Fleetwood Retail Corporation of New Mexico, etc. v. Alisa Ledoux

{1} In DeVaney v. Thriftway Marketing Corporation, 1998-NMSC-001, 124 N.M. 512, 953 P.2d 277, we merged the torts of abuse of process and malicious prosecution to create the new tort of malicious abuse of process and allowed defendants to assert malicious abuse of process claims as counterclaims in the underlying proceedings. In the matter before us, Defendant Alisa LeDoux ("LeDoux") brought a malicious abuse of process counterclaim based on lack of probable cause against Plaintiff Fleetwood Retail Corporation ("Fleetwood"), pursuant to DeVaney. A jury awarded damages to Fleetwood on some of its underlying claims and also awarded damages to LeDoux on her counterclaim. Fleetwood now appeals the verdict in favor of LeDoux.

{2} The issue we address here is whether recovery by Fleetwood on any single claim provides an absolute defense to a malicious abuse of process action based on lack of probable cause. In making this determination, we decide whether lack of probable cause, one of two alternative theories for a malicious abuse of process action, should be determined as to the complaint as a whole or as to each claim individually. We conclude that the defendant must win the entire case as a condition to proceeding with a malicious abuse of process counterclaim based on lack of probable cause. Because LeDoux was not completely successful in her defense, we reverse the verdict in her favor for malicious abuse of process.

BACKGROUND

{3} Fleetwood is in the manufactured housing business and sells its products in New Mexico through Viking Homes. Fleetwood originally brought its complaint in this suit against LeDoux and four other individuals -- Grady Henderson, Natasha Moraguez, David Prince, and Caridad Prince. Henderson was employed as Fleetwood's general manager in Albuquerque and was in charge of hiring. Moraguez was Henderson's girlfriend. Caridad Prince is Moraguez's mother and David Prince is Caridad Prince's husband. Henderson hired David and Caridad Prince, and Caridad Prince hired Moraguez. All four were employees of Fleetwood during the time of the incidents at issue in this case.

{4} Alisa LeDoux was a bartender in Albuquerque. Henderson was a frequent customer at LeDoux's place of work, and the two would often converse when LeDoux was bartending. After learning that LeDoux was interested in interior design, Henderson hired LeDoux as an independent contractor to do interior decorating for Fleetwood's mobile homes.

{5} Operating as a sole proprietorship out of her apartment, LeDoux decorated several homes for Fleetwood through January 2001. LeDoux would purchase furniture at Valley Furniture using Henderson's personal account, which Henderson would confirm. LeDoux would then give an invoice to Henderson who would submit a purchase order and payment authorization to Fleetwood. LeDoux would receive a check and reimburse Henderson for the furniture. In January 2001, Henderson abruptly left Fleetwood, and LeDoux never heard from him again.

{6} Around the same time that LeDoux was decorating mobile homes for Fleetwood, David Prince was general manager of Fleetwood's Farmington stores. He and his wife, Caridad, had set up a sham business by the name of "La Empressa" and were using the business to embezzle money from Fleetwood. The Princes would submit both fictitious and legitimate invoices from La Empressa, Fleetwood would pay La Empressa for both the real and non-existent furniture, but La Empressa would not pay the furniture vendors for the furniture actually purchased.

{7} After discovering the fraud, Fleetwood filed suit in federal court against LeDoux and the four other defendants, asserting a RICO racketeering claim as well as state law claims, under the court's supplemental jurisdiction, for fraud and misrepresentation, embezzlement, larceny, conversion, conspiracy, and unjust enrichment. Fleetwood alleged that over $300,000 was embezzled from Fleetwood during the short-lived scheme headed by Henderson. By this time Henderson, Moraguez, and the Princes had all moved out-of-state, and Fleetwood no longer had contact with them. Fleetwood did not contact LeDoux before suing her.

{8} After the RICO suit was filed, LeDoux's counsel attempted to set up a meeting with Fleetwood's director of internal audit, Dennis Christansen, so that LeDoux could explain that she was not involved in the schemes of the other defendants. Although a meeting was set up, Fleetwood's counsel later canceled the meeting and would not reschedule. LeDoux's counsel then wrote a letter to Fleetwood's counsel explaining that Fleetwood's RICO claim was legally deficient because Fleetwood had "failed to allege acts sufficient to meet RICO's pattern requirement or to allege an enterprise distinct from the individual defendants," citing Duran v. Carris, 238 F.3d 1268 (10th Cir. 2001), and Switzer v. Coan, 261 F.3d 985 (10th Cir. 2001), for these contentions. LeDoux's counsel also stated LeDoux's belief that Fleetwood's real motive in bringing the RICO suit against her and refusing to meet with her was to coerce her into providing information and testimony against Henderson. Fleetwood's attorney responded, asserting that the allegations against LeDoux were not made in an attempt to coerce her into providing information about Henderson, and contending that Fleetwood had a justifiable basis for naming LeDoux as a defendant. The letter did not directly refute LeDoux's assertion that the RICO claim was without merit. However, Fleetwood did not dismiss the RICO claim at that time. Three months later, after LeDoux filed a Motion to Dismiss in federal court, Fleetwood voluntarily dismissed the entire suit.

{9} Shortly before the dismissal, but after LeDoux's motion, Fleetwood re-filed in state court against the same defendants, including LeDoux, alleging the same claims under state law that it had in the federal suit. LeDoux counterclaimed for malicious abuse of process, based primarily on the RICO suit which had by then been dismissed. Henderson, Moraguez, and the Princes never appeared at trial and default judgments were entered against them.

{10} At trial, at the end of Fleetwood's case, both parties made motions for judgment as a matter of law on LeDoux's malicious abuse of process counterclaim. The court partially granted LeDoux's motion, finding as a matter of law that Fleetwood lacked probable cause to file the RICO suit. The court also granted LeDoux's motion for judgment as a matter of law against Fleetwood on its conspiracy claim because there was no evidence of any agreement between LeDoux and the other defendants. We note that it is unclear what happened to the embezzlement, larceny, and unjust enrichment claims, as those claims were not explicitly dismissed. Although the court, near the beginning of its instructions to the jury, stated that "[Fleetwood's] claims were proximately caused by fraud, embezzlement, conversion, larceny, and conspiracy," the jury was instructed only on the elements of fraud and conversion.

{11} With respect to LeDoux's counterclaim for malicious abuse of process, it was undisputed that the costs for LeDoux to defend against Fleetwood's claims in both federal court and state court were $28,431.53, and this amount was presented to the jury without objection as a basis for her compensatory damages. The jury returned a mixed verdict, awarding Fleetwood a judgment in the amount of $8,187.03 on its fraud and conversion claims against LeDoux, and awarding LeDoux a judgment of $28,431.53 on her malicious abuse of process claim against Fleetwood. Although LeDoux elected not to appeal the judgment against her, Fleetwood did appeal from the jury verdict for malicious abuse of process, and in the course of that appeal the Court of Appeals certified two questions to this Court which we discuss below. Before we reach the certified questions, however, we set forth a brief review of DeVaney to provide context for our analysis.

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{12} In DeVaney, we created the tort of malicious abuse of process by merging the formerly separate torts of malicious prosecution and abuse of process. 1998-NMSC-001, 12. Malicious abuse of process is "defined by the following elements: (1) the initiation of judicial proceedings against the plaintiff by the defendant; (2) an act by the defendant in the use of process other than such as would be proper in the regular prosecution of the claim; (3) a primary motive by the defendant in misusing the process to accomplish an illegitimate end; and (4) damages." Id. 17. The second element -- misuse of process -- can be shown in one of two ways: (1) filing a complaint without probable cause, or (2) an "irregularity or impropriety suggesting extortion, delay, or harassment." Id. 22, 28. The issues presented by the certified questions turn on this two-pronged element.

{13} Probable cause in the malicious abuse of process context is defined as a "reasonable belief, founded on known facts established after a reasonable pre-filing investigation that a claim can be established to the satisfaction of a court or jury. The lack of probable cause must be manifest." Id. 22 (citations omitted). "[T]he existence of probable cause in the underlying proceeding, that is, whether the facts amount to probable cause, is a question of law and shall be decided by the trial judge." Weststar Mortgage Corp. v. Jackson, 2003-NMSC-002, 17, 133 N.M. 114, 61 P.3d 823 (alteration in original) (quoted authority omitted).

{14} In DeVaney, we noted that favorable termination for the plaintiff in the original lawsuit "has significance in demonstrating the existence of probable cause." 1998-NMSC-001, 23. In other words, "[a]n unfavorable termination for the malicious-abuse-of-process plaintiff, meaning some form of recovery for the original-proceeding plaintiff, is conclusive evidence of the existence of probable cause." Id. (quoted authority omitted). However, in DeVaney we decided that prior favorable termination is not an element of the malicious abuse of process tort, as it was for the former tort of malicious prosecution. Thus, defendants in the underlying action can assert malicious abuse of process claims as counterclaims and are not required to wait until the underlying suit is terminated. Id. 23-24.

{15} In allowing malicious abuse of process claims to be brought as counterclaims in the original proceeding, we devised a two-tiered burden-of-proof system that applies a different burden depending on whether the malicious abuse of process claim was brought as a counterclaim or after termination of the original proceeding. Under DeVaney, when a malicious abuse of process claim based on lack of probable cause is brought in a separate proceeding after termination of the original proceeding, a favorable termination for the original plaintiff is an absolute defense to the malicious abuse of process claim. See id. 25. This is because a favorable termination for the original plaintiff is indicative of the existence of probable cause. Id. 15, 23. As an element of malicious prosecution, the requirement of a favorable termination served the important function of procedurally safeguarding access to the courts by honest litigants. Id. 25. However, we recognized that if malicious abuse of process claims could be asserted as counterclaims, no favorable termination defense would be available, even though the underlying claims might have merit, and thus there would need to be some other form of safeguard. Id. 26. Therefore, DeVaney imposes a higher burden on the malicious abuse of process plaintiff alleging lack of probable cause in a counterclaim, requiring that the lack of probable cause be demonstrated by clear and convincing evidence. Id. On the other hand, DeVaney held that "[i]f a plaintiff chooses to delay the assertion of a malicious abuse of process claim until the termination of the underlying proceeding, the plaintiff must, instead, prove a lack of probable cause by a preponderance of the evidence." Id.

{16} As we have said, under DeVaney lack of probable cause is not the only way to establish a misuse of process; that element can also be shown by "some irregularity or impropriety suggesting extortion, delay, or harassment, conduct formerly actionable under the tort of abuse of process." Id. 28. There are two ways of showing a procedural impropriety: (1) a "procedural irregularity" involving misuse of procedural devices such as discovery or (2) "an act that otherwise indicates the wrongful use of proceedings." Id. DeVaney does not give much guidance as to which acts indicate a wrongful use of proceedings, beyond listing the following examples: "excessive execution on a judgment; attachment on property other than that involved in the litigation or in an excessive amount; oppressive conduct in connection with the arrest of a person or the seizure of property, such as illegal detention and conversion of personal property pending suit; extortion of excessive sums of money." Id. (quoted authority omitted).

{17} Having laid out the basic framework for the improper act element of malicious abuse of process established by DeVaney, we now turn to the certified questions.

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(1) When a [malicious abuse of process] plaintiff relies on lack of probable cause to demonstrate misuse of process, is the lack of probable cause determined as to the underlying complaint generally, or as to each count separately?

(2) Does a verdict for the [original proceeding plaintiff] on one or more counts provide an absolute defense to the [malicious abuse of process] plaintiff's entire . . . claim even though other counts brought by the [original proceeding plaintiff] were brought without probable cause or for an improper purpose and even though the [malicious abuse of process] plaintiff incurred substantial attorney's fees in defending against the non-meritorious claims?