Rehearing Granted In Part and Rehearing En Banc Denied April 25, 1977.
GODBOLD, Circuit Judge:
This case is the latest adventure in a legal odyssey which has lasted for 15 years, fully five years longer than it took Ulysses to complete the original Odyssey. At least nine state and federal courts have been involved during the litigation between these parties, and numerous reported opinions have issued.
I. The facts
To understand the issues a survey of the facts is necessary.
In December 1960 Hyde, a construction company, contracted with Koehring to build a concrete plant at a Hyde job site in Oklahoma. Following the completion of the plant by Koehring, problems arose with its operation, and in August 1961 Hyde sued Koehring for breach of warranty
In September 1963 the Fifth Circuit, reversing a decision by the Mississippi federal court, ordered the federal case transferred to the Oklahoma federal court.
On the morning of March 11, 1964, the Oklahoma federal court, upon Koehring's application, issued a temporary restraining order enjoining the proceeding in the Mississippi state court. Both Hyde's attorneys and the Mississippi state court received immediate notice of this TRO. Dunn, acting as Hyde's attorney, decided not to obey the TRO and asked the Mississippi state court to allow the trial to continue. On March 12 the request was granted and the trial continued. That same day Koehring filed a petition in the Oklahoma federal court charging Hyde and Dunn with willful defiance of the TRO.
At a show cause hearing
Dunn continued with the trial of the case in Mississippi state court, and on April 8 the court found Koehring liable to Hyde in the amount of $464,450.08. Koehring appealed to the Mississippi Supreme Court. The judgment, slightly modified, was affirmed in 1965.
Despite the finality of the Mississippi judgment, in early 1966 Koehring began attempting to relitigate the breach of warranty action, by way of counterclaim in the Oklahoma federal court, and filed interrogatories and took depositions. Hyde's plea of res judicata was rejected by the Oklahoma federal court, but the proceedings were stayed by the Tenth Circuit and the res judicata issue was remanded to the Oklahoma federal court
Meanwhile, the contempt proceedings against Hyde and Dunn proceeded apace in Oklahoma. In September 1964 the Oklahoma federal court enjoined Hyde from collecting the Mississippi judgment it had against Koehring, ordered the case retried in the Oklahoma federal court, and levied a civil contempt judgment against Hyde and Dunn in favor of Koehring.
In July 1965 the Tenth Circuit held that the Oklahoma federal court was without jurisdiction to issue the TRO or to punish for its violation and vacated the TRO and contempt judgments.
In June 1966 the Fifth Circuit reversed the Mississippi federal court's habeas corpus order releasing Dunn from custody.
In a related but separate opinion in January 1968, the Tenth Circuit, having found the TRO invalid, vacated the injunction which prohibited Hyde from collecting its judgment and which awarded Koehring damages in civil contempt.
Thus, all civil orders entered against Hyde and Dunn by the Oklahoma federal court and all criminal matters against Dunn were eventually nullified or dismissed.
In April 1966, pursuant to a Koehring affidavit, a criminal contempt charge had been initiated against Hyde in the Oklahoma federal court. Nothing was done on this charge until after the Tenth Circuit's decision in January 1968 vacating the previous civil and criminal contempt convictions and the injunction. In May 1968 Koehring filed a petition in the Oklahoma federal court saying that Hyde's only asset was the unpaid Koehring judgment. Koehring paid into the Oklahoma federal court at this time the amount of the Mississippi judgment. Koehring argued that a fine in the amount of the Mississippi judgment should be imposed and paid to Koehring. The Oklahoma federal court ordered the money returned to Koehring and dismissed Koehring's petition but left the criminal contempt charge against Hyde pending. The charge was never tried and was finally dismissed in March 1969.
Hyde attempted to collect the Mississippi judgment in May 1968. On May 27, 1968, Koehring filed an interpleader action in the United States District Court for the Eastern District of Wisconsin, saying that as a judgment debtor to Hyde it was confronted with conflicting claims and that it had a potential claim to this judgment by way of an allocation of a fine upon conviction of Hyde for criminal contempt.
During the same period as the interpleader, the Mississippi state court, pursuant to a petition by Hyde, which had become insolvent, set up a receivership to take charge of Hyde's assets and determine the priority of its creditors. Koehring challenged this receivership in Mississippi state court, lost, and appealed to the Mississippi Supreme Court the denial of its challenge and the decree setting up the priority of creditors. Koehring gave up the appeal when the Seventh Circuit dismissed the interpleader action.
Koehring then paid the judgment to Hyde's receiver, six years after the judgment was rendered.
This suit charging abuse of process and malicious prosecution followed the payment of that judgment.
The claims of Hyde and Dunn against Koehring will be discussed separately. First, a preliminary question concerning the statute of limitations must be dealt with.
II. Statute of limitations
Koehring urges on appeal that the actions by Hyde and Dunn are barred by the Mississippi statute of limitations for intentional torts and that the district court erred by applying an incorrect Mississippi limitation standard. It is unnecessary to consider whether the Mississippi limitation period for intentional torts is applicable because this limitation was never properly before the district court. Statutes of limitations are affirmative defenses and must be pleaded. Fed.R.Civ.P. 8(c). Koehring did not include the defense of the Mississippi statute of limitations in any of its pleadings. Pleadings may be amended only by leave of the court, Fed.R.Civ.P. 15, and, while such leave is to be "freely given when justice so requires," it is within the discretion of the trial court. E. g., Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971); Freeman v. Continental Gin Co., 381 F.2d 459 (C.A.5, 1967). Koehring moved to amend its pleadings to assert the bar of the Mississippi limitation on the morning of trial,
III. Koehring's liability to Hyde
The district court made an exhaustive survey of the Mississippi law on the distinct but often overlapping torts of abuse of process and malicious prosecution. The parties agreed that the trial judge's survey is substantially correct, and it need not be repeated at length here.
The trial court found three separate series of acts each of which constituted an improper use of civil process. Id. at 724-26. First, in 1966 Koehring began attempts, by means of counterclaim, to relitigate the original contract action in the Oklahoma federal court although a final judgment on the merits of this case had already been entered by the Mississippi Supreme Court. Second, in 1968, when Hyde began attempts in Mississippi to collect on its then four-year old judgment, Koehring filed the interpleader action in federal court in Wisconsin claiming exposure to Hyde's creditors. The Seventh Circuit, on appeal, characterized this action as "ill founded if not a sham."
In addition to these misuses of civil process, the district court found that in 1966 Koehring had caused criminal proceedings to be launched against Hyde for Koehring's private gain and thereafter had been instrumental in these proceedings in the hope of securing some or all of any fine levied on Hyde for criminal contempt. This, the trial court reasonably found, constituted an unlawful resort to criminal process. Id. at 723-24.
Finally, the district court tied these actions into the torts alleged:
387 F.Supp. at 726.
Koehring's only substantial attack on the finding of liability to Hyde is that it is not supported by sufficient evidence. The evidence is more than adequate under Fed.R.
IV. Damages to Hyde
(A.) Compensatory damages. The parties stipulated that Hyde's compensatory damages would be limited to its legal and other expenses dealing with all litigation collateral to the main, original breach of contract action. This amount was agreed to be $242,005.79, which covered the period between March 11, 1964, the date of the issuance of the TRO by the Oklahoma federal court, to March 25, 1970, when Koehring paid the original judgment to the chancery receiver acting for Hyde.
The district court accepted this calculation of damages but reduced the total by the amount of $80,668.59,
For several reasons, Hyde is entitled to damages for the entire six-year period. The district court found that "[d]uring this six-year odyssey, the Hyde-Koehring litigation was ongoing and perpetual, requiring, we believe, a relatively constant expenditure for legal services throughout the entire period." 387 F.Supp. at 726. Koehring actually began the collateral litigation when it obtained the TRO against Hyde and Dunn from the Oklahoma federal court on March 11, 1964. The trial court found that this TRO was tainted. The taint arose from Koehring's having obtained the TRO by a misrepresentation. To justify seeking emergency relief from the Oklahoma state court rather than simply removing Hyde's Mississippi state court case to federal court in Mississippi, Koehring asserted to the Oklahoma federal court that Dunn had represented to it that the Mississippi case was merely a "protective suit" which would never be tried. The district court found that "[c]redible evidence would support a finding that Dunn made no such misrepresentation and did not mislead Koehring in any manner concerning removal, and also that Koehring's attorneys knowingly made the false charge [to the Oklahoma federal court] without an adequate factual basis."
The district court found Koehring's conduct fit the Mississippi test for punitive damages. We agree that Koehring's acts were egregious enough to justify punitive damages.
(C.) Interest. In its cross-appeal, Hyde asks that prejudgment interest be allowed as part of its compensatory damages. The district court did not include such interest in its award. This too is to be decided under state law. E. g., Petersen v. Klos, 433 F.2d 911 (C.A.5, 1970); Texaco, Inc. v. Lirette, 410 F.2d 1064 (C.A.5, 1969). We believe that under Mississippi law the award of prejudgment interest rested in the discretion of the awarding judge. Commercial Union Insurance Co. v. Byrne, 248 So.2d 777 (Miss.1971); Charles Stores, Inc. v. Aetna Insurance Co., 327 F.Supp. 525 (N.D.Miss.1971), aff'd, 490 F.2d 64 (C.A.5, 1974); Kelly v. Smith, 346 F.Supp. 20 (N.D.Miss.1972), aff'd on other grounds, 485 F.2d 520 (C.A.5, 1973). We cannot say this discretion was abused.
V. Koehring's liability to Dunn
The district court held Koehring not liable to Dunn for either malicious prosecution or abuse of process. 387 F.Supp. at 721. On the malicious prosecution claim, it found that Dunn's actions, and not Koehring's, were the primary cause of his injuries; that Koehring's acts attempting to have Dunn punished for defying the TRO of the Oklahoma federal court were legitimate attempts to obtain civil contempt sanctions and not wrongful attempts to initiate criminal sanctions; and that even if Koehring did cause criminal process to be issued against Dunn it had probable cause for so doing which was borne out by Dunn's conviction for criminal contempt. Id. at 717-20. Concerning abuse of process, the district court held that Koehring did not misuse any processes issued, could not be held liable for any defamatory matter it caused to be presented to the Oklahoma federal court, and did not act improperly in its intrusion into the government's prosecution of Dunn for contempt. Id. at 720-21. The lower court also found "legally irrelevant" Dunn's claim that Koehring's harassment of Hyde was designed to harm Dunn as well as Hyde because Dunn had a large financial stake in the outcome of the Hyde litigation. Id. at 721 n.37.
We affirm the conclusion of the district court that not all of the essential elements for malicious prosecution were present because Koehring had probable cause to initiate contempt proceedings against Dunn, and because the criminal contempt proceedings, at least initially, were successful. 387 F.Supp. at 719-20.
The district court was incorrect in its conclusion that Koehring committed no abuse of process against Dunn. The principal abuse was Koehring's effort to injure Dunn by use of harassing criminal and civil processes against Hyde to prevent collection of Hyde's Mississippi judgment.
The Mississippi Supreme Court addressed the issue in a previous reincarnation of this case:
Koehring Co. v. Hyde Construction Co., 236 So.2d 377, 385-86 (Miss.1970).
Anything done to prevent Hyde from collecting the Koehring judgment would, of necessity, harm Dunn. There is little doubt that one of Koehring's primary goals, if not its only goal, in its moves against Hyde was to harm Dunn and that Koehring knew its actions against Hyde would have direct, adverse consequences to Dunn. Koehring's intentions were made plain in correspondence between Koehring's house counsel and one of Koehring's Oklahoma attorneys. In a letter dated November 5, 1965, the house counsel wrote the Oklahoma attorney relating that Hyde was insolvent, that Dunn, by an assignment from Hyde, was the primary party in interest in any recovery made on the judgment against Koehring and was dependent on the judgment for the payment of his attorney's fee. In a memorandum dealing with citing Hyde for contempt (which accompanied this letter), house counsel suggested that Dunn "can only be punished" by citing for contempt Hyde and its assignees as well.
Because of the assignment from Hyde to Dunn, Dunn became in reality, Koehring's target. Hyde, as an assignor, was effectively removed from the picture and Dunn was placed in Hyde's position for all practical purposes. Once this assignment was made and Koehring became aware of it there was little, if any, reason for Koehring to attempt to pursue Hyde except to harm Dunn.
There is other evidence of Koehring attempting to harm Dunn through Hyde as follows. Koehring refused any settlement with Hyde unless, as a condition to any agreement, it was specified that Dunn get nothing from any such settlement.
Also, throughout the criminal contempt action against Hyde, Koehring attempted to get any fine levied against Hyde assigned to it and attempted to have a fine assessed in the amount of its Mississippi judgment to Hyde. 387 F.Supp. at 723-24. At a pretrial hearing on the Hyde criminal contempt action, the Oklahoma district judge suggested that Hyde and Koehring somehow "settle" this criminal matter. Koehring's Oklahoma attorney stated that what Koehring wanted was to get back as much money as it could from Koehring and to keep Dunn from getting any money at all from Koehring directly or indirectly.
Thus, at least part of Koehring's motivation in attempting to have Hyde found in criminal contempt of the Oklahoma federal court and in trying to have any fine levied against Hyde be in the amount of Hyde's Mississippi judgment and allocated to Koehring, was Koehring's desire to harm Dunn through his assignor and economic alter ego Hyde. The intent to harm Dunn was inextricably part of Koehring's efforts
Therefore Koehring's legal actions, though directed in an initial sense against Hyde, were designed and carried out for the purpose of injuring Dunn. This constituted an abuse of process by Koehring against Dunn.
Koehring also took other actions directly against Dunn which constituted abuse of process. Following the institution of contempt charges against Dunn in the Oklahoma federal court,
Koehring's participation in the initiation of contempt proceedings against Dunn and in the initial show cause hearing on the contempt charge were legitimate attempts to invoke civil sanctions against Dunn. However, in what became a criminal proceeding, Koehring aided the Department of Justice in the appeal to the Fifth Circuit of Dunn's habeas corpus release from the arrest order issued by the Oklahoma federal court after the show cause hearing. Later, at Dunn's contempt trial in the Oklahoma federal court, one of Koehring's attorneys appeared as an advisor or consultant to the U.S. Attorney trying the case, sat with him at the prosecution table and counseled him during the trial. Also, Koehring urged the U.S. Attorney and the Oklahoma federal court to try Dunn with a jury so that more than a nominal fine could be imposed in the event of conviction. 387 F.Supp. at 721.
As the district court found, Koehring might have had a legitimate interest in obtaining civil contempt sanctions against both Hyde and Dunn, 387 F.Supp. at 718, for disobeying the TRO, but when the action against Dunn became manifestly criminal Koehring's zeal in aiding the prosecution of the charge crossed the boundaries of abuse of process. Seemingly, Koehring's only reasons for aiding in Dunn's prosecution were either a desire to see Dunn personally punished or to use this prosecution as a means to gain an advantage in the Mississippi suit for breach of warranty. Either reason would be a use of criminal process "to accomplish an ulterior purpose for which it was not designed."
We hold that Koehring is liable to Dunn for abuse of process and remand this part of the case to the district court for a determination of damages.
Summarizing, the judgment in favor of Hyde against Koehring is affirmed with modifications. The judgment in favor of Koehring on Dunn's claim is reversed and the cause remanded for assessment of damages.
AFFIRMED in part, as modified, REVERSED in part and REMANDED for further proceedings not inconsistent with this opinion.
The district court pointed out the major differences between the two actions:
(1) it is necessary that the prosecution or action has ended before a suit for malicious prosecution may be brought while there is no such requirement for abuse of process; (2) malicious prosecution is based on the issuance of process while abuse of process is concerned with the use of the process; (3) the element of probable cause is necessary in malicious prosecution and irrelevant in abuse of process.
The court below also noted the similarities of the two actions:
(1) in both the defendant must have acted with an intent not in accord with the proper purpose of invoking the judicial process; (2) in both intent may be inferred, and (3) the same act may give rise to a cause of action under both tests.