SCV-259420 Praxis Capital v. Kelly, III:

Defendant’s anti-SLAPP motion is denied. Plaintiff has established a prima facie case of probable success on the merits.

Defendant filed and pursued a meritless case that stretched on for over five years, causing unreasonable delays and harm to a bona fide purchaser. Defendant pursued this action without probable cause and with malice.         

Defendant’s Request for Judicial Notice is granted.

Plaintiff’s Request for Judicial Notice is granted.

Defendant contends that Plaintiff’s complaint is factually insufficient to meet its burden under the second prong of anti-SLAPP procedure. The facts of this case are not in dispute, nor has moving party identified any factual dispute relevant to a determination of the Complaint. There is no dispute that GMAC/ETS did not accept Inoue’s untimely and insufficient effort to cure the default, that the property was sold at a valid foreclosure sale on September 13, 2010, that Inoue’s Lis Pendens was recorded on September 20, 2010, and MED&G’s Trustee’s Deed was recorded on September 21, 2010. These facts are set forth in the decision of the Court of Appeal. (Exhibit 3 to Plaintiff’s RJN.)

The basis for Plaintiff’s Complaint is that Defendant Thomas P. Kelly III pursued, on behalf of his clients, an untenable claim based on well-settled law that he knew or should have known at the time. He continued to advocate the applicability of “first in time” recording statutes, despite the existence of clear authority specific to foreclosure sales that determine bona fide purchaser status on the date of sale. These allegations are set forth in Plaintiff’s Complaint and attachments, as well as Plaintiff’s RJN.

         Well-Settled Law Establishes that MED&G was a Bona Fide Purchaser

“A purchaser at foreclosure is a BFP if he or she (1) purchases the property in good faith and for value; and (2) has no knowledge or notice of the asserted rights claimed by another.” (Melendrez v. D&I Investment, Inc. (2005) 127 Cal. App. 4th 1238, 1251.) Recordation of the Deed by the purchaser is not an element, although it may show notice, as the definition of BFP is “consonant with decisions defining the term under California’s recording statutes. (Ibid.)

Bona fide purchaser status is determined at the time of the sale; information learned after the acquisition of the property does not affect the buyer’s bona fide purchaser status. (Melendrez, supra, 127 Cal. App. 4th at 1254.)

MED&G acquired the property on September 13, 2010, at the foreclosure sale by successfully bidding on the property and acquired an interest at that time. Melendrez, supra, at 1238. A purchaser who pays valuable consideration and records his interest receives his interest free and clear of all prior unrecorded claims in the property which are unknown to him at the time of his purchase. (Reiner v. Daniel (1989) 211 Cal. App. 3d  682, 689-90.) MED&G paid valuable consideration and duly recorded its interest. It is the date of acquiring the interest that is critical with respect to knowledge of other claims, not the date of recordation. (Ibid.)

The Trustee’s deliver of the Deed to MED&G is conclusive.

 

As a general rule, the purchaser at a nonjudicial foreclosure sale receives title under a        trustee’s deed free and clear of any right, title or interest of the trustor. (Citation) A     properly conducted nonjudicial foreclosure sale constitutes a final adjudication of the            rights of the borrower and lender. (Citation) Once the trustee’s sale is completed, the            trustor has no further rights of redemption.

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The purchaser at a foreclosure sale takes title by a trustee’s deed. If the trustee’s deed        recites that all statutory notice requirements and procedures required by law for the          conduct of the foreclosure have been satisfied, a rebuttable presumption arises that the      sale has been conducted regularly and properly; this presumption is conclusive as to a        bona fide purchaser.

 

Moeller v. Lien (1994) 25 Cal. App. 4th 822, 831.

 

Since the status of a bona fide purchaser is determined at the time of acquisition and the sale is  non-voidable upon delivery of the Trustee’s Deed, as of September 18, 2010, the sale to MED&G Group was conclusively presumed valid. It is irrelevant that MED&G did not record that Deed until September 21, 2010. A trustee’s sale is complete upon acceptance of the last and highest bid and is deemed to be perfected as of 8:00 a.m. on the actual date of sale, so long as the Trustee’s Deed is recorded within 15 calendar days of the sale date. (CCP sec. 2924h(c).) Recording by MED&G of the Trustee’s Deed on September 21, 2010, eight days after the sale satisfies this recording deadline, “relates back” to the sale date and has priority over an intervening encumbrance recorded after the sale date.

         Plaintiff Must Establish the Elements of Malicious Prosecution

To prevail in a malicious prosecution action, plaintiff must plead and prove: (1) his or her adversary initiated the underlying action; (2) the proceeding terminated in the plaintiff’s favor; (3) plaintiff’s adversary lacked probable cause to bring the action; (4) the adversary brought the action with malice; and (5) plaintiff suffered legally compensable harm. (Chauncey v. Niems (1986) 182 Cal. App. 3d 967, 973.) Defendant contends that Plaintiff cannot establish the elements of lack of probable cause or malice. At this stage, the court looks only to see if a sufficient prima facie showing has been made. (HMS Capital, Inc. v. Lawyers Title Co. (2004) 118 Cal. App. 4th 204, 216.) Since moving party does not challenge the first two elements of malicious prosecution, that the action was initiated by defendant and was terminated in plaintiffs favor, that element needs no discussion.

  1. Lack of Probable Cause

            The standard for determining probable cause is objective; whether a reasonable attorney would have thought the claim legally tenable. (Shelodon Appel Co. v. Albert & Oliker (1989) 47 Cal. 3d 863, 874; Zamos v. Stroud (2004) 32 Cal. 4th 958, 971.) However, an attorney who institutes an action which s/he does not believe is legally tenable also lacks probable cause for purposes of a malicious prosecution action. (Sheldon Appel, supra, at 881.)

A complete absence of supporting evidence makes it unreasonable to prosecute a case. (HMS Capital, supra, at 217; Mable v. Hyatt (1998) 61 Cal. App. 4th 581, 596-597.) To avoid malicious prosecution, the underlying claim must be legally and factually tenable. (Sangster v. Paetkau (1998) 68 Cal. App. 4th 151, 164-165.)

Even if Mr. Kelly had a reasonable belief in the merit of the claim against MED&G at the time of filing the Second Amended Complaint on March 21, 2011, the operative pleading in the underlying action,[1] once the attorney learns of facts establishing the lack of merit, continuing to maintain the action constitutes malicious prosecution. (Zamos v. Stroud (2004) 32 Cal. 4th 958.) In Zamos, the Supreme Court held “[m]alicious prosecution…includes continuing to prosecute a lawsuit discovered to lack probable cause.”  (Id. at 973.) Here, it may be true that at the time of filing Mr. Kelly was unaware that MED&G’s status as a bona fide purchaser was cemented on the date of the foreclosure sale as long as they recorded the Trustee’s Deed within 15 days, regardless of Inoue’s prior recording of a Lis Pendens. Any such misunderstanding would be solely due to his lack of research, and there would be no justification for that lack of knowledge since this law has been well-established for decades before this litigation.  However, once Mr. Kelly had an opportunity to see and review that authority, his continued prosecution of the action was no longer with probable cause to believe in the merit of the claim.

Defendant contends that interim motions, including a demurrer, motion to expunge Lis Pendens and a summary judgment motion, establish probable cause. Defendant provides no authority for the proposition that erroneous interim rulings are sufficient to constitute probable cause to maintain the underlying act ion. The authority is to the contrary. For the underlying action to have been tenable, it is not necessary that defendant have won the case, but it is necessary that the possibility existed. Here, it did not, under the state of the law. A ruling on a motion for summary judgment is not dispositive on the issue of malice. (Jarrow Formulas, Inc. v. LaMarche (2003) 31 Cal. 4th 728, 742-43.)

Plaintiff has established a clear and undisputed set of facts leading up to the foreclosure sale, and clear undisputed legal authority pre-dating the filing of the underlying complaint establishing MED&G as a bona fide purchaser. Accordingly, Plaintiff has therefore established a prima facie case of lack of probable cause.

  1. Whether the Action was Pursued with Malice

The requirement that Plaintiff prove that the underlying action was brought with malice merely means that the attorney knew there was no probable cause for the prosecution and either personally acted with an improper motive or knew that the client was motivated by malice. (Munson v. Linnick (1967) 255 Cal. App. 2d 589, 595-596 (disapproved on other grounds by Babb v. Superior Court (1971) 3 Cal. 3d 841.)

The lack of probable cause is an appropriate factor to consider in determining the presence of malice. (Downey Venture v. LMI Ins. Co. (1998) 66 Cal. App. 4th 478, 498 fn. 29) Malice may be established by actual hostility or ill will or a subjective intent to deliberately misuse the legal system for personal gain. (Id., at 498-499.) “Since parties rarely admit to an improper motive, malice is usually proven by circumstantial evidence and inferences drawn from the evidence.” (HMS Capital, Inc. supra, 118 Cal. App.4th, at 218.) Engaging in minimal discovery, while attempting to extract a settlement is evidence of an improper purpose sufficient to support a finding of malice. (Id., at 218-219.)

In HMS Capital the court upheld a trial court’s denial of an anti-SLAPP motion finding that plaintiff met its burden. As for the malice element, plaintiff relied on the trial court’s findings in the case, the minimal discovery conducted by the defendant in the underlying case, and that plaintiff had informed defendant that the claims were baseless. (Id., at 209-210, 219.) In this case, the trial court’s findings confirm that the action was untenable, there is no evidence of factual or legal support for Inoue’s claims, and counsel for plaintiff wrote defendant Kelly and advise him that the action was baseless. (Ex. B to Beletsis Declaration). The circumstantial evidence and inferences support a prima facie case for malice, suggesting that the action was pursued for an improper purpose, to harass the defendants in the underlying action, in order to extract a settlement or to continue to earn attorney’s fees.

Abuse of Process

To establish the tort of abuse of process, plaintiff must plead two elements: (1) that the defendant entertained an ulterior motive in using the process and (2) That he committed a willful act in the use of process not proper in the regular conduct of the proceedings. (Asia Inv. Co. v. Borowski (1982) 133 Cal. App. 3d 832, 842.)

Defendant argues that Civil Code sec. 47 is a complete bar to the tort. Defendant is wrong. For example, in Younger v. Solomon (1974) 38 Cal. App. 3d 289, 301-302 the court determined that an attorney who made public the contents of a confidential State Bar complaint could be found liable for abuse of process.

Plaintiff shall prepare a proposed order that is consistent with the tentative ruling.