DENNIS JAMES HUBEL, Magistrate Judge.
This matter comes before the court on plaintiff Liberty Natural Products, Inc.'s (hereinafter, "Plaintiff") motion for partial summary judgment; defendants Valerie Hoffman ("Hoffman"), Sunrise Herbal Remedies, Inc. ("Sunrise"), and Sage Advice of Palm Beach Inc.'s ("Sage Advice") (collectively, "Defendants") cross-motion for summary judgment; Defendants' motion for leave to file a first amended answer; and Defendants' motion to strike various portions of James Dierking's ("Dierking") supplemental declaration and Plaintiff's reply memorandum. The parties have given full consent to adjudication of the case by a magistrate judge pursuant to 28 U.S.C. § 636(c). For the reasons set forth below, Plaintiff's motion (dkt. #33) for partial summary judgment is
As a preliminary matter, Plaintiff has requested that I take judicial notice of the Complaint, Answer, General Judgment, and Supplemental Judgement from the Clackamas County proceeding. It is well settled that courts "may take judicial notice of court filings and other matters of public record" because they are "readily verifiable and, therefore, the proper subject of judicial notice." Reyn's Pasta Bella, LLC v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006). Accordingly, with respect to the aforementioned court filings, Plaintiff's request for judicial notice is granted.
Plaintiff has also presented the court with hearing transcripts from the Clackamas County proceeding. It is not entirely clear whether Plaintiff is requesting that I take judicial notice of the hearing transcripts. To the extent Plaintiff is making such a request, it is denied.
On November 6, 2008, Defendant prosecuted two counterclaims against Plaintiff in a case filed in Clackamas County Circuit Court. (Schuster Decl. Ex. 2.) Both counterclaims were for breach of contract. (Schuster Decl. Ex. 2.) Under the first counterclaim, Defendants sought $76,400 for allegedly damaged and expired product, and $300,000 for the alleged resulting loss of business. (Schuster Decl. Ex. 2.) The second counterclaim sought $100,000 based on Plaintiff's alleged sale of Defendants' product known as "Chill Out." (Schuster Decl. Ex. 2.)
On April 13, 2009, Plaintiff obtained a general judgment against Defendants, which provided, in pertinent part, that:
(Schuster Decl. Ex. 3.)
On August 11, 2009, a Supplemental Judgment was entered in favor of Plaintiff, which stated:
(Schuster Decl. Ex. 4) (emphasis added). Based on the court's findings, judgment was entered against Hoffman, Sunrise, and Sage Advice, but the court denied Plaintiff's demand that the judgment be entered against Defendants' counsel under ORS 105.160. (Schuster Decl. Ex. 4.)
On January 20, 2011, Plaintiff filed the present action against Defendants in Clackamas County Circuit Court.
Defendants timely filed their notice of removal in this court on March 2, 2011. Plaintiff subsequently moved to remand the proceeding to Clackamas County Circuit Court; however, on September 2, 2011, that motion was denied.
Summary judgment is appropriate "if pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(c). Summary judgment is not proper if factual issues exist for trial. Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995).
The moving party has the burden of establishing the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). If the moving party shows the absence of a genuine issue of material fact, the nonmoving party must go beyond the pleadings and identify facts which show a genuine issue for trial. Id. at 324. A nonmoving party cannot defeat summary judgment by relying on the allegations in the complaint, or with unsupported conjecture or conclusory statements. Hernandez v. Spacelabs Medical, Inc., 343 F.3d 1107, 1112 (9th Cir. 2003). Thus, summary judgment should be entered against "a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex, 477 U.S. at 322.
The court must view the evidence in the light most favorable to the nonmoving party. Bell v. Cameron Meadows Land Co., 669 F.2d 1278, 1284 (9th Cir. 1982). All reasonable doubt as to the existence of a genuine issue of fact should be resolved against the moving party. Hector v. Wiens, 533 F.2d 429, 432 (9th Cir. 1976). Where different ultimate inferences may be drawn, summary judgment is inappropriate. Sankovick v. Life Ins. Co. of N. Am., 638 F.2d 136, 140 (9th Cir. 1981).
However, deference to the nonmoving party has limits. The nonmoving party must set forth "specific facts showing a genuine issue for trial." FED. R. CIV. P. 56(e). The "mere existence of a scintilla of evidence in support of plaintiff's positions [is] insufficient." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). Therefore, where "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no genuine issue for trial." Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (internal quotation marks omitted).
Rule 12(f) provides that "[t]he court may strike from a pleading an insufficient defense or any redundant, immaterial, impertinent or scandalous matter" on their own initiative or pursuant to a party's motion. FED. R. CIV. P. 12(f). Granting a motion to strike is within the discretion of the district court. See Fed. Sav. & Loan Ins. Corp. v. Gemini Mgmt., 921 F.2d 241, 244 (9th Cir. 1990). Motions to strike are disfavored and should not be granted unless it "can be shown that no evidence in support of the allegation would be admissible." Pease & Curren Ref., Inc. v. Spectrolab, Inc., 744 F.Supp. 945, 947 (C.D. Cal. 1990) (internal quotation marks omitted), abrogated on other grounds by Stanton Rd. Ass'n v. Lohrey Enters., 984 F.2d 1015 (9th Cir. 1993).
Pursuant to Rule 15(a), Defendants seek leave to amend their answer to add an affirmative defense of advice of counsel. "Advice of counsel, if sought in good faith and if given after full disclosure of information in the possession of the accuser establishes probable cause as a matter of law," Hartley v. Water Res. Dept., 77 Or.App. 517, 520 (1986), which, in turn, negates an essential element of a claim for misuse of civil proceedings. See Pereira v. Thompson, 230 Or.App. 640, 674 (2009) (recognizing one element of a claim for wrongful initiation of a civil proceeding as the "absence of probable cause to prosecute the action.") But to utilize that defense, a defendant must plead it. Id. at 675.
In determining whether to grant a motion to amend, the court should consider (1) bad faith, (2) undue delay, (3) prejudice to the opposing party, (4) futility of amendment, and (5) prior amendments to the pleading. Sisseton-Wahpeton Sioux Tribe v. United States, 90 F.3d 351, 355-56 (9th Cir. 1996).
Plaintiff opposes Defendants' motion for leave to amend, arguing that the doctrine of issue preclusion renders amendment futile. It well established that futility alone can justify the denial of a motion for leave to amend, but the Ninth Circuit has also repeatedly stressed that the court must remain guided by the underlying purpose of Rule 15, e.g., to facilitate decision on the merits, as opposed to procedural technicalities. Nunes v. Ashcroft, 375 F.3d 805, 808 (9th Cir. 2004).
As discussed further below, neither party in this case has cited an Oregon appellate court decision that addresses whether findings that arise out of a proceeding under ORS 20.105 should be given preclusive effect.
That said, because amendments should be granted with "extreme liberality" in order to facilitate decision on the merits, United States v. Webb, 655 F.2d 977, 979 (9th Cir. 1981), Defendants' motion for leave to file a first amended answer and affirmative defense is
Pursuant to Rule 12(f), Defendants have moved to strike various paragraphs in Dierking's supplemental declaration, exhibits attached thereto, and portions of Plaintiff's reply memorandum. During oral argument, it was alleged that Defendants' counsel failed to confer with opposing counsel prior to filing his motion to strike. Because Plaintiff's counsel was willing to make certain concessions, the parties were able to agree to rulings with respect to the following motions:
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I turn now to Defendants' remaining evidentiary objections. Defendants moved to strike two exhibits attached to Dierking's supplemental declaration, i.e., an appraisal of Plaintiff's business (Exhibit 3) and information regarding its financial history (Exhibit 4); and paragraphs 6, 7, and 14 of Dierking's supplemental declaration. The objectionable material relates to Hoffman's husband and the fact that Plaintiff claims its business's financial growth was stunted as a result of the counterclaims being filed in the Clackamas County proceeding.
In short, Defendants' remaining evidentiary objections are denied as moot because I either found it unnecessary to rely on the objectionable material or the objections raised were duplicative of the summary judgment standard itself. See Ross v. Indep. Living Res. of Contra Costa, No. C08-00854 TEH, 2010 WL 2898773, at *2 n.1 (N.D. Cal. July 21, 2010) (denying evidentiary objections as moot because the court did not rely on the evidence to which the objections were lodged); see also Burch v. Regents of the Univ. of Cal., 433 F.Supp.2d 1110, 1119 (E.D. Cal. 2006) ("A court can award summary judgment only when there is no genuine dispute of material fact. It cannot rely on irrelevant facts, and thus relevance objections are redundant.")
Plaintiff has also objected to exhibits attached to Felstiner and Hoffman's declarations on the ground that they "are not, nor can they be, presented in a form that would be admissible in evidence." (Pl.'s Reply at 17.) Because these exhibits had no bearing on my analysis, Plaintiff's objections are overruled as well.
Under Oregon law, the elements of a claim for wrongful initiation of a civil proceeding are as follows:
Roop v. Parker Nw. Paving, Co., 194 Or.App. 219, 237-38 (2004), rev. den., 338 Or. 374, 110 P.3d 113 (2005).
The commencement and prosecution element pertains to the person "who is the primary catalyst for the proceeding and is not limited to the party who formally initiates it." Checkley v. Boyd, 170 Or.App. 721, 737 (2002). Such an understanding "prevents one who wrongfully uses a civil proceeding . . . from being shielded from liability merely because that person was not the party who formally filed the action." Id. In the state court proceeding, the counterclaims were formally commenced on behalf of Sunrise and Sage Advice. Nevertheless, I agree with Plaintiff that, even though Hoffman did not formally initiate the proceeding, she was an active participant which, according to Checkley, satisfies the initiation element. See also Restatement (Second) of Torts § 674 (noting that an active participant is one who "sets the machinery of the law in motion, whether he acts in his own name or in that of a third person, or whether the proceedings are brought to enforce a claim of his own or that of a third person.")
Defendants do not contest this assertion. (See Defs.'Mem. Supp. at 3) ("The uncontradicted evidence in this case is that defendant Hoffman and her attorneys subjectively believed that there was a good chance of prevailing on the counterclaims at the time the pleading was filed[.]") Instead, Defendants claim they have seen no authority establishing that the assertion of a counterclaim constitutes the commencement and prosecution of a judicial proceeding. (Defs.' Opp'n at 3.) This argument lacks merit. According to section 674 of the Restatement Second of Torts, "one who files a counterclaim to a cause of action initiates a civil proceeding." Restatement (Second) of Torts § 674 cmt. a (1977). Because Oregon courts consider the Restatement, "along with its comments, to be an instructive authority in this area," Roop, 194 Or. App. at 238 n.12, I conclude that the initiation element is met. See also ORCP 18 (indicating that asserting a claim for relief includes asserting an original claim or counterclaim).
The second element is whether the proceeding terminated in Plaintiff's favor. It appears evident that this element is met here and Defendants do not argue otherwise.
As to the third element, the Oregon Court of Appeals has stated, "[p]robable cause means that the person initiating the civil action reasonably believes that he or she has a good chance of prevailing-that is, he or she has a subjective belief, and that belief is objectively reasonable." Pereira, 230 Or. App. at 674 (internal quotation marks omitted).
Plaintiff contends that the doctrine of issue preclusion bars Defendants from asserting they had probable cause to prosecute their first counterclaim. The preclusive effect of an Oregon judgment is described in Dodd v. Hood River County, 136 F.3d 1219, 1225 (9th Cir. 1998). Under Oregon law, issue preclusion applies when:
See Nelson v. Emerald People's Util. Dist., 318 Or. 99, 104, 862 P.2d 1293 (1994) (citations omitted).
ORS 43.160 codifies the common law, Tarlow v. Landye Bennett Blumstein LLP, 209 Or.App. 171, 174 (2006), and "[b]y the statute's plain terms, when the face of a judgment or order in a prior proceeding demonstrates that a matter was actually determined, the determination is preclusive." Westwood Construction Co. v. Hallmark Inns, 192 Or.App. 624, 636 (2002).
Here, Plaintiff has not identified, nor has research revealed, any decision in which an Oregon appellate court decided whether findings that arise out of a proceeding under ORS 20.105 are to be given preclusive effect. Tarlow provides little guidance here.
In Tarlow, the defendants moved for summary judgment, arguing that the doctrine of issue preclusion barred a wrongful initiation claim because the plaintiff's request for an enhanced prevailing party was denied in a prior ORS 20.190(3) proceeding.
Id. at 174 (alterations in the original).
On appeal, the plaintiff argued that the trial court erred in applying the doctrine of issue preclusion because the issues of bad faith and malice (the fourth element of a wrongful initiation claim) were not actually litigated. Id. The plaintiff argued, in effect, that he did not have a full and fair opportunity to be heard on that issue because of the ancillary nature of the ORS 20.190 proceeding, which did not involve the examination of live witnesses. Id. at 175. Because the trial court's grant of summary judgment was correct on different grounds, the Court of Appeals in Tarlow declined to decide whether findings that arise out of a proceeding under ORS 20.190 should be given preclusive effect. Id.
In short, I am not inclined to express an opinion whether findings that arise out of a proceeding under ORS 20.105 should be given preclusive effect. This is not an issue which has been squarely addressed by the Oregon appellate courts, nor has the record been adequately developed regarding the Clackamas County proceeding in order to make such a determination. I would rather reserve the substantive treatment of this issue for a later date when the record of the court proceedings before Judge Maurer are better developed in this court.
The fourth element of Plaintiff's claim for wrongful initiation of civil proceedings is "malice, or as is sometimes stated, the existence of a primary purpose other than that of securing adjudication of the claim." Roop, 194 Or. App. at 238. It is true "that the law will permit the jury to draw an inference of malice in most cases where a want of probable cause is found." Alvarez v. Retail Credit Ass'n of Portland, Or., Inc., 234 Or. 255, 264 (1963). However, "malice, unlike probable cause, is a question for the jury." Gustafson v. Payless Drug Store, 269 Or. 354, 366 (1974); Erlandson v. Pullen, 45 Or.App. 467, 478 (1980).
Plaintiff argues that the court should find that issue preclusion bars Defendants from revisiting the issue of malice or improper purpose. Plaintiff claims "Hoffman's malice or [] improper purpose in presenting the wrongful counterclaims,
The last element is that of damage. The legislature adopted ORS 30.230(1), which provides, "[i]n order to bring a claim for wrongful use of a civil proceeding against another, a person shall not be required to plead or prove special injury beyond the expense and any other consequences normally associated with defending against unfounded legal claims." OR. REV. STAT. § 30.230(1) (2009). When the essential elements of a cause of action for wrongful civil proceedings have been established, the plaintiff is entitled to recover, inter alia, reasonable attorney fees; costs incurred in defending against the proceedings; and "any other loss of a pecuniary character that [the plaintiff can prove] resulted from the initiation of the civil proceedings." Restatement (Second) of Torts § 681 cmt. d and e; Pereira, 230 Or.App. 640 at 675 n.9.
Here, Plaintiff "does not seek damages for attorney fees and costs that were previously awarded . . . by virtue of the [state] court's Supplemental Judgment." (Pl.'s Mem. at 22.) Instead, Plaintiff "prays for
Defendants' arguments regarding damages are two-fold. First, Defendants argue that Plaintiff's claim for damages fails because Plaintiff "has presented no evidence of any legally compensable or judicially recognizable loss which [P]laintiff sustained." (Defs.' Opp'n at 12.) Second, Defendants argue that Plaintiff was adequately compensated for costs incurred as a result of the filing of the counterclaims via the enhanced prevailing party fee of $5,500 awarded by the Clackamas County Circuit Court. (Id. at 13.)
In Oregon, enhanced prevailing party fees are based on the consideration of the following factors:
OR. REV. STAT. § 20.190 (2009).
Absent a specific finding under subsection (h), the foregoing factors do not suggest that parties are compensated for costs incurred as a result of the filing of claim which lacks probable cause. That said, although it is a rather trivial amount, Defendants' own damage expert has stated, "I have reviewed the declaration that says that Liberty Natural expended $281.00 in reasonable and necessary printing costs and $74.33 in reasonable and necessary discovery expenses for a total of $355.33 in material expenses allocated to the defense of the counterclaims. It is my opinion that to the extent the corporation can establish the $355.33, that would represent a legitimate expense of the corporation." (Phillips Decl. at 3.) Because these costs would almost certainly qualify as costs incurred in defending against, or "other loss of a pecuniary character" that resulted from, Hoffman's initiation of the civil proceeding, Defendants' cross-motion for summary judgment is denied on this ground.
Although Plaintiff's exhibits demonstrate that they incurred $355.33 in costs, Plaintiff has not definitively established that these costs were incurred as a result of Defendants' filing of counterclaims, as opposed to the pursuit of Plaintiff's own claims in state court. The parties have also presented conflicting testimony regarding the legitimacy of the damages Plaintiff attributes to lost CEO and staff time.
In short, there are questions of fact regarding entitlement to some types of damages and the amount of all claimed damages.
For the reasons stated above, Plaintiff's motion (dkt. #33) for partial summary judgment is
IT IS SO ORDERED.
