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California Ass’n of REALTORS® v. Barry: CAR Lawsuit against Attorney Proceeds

A California appellate court has considered whether a trial court properly allowed a lawsuit by the California Association of REALTORS® (“CAR”) against attorney David Barry (“Attorney”) to proceed.

CAR filed a malicious prosecution action against the Attorney. The action was based on the final of three lawsuits filed against CAR by the Attorney relating the operations of SANDICOR, a regional multiple listing service in San Diego owned by a group of REALTOR® associations. The first lawsuit (“Freeman I”) was filed in California state court and alleged violations of the state antitrust laws for the fees charged to MLS participants. This lawsuit was dismissed.

The second lawsuit (“Freeman II”) was filed in federal court and alleged violations of the federal antitrust laws by SANDICOR, its association owners, and CAR for price fixing and a group boycott. Among other allegations, this lawsuit accused CAR of having encouraged the creation of SANDICOR, provided legal advice to the other defendants, and also helped to finance the defense of the lawsuits. During Freeman II, discovery sanctions were entered against the defendants for failure to disclose documents during discovery. The trial court entered judgment in favor of the defendants and on appeal, the Attorney argued that CAR should be liable for antitrust liability because CAR participated in the discovery misconduct. The appellate court rejected these allegations against CAR, finding that none of the above allegations against CAR amounted to an antitrust violation. The appellate court did affirm the discovery sanctions against the defendants.

The attorney filed the third lawsuit (“Freeman III”) in federal court after Freeman II was decided. This lawsuit alleged that the conduct of CAR, its attorneys, and others constituted an antitrust conspiracy to conceal evidence during Freeman II. The trial court dismissed the Freeman III defendants on a number of grounds. The court dismissed CAR because it stated that the antitrust laws are not designed to remedy discovery violations and also that CAR had already been sanctioned for the discovery violations by the lower court. The appellate court affirmed this dismissal, but ruled that the “Noerr-Pennington doctrine” precluded all of the claims made in Freeman III.

Following the dismissal of Freeman III, CAR filed a malicious prosecution action against the Attorney, his law firm, and the name plaintiff, Arleen Freeman. In its lawsuit, CAR alleged that the Attorney filed Freeman III without probable cause and with malice. The Attorney filed a motion to strike the allegations from the lawsuit, but the trial court denied this motion. The Attorney appealed this ruling.

The California Court of Appeal, Fourth Appellate District, affirmed the trial court. The Attorney had argued that the state’s anti-SLAPP statute (“Statute”) protected him from lawsuits like CAR’s lawsuit. The Statute provides that any person who has a lawsuit brought against him/her for an action taken in furtherance of his/her constitutional right to petition or engage in free speech has a special right to strike those allegations, unless the court determines that the party bringing the lawsuit has established a probability of success in the lawsuit. All of the parties agreed that the Attorney was pursuing his right of petition or free speech in bringing Freeman III, so the question before the court was whether CAR was likely to succeed in its malicious prosecution lawsuit.

In order to succeed on a malicious prosecution claim, a party must show that the prior court decision determined the party’s innocence on the merits and was not decided on procedural grounds. The Attorney argued that because the appellate court in Freeman III decided the case on Noerr-Pennington doctrine, the court did not decide the case on the merits. Noerr-Pennington protects statements made in petitioning governmental bodies from antitrust lawsuits. This doctrine extends to statements made in judicial proceedings, unless the statements are made as part of a "sham" petition. The court disagreed with the Attorney’s interpretation of the appellate court’s decision, finding that the Noerr-Pennington doctrine sets forth the limits of the antitrust laws and so a termination under this doctrine is a determination on the merits of the case. Thus, the court stated that Freeman III was decided on the merits.

Next, the court evaluated whether the Attorney had probable cause to file Freeman III against CAR. Only lawsuits that all reasonable lawyers would agree totally lack merit qualify for malicious prosecution actions. Looking at Freeman III, the court stated that any reasonable lawyer “would have recognized the claims asserted in Freeman III were fatally defective on a whole host of grounds”. For example, the appellate court in Freeman II had not only affirmed the appropriateness of the discovery sanctions against CAR, it had also considered and rejected the Attorney’s arguments that the discovery violations made CAR liable for antitrust violations. The court also said that the Attorney had not cited a single case where a discovery violation supported an antitrust violation. The court also found that all of the defendants in Freeman II had received sanctions for their conduct, and the Noerr-Pennington doctrine defeated all of the claims in Freeman III. Based on all of those defects, the court ruled a lower court could conclude that the lawsuit lacked merit and so could serve to support a probable cause finding for a malicious prosecution lawsuit.

Finally, the court considered whether the Attorney had acted with malice in filing the lawsuit. The Attorney argued that courts have found that simply because a lawsuit may not have legal merit does not necessarily demonstrate that the lawsuit was filed with malice. While the court agreed that principle was true, the court determined that in this instance the record amply demonstrated that Freeman III was filed with malice. CAR provided financial support to SANDICOR and its REALTOR® association-owners that was instrumental in their defense. The court also found that a jury could conclude that CAR was simply named in this lawsuit to consume resources that might otherwise go to the other defendants in order to help generate a settlement of the lawsuit. Thus, CAR had demonstrated a probability of succeeding in its malicious prosecution lawsuit and so the court affirmed the trial court’s denial of the motion to strike.

California Ass’n of REALTORS® v. Barry, No. D048441, 2007 WL 1475652 (Cal. Ct. App. May 22, 2007). [This is a citation to a Westlaw document. Westlaw is a subscription, online legal research service. If an official reporter citation should become available for this case, the citation will be updated to reflect this information].