Judicial Restraint

Kurz v. Syrus Systems, Inc., No. H038694 (D6 Nov. 22, 2013)

District Six interprets a provision in the Unemployment Insurance Code to bar the use of an unemployment insurance appeal judgment as evidence in a later case for malicious prosecution. Without that evidence the party bringing the claim could not establish that the appeal had been terminated in its favor. Because that party could not show a likelihood of success, the court holds that a SLAPP motion attacking the claim should have been granted.

In a wrongful termination action between a company and its former accountant, the company cross-claimed for malicious prosecution, alleging that the accountant had previously filed—and lost—a frivolous administrative action for unemployment insurance. (Although such proceedings take the form of evidentiary hearings that look like trials, under the statutory scheme they are called "appeals.") The accountant filed a SLAPP motion and argued that the employer could not show a probability of prevailing because § 1960 of the Unemployment Insurance Code precluded the evidentiary use of any of the materials from the unemployment appeal in any subsequent lawsuit between employer and employee. The trial court denied the motion, and the accountant appealed.

The court of appeal reviewed the familiar two-element standard for a SLAPP motion under Code of Civil Procedure § 425.16. The defendant must show that the plaintiff’s claim arises from First-Amendment-protected activity. If it does, the burden shifts to the plaintiff to show, with evidence, a probability of prevailing. If the burden shifts and the plaintiff can’t meet it, the claim is dismissed and the plaintiff has to pay the defendant’s attorneys’ fees.
 
Here, the court recognized that the first prong of the SLAPP analysis was readily met, given that a malicious prosecution lawsuit by its very nature arises from earlier litigation and that litigation is a quintessential First Amendment protected activity. Moving to the probability of prevailing on the merits, the court recognized that the company’s ability to meet its burden turned on the interpretation of § 1960. If § 1960 barred the use of the judgment in the unemployment appeal, the company could never prove an essential element of malicious prosecution—that the prior proceedings had ended with a favorable termination. Were that was the case, the SLAPP motion should have been granted.

Section 1960 says that “[a]ny finding of fact or law, judgment, conclusion, or final order” in an unemployment insurance appeal “shall not be used as evidence in any separate or subsequent action or proceeding, between an individual and his or her present or prior employer[.]” The company argued that the statute was meant only to bar the use of materials from the unemployment case in wrongful termination cases and that it had no application in malicious prosecution. But reading that two “anys” and the “shall not” as mandatory, the court held that § 1960 on its face applied broadly and generally. Its text expressed no legislative intent to permit an exception for later actions for malicious prosecution.  

The court found its plain construction to be supported by the legislative history surrounding the statute’s passage in 1986. Also, decisions in earlier cases—two cases holding that § 1960 barred the application of collateral estoppel based on prior unemployment appeals and two other cases that generally held that malicious prosecution could arise from the frivolous initiation of administrative claims and arbitrations—boded no different result. None of these cases addressed the issue at hand—whether § 1960 bars the use of a judgment in an unemployment appeal as evidence in a later-filed malicious prosecution case. Because the court could not disregard the plain meaning of the statute, it was left with no other conclusion but to hold that it did. With the judgment barred from evidence, the company could never establish that the prior action was terminated in its favor. Consequently, as the company could not succeed, it had not met its burden under prong two of the SLAPP analysis and the motion should have been granted.

Reversed and remanded with instructions to dismiss and calculate attorneys’ fees, including fees on appeal.

Further coverage here. Professor Martin thinks this case is wrongly decided.  He argues that the court was “overly formal” in reaching this result result because “[t]he point of Section 1960 is to prohibit issue preclusion from findings made by unemployment commissioners.” 

I’m not so sure. Section § 1960 contains two verb clauses joined by an “and.” The first says unemployment appeals “shall not be conclusive or binding,” while the second says that they "shall not be used in evidence.” To read § 1960 as Professor Martin suggests—as limited to avoiding issue or judgment preclusion—would render the second clause essentially meaningless. Professor Martin also wants to distinguish the findings in an unemployment insurance appeal from its result. The statute, however, doesn’t just apply to findings. It applies to “[a]ny finding of fact or law, judgment, conclusion, or final order[.]”  What is a judgment if not a result?  

I suppose one could argue that the “evidence” clause was meant to bar semi-preclusion arguments where a party seeks to admit a finding or result from an unemployment insurance appeal non-conclusively, but just as evidence "for what it is worth." (That is the rule, for instance, on admitting prior felony convictions in federal cases. See Fed. R. Evid. 803(22) & advisory committee note to ¶ 22; but see United States v. Sine, 493 F.3d 1021, 1034–355 (9th Cir. 2007) (holding that, in a criminal case, the admission of findings from a prior case nonetheless should have been barred under Fed. R. Evid. 403).) But even if that was the intended purpose, it’s not clear to me there is enough slack in a statute that says “[a]ny finding of fact or law, judgment, conclusion, or final order . . . shall not be used as evidence in any separate or subsequent action or proceeding,” to get to a result where the results of an unemployment insurance appeal can serve as the evidentiary basis for a finding of favorable termination in a later malicious prosecution case.

Don’t get me wrong, the result of the court’s holding is bad policy. (The decision does not suggest otherwise.) There’s not a good reason to effectively bar malicious prosecution claims based on the frivolous initiation of unemployment insurance appeals. I doubt that is what anyone in the legislature subjectively had that in mind when § 1960 was passed in 1986. Probably, it was never even considered. That said, Unemployment Insurance Code § 1958 permits the appeals board to award costs if “the claimant or an employer has acted in bad faith and without reasonable basis for appeal[.]” So it is at least possible that the legislature intended a costs award to be the exclusive remedy for a baseless filing. While that does not seem ideal in that it likely underdeters frivoulous filings, it would hardly be an irrational choice for a legislature to make.

Under the circumstances—especially given the legislature's ability to enact an express exception if it disagrees—the court's inclination to minimalism seems appropriate.