Opinion
NOT TO BE PUBLISHED
Super. Ct. No. PC20060560
RAYE , J.After suffering injuries in an automobile accident, defendant Gustin Dimitropolous (Dimitropolous) filed suit against various parties including plaintiff Kent Hallmeyer (Hallmeyer) and his company, Frontier Dental Laboratories (Frontier), owners of the car. Defendant Ashton & Price represented Dimitropolous in the action. Following a settlement agreement that paid Dimitropolous $25,000, Hallmeyer filed a malicious prosecution action against Dimitropolous and Ashton & Price (collectively, defendants).
Defendants demurred, arguing Hallmeyer could not allege he was the prevailing party in the underlying action. The trial court sustained the demurrer without leave to amend. Hallmeyer appeals, contending his complaint adequately pled a cause of action for malicious prosecution, and the trial court erred in finding the settlement and release was a bar to his claim. We agree and shall reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
In September 2005 Dimitropolous was a passenger in a car driven by Kelly Eckman; Scott Hallmeyer, Hallmeyer’s son, was also a passenger. Hallmeyer and Frontier owned the car. Eckman, speeding, lost control of the car, crashing it into a ditch and injuring Dimitropolous.
Underlying Complaint
Defendants filed a complaint for personal injury against Eckman, Scott Hallmeyer, Hallmeyer, and Frontier. The complaint alleged Hallmeyer owned the car and Scott Hallmeyer allowed Eckman to drive and/or borrow it. Eckman, intoxicated, negligently drove over 100 miles per hour, hit a fence, and landed in a ditch. The complaint sought general damages of $500,000, special damages of $161,694, and punitive damages of $1,000,000.
What followed is the source of the present dispute. The personal injury complaint was settled with a payment of $25,000 to defendant Dimitropolous. Defendants contend the settlement released Eckman, Scott Hallmeyer, Hallmeyer, and Frontier. Hallmeyer contends the settlement released only Frontier.
Complaint for Malicious Prosecution
Hallmeyer filed a complaint for malicious prosecution against defendants. Defendants demurred and the trial court sustained the demurrer with 10 days’ leave to amend the complaint. In sustaining the demurrer, the trial court found Hallmeyer failed to establish what actions he took to avoid being part of the settlement. The court noted: “There are no allegations that the plaintiff refused the settlement and release, communicated that refusal to defendants, his attorney, his employer, or the court prior to the release and dismissal, or that the terms of the settlement... did not require release or dismissal of all defendants as part of the settlement agreement with Frontier.” The court concluded the allegations in Hallmeyer’s complaint were insufficient to allege a favorable termination. However, “in an abundance of caution,” the trial court granted 10 days’ leave to amend the complaint.
First Amended Complaint for Malicious Prosecution
Hallmeyer filed a first amended complaint for malicious prosecution. The complaint stated that defendants, prior to the settlement, were aware that Frontier was in negotiations to be sold for a substantial sum. Defendants knew that filing the personal injury action against Frontier and the other parties might interfere with the sale.
Because Frontier believed the personal injury complaint would jeopardize the sale, Hallmeyer, as chief executive officer of Frontier, contacted Dimitropolous’s mother and told her that her son would be sued for $13 million if the complaint interfered with the sale of the company. Hallmeyer also informed Ashton & Price that he would sue defendants for the consequences of their conduct.
Defendant Christopher Price contacted Hallmeyer and told him “this thing can all go away for $25,000.00.” Hallmeyer contacted Frontier’s corporate counsel, Stern, Van Vleck & Ruchmann (Stern), about the comment and directed them to take whatever steps were necessary to eliminate the pending litigation “as to Frontier only.”
According to Hallmeyer, Christopher Price “gratuitously offered” to include Hallmeyer within the scope of the released parties. In addition, Ashton & Price prepared the release with no input from Stern. The inclusion of Hallmeyer in the release “was entirely gratuitous and voluntary, and not supported by any consideration.” Frontier did not demand the inclusion of Hallmeyer in the settlement and release.
Hallmeyer had no opportunity between service of the complaint on July 28, 2006, and dismissal of the action on August 4, 2006, to retain counsel, to communicate to the court that he opposed being released, or to avoid being included in the scope of the release or the dismissal. According to Hallmeyer: “The compressed timeline that prevented Plaintiff from taking further steps to dissociate himself from the release were [sic] entirely controlled by Defendants.”
Defendants’ Demurrer
Defendants filed a demurrer to the first amended complaint. Defendants cited the e-mail response by Stern to Ashton & Price’s offer to dismiss the action for $25,000. The e-mail states: “I have reviewed the materials you faxed yesterday and believe your offer to resolve the matter for $25,000.00 as to the Hallmeyers and Frontier Dental to be fair. Please go ahead and prepare a settlement agreement and general release....”
The release signed by Dimitropolous states, in part: “For the sum of TWENTY FIVE THOUSAND DOLLARS... this release is accepted in full Compromise settlement and satisfaction of, and as sole consideration for the final release and discharge of all actions, claims and demands whatsoever that now exist, or may hereafter accrue against KENT HALLMEYER, SCOTT HALLMEYER AND FRONTIER DENTAL LABORATORIES, INC., their principals, agents, employees, and any other person, corporation, association or partnership charged with responsibility for injuries to the person and/or property of the undersigned, and the treatment thereof, and the consequences flowing therefrom, as a result of the accident... which occurred on or about September 17, 2005.”
The trial court sustained defendants’ demurrer without leave to amend. The trial court, after giving the amended complaint a reasonable interpretation and reading it in context, found Hallmeyer acknowledged that Christopher Price communicated an offer to settle the entire action for $25,000. The underlying personal injury action was settled, releasing the defendants in the underlying action, including Hallmeyer. The action, including all claims against Hallmeyer, was dismissed with prejudice. Therefore, Hallmeyer could not show that he prevailed on the merits in the underlying action.
Hallmeyer filed a timely notice of appeal.
DISCUSSION
STANDARD OF REVIEW
A demurrer tests whether a plaintiff’s complaint states facts sufficient to constitute a cause of action upon which relief may be based. A demurrer without leave to amend should not be sustained if the complaint, liberally construed, can state a cause of action under any theory or if there is a reasonable possibility the defect can be cured by amendment. (McKell v. Washington Mutual, Inc. (2006) 142 Cal.App.4th 1457, 1469.)
On appeal from a judgment of dismissal after the trial court sustains a demurrer without leave to amend, we assume the truth of all facts properly pled by the plaintiff. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6 (Evans).) We accept as true all facts that may be implied or inferred from those facts expressly alleged. (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.) However, this assumption is not applicable to contentions, deductions, or conclusions of fact or law. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 877, fn. 6 (Cantu).) We review the complaint as a whole, giving it a reasonable interpretation. (McAllister v. County of Monterey (2007) 147 Cal.App.4th 253, 277.)
MALICIOUS PROSECUTION
In order to establish a cause of action for malicious prosecution, a plaintiff must establish the prior action (1) was commenced by or at the direction of the defendant and was pursued to a legal termination in the plaintiff’s favor, (2) was brought without probable cause, and (3) was initiated with malice. The tort of malicious prosecution is disfavored because of its potential chilling effect on the willingness of people to report crime or pursue legal rights in court. (Pender v. Radin (1994) 23 Cal.App.4th 1807, 1813 (Pender).)
FAVORABLE TERMINATION
In order to establish a cause of action for malicious prosecution, Hallmeyer must plead and prove that the prior action was terminated in his favor. This requirement tends to indicate the innocence of the accused, and, coupled with the other elements of a lack of probable cause and malice, establishes malicious prosecution. (Lackner v. LaCroix (1979) 25 Cal.3d 747, 750.)
To determine whether a party has received a favorable termination, we consider the judgment as a whole in the prior action. Victory following a trial is not required. Rather, the termination must reflect the merits of the action and the plaintiff’s innocence of the misconduct alleged in the lawsuit. (Siebel v. Mittlesteadt (2007) 41 Cal.4th 735, 741 (Siebel).)
A dismissal resulting from a settlement generally does not constitute a favorable termination. In such a case the dismissal reflects ambiguously on the merits of the action because it results from the joint action of the parties, leaving open the question of the defendant’s guilt or innocence. (Fuentes v. Berry (1995) 38 Cal.App.4th 1800, 1808 (Fuentes).)
However, a voluntary dismissal, even one without prejudice, may be a favorable termination that will support an action for malicious prosecution. Where a proceeding is terminated other than on the merits, the reasons underlying the termination must be examined to see if it reflects the opinion of the court or the prosecuting party that the action would not succeed. (Fuentes, supra, 18 Cal.App.4th at p. 1808; Siebel, supra, 41 Cal.4th at pp. 742-743.)
THE PRESENT CASE
Here, Hallmeyer’s amended malicious prosecution complaint alleges the following facts. After the personal injury lawsuit was served, Price informed Hallmeyer the entire action could be settled for $25,000. Hallmeyer informed counsel for Frontier of the offer. Defendants executed a release of Frontier, Scott Hallmeyer, and Hallmeyer for $25,000. The action against the parties was dismissed with prejudice after payment was received.
The trial court considered these allegations and determined Hallmeyer could not show he prevailed on the merits in the earlier action. In support, the court relied on Pender, supra, 23 Cal.App.4th 1807; Villa v. Cole (1992) 4 Cal.App.4th 1327 (Villa); and Cantu, supra, 4 Cal.App.4th 857. However, we find these cases distinguishable.
In Pender, a plaintiff sued multiple defendants, resulting in an agreement by one of the defendants to pay the plaintiff $25,000. The two defendants who did not make the payment sued the plaintiff for malicious prosecution, arguing that since they had not made the payment they were not parties to the settlement. (Pender, supra, 23 Cal.App.4th at p. 1810.) The appellate court disagreed.
The court found the Penders, the nonpaying defendants, could not establish that the underlying suit was resolved in their favor: “Notwithstanding the fact that they did not pay Radin [the plaintiff] any of the $25,000 settlement, the Penders were parties to the settlement agreement, which was negotiated by their attorney. The Penders’ attempts to disengage themselves from the settlement agreement are disingenuous; they maintain because they never agreed to pay money directly to Radin they were not parties to the settlement agreement. This argument ignores the language of Judge Midlam’s order spelling out the terms of the settlement and dismissing Radin’s lawsuit. Under the settlement agreement, Radin dismissed the lawsuit against all the defendants with prejudice and the parties were to bear their own costs and fees. Thus, by the terms of the settlement, the Penders waived fees and costs and thereby gave up something to get the lawsuit against them dismissed.” (Pender, supra, 23 Cal.App.4th at p. 1814.)
However, Pender involved not a demurrer, but a motion for summary judgment. (Pender, supra, 23 Cal.App.4th at p. 1810.) The Penders’ own counsel negotiated the settlement. Although they received no payment, the settlement relieved them of the obligation to pay costs to the other side. (Id. at p. 1810.) In effect, the Penders benefitted from the settlement.
Here, in contrast, Hallmeyer received no benefit from the settlement. Defendants argue Hallmeyer benefitted under the settlement by avoiding the expense of future litigation. However, every settlement bestows such a benefit, in that the very nature of a settlement ends potentially expensive further litigation.
In Villa, a passenger in a car stopped by a police officer sued the city, two officers, and the police chief. The suit settled and the passenger agreed to dismiss the action with prejudice in exchange for a waiver of fees and costs. (Villa, supra, 4 Cal.App.4th at p. 1331.) One of the officers objected to the settlement, refused to participate, and stated his objection on the record in court. The court approved the settlement and dismissed the suit. The officer subsequently filed suit for malicious prosecution against the passenger. (Id. at pp. 1332-1333.)
The appellate court affirmed the trial court’s grant of summary judgment, finding the officer could not prove the underlying action terminated in his favor: “Villa argues that the underlying lawsuit was settled over his protest and objections, and that he did not participate therein. He contends that the settlement actually operated as a voluntary unilateral dismissal of himself by Seeterlin, and was thus a favorable termination on the merits. However, even where a defendant does not agree to a settlement made on his behalf, his or her dismissal from the lawsuit pursuant to that settlement will not be viewed as a favorable termination as long as it was a necessary condition to achievement of the overall settlement. Such a dismissal is not considered unilateral because it was required by the terms of a settlement agreement, and it will act as a bar to a later malicious prosecution action by the nonsettling defendant.” (Villa, supra, 4 Cal.App.4th at p. 1336.)
The court also rejected the officer’s contention that the city could not settle on his behalf because he never requested such representation. The court noted the officer had accepted the benefits of the city’s representation of him and of the settlement that terminated the suit against him. According to the court: “A party may not voluntarily accept the benefits of a settlement negotiated and accepted on the party’s behalf by an attorney, and at the same time disavow the settlement to the extent it is against his or her perceived interests.” (Villa, supra, 23 Cal.App.4th at pp. 1336-1337.) The court also noted the officer did nothing to set aside or repudiate the settlement and determined the officer “may not now disavow that settlement, having effectively ratified it by accepting its benefits.” (Id. at p. 1337.)
In contrast to Villa, Hallmeyer did not accept the benefits of the settlement. In his complaint, Hallmeyer alleges neither Frontier nor Stern ever demanded, asked, or requested anyone other than Frontier be released in exchange for any payment by Frontier. Hallmeyer further alleged the release was prepared exclusively by Ashton & Price with no input from Stern. In reviewing the court’s sustaining of a demurrer without leave to amend, we accept as true all facts in the complaint that may be implied or inferred from the facts alleged. (Cantu, supra, 4 Cal.App.4th at p. 877.)
Nor did Hallmeyer fail to repudiate the settlement. Hallmeyer’s complaint states: “Plaintiff had no opportunity within these compressed time frames to communicate to the court that he opposed being released.” Again, we accept as true all facts in the complaint.
Finally, in Cantu, the court merely reiterated the general principle that a settlement does not constitute favorable termination. The court explained the rule applies because settlement reflects ambiguously on the merits of the action and is not reflective of a defendant’s guilt or innocence. According to the court: “Even the dismissal of a party who refuses to participate in a settlement concluded by other parties does not constitute a favorable termination for the nonsettling party.” (Cantu, supra, 4 Cal.App.4th at p. 883.) The facts of Cantu differ from those in the present case.
We find the trial court’s reliance on Pender, Villa, and Cantu misplaced. Hallmeyer directs our attention to Fuentes, arguing questions of fact preclude the sustaining of defendants’ demurrer. In Fuentes, three officers filed a malicious prosecution action against an individual who had sued them, the city, and the police chief for civil rights violations. The individual settled with the city and the police chief, and the case was dismissed as to all defendants. Prior to settlement the officers stated they would not sign a release or consent to a settlement of any kind. The settlement expressly excluded the officers, and ultimately, two separate dismissals, one for the city and police chief and the other for the officers, were entered. The trial court granted summary judgment in favor of the individual; the appellate court reversed. (Fuentes, supra, 38 Cal.App.4th at pp. 1805-1807.)
The appellate court found questions of fact existed as to whether the dismissal of the officers from the underlying action was a necessary condition of the settlement between the individual and the city and its police chief. In addition, the court found a factual dispute as to whether the officers failed to take any action to avoid being made parties to the settlement. (Fuentes, supra, 38 Cal.App.4th at p. 1811.)
In Fuentes, questions of fact existed as to whether the officers’ dismissal was a necessary condition of the settlement. As discussed previously, Hallmeyer’s complaint alleges neither Frontier nor its counsel requested anyone but Frontier be released in exchange for any payment by Frontier. In addition, as previously noted, Hallmeyer’s complaint alleges he did not have time to object and therefore sought to set aside his dismissal from the original action. Whether these allegations can be proved at trial is not an issue that is properly before us on appeal from a judgment of dismissal following the trial court’s order sustaining a demurrer. The complaint adequately set forth a cause of action for malicious prosecution.
DISPOSITION
The judgment is reversed. Hallmeyer shall recover costs on appeal.
We concur: BLEASE , Acting P. J., CANTIL-SAKAUYE , J.