaintiff has just barely alleged the first element of malicious prosecution, he 3 fails to allege facts to support the remaining four. The Complaint neglects to identify the 4 nature or the resolution of Defendants’ claims, let alone allege that those specific claims— 5 as opposed to the earlier lawsuits—were brought without probable cause and with malice. 6 Many of the allegations relate specifically to lawsuits other than the Federal Action. (See 7 Compl. ¶¶ 24, 25, 27, 34–36.) The rest of the Complaint consists of general allegations of 8 Defendants’ conduct without any attendant timeframe or context as to how the conduct 9 relates to Defendants’ claims in the Federal Action.7 10 In short, to the extent Plaintiff’s malicious prosecution claim arose from the claims 11 Defendants helped bring in the Federal Action, the Complaint pleads no facts with respect 12 to those claims specifically. Without factual allegations, Plaintiff’s malicious prosecution 13 claim cannot survive Defendants’ Rule 12(b)(6) Motion and must be dismissed. 14 If a defective complaint can be cured, a plaintiff is entitled to amend the complaint 15 before the action is dismissed. Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000). Here, 16 because Plaintiff may be able to cure the defect only with respect to Defendants’ claims in 17 the Federal Action, the Court will give him an opportunity to amend. Plaintiff shall only 18 file an amended Complaint if he is able to cure the defect. If he files an amendment that 19 fails to comply with Rule 8, the Court will dismiss the malicious prosecution claim, in its 20 entirety, with prejudice. 21 B. Abuse of Process 22 To state a claim for abuse of process, Plaintiff must allege sufficient facts to show 23 that Defendants committed “(1) a willful act in the use of judicial process; (2) for an ulterior 24 7 The Complaint alleges Defendants aided an employee in creating a false and 25 misleading formula error which was blamed for the fraudulent overbilling; falsely represented that an attorney was investigating the billing fraud while knowing that attorney 26 was protecting and representing Zowine; actively prevented the termination of an employee who had been identified as the person perpetrating the fraud; and accused Plaintiff of 27 engaging in the Medicare billing fraud, despite substantial evidence that Plaintiff had no access to that aspect of the business. (Compl. ¶¶ 28–30, 32.) The Complaint links none of 28 these allegations to a claim for malicious prosecution related to Defendants’ claims brought in the Federal Action. 1 purpose not proper in the regular conduct of the proceedings.” Crackel v. Allstate Ins. Co., 2 92 P.3d 882, 887 (Ariz. Ct. App. 2004). Using the judicial process for its authorized 3 purposes—even if done with bad intentions or with incidental spiteful motives—does not 4 constitute abuse of process. Morn v. City of Phoenix, 730 P.2d 873, 875–76 (Ariz. Ct. App. 5 1986) (finding no abuse of process when the plaintiff’s suit was brought to seek redress for 6 perceived wrongs but also had an incidental purpose of “getting even” with the defendants). 7 Plaintiff must show that the process was used primarily to pursue an improper purpose. 8 Nienstedt v. Wetzel, 651 P.2d 876, 881 (Ariz. Ct. App. 1982). In other words, the use of 9 judicial process must be “so lacking in justification” that it “could not logically be 10 explained without reference to the defendant’s improper motives.” Id.; Crackel, 92 P.3d at 11 889. 12 Like Plaintiff’s claim for malicious prosecution, his claim for abuse of process lacks 13 factual allegations sufficient to withstand a Rule 12(b)(6) motion. The Complaint begins 14 by making general allegations of Defendants’ misconduct, as described in footnote 7. The 15 gist of the allegations are that Defendants acted dishonestly in protecting Zowine while 16 attempting to shift the blame for the improper billing onto Plaintiff. However, these 17 allegations contain no timeframe and are untethered from any specific judicial proceeding, 18 and, more importantly, use of judicial process. Plaintiff alleges Defendants “advocated in 19 written pleadings, motion practice, and oral argument” that a formula error, which 20 Defendants allegedly knew to be false, was the cause of the billing issue. (Compl. ¶ 31.) 21 But in addition to the dearth of facts as to (1) which motions, pleadings, or arguments in 22 (2) which legal proceeding and when,8 this singular statement falls far short of showing 23 this was the primary purpose of the alleged use of process. 24 The Complaint then proceeds to simply recite the chronology of all the underlying 25 litigation. It alleges Defendants knew the lawsuits they filed (i.e., the State Court Actions) 26 8 The “when” component is crucial. As Defendants point out, Plaintiff does not 27 “identify a single use of process that occurred within two years of filing this action,” the limitations period for an abuse of process claim. (Reply at 9); see Kurtz v. Goodyear Tire 28 & Rubber Co., No. CV-19-00152-PHX-GMS, 2019 WL 2996054, at *2 (D. Ariz. July 9, 2019); A.R.S. § 12-542. 1 were frivolous and without probable cause and that Defendants brought “multiple, 2 frivolous claims and motions in an effort to drain [Plaintiff’s] financial resources.” (Compl. 3 ¶ 43.) Again, the Complaint contains no detail as to the specific judicial process employed, 4 or when it was used. This particularity is essential in light of the protracted legal history 5 between Plaintiff and Zowine, much of which occurred over two years ago. The Court 6 cannot extrapolate from Plaintiff’s vague statements the basis for his claim. 7 Accordingly, Plaintiff fails to state a claim for abuse of process. Plaintiff is granted 8 leave to amend, with the same admonition that any amendment must comply with Rule 8 9 or face dismissal with prejudice. 10 C. Aiding and Abetting 11 The elements of aiding and abetting tortious conduct are “(1) the primary tortfeasor 12 must commit a tort that causes injury to the plaintiff; (2) the defendant must know that the 13 primary tortfeasor’s conduct constitutes a breach of duty; and (3) the defendant must 14 substantially assist or encourage the primary tortfeasor in the achievement of the breach.” 15 Wells Faro Bank v. Ariz. Laborers, Teamsters & Cement Masons Local No. 395 Pension 16 Tr. Fund, 38 P.3d 12, 23 (Ariz. 2002). 17 Defendants contend the Complaint fails to properly allege the first element. By 18 definition, a claim for aiding and abetting requires at least two tortfeasors. Ortiz v. Zurich 19 Am. Ins. Co., No. CV-13-02097-PHX-JAT, 2014 WL 1410433, at *5 (D. Ariz. Apr. 11, 20 2014) (citing Restatement (Second) of Torts § 876 cmt. a). Thus, Plaintiff must adequately 21 plead an independent primary tort—here, committed by Zowine—and that Defendants 22 took separate action in concert with Zowine’s alleged tort. Fromkin v. Indymac Bank FSB, 23 No. 10-CV-8014-PCT-PGR, 2010 WL 2541167, at *5 (D. Ariz. June 18, 2010). The 24 Complaint alleges that Zowine oversaw Zoel; orchestrated a fraudulent scheme to 25 overcharge the State of Arizona; psychologically harassed and physically attacked 26 Plaintiff; ignored a court order in the Termination Action enjoining his harassment; 27 harassed the court-appointed receiver in the Termination Action; and engaged in “abusive 28 1 conduct” in attempt to end Plaintiff’s investigation into the billing practices and steal 2 Plaintiff’s ownership interest in MGA. 3 While some of these allegations could potentially subject Zowine to civil liability, 4 the Complaint fails to allege which facts specifically amount to a breach of fiduciary duty 5 or to whom that duty was owed.9 Instead, the Complaint alleges only that Defendants 6 “aid[ed] and abet[ed] the breach of fiduciary duty.” (Compl. ¶ 3.) There are many kinds of 7 fiduciary duties and a breach can assume many forms; several allegations pertaining to 8 Zowine may each qualify as a breach, while others may not. When given the opportunity 9 to clarify, via a Response, which fiduciary duties were breached and to whom they were 10 owed—Plaintiff, MGA, Zoel, or otherwise—Plaintiff provided no legal authority under 11 which his allegations of breach arise. It is not enough to assert a series of actions taken by 12 an alleged primary tortfeasor, who is not a party to the action, and leave the Court and 13 Defendants to determine which of those actions may constitute the primary tort 14 foundational to the aiding and abetting claim. If a Complaint fails to adequately allege the 15 primary tort, it derivatively fails to allege the second and third elements of the claim, as 16 liability of a secondary tortfeasor inherently depends on what the primary tort is. 17 In short, the Complaint’s haphazard factual pleading (1) precludes the Court and 18 Defendants from ascertaining the precise nature of Zowine’s primary tort and (2) fails to 19 demonstrate Defendants’ knowledge of and substantial assistance in accomplishing the 20 same (as opposed to merely representing Zowine in legal proceedings after the fact). See 21 Sec. Title Agency, Inc. v. Pope, 200 P.3d 977, 988 (Ariz. Ct. App. 2008) (holding the 22 encouragement or assistance must be a “a substantial factor in causing the resulting tort”) 23 (emphasis added).10 Accordingly, Plaintiff fails to state a claim for aiding and abetting 24 25 9 Indeed, some allegations pertain to Zowine’s actions aimed not at Plaintiff, but at 26 third parties such as the State of Arizona or a court-appointed receiver. (Compl. ¶¶ 18, 29.)

27 10 To the extent the primary tort is fraud, the Complaint fails to comply with Rule 9(b)’s heightened pleading standards. Vess v. Ciba-Geigy Corp. USA, 317 F.3d 1097, 1106 28 (9th Cir. 2003) (“Averments of fraud must be accompanied by ‘the who, what, when, where, and how’ of the misconduct charged.”). 1 || tortious conduct. Plaintiff is granted leave to amend and shall only file an amendment if it || will comply with the pleading standards of Rule 8, and if applicable, Rule 9(b). 3 IT IS THEREFORE ORDERED granting Defendants’ Motion to Dismiss (Doc. 9). Plaintiff's claim for malicious prosecution with respect to the State Court Actions 5 || 1s time-barred and therefore dismissed with prejudice. His claims for malicious prosecution 6 || with respect to the Federal Action, abuse of process, and aiding and abetting are dismissed with leave to amend. 8 IT IS FURTHER ORDERED granting Plaintiff leave to file a First Amended □□ Complaint within 14 days of this Order, only if and to the extent he can cure the defects 10 || described in this Order. 11 Dated this 26th day of February, 2020. CN 12 “wok: 13 wefhelee— Unifgd State#District Judge 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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