Memorandum of Decision Re: Malicious Prosecution
II. Failure to Notify
It was gross negligence on Deyhimy's part to fail to list Priest as a creditor. Since the judgment of the state court was not final, Priest should have been listed as a disputed creditor. Since he never learned of the bankruptcy in time to file an action under section 523(a)(6) of the Bankruptcy Code, his claim is nondischargeable under section 523(a)(3)(B) if the court finds that he had a valid claim under section 523(a)(6). See In re Lochrie, 78 B.R. 257 (9th Cir.BAP 1987). Priest seeks reimbursement for $16,000.00 in attorneys' fees and litigation expenses incurred in prosecuting his appeal without knowledge of Deyhimy's bankruptcy. However, the court is almost certain that if Priest had been informed of the bankruptcy and filed a timely dischargeability action, the court would have directed the appeal to go forward and delayed trial until the appellate court ruled; the appeal was already pending, and affirmance would have mooted the need for a trial. Thus, Priest would have incurred most or all of the $16,000.00 in any event. Nonetheless, Priest did suffer some inconvenience and expense as a result of Deyhimy's negligent failure to schedule him. The court resolves any doubt on this issue in favor of Priest, since he was entirely blameless and Deyhimy falsely represented that she had listed all her creditors. To compensate Priest, as well as to sanction Deyhimy, the court will award Priest $2,000.00.
III. Malicious Prosecution
At the trial, one fact was clear and undisputed: however poor her judgment may have been, Deyhimy was motivated solely by a desire to do her best for her client. There was not the slightest hint of an improper motive on her part. She had fully researched the law and determined that her action was justified by either the law as it was then or a good faith argument for the extension of the law. Deyhimy has been a defendant in malicious prosecution proceedings for the past five years because of poor judgment. At the time she sued Priest, her legal theories were somewhat novel. Where the law is questionable, it is unwise to bring a suit unless the facts are clear. Factually, Deyhimy had little to go on except suspicions and questionable conclusions drawn from the answer Priest had verified. Thus, she filed a lawsuit which was very weak from both a legal and a factual standpoint. Most lawyers would not have brought the suit under these circumstances. Nonetheless, debts arising out of negligence are dischargeable. Under both state law and federal bankruptcy law, malice must be found before the intentional tort of malicious prosecution is established. Sheldon Appel Co. v. Albert & Oliker, 47 Cal.3d 863, 874 (1989); In re Braen, 94 B.R. 35, 41 (D.N.J.1988). While the finder of fact may infer malice from lack of probable cause, it is not bound to do so; malicious prosecution is more than filing a suit a reasonable attorney would not have filed. In this case, the court finds that Deyhimy used poor judgment in bringing the action against Priest, in that a reasonable attorney would not have brought the action. However, there is absolutely no evidence justifying a finding of actual malice. Deyhimy had only the best motive, the zealous representation of her client. Deyhimy represented an elderly Chinese man whom she believed had been manipulated into guaranteeing an obligation and had suffered serious financial loss as a result. That Deyhimey was willing to represent him to the best of her abilities is to her credit, as is the fact that she had the courage to urge a new or expanded interpretation of the law. Lacking the wisdom to temper her zeal, she filed suit against Priest. Because this action was in a just cause, it was not malicious and does not give rise to a nondischargeable debt.
For the foregoing reasons, Priest shall have judgment against Deyhimy in the amount of $2,000.00 due to her failure to promptly notify him of the filing of her bankruptcy and schedule him as a creditor. Priest shall take nothing on his malicious prosecution claim because the court finds no malice. Each side shall bear his or her own costs. This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052.
Dated: May 23, 1993 _______________________ Alan Jaroslovsky U.S. Bankruptcy