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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.
	[10]  We reject Palmer Development's argument.  The tort of
wrongful use of civil proceedings has its origin in the tort of malicious
prosecution in which a plaintiff can recover damages against a defendant
who initiates a criminal prosecution against the innocent plaintiff without
probable cause and for an improper purpose.  "Malicious prosecution is a
remedy for wrongs done to innocent persons, not a means to afford the
guilty a bonus for a failure of justice."  Gedratis v. Carroll, 247 Mich. 141,
145, 225 N.W. 625, 626 (Mich. 1929).  To insure that the guilty person is
not awarded a bonus there is a requirement in the malicious prosecution
action that the proceeding has terminated favorably to the plaintiff, and that
the favorable termination be on the merits, or at least reflect on the merits,
of the action.  See Bickford v. Lantay, 394 A.2d 281, 283-84 (Me. 1978). 
This requirement carries over to the wrongful use of civil proceedings for
the same reason.  Society does not want litigants who committed the acts of
which they are accused, but who were able to escape liability on a
"technicality" or procedural device, to turn around and collect damages
against their accuser.  This reason justifies a requirement that the favorable
termination of the underlying proceeding be on the merits or, in some way,
reflect on the merits.  
	[11]  A successful statute of limitations defense does not reflect on
the merits of an action.  Statutes of limitations demonstrate a societal choice
that actions must be brought within a certain time period because the
information about the substance of the action grows stale with fading
memories and because of the need to protect people from potential liability
on remote claims.  See Williams v. Ford Motor Co., 342 A.2d 712, 713 (Me.
1975).  Palmer Development took advantage of the statute of limitations
defense, and, in essence, it contended that the RICO claims were too stale
to be recognized.  By bringing the wrongful use of civil proceedings suit,
Palmer Development now wants to bring forward facts that it earlier claimed
were too old to be meritorious.  We are unwilling to let Palmer Development
reap the benefit of the statute of limitations defense and then utilize the
stale facts in an affirmative action.
	[12]  Palmer Development also argues that people will be encouraged
to file vexatious lawsuits knowing that a statute of limitations has expired
because there is no threat that a retaliatory suit for wrongful use of civil
proceedings will be filed.  This concern, however, can be addressed by
attorney sanctions.  See Miskew, 910 P.2d at 233.  Rule 11 of the Maine
Civil Rules of Procedure requires that all pleadings must be signed certifying
"that to the best of the signer's knowledge, information, and belief there is
good ground to support it."  Pepperell Trust, 1998 ME 46,  10, 708 A.2d
at 654 (quoting M.R. Civ. P. 11).  Where no good ground exists to support
the pleading, Rule 11 allows the court to impose an appropriate sanction. 
See M.R. Civ. P. 11.  Thus, the remedy of attorney sanctions exists to deal
with the vexatious suit that is terminated on statute of limitations grounds. 
Because a remedy exists, we are persuaded that a policy of finally ending the
litigation has more benefit than a policy of permitting still another court
action in an attempt to compensate a successful litigant in a wrongful suit. 
There is no more obvious hallmark of a litigious society than the
encouragement of lawsuits about lawsuits.  We hold that the termination of a
lawsuit on statute of limitations grounds is not a favorable termination that
will support an action for wrongful use of civil proceedings.
	The entry is

			Judgment affirmed.

RUDMAN, J., with whom ALEXANDER, J., joins, dissenting [13] I respectfully dissent. In Pepperell Trust Co. v. Mountain Heir Fin. Corp., 1998 ME 46, 15, 708 A.2d 651, 656, we defined the tort of wrongful use of civil proceedings to exist when
(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.
  
	[¶14]  The instant proceedings concern not the Penobscot Indian
Nation, the plaintiff in the original proceedings, but the lawyers who
represented the tribe.  In its complaint, Palmer Development alleged that
the original lawsuit was maliciously brought by the lawyer defendants
without probable cause to believe the claim was meritorious.  If indeed the
lawyers knowingly brought a cause of action barred by the statute of
limitations with a primary purpose other than that of securing proper
adjudication of the claim, they have committed the tort of wrongful use of
civil proceedings as we have defined it.
	[¶15]  The court suggests that the wrong complained of can be
addressed by attorney sanctions.  I suggest that Rule 11 of M.R. Civ. P. has
proven itself to be ineffective in holding attorneys responsible for the
prosecution of baseless claims.  First, to the extent the case has been
dismissed, one questions whether a court would then entertain a Rule 11
motion, and secondly, both the Bar and the courts have been hesitant in
both seeking and applying Rule 11 sanctions.  At a time when we seek to
encourage civility among lawyers, we ought not be suggesting that a Rule 11
motion be included with all affirmative defenses.
	[¶16]  I see no need to limit the third prong of the definition of the
tort of wrongful use of civil proceedings to require the original suit be
disposed of on its merits when the suit seeking recovery is brought against
lawyers who maliciously press civil violations of the Rackateer Influenced
and Corrupt Organizations Act at a time when it was allegedly known to
them that the actions were barred by the applicable statute of limitations.
	[¶17]  I would allow Palmer Development to attempt to establish as
fact their allegations that the lawyer defendants brought an action on behalf
of the Penobscot Indian Nation with a primary purpose other than that of
receiving the proper adjudication of that claim.  I would vacate the trial
court's dismissal of Palmer Development's complaint under M.R. Civ. P.
12(b).

Attorney for plaintiff: Stephen B. Wade, Esq., (orally) James E. Belleau, Esq. Skelton, Taintor & Abbott, P.A. P O Box 3200 Auburn, ME 04212-3200 Attorneys for defendants: Jeffrey T. Edwards, Esq., (orally) Preti, Flaherty, Beliveau & Pachios, LLC P O Box 9546 Portland, ME 04112-9546 (for Ronald Caron and Caron & Sullivan) Christopher T. Taintor, Esq., (orally) Theodore H. Kirchner, Esq. Norman, Hanson & DeTroy, LLC P O Box 4600 Portland, ME 04112-4600 (for Stephen Gordon, Peter Haley, and Gordon & Wise) Bernard J. Kubetz, Esq. Eaton, Peabody, Bradford & Veague, P.A. P O Box 1210 Bangor, ME 04402-1210 (for Penobscot Indian Nation)
FOOTNOTES******************************** {1} . After all of the claims and counterclaims were resolved by trial or summary judgment, PIN and several other defendants appealed. Penobscot Indian Nation v. Key Bank of Me., 112 F.3d 538 (1st Cir.), cert. denied, 118 S. Ct. 297 (1997). PIN did not pursue an appeal of the summary judgment in favor of Palmer Development on the RICO claim. Penobscot Indian Nation, 112 F.3d at 544 n.7. {2} . After the complaint was filed, in Pepperell Trust Co. v. Mountain Heir Fin. Corp., 1998 ME 46, ¶ 1, 708 A.2d 651, 653 (Me. 1998), we made it clear that the tort of malicious prosecution applies to criminal prosecutions whereas the tort of wrongful use of civil proceedings refers to civil actions brought maliciously. {3} . Other jurisdictions refuse to follow the substantive/procedural distinction drawn by the Lackner line of cases, see Hammond Lead Prod., Inc. v. American Cyanamid Co., 570 F.2d 668, 673 (7th Cir. 1977) (applying New Jersey law and holding that dismissal for lack of venue satisfied the favorable termination requirement), or reject any inquiry into whether a termination not on the merits was based on substantive or procedural grounds. See DeLaurentis v. City of New Haven, 597 A.2d 807, 820 (Conn. 1991) (stating that termination need not indicate innocence or lack of liability); Christian v. Lapidus, 833 S.W.2d 71, 74 (Tenn. 1992) (rejecting distinction between terminations on procedural and substantive grounds).