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Palmer Development Corp. v. Gordon
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MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 1999 ME 22
Docket: Yor-98-439
Argued: January 6, 1999
Decided: February 1, 1999
Panel:WATHEN, C.J., and CLIFFORD, RUDMAN, SAUFLEY, ALEXANDER, and
CALKINS, JJ.
Majority:WATHEN, C.J., and CLIFFORD, SAUFLEY, and CALKINS, JJ.
Dissent: RUDMAN, and ALEXANDER, JJ.
PALMER DEVELOPMENT CORPORATION
v.
STEPHEN F. GORDON et al.
CALKINS, J.
[¶1] Palmer Development Corporation appeals from the judgment of
the Superior Court (York County, Fritzsche, J.) granting a motion to dismiss
its claim for wrongful use of civil proceedings on the grounds that a
successful statute of limitations defense is not a favorable termination. We
affirm the judgment.
[¶2] Penobscot Indian Nation (PIN), originally a defendant in this
action, brought a suit in federal court against several entities, including
Palmer Development. One of the claims PIN brought against Palmer
Development was a civil violation of the Racketeer Influenced and Corrupt
Organizations Act (RICO). The federal district court granted summary
judgment in favor of Palmer Development because PIN's RICO claim was
barred by a four-year statute of limitations. Penobscot Indian Nation v. Key
Bank of Me., 906 F. Supp. 13, 21 (D. Me. 1995).{1}
[¶3] Palmer Development then filed a one-count complaint in the
Superior Court for malicious prosecution against PIN and five attorneys and
law firms who represented PIN in the federal court suit.{2} Palmer
Development alleged that PIN and their lawyers and law firms (referred to
collectively as the lawyer defendants) had no reasonable grounds to believe
Palmer Development engaged in activities that would support a RICO claim
and that it was filed maliciously and without probable cause. Palmer
Development and PIN settled, but the wrongful use of civil proceedings
claim remained against the lawyer defendants. The lawyer defendants filed
a motion pursuant to M.R. Civ. P. 12(b)(6) to dismiss for failure to state a
claim. They successfully argued to the Superior Court that favorable
termination is an element of the tort of wrongful use of civil proceedings
and that the RICO action was not terminated favorably to Palmer
Development.
[¶4] In Pepperell Trust Co. v. Mountain Heir Fin. Corp., 1998 ME 46,
¶ 15, 708 A.2d 651, 656, we adopted the Restatement definition of the tort
of wrongful use of civil proceedings. The tort exists where:
(1) one initiates, continues, or procures civil proceedings
without probable cause, (2) with a primary purpose other than
that of securing the proper adjudication of the claim upon
which the proceedings are based, and (3) the proceedings
have terminated in favor of the person against whom they are
brought.
Id. (citing Restatement (Second) of Torts § 674 (1977)). The third element
of the tort, favorable termination, is an "essential element of the claim." Id.
¶ 16, 708 A.2d at 656. What constitutes a favorable termination is a
question of law. See id. The issue of whether a party can maintain an action
for wrongful use of civil proceedings after a successful statute of limitations
defense in the underlying action is a question of first impression in Maine.
See id. (declining to consider the circumstances in which a dismissal would
qualify as a favorable termination).
[¶5] The leading case on whether a successful statute of limitations
defense qualifies as a favorable termination is Lackner v. LaCroix, 602 P.2d
393 (Cal. 1979). Lackner set the standard that termination of an action on
statute of limitations grounds does not reflect on the merits of the
underlying claim and cannot be the basis of a favorable termination in an
action for malicious prosecution. Id. at 395. The California Supreme Court
noted that, as with other purely procedural defenses, such as lack of
personal jurisdiction, a statute of limitations defense is waived unless timely
raised. Id. It concluded that a statute of limitations defense is merely
procedural or technical in nature, and is "in no way dependent on nor
reflective of the merits . . . in the underlying action." Id. For this reason,
the court held it cannot qualify as a favorable termination.
[¶6] The Lackner court also found substantial policy reasons
supporting its decision. It noted that the justification for a statute of
limitations is to prevent stale claims when, due to the passage of time,
evidence is hard to obtain and memories are dim. Id. A plaintiff in a suit for
wrongful use of civil proceedings, however, must show a lack of probable
cause, an element that necessarily involves consideration of these same stale
issues. Id. 395-96. "Certainly if policy considerations preclude litigation of
such issues in the underlying action, the same considerations also preclude
it in the malicious prosecution action." Id. at 396. This justification is
further supported, the court noted, by the general rule that a statute of
limitations defense can be used as a shield, but not as a sword. Id.
[¶7] The rule in Lackner that termination on statute of limitations
grounds is not favorable has been adopted by a majority of courts that have
addressed the issue. In Miskew v. Hess, 910 P.2d 223, 233 (Kan. Ct. App.
1996), the court noted that the general rule is that a termination of the
underlying action on statute of limitations grounds is not a favorable
termination. After reflecting on the rationale, surveying a number of
jurisdictions and reviewing secondary authorities, the Miskew court adopted
the general rule. Id. Other jurisdictions that have held or stated in dicta
that a termination on statute of limitations grounds is not a favorable
termination include: Frey v. Stoneman, 722 P.2d 274, 278 (Ariz. 1986);
Brown v. Carr, 503 A.2d 1241, 1246 (D.C. 1986); Union Oil of Cal., Amsco
Div. v. Watson, 468 So.2d 349, 354 (Fla. Dist. Ct. App. 1985); Wong v. Panis,
772 P.2d 695, 699 (Haw. Ct. App. 1989); Alcorn v. Gordon, 762 S.W.2d 809,
812 (Ky. Ct. App. 1988); Foshee v. Southern Fin. & Thrift Corp., 967 S.W.2d
817, 820 (Tenn. Ct. App. 1997). A minority of courts have held that a
successful statute of limitations defense is a favorable termination. See
Sacco v. High Country Indep. Press, Inc., 896 P.2d 411, 432 (Mont. 1995);
Parks v. Willis, 853 P.2d 1336, 1338 (Or. Ct. App. 1993).{3}
[¶8] Palmer Development relies on comment j to the Restatement
(Second) of Torts § 674 to argue that a victory on statute of limitations
grounds is a favorable termination. Comment j states:
Civil proceedings may be terminated in favor of the person
against whom they are brought . . . by (1) the favorable
adjudication of the claim by a competent tribunal, or (2) the
withdrawal of the proceedings by the person bringing them,
or (3) the dismissal of the proceedings because of his failure
to prosecute them. Favorable adjudication may be by a
judgment rendered by a court after trial or upon demurrer or
its equivalent.
Restatement (Second) of Torts § 674 cmt. j.
[¶9] Palmer Development points out that demurrers were similar to a
statute of limitations defense in some circumstances because they were
available to challenge technical defects on the face of the complaint
unrelated to the merits of the underlying action. See Mooers v. Kennebec &
Portland R.R. Co., 58 Me. 279, 281 (1870). It also refers to the other
examples in the comment, such as a dismissal for failure to prosecute and
voluntary withdrawal, which similarly are not determinations made on the
merits of the underlying facts.
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