Plaintiffs obtain a judgment against defendant, defendant appeals, and the parties settle while the appeal is pending. May plaintiffs then bring a new suit to recover additional damages against the defendant's insurer, claiming that the insurer was responsible for instigating the appeal, and that it did so knowing the appeal was without merit but in order to achieve delay and coerce settlement?
Plaintiffs are the survivors of William Coleman who drowned in a swimming facility owned and operated by the City of Monrovia in August 1975. After the accident, plaintiffs brought a wrongful death action against the city, and a jury found the city liable and awarded plaintiffs $350,000 in damages. Following denial of its motion for a new trial, the city appealed.
Sometime after filing the appeal, the city's insurer, Gulf Insurance Group (Gulf), offered plaintiffs an amount equal to less than one-half of the judgment award to settle the case. Plaintiffs declined to settle. Later, in January 1982, Gulf tendered and plaintiffs accepted $300,000 in full settlement of the judgment. As a result, the appeal was dismissed.
Six months later, plaintiffs filed the present action against Gulf, seeking to recover additional compensatory and punitive damages on the basis of Gulf's conduct in the original appeal. The complaint alleged that Gulf controlled all aspects of the initial proceedings, including appeal and settlement, and that when Gulf instituted the appeal it had no reasonable basis for believing that the judgment would be reversed but simply desired to postpone payment of the judgment. The complaint claimed that Gulf had two objectives in mind. First, the complaint alleged that Gulf, knowing that plaintiffs were of modest financial means and had lost their principal source of financial support with the death of William Coleman, hoped by postponing payment to force plaintiffs to settle for a fraction of the judgment. Second, the
On the basis of these allegations, plaintiff claimed that it was entitled to recover damages on four separate causes of action: (1) bad faith refusal to pay insurance benefits; (2) violation of Insurance Code section 790.03, subdivision (h)(5)'s requirement to attempt good faith settlement; (3) malicious prosecution of an appeal; and (4) abuse of process.
Before examining each of the disparate causes of action which plaintiffs seek to invoke to support their present suit, it is important that we emphasize at the outset that the conduct in which Gulf allegedly engaged during the earlier proceedings — filing an appeal maliciously and in bad faith, solely for the purpose of delay — is clearly improper conduct which is subject to sanctions under California law. Section 907 of the Code of Civil Procedure, one of the general provisions included in the portion of the code dealing with "Appeals in Civil Actions," specifically provides: "When it appears to the reviewing court that the appeal was frivolous or taken solely for delay, it may add to the costs on appeal such damages as may be just." (See also Cal. Rules of Court, rules 26(a), 135(a).)
We discussed the proper interpretation and application of section 907 at some length in In re Marriage of Flaherty, supra, 31 Cal.3d 637, 645-654.
In Flaherty we established a general standard for determining "frivolousness"
Flaherty did not directly address the issue presented by this case: whether, after the settlement of an appeal, a plaintiff may bring an independent action to recover compensatory and punitive damages on the basis of the defendant's alleged bad faith prosecution of the earlier appeal.
Plaintiffs acknowledge that in no previous case has a litigant who has settled a case on appeal been permitted to maintain a separate action for damages based on the opposing party's allegedly bad faith conduct in prosecuting the appeal. Nonetheless, they maintain that such a cause of action should be recognized under any one of a number of theories. Because the closest authority on point involved an abuse of process action, we consider that theory first.
A. Abuse of process.
The facts before us bear a striking resemblance to those in Tellefsen v. Key System Transit Lines (1961) 198 Cal.App.2d 611, 613 [17 Cal.Rptr. 919], where the court found there could be no abuse of process because plaintiff had failed to allege a wilful act of improper use of process. Like plaintiffs in the instant case, plaintiffs in Tellefsen had recovered a judgment against defendant in a prior action where, allegedly, there was nothing that could reasonably be thought to constitute reversible error. Nonetheless, defendant "maliciously, frivolously, `with intent to advantage themselves of plaintiff's need, and with intent to set an example for other litigants and with intent to pursue a common plan for the cheap compromise settlement of verdicts against them ... and with other improper motives,'" appealed from the judgment. (Ibid.) Plaintiff contended that in so doing defendant abused the process of the appellate court. The Tellefsen court found that "[e]ven though the rule of abuse of process could be applied to the appellate process the complaint here fails to state a cause of action.... [Defendant] did nothing more than exercise its right to appeal, even though with alleged malicious intent." (Id., at p. 613.)
The court accepted plaintiff's contention that the appeal was taken frivolously, but held: "merely taking a frivolous appeal is not enough to constitute an abuse of process." (Id., at p. 615.) Despite plaintiff's contention that defendants had filed an appeal to "advantage themselves" and to pursue a plan for "cheap compromise settlement of verdicts" (id., at pp. 612-613), the court held "[t]here is no allegation of any act of defendant using such appeal for other than its proper purpose. For taking that kind of appeal the party may be fined by the appellate court or damages may be awarded therefor to the respondent on appeal." (Id., at p. 615.)
As in Tellefsen, plaintiffs in the present case allege nothing more than the taking of an appeal to which the city was entitled. They assert no facts to
The dissent suggests that Tellefsen is distinguishable from this case on the ground that "there was no allegation that the defendant [in Tellefsen] had actually threatened plaintiff or offered to settle." (Post, p. 804.) With all respect, we find the distinction untenable. The only "threat" which plaintiffs here can be said to have alleged is the threat that is implicit in every appeal — that it will be pursued to finality unless settlement is reached. And in view of the strong state interest in encouraging the settlement of litigation, it would clearly be improper to hold that the making of an offer to settle is itself sufficient to supply the missing element in an abuse of process action. Such a holding would inevitably have a devastating effect on the settlement process which many of our appellate courts have struggled hard to encourage, for no appellate counsel could properly advise his client to propose a settlement on appeal if that very proposal would itself provide the essential ingredient to subject the client to a second lawsuit for abuse of process.
Accordingly, we conclude that the abuse of process claim is without merit.
B. Malicious prosecution of appeal.
C. Breach of covenant of good faith and fair dealing.
Plaintiffs acknowledge this relatively recent precedent, but argue that our decision in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329] points toward a relaxation of the Murphy rule. It is true that in Royal Globe we held that a third party claimant may sue an insurer under the statutory good faith requirements of the Unfair Practices Act (Ins. Code, § 790.03, subd. (h)), but we did so on the basis of statutory language and legislative history evidencing a legislative intent to afford such a right. Nothing in our Royal Globe decision suggests expansion of the common law cause of action for breach of the covenant of good faith and fair dealing to embrace third party claimants; on the contrary, in that case we took note of the common law rule and distinguished Murphy as "being based primarily on contractual principles." (23 Cal.3d at p. 889.) Thus, plaintiffs' good-faith-and-fair-dealing theory cannot be sustained.
D. Violations of Insurance Code provision.
In addition, and perhaps more importantly, the standard provided in subdivision (h)(5) — sanctioning an insurer for not attempting to effectuate settlements of claims "in which liability has become reasonably clear" — affords no meaningful guidance once judgment is entered. In almost every case it could be argued that liability is "reasonably clear" once a trial judgment is entered in favor of a claimant, but — in light of the fundamental nature of the right to appeal and the general considerations discussed at length in In re Marriage of Flaherty, supra, — it appears quite unlikely that the Legislature intended to subject an insurer to the risk of a subsequent suit every time it exercised its right to appeal from an adverse judgment. Instead, we conclude that the more plausible interpretation of subdivision
The abuse of the litigation process for the purpose of delay is unquestionably a serious problem. Although, from a defendant's personal perspective, justice delayed may not be justice denied but a consummation devoutly to be wished, our legal system has long struggled — not always successfully — to eliminate such dilatory tactics. Recent legislation has expanded the judicial tools for dealing with the matter by explicitly authorizing the imposition of sanctions for frivolous and delaying conduct in the course of pretrial and trial proceedings (§ 128.5) and by increasing the judgment rate of interest to reduce a defendant's incentive to delay payment. (§ 685.010.) Additional remedial measures have been proposed — such as the inclusion of at least some portion of attorney fees as an item of costs routinely recoverable by the prevailing party on appeal (see Rep. of the Chief Justice's Special Com. on App. Practices and Procedures in the First App. Dist. (1981) p. 32) — which also appear deserving of thoughtful legislative consideration.
As we have seen, section 907 has long afforded a remedy for frivolous or delaying actions in the appeal process, and, in recent years, appellate courts, increasingly sensitized to the incentives for delay and the adverse consequences resulting from wholly meritless appeals, have begun to impose significant sanctions when they find that appeals have been pursued frivolously or for the improper purpose of delay. (See, ante, p. 791, fn. 7.)
The judgment is affirmed.
Mosk, J., Broussard, J., Reynoso, J., and Lucas, J., concurred.
I respectfully dissent. Here, the insurer of a negligent defendant knowingly filed a meritless appeal and used it for the purpose of coercing the plaintiffs to settle for less than their rightful judgment. The plaintiffs certainly do have a cause of action against the insurer.
The facts are clear since the present appeal arises from the sustaining of a demurrer. Consequently, the facts alleged in the plaintiffs' complaint are deemed to be true. (Thompson v. County of Alameda (1980) 27 Cal.3d 741, 746 [167 Cal.Rptr. 70, 614 P.2d 728, 12 A.L.R.4th 701]; Buckaloo v. Johnson (1975) 14 Cal.3d 815, 828 [122 Cal.Rptr. 745, 537 P.2d 865].)
William Coleman drowned on August 3, 1975, while attempting to rescue his son from a swimming facility owned and operated by the City of Monrovia (hereafter the city). The death was caused by the city's negligence. At the time, the city was covered under a liability insurance policy issued by defendants Gulf Insurance Group and Gulf Insurance Company (hereafter collectively referred to as Gulf).
William Coleman's heirs, plaintiffs in the present action, brought a wrongful death suit against the city. In October of 1980, they obtained a jury verdict for $350,000. Following the denial of its new trial motion, the city appealed.
Throughout the proceedings, Gulf controlled the defense on behalf of the city. At the time of the appeal, Gulf lacked any reasonable basis for believing that the judgment would be reversed.
However, Gulf stood to gain by delaying payment as long as possible. Gulf was aware that plaintiffs were in dire financial straits, having lost their principal source of support when William Coleman died. By appealing, Gulf sought to postpone payment until plaintiffs were forced to settle for a fraction of the judgment.
Further, Gulf knew that the judgment accrued interest at the statutory rate of 7 percent per year, in contrast to the general market rate of over 15 percent. By investing the funds that would otherwise go to pay the judgment, Gulf could earn the higher rate, thus depriving plaintiffs of the return that they would have obtained had the judgment been promptly paid. For each year of delay, Gulf would gain — and plaintiffs would lose — over $28,000.
Sometime after filing the appeal, Gulf offered to pay plaintiffs an amount totalling less than half of the judgment awarded. Plaintiffs declined to settle. In January 1982, Gulf tried again, this time tendering to plaintiffs $300,000 in full satisfaction of the judgment. Under financial pressure, plaintiffs accepted.
Plaintiffs have asserted four causes of action: (1) breach of the covenant of good faith and fair dealing, (2) violation of the insurer's statutory duty to attempt good faith settlement (Ins. Code, § 790.03, subd. (h)(5)
Plaintiffs' first cause of action is for breach of the covenant of good faith and fair dealing. Plaintiffs acknowledge that they cannot prevail under current law since they are not among the intended beneficiaries of the insurance contract. (See Murphy v. Allstate Ins. Co. (1976) 17 Cal.3d 937, 940-941 [132 Cal.Rptr. 424, 533 P.2d 584].) However, they urge this court to extend the duty to cover third party claimants.
The duty of good faith and fair dealing is implied in all contractual relationships. (Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 768 [206 Cal.Rptr. 354, 686 P.2d 1158].) Although, on occasion, implied contract terms have been extended to protect persons who were not among the intended beneficiaries of the contract (see generally, Escola v. Coca Cola Bottling Co. (1944) 24 Cal.2d 453, 461-468 [150 P.2d 436] (conc. opn. of Traynor, J.)), plaintiffs have not presented sufficiently compelling reasons to justify such an extension in the present case.
Plaintiffs' reliance on Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d 880 [153 Cal.Rptr. 842, 592 P.2d 329] (hereafter Royal Globe) is misplaced. In Royal Globe, this court held that an insurance claimant who was not an intended beneficiary of the insurance contract could sue the insurer under the Unfair Practices Act (§ 790 et seq.). (Royal Globe, supra, 23 Cal.3d at p. 884.) The opinion was based entirely on that statute. It did not disturb the rule barring third party claimants from recovering for breach of the covenant. The court distinguished that rule as being "based primarily upon contractual principles." (Id., at p. 889.)
Next, plaintiffs claim that they may recover under the Unfair Practices Act. Section 790.03, subdivision (h)(5) requires insurers to attempt to settle
However, the standard of "reasonably clear" liability is nonsensical when applied to an appeal, since liability is — at least arguably — "reasonably clear" in virtually all cases that have yielded a judgment in favor of the plaintiff. Thus, subdivision (h)(5)'s standard would subject insurers to the risk of suit every time they exercised their right of appeal. It is unlikely that the Legislature intended such a result.
In their third cause of action, plaintiffs contend that Gulf committed the tort of malicious prosecution. To prevail in an action for malicious prosecution, a plaintiff must plead and prove, among other elements, that "the prior action ... was commenced by or at the direction of the defendant and was pursued to a legal termination in his, plaintiff's, favor [citations] ." (Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].) An appeal is merely the continuation of an action. (See generally, 6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 1, p. 4019.)
Plaintiffs acknowledge that the California courts have not recognized a cause of action for the "malicious prosecution of an appeal," but suggest that such recognition flows logically from this court's decision in Bertero v. National General Corp., supra, 13 Cal.3d 43. Bertero held that the malicious filing of a cross-complaint could support an action for malicious prosecution. However, the reasoning of the opinion clearly excluded the possibility of a cause of action for the malicious filing of an appeal: "Defendants invoke a line of cases ... in which various courts have refused to recognize a tort of malicious defense. [Citation.] We do not propose to establish such a tort by our holding here.... By seeking affirmative relief, however, defendants in the instant case did more than attempt to repel Bertero's attack; they took the offensive in attempting to prosecute a cause of action of their own." (Id., at pp. 52-53, italics added.)
"`Process,' as used in the tort `abuse of process,' has never been limited to the strict sense of the term, but instead has been interpreted broadly to encompass the entire range of `procedures' incident to litigation." (Barquis v. Merchants Collection Assn., supra, 7 Cal.3d at p. 104, fn. 4.) In particular, "the taking of an appeal [may] give rise to an abuse of process." (Ibid., italics in original, citing Tellefsen v. Key System Transit Lines (1961) 198 Cal.App.2d 611 [17 Cal.Rptr. 919].)
To state a cause of action for abuse of process, a plaintiff must allege two elements: "`first, an ulterior purpose, and second, a wilful act in the use of the process not proper in the regular conduct of the proceeding. Some definite act or threat not authorized by the process, or aimed at an objective not legitimate in the process is required.... The improper purpose usually takes the form of coercion to obtain a collateral advantage, not properly involved in the proceeding itself, such as the surrender of property or the payment of money, by the use of the process as a threat or a club. There is, in other words, a form of extortion, and it is what is done in the course of negotiation, rather than the issuance [of] any formal use of the process itself, which constitutes the tort.'" (Spellens v. Spellens (1957) 49 Cal.2d 210, 232-233 [317 P.2d 613], italics omitted [hereafter Spellens]; accord Clark Equipment Co. v. Wheat (1979) 92 Cal.App.3d 503, 524 [154 Cal.Rptr. 874].)
It is not disputed that plaintiffs have alleged the first element, an ulterior purpose. The complaint avers that Gulf filed the appeal both to coerce plaintiffs into accepting less than the payment to which they were entitled and to gain the benefit of the funds that should have gone to pay the judgment.
The second element presents a more complex problem. It is well established that the wilful act requirement is not satisfied where the defendant has merely obtained process on nonmeritorious grounds. (See Tellefsen v. Key System Transit Lines, supra, 198 Cal. App.2d at p. 616; see also Pimentel v. Houk (1951) 101 Cal.App.2d 884, 886-887 [226 P.2d 739].) However, the courts have not clearly specified the nature of the additional allegation that is required.
In construing the requirement of a wilful act, the courts have endeavored to curb and remedy serious abuses of the judicial process while avoiding undue restraints on the ability of litigants to vigorously assert their interests. The requirement that plaintiffs prove something more than an improper motive and the absence of meritorious grounds ensures against an uncontrolled expansion of liability. (See generally, Miller v. Stern (1941) 262 App.Div. 5 [27 N.Y.S.2d 374, 375-376]; 72 C.J.S., Process, § 120, p. 1189.)
Tranchina v. Arcinas (1947) 78 Cal.App.2d 522 [178 P.2d 65] (hereafter Tranchina) is instructive. In Tranchina, the defendant landlords evicted the plaintiff tenant under wartime regulations that permitted evictions only where, inter alia, the landlord sought to recover possession for the purpose of occupying the property as his own residence. When the defendants failed to occupy the property immediately after the eviction, the plaintiff sued, claiming abuse of process. The court rejected the defendants' contention that since process was properly obtained, the plaintiff was barred from enforcing the statutory policy against unauthorized evictions. The court reasoned that the wilful use of the process for a purpose not authorized by law constituted a "perversion" of that process. (Id., at p. 526; see also Pimentel v. Houk, supra, 101 Cal. App.2d at pp. 888-889.)
In the present case, plaintiffs have alleged that Gulf filed an appeal and subsequently used it for purposes that are prohibited by law and disfavored as a matter of public policy. Code of Civil Procedure section 907 and California Rules of Court, rule 26(a), prohibit the taking of an appeal for purposes of delay or harassment. Gulf escaped the operation of these provisions only because it successfully forced the plaintiffs to abandon their full judgment before the merits of the appeal were determined. (See ante, fn. 2.)
Furthermore, Gulf has violated the strong public policy favoring the prompt settlement of insurance claims. As explained above, Gulf's conduct slips into a crack between the statutory and common law prohibitions against the use of dilatory settlement tactics to exploit the vulnerable position of
Yet, the need for special protection clearly extends to the present situation. In upholding jury awards of punitive damages for bad faith refusal to settle, the courts have recognized that insurance claimants need special protection against dilatory insurer tactics: "The very risks insured against presuppose that if and when a claim is made, the insured will be disabled and in strait financial circumstances and, therefore, particularly vulnerable to oppressive tactics on the part of an economically powerful entity." (Fletcher v. Western National Life Ins. Co., supra, 10 Cal. App.3d at p. 404; see also Egan v. Mutual of Omaha Ins. Co. (1979) 24 Cal.3d 809, 820-821 [169 Cal.Rptr. 691, 620 P.2d 141]; Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 923 [148 Cal.Rptr. 389, 582 P.2d 980].)
Nor is the need for protection limited to the prejudgment period. Indeed, claimants may be even more helpless against coercive tactics after judgment, when they have already undergone pretrial and trial proceedings without any compensation to ameliorate the effect of their injuries.
In short, as in Tranchina, supra, 78 Cal.App.2d 522, Gulf has used the process for purposes directly contrary to law and public policy. In these circumstances, it is appropriate for the tort of abuse of process to fulfill its "catchall" function.
This court has recently had occasion to discuss the chilling effect of damages and penalties imposed for the taking of groundless appeals. The opinion in In re Marriage of Flaherty, supra, 31 Cal.3d 637 (hereafter Flaherty) addressed the application of Code of Civil Procedure section 907. That section empowers reviewing courts to assess damages against parties who bring frivolous appeals. California Rules of Court, rule 26(a), was also discussed. It authorizes reviewing courts to impose sanctions on attorneys or parties for frivolous appeals.
This court noted that the imposition of damages or sanctions for bringing an appeal poses delicate problems. "The difficulty is in striking a balance that will ensure both that indefensible conduct does not occur and that attorneys are not deterred from the vigorous assertion of clients' rights." (Flaherty, supra, 31 Cal.3d at p. 648.) It was observed that, on one side of the balance, frivolous appeals burden the appellate courts with unproductive work and impede the functioning of the appellate process. (See id., at pp. 645-646, 648.) On the other side, the imposition of damage liability and sanctions might have a chilling effect on the legitimate use of the appellate process. (Id., at p. 647.)
The court concluded that "an appeal should be held to be frivolous only when it is prosecuted for an improper motive — to harass the respondent or delay the effect of an adverse judgment — or when it indisputably has no merit — when any reasonable attorney would agree that the appeal is totally and completely without merit." (Flaherty, supra, 31 Cal.3d at p. 650, italics added.) In applying this standard, the lower courts were urged to proceed with extreme caution. "[A]ny definition must be read so as to avoid a serious chilling effect on the assertion of litigants' rights on appeal.... [T]he punishment should be used most sparingly to deter only the most egregious conduct." (Id., at pp. 650-651.)
Gulf argues that the cause of action for abuse of process nevertheless poses a greater danger of chilling legitimate appeals since it, unlike the Flaherty sanctions, would be determined by a jury. In Gulf's view, trial by jury is the real concern. However, the danger of chilling valid appeals is not a serious one and the policies favoring a remedy are most compelling.
The statute and rule discussed in Flaherty were directed primarily at reducing the burden of frivolous appeals on the appellate courts. (See Flaherty, supra, 31 Cal.3d at pp. 645-646, 648.) The present cause of action not only advances that important policy, but it furthers the public policy against bad faith settlement practices in the insurance field. (See ante, at pp. 799-800.)
In Flaherty, this court was principally concerned with the danger that personal sanctions imposed on individual attorneys would inject "`undesirable self-protective reservations into the attorney's counseling role.'" (Flaherty, supra, 31 Cal.3d at p. 647.) The present cause of action does not impinge upon the representative role of attorneys.
Gulf has raised only speculative fears of a chilling impact on the right of appeal. In Royal Globe, supra, 23 Cal.3d 880, it was argued that a third party cause of action against insurers for failure to settle would spawn widespread and damaging litigation. (See id., at p. 898 (dis. opn. of Richardson, J.).) Gulf has not provided this court with any information indicating either that this threat has actually materialized or that it has discouraged insurers from vigorously asserting their rights or those of their policyholders.
Gulf nevertheless maintains that the recognition of a cause of action in the present situation would violate insurers' constitutional right of access to the judicial process. The right to petition the courts for redress of grievances is protected under the due process and free speech provisions of the United States and California Constitutions. (U.S. Const., 1st and 14th Amends.; Cal. Const., art. I, §§ 3, 7, subd. (a).) The constitutional right of effective access to the courts is applicable not only in actions against a government entity, but also where the opposing litigants are private parties. (See Mine Workers v. Illinois Bar Assn. (1967) 389 U.S. 217, 222-223 [19 L.Ed.2d 426, 430-431, 88 S.Ct. 353]; California Transport v. Trucking Unlimited (1972) 404 U.S. 508, 510-511 [30 L.Ed.2d 642, 646-647, 92 S.Ct. 609]; see also Payne v. Superior Court (1976) 17 Cal.3d 908, 914 [132 Cal.Rptr. 405, 553 P.2d 565].)
However, in the judicial context, the right to petition is tempered by the necessity for restrictions designed to ensure a fair process. (See California Transport v. Trucking Unlimited, supra, 404 U.S. at pp. 512-513 [30 L.Ed.2d at pp. 647-648].) According to the complaint, Gulf did not actually seek a redress of grievances. It pursued its appeal not to obtain a favorable decision on the merits, but to coerce plaintiffs into abandoning their rightful judgment. Gulf thereby interfered with plaintiffs' right of effective access to the courts. Moreover, Gulf has failed to establish that the recognition of a cause of action in the present situation would have an undesirable chilling effect on insurers' rights of appeal. Hence, Gulf's claim of a constitutional violation is without merit. (Cf. id., at pp. 511-512 [30 L.Ed.2d at pp. 646-647].)
"Malice" means "conduct which is intended by the defendant to cause injury to the plaintiff or conduct which is carried on by the defendant with a conscious disregard of the rights or safety of others." (Civ. Code, § 3294, subd. (c)(1).) "Oppression" is defined as "subjecting a person to cruel and unjust hardship in conscious disregard of that person's rights." (Civ. Code, § 3294, subd. (c)(2).)
Plaintiffs have alleged that Gulf deliberately embarked on a concerted course of conduct designed to exploit their financial misfortunes, to coerce them into abandoning the judgment, which Gulf knew to be valid, and to reap the interest from the award during the period of delay. Accordingly, plaintiffs have alleged that Gulf was guilty of malice and oppression as defined in Civil Code section 3294, subdivision (c). They should be permitted to seek punitive damages.
In conclusion, plaintiffs have failed to meet the requirements for any of their first three asserted causes of action: breach of the covenant of good faith and fair dealing, violation of the statutory duty to settle, and malicious prosecution. However, plaintiffs should be permitted to maintain an action for abuse of process. Their complaint alleges that Gulf: (1) filed an appeal for purposes of coercion and delay, and (2) subsequently used the appeal to force plaintiffs into accepting a payment less than the judgment, in violation of the strong public policy against the use of dilatory settlement practices to exploit the vulnerable position of insurance claimants. These allegations make out the two elements of abuse of process: an ulterior purpose and a wilful and improper act in the use of the process. (See Spellens, supra, 49 Cal.2d at p. 232.)
Since I would reverse the judgment of dismissal as to the cause of action alleging abuse of process and the prayer for punitive damages, I do not join my colleagues' opinion.
The majority maintain that plaintiffs can avoid the delay inherent in the normal course of appeal by moving for dismissal. (See maj. opn., ante, at fn. 5.) Although the majority admit that the power to dismiss is rarely exercised, they fail to explain why. The reader may be left with the misleading impression that this court can solve the problem of meritless, coercive appeals with a friendly reminder to the appellate courts that they have the power to dismiss them with dispatch.
The problem is not so simple. As Witkin explains, "[r]ecognition of the power to dismiss or summarily affirm ... tells us little of the practice. Except for a brief and unsuccessful experiment between 1932 and 1939 with summary affirmance or dismissal by rule (see 17 So. Cal. L. Rev. 259), the courts have dismissed few appeals as frivolous. The reason is that to determine the unsubstantial character of the appeal almost always requires an examination of the record, and this results in double labor for the court or unwarranted advancement of the case on the calendar. [Citations.]" (6 Witkin, Cal. Procedure (2d ed. 1971) Appeal, § 476, p. 4431.)
Because of the "double labor" involved, our overburdened appellate courts are about as likely to act on the majority's suggestion as they did in response to this court's last statement on the subject, "emphasiz[ing] that the appellate courts possess the ... inherent power to summarily dismiss any action or appeal which has as its object to delay, vex or harass the opposing party or the court, or is based upon wholly sham or frivolous grounds." (Ferguson v. Keays (1971) 4 Cal.3d 649, 658 [94 Cal.Rptr. 398, 484 P.2d 70].) In the intervening 15 years, that statement has not been cited in a single published opinion.
The majority also suggest that when an appellate court does dismiss an appeal as frivolous, it may award damages under Code of Civil Procedure section 907. (Maj. opn., ante, fn. 5; see Cal. Rules of Court, rule 26(a).) Yet, consideration of such an award will almost inevitably draw the court into a full review of the merits of the appeal, even if it somehow managed to avoid that task in the initial determination to dismiss. As this court held in In re Marriage of Flaherty, supra, due process requires that "[p]enalties for prosecuting frivolous appeals should not be imposed without giving fair warning, affording the attorney an opportunity to respond to the charge, ... holding a hearing [and] provid[ing] the attorney with a written statement of the reasons for the penalty." (31 Cal.3d at p. 654.) Again, there is little incentive for the appellate court to depart from the normal course of waiting to decide the appeal on the merits.
The court accepted the notion that "the rule of abuse of process could be applied to the appellate process." (Tellefsen, supra, 198 Cal. App.2d at p. 613.) Nevertheless, the court held that the plaintiff had failed to state a cause of action, reasoning that the defendant had "`done nothing more than carry out the process ... to its authorized conclusion, even though with bad intentions.'" (Id., at p. 615, quoting Prosser on Torts, supra, at p. 669.)
Gulf's reliance on Tellefsen is misplaced in two respects. First, the present complaint, unlike the complaint in Tellefsen, alleges that Gulf not only filed an appeal for an improper purpose, but also attempted to effectuate that purpose by inducing the plaintiffs to accept partial payment under the threat of continued delays in payment. (Cf. Spellens, supra, 49 Cal.2d at pp. 230-233.) Although an offer to settle could not by itself transform a frivolous appeal into an abuse of process, it is significant that the plaintiff in Tellefsen failed to allege any act by the defendant other than the pursuit of the appeal itself.
Second, the present case — again unlike Tellefsen — implicates the strong judicial and legislative policies against the use of delaying tactics to exploit the vulnerable position of insurance claimants.
It would do so by substantially increasing the risks of attempts to gain unfair settlement leverage. The deterrent effect would be particularly strong in egregious cases such as this one, where the insurer was motivated to exploit a financial crisis brought upon the plaintiffs by the very conduct of its insured that supported the underlying judgment.
An insurer considering a frivolous appeal would be left with a clear choice: pay the judgment, or appeal and wait for a decision on the merits. An unfair, coercive settlement offer would no longer be an attractive way to avoid payment of the full judgment or to escape judicial scrutiny of the appeal to determine whether it is frivolous. Denied the cheap settlement option, the insurer would be forced to face squarely the possibility that the appellate court will deprive it of the other principal advantage of a dilatory appeal — the market/judgment interest differential — by awarding Flaherty damages. As a result, fewer frivolous appeals would be filed and justice would be more fully and promptly served.