Continental Credit Corporation v. Maloney

MOTION for Summary Judgment

D. Colo.November 18, 2016

197692 v1 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Civil Action No. 1:15-cv-972-MSK-MJW CONTINENTAL CREDIT CORPORATION, Plaintiff v. DANIEL MALONEY, Defendant. MOTION FOR SUMMARY JUDGMENT Plaintiff, Continental Credit Corporation (“Plaintiff”), by and through its attorney, Daniel Rohner, and pursuant to Fed. R. Civ. P. 56 and this Court’s Civil Practice Standard 7.6.2, hereby submits the following motion for summary judgment as to the counterclaim for abuse of process filed by Defendant Daniel Maloney (“Defendant” or “Maloney”).1 1 Plaintiff/Counterclaim-Defendant Continental filed a Motion to Dismiss this same counterclaim pursuant to Fed. R. Civ. P. 12(b)(6), see EDF Doc. # 33, which includes some (but not all) of the same legal arguments now set forth in this Motion for Summary Judgment. The previously filed Motion to Dismiss is fully briefed, remains pending before this Court and likely should, subject to this Court’s discretion, be resolved before addressing this Motion for Summary Judgment. Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 1 of 12 2 197692 v1 CLAIM UPON WHICH JUDGMENT IS SOUGHT 1. Plaintiff is entitled to Summary Judgment on Counterclaim for Abuse of Process A. Burden of Proof Defendant Maloney bears the burden of proving his abuse of process counterclaim by a preponderance of the evidence. See Walker v. Van Laningham, 148 P.3d 391, 394 (Colo. Ct. App. 2006). B. Elements To prevail on his abuse of process counterclaim, Defendant Maloney must prove (i) an ulterior motive in the use of judicial proceedings; (ii) willful actions by a party in the use of the process which are not proper in the regular conduct of a civil action; and (3) damages proximately caused by (1) and (2). See Swanson v. Bixler, 750 F.2d 810, 814 (10th Cir. 1984). See also Walker, 148 P.3d at 394; Sterenbuch v. Goss, 266 P.3d 428, 438 (Colo.App.2011). C. Elements that cannot be proven by Defendant Maloney Element i – Defendant Maloney cannot demonstrate a triable issue of the fact as to whether Plaintiff had an ulterior motive in the use of these judicial proceedings. Defendant Maloney alleges that (1) his noncompete agreement is “overbroad and unenforceable under Colorado law”; and (2) Continental’s claim to enforce the noncompete agreement was brought “in order to intimidate and make it more difficult Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 2 of 12 3 197692 v1 for Maloney and his future employers of customers to lawfully be employed by competitors of Continental.” See Answer to Complaint and Counterclaim (ECF Doc #31), at 7, ¶¶ VI, X and XI. However, it is undisputed that this lawsuit for damages was filed on May 7, 2015, which was nearly three months after the restrictive period set forth in the contract at issue had already ended. See Complaint, ECF Doc. # 1. With respect to the “ulterior motive” element, the court in Mintz v. Accident & Injury Med. Specialists, PC, 284 P.3d 62, 66 (Colo. App. 2010) explained that “an ulterior purpose is one that the legal proceeding was not designed to accomplish.” Mintz, 284 P.3d at 66. The “improper purpose is ordinarily an attempt to secure from another some collateral advantage not properly includable in the process itself and is a form of extortion in which a lawfully used process is perverted to an unlawful use.” Hertz v. Luzenac Group, 576 F.3d 1103, 1118 (10th Cir. 2009). In other words, “[u]sually, the ulterior purpose is to obtain an advantage in another matter to achieve the surrender of property or the payment of money.” Mintz, 284 P.3d at 66 (emphasis added). Importantly, “there is no liability for abuse of process if the defendant’s ulterior purpose was simply incidental to the proceedings proper purpose. Id. (emphasis added). Or, as stated by the Restatement (Second) of Torts § 682 – which has been cited with approval by Colorado courts – “[t]here is no action for abuse of process when the process is used for the purpose for which it is intended, but there is an incidental Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 3 of 12 4 197692 v1 motive of spite or an ulterior purpose of benefit to the defendant.” See Mintz, 284 P.3d at 66 (quoting Restatement (Second) of Torts § 682 cmt. B). Typically, a suit cannot be deemed an abuse of process in the very proceeding in which the suit is litigated because “[t]he ulterior purpose is [usually] to obtain an advantage in another matter to achieve the surrender of property or the payment of money.” Id. (emphasis added). Classic examples of perversions of lawful process to extort a collateral advantage include filing a lis pendens not to protect a legitimate property interest but to prevent a sale to any other party, see Salstrom v. Starke, 670 P.2d 809, 811 (Colo. App.1983), and filing a writ of replevin not to regain possession of property, but to recover monies not required by contract. Aztec Sound Corp. v. W. States Leasing Co., 32 Colo. App. 248, 252, 510 P.2d 897, 898 (1973). However, simply claiming that claimant has a simultaneous motive of spite or injury does not constitute “ulterior purpose in using a judicial proceeding” as long as the process itself is used for the purpose for which it is intended. Mintz, 284 P.3d at 66. As applied here, seeking damages for breach of a non-compete agreement is not, as a matter of law, an ulterior purpose. To the contrary, Plaintiff is very clearly and openly seeking to enforce the terms of the non-compete agreement at issue. The primary and express purpose for enforcing the noncompetition agreement is to seek damages for unlawful competition. This is exactly what such a lawsuit is designed to do. Recovering Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 4 of 12 5 197692 v1 the damages resulting from Maloney’s unfair competition is the express (not ulterior) purpose of this proceeding, and is undeniably not an attempt to use this lawsuit to obtain a result that this proceeding was not designed to accomplish. In addition, any suggestion that the filing of this case improperly prevented Defendant Maloney from working during the restrictive covenant period makes no sense. It is undisputed that this lawsuit for damages was filed on May 7, 2015, which was nearly three months after the restrictive period had already ended. See Complaint, ECF Doc. # 1. Element ii-Defendant Maloney cannot establish a triable issue as to whether Plaintiff took willful actions in the use of this legal process which are not proper in the regular conduct of a civil action. Through written discovery, Defendant Maloney was specifically asked to “detail the legal process undertaken by Continental Credit that [he contends] caused [him] economic damages.” See Maloney Discovery Responses, Exhibit A at Para. 11. In response, Maloney failed to identify any legal process. See id. Instead, Maloney stated that he lost his opportunity to work in the credit repair industry “during the year after leaving Continental due to the threats of suit over the covenant not to compete” and contends that he could have earned additional commissions on credit repair referrals during the restrictive period “had it not been for the covenant not to compete which Continental knew or should have known was unenforceable.” Id. Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 5 of 12 6 197692 v1 A requisite element of any claim for abuse of process is proof that the legal process was used in an improper manner. Both federal and state courts in Colorado have held that “[i]f the action is confined to its regular and legitimate function in relation to the cause of action stated in the complaint there is no abuse, even if the plaintiff had an ulterior motive in bringing the action or if he knowingly brought suit upon an unfounded claim.” See Purzel Video GmbH v. St. Pierre, 10 F.Supp.3d 1158, 1166 (Dist. CO 2014) (emphasis added); James H. Moore & Assocs. Realty, Inc. v. Arrowhead at Vail, 892 P.2d 367, 373 (Colo.App.1994) (quoting Inst. for Prof'l Dev. v. Regis Coll., 536 F.Supp. 632, 635 (D.Colo.1982)(emphasis added). See also Restatement (Second) of Torts § 682 comment b (1977) (“[T]here is no action for abuse of process when the process is used for the purpose for which it is intended.) As applied here, Maloney fails to identify any use of the legal process that caused him damages, let alone legal process that was not proper in the regular course of proceedings. Instead, he simply claims that the breach of contract claim at issue is unfounded. Clearly, there are numerous other ways for a defendant to obtain relief for the filing of an allegedly unmeritorious claim, including seeking attorneys’ fees and costs pursuant to C.R.S. 13-80-102 or Rule 11. For this reason, “[t]he gist of the tort [of abuse of process] is not commencing an action or causing process to issue without justification.” W.P. Keeton et.al, Prosser & Keaton on Torts 121 at 897 (5th ed. 1984) (emphasis added). Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 6 of 12 7 197692 v1 Rather, in order to assert his abuse of process counterclaim, Maloney must prove “willful actions by [Continental] in the use of process that are not proper in the regular course of proceedings.” Hewitt v. Rice, 154 P.3d 408, 414 (Colo. 2007). In Gustafson v. Am. Fam. Mut. Ins. Co., 901 F.Supp. 2d 1289, 1305 (D. Colo. 2012) this Court rejected an abuse of process claim with facts nearly identical to those alleged here. In Gustafson, a former American Family employee opened his own insurance agency. American Family filed suit alleging claims for breach of contract, misappropriation of trade secrets, computer fraud, deceptive trade practices, and intentional interference with contract. Id. at 1306. After American Family’s claims were dismissed on summary judgment, Mr. Gustafson filed a separate lawsuit alleging abuse or process, premised on the argument that the lawsuit was filed to harass Gustafson and improperly coerce him to close his new business. Id. at 1305. The American Family Court dismissed the abuse of process claim because “it [was] clear that American Family pursued its lawsuit to accomplish a result available in the litigation and any ulterior motive American Family possessed was incidental to the proceedings.” Id. at 1306. The Court, relying on a long line of cases from Colorado appellate courts, held that “[a]n improper use of legal process occurs when a particular procedural tool is used in an attempt to accomplish a result which that tool, when properly used, could not provide.” Id. at 1305. Based on that rule of law, the Court held Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 7 of 12 8 197692 v1 that the “relief sought in the Underling Action – injunctive relief and damages – was consistent with the claims American Family alleged, and, had American Family prevailed, it could have secured such relief.” Id. at 1306. The American Family decision is not unique. Colorado courts have routinely and consistently rejected claims for abuse of process when there is no improper use of the legal proceeding. See e.g., James H. Moore & Ass. V. Arrowhead at Vail, 892 P.2d 367, 374 (Colo. App. 1994) (rejecting abuse of process claim based on filing of lis pendens because the lis pendens was used for its intended purpose); Walker, 148 P.3d at 395 (rejecting abuse of process claim for filing complaint against kennel owner despite evidence that defendant wanted kennel closed down, because defendants properly filed complaints pursuant to town ordinance); Mintz, 284 P.3d at 67-68 (despite evidence of ulterior purpose, rejecting abuse of process claim because there was no improper use of the legal proceeding). See also Tara Woods Ltd. Partnership v. Fannie Mae, 731 F.Supp.2d 1103, 1122- 23 (D. Colo. 2010) (same). As a matter of law, filing a claim for breach of a non-compete agreement via the judicial system in order to seek damages expressly afforded by the judicial system cannot serve as the basis for a claim for abuse of process. Defendant has not and cannot prove that Plaintiffs have done anything outside of the “regular and legitimate function in relation to the cause of action.” There is and was no particular procedural tool used by Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 8 of 12 9 197692 v1 Continental Credit in an attempt to accomplish a result which that tool, when properly used, could not provide. To the contrary, an award of damages for breach of contract is the very goal that these proceedings are designed to achieve. Accordingly, Maloney cannot establish the second requisite element for an abuse of process claim as a matter of law. Element iii - Defendant Maloney cannot establish a triable issue as to whether his claimed damages were proximately caused by Plaintiff’s alleged abuse of process. As counterclaim damages, Defendant Maloney has identified amounts that he claims he would have earned had he more fully competed during the period of time between February 17, 2014 (the day he was terminated by Continental Credit) and February 17, 2015 (the end of his one-year noncompetition period). Defendant Maloney estimates these “lost earning” damages purportedly resulting from Continental Credit’s “abuse of process” at $175,000. See Scheduling Order ECF Doc # 37 at p. 6. (stating that the $175,000 is “based upon what [Mr. Maloney] could have earned had he immediately engaged in sales activity relating to improving client’s credit worthiness.”) However, it is undisputed that the Complaint in this case was filed on May 7, 2015, which was nearly three months after the restrictive period had already ended. See Complaint, ECF Doc. # 1. In fact, Defendant Maloney admits that he was not even aware of the pendency of this lawsuit until he learned that his employer had received a subpoena on or about January Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 9 of 12 10 197692 v1 7, 2016 (which was a full eleven (11) months after the restrictive period had ended. See Interrogatory Responses, Exhibit A at 9; see also Motion to Set Aside Entry of Default, EDF Doc. 28 at p. 2 (“I was wholly unaware of this pending court case until learning about it from Mathew Kadow, owner of Brightside Credit Services, LLC, in a phone call received from him that took place on or about January 7, 2016.”). To be recoverable, any claimed damages must be proximately caused by the alleged “abuse of process.” See Swanson, 750 F.2d at 814. Here, the alleged $175,000 in “lost earnings” damages are for a period a time that ended three months before this case was filed and nearly a full year before Defendant Maloney was even aware of the lawsuit. As a matter of law, the filing of this case did not and could not have proximately caused Maloney’s purported lost earnings. As such, Maloney cannot prove such damages as a matter of law. CONCLUSION Defendant Maloney cannot prevail on his counterclaim for abuse of process as a matter of law. Accordingly, the counterclaim should be dismissed with prejudice pursuant to Fed. R. Civ. Pro. 56. Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 10 of 12 11 197692 v1 Respectfully submitted this 18th day of November, 2016. SHOOK, HARDY & BACON L.L.P. Original Signature on File By: s/ Daniel E. Rohner Daniel E. Rohner 1660 17th Street, Suite 450 Denver, CO 80202 Phone No.: (303) 285-5300 Fax No.: (303) 285-5301 Email: drohner@shb.com Attorneys For Plaintiff Continental Credit Corporation Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 11 of 12 12 197692 v1 CERTIFICATE OF SERVICE I hereby certify that on November 18, 2016 a complete copy of this Motion for Summary Judgment was served via the US District Court e-filing system on Defendant’s counsel, Norman Wright. s/ Daniel E. Rohner Daniel E. Rohner Case 1:15-cv-00972-MSK-MJW Document 44 Filed 11/18/16 USDC Colorado Page 12 of 12 Exhibit A Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 1 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 2 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 3 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 4 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 5 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 6 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 7 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 8 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 9 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 10 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 11 of 12 Case 1:15-cv-00972-MSK-MJW Document 44-1 Filed 11/18/16 USDC Colorado Page 12 of 12