IN THE SUPREME COURT OF CALIFORNIA - The Am...

IN THE SUPREME COURT OF CALIFORNIA

FRANKLIN MINT COMPANY et al., Plaintiffs and Appellants,

V.

MANATT, PHELPS & PHILLIPS, LLP et al., Defendants and Respondents.

AFTER A DECISION BY THE COURT OF APPEAL, SECOND APPELLATE DISTRICT, DIVISION FOUR CASE No. B190482

PETITION FOR REVIEW

QUINN EMANUEL URQUHART & SULLIVAN, LLP

KATHLEEN M. SULLIVAN (BAR No. 242261)

555 TWIN DOLPHIN DRrvE, 5TH FLOOR REDWOOD SHORES, CALIFORNIA 94065

(650) 801-5000 • (650) 801-5100 [email protected]

ATTORNEYS FOR DEFENDANT AND RESPONDENT MANATT, PHELPS & PHILLIPS, LLP

HORVITZ & LEVY LLP DAVID M. AXELRAD (BAR No. 75731)

JOHN A. TAYLOR, JR. (BAR No. 129333) FREDERIC D. COHEN (BAR No. 56755)

CURT CUTTING (BAR No. 199906) 15760 VENTURA BOULEVARD, 18TH FLOOR

ENCINO, CALIFORNIA 91436-3000 (818) 995-0800 • FAX: (818) 995-3157

[email protected] ; [email protected] [email protected] ; [email protected]


MUNGER TOLLES & OLSON LLP RONALD L. OLSON (BAR No. 44597)

BRAD D. BRIAN (BAR No. 79001) MICHAEL R. DOYEN (BAR No. 119687) 355 SOUTH GRAND AVENUE, 35TH FLOOR Los ANGELES, CALIFORNIA 90071-1560 (213) 683-9100 • FAX: (213) 687-3702

[email protected] [email protected]

[email protected]


HILL FARRER & BURRILL KEVIN H. BROGAN (BAR No. 89427)

300 SOUTH GRAND AVENUE 37TH FLOOR — ONE CALIFORNIA PLAZA

Los ANGELES, CALIFORNIA 90071 (213) 620-0460 • FAX: (213) 624-4840

[email protected]

ATTORNEYS FOR DEFENDANT AND RESPONDENT MARK S. LEE

TABLE OF CONTENTS

TABLE OF AUTHORITIES ii

ISSUES PRESENTED 1

INTRODUCTION 3

STATEMENT OF THE CASE 7

A. Franklin Mint's ad campaign 7

B. The Fund's pre-lawsuit inquiries 9

C. Preparation and filing of the federal district court action 11

D. The state malicious prosecution action 13

E. The Court of Appeal decision 14

REASONS FOR GRANTING REVIEW 18

I. Review should be granted because the Court of Appeal's decision provides no meaningful protection in malicious prosecution actions for clients or attorneys seeking reasoned application or extension of existing law to novel facts 18

II. Review should be granted to resolve a conflict among Court of Appeal decisions as to whether the denial of a motion to dismiss in the underlying case conclusively establishes, in a subsequent malicious prosecution action, the legal tenability of a claim 25

III. Review should be granted to resolve a conflict among Court of Appeal decisions as to whether juaicial findings in the underlying case may be admitted for their truth in a subsequent malicious prosecution action 29

CONCLUSION 34

CERTIFICATE OF WORD COUNT 35

TABLE OF AUTHORITIES

Page(s) Cases

Arcaro v. Silva & Silva Enterprises Corp. (1999) 77 Cal.App.4th 152 25

Arce v. Kaiser Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471 31

Cairns v. Franklin Mint Co. (C.D.Cal. 1998) 24 F.Supp.2d 1013 12

Cairns v. Franklin Mint Co. (C.D.Cal. 2000) 107 F.Supp.2d 1212 12, 13

Cairns v. Franklin Mint Co. (C.D.Cal. 2000) 115 F.Supp.2d 1185 13

In re Carson (1977) 197 U.S.P.Q. 554 [1977 WL 22654] 20

Crowley v. Katleman (1994) 8 Ca1.4th 666 33

Dawson v. Toledano (2003) 109 Cal.App.4th 387 32

In re Marriage of Flaherty (1982) 31 Ca1.3d 637 18

Fleishman v. Superior Court (2002) 102 Cal.App.4th 350 26

Fowler v. Howell (1996) 42 Cal.App.4th 1746 31

Hutton v. Hafif (2007) 150 CaLApp.4th 527 26

Kilroy v. State of California (2004) 119 Cal.App.4th 140 31

Laabs v. City of Victorville (2008) 163 Cal.App.4th 1242

Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875

Mattel, Inc. v. Luce, Forward, Hamilton & Scripps (2002) 99 Cal.App.4th 1179

Miller v. Glenn Miller Productions, Inc. (9th Cir. 2006) 454 F.3d 975

Parks v. LaFace Records (6th Cir. 2003) 329 F.3d 437

Party City Corp. v. Superior Court (2008) 169 Cal.App.4th 497

Peaceable Planet, Inc. v. Ty, Inc. (7th Cir. 2004) 362 F.3d 986

Plumley v. Mockett (2008) 164 Cal.App.4th 1031

Estate of Presley v. Russen (D.N.J. 1981) 531 F.Supp. 1339

Professional Engineers v. Department of Transportation (1997) 15 Ca1.4th 543

Purcell v. Summers (4th Cir. 1944) 145 F.2d 979

Roberts v. Sentry Life Ins. (1999) 76 Cal.App.4th 375

Sheldon Appel, Co. v. Albert & Oliker (1989) 47 Ca1.3d 863 2,

Slaney v. Ranger Ins. Co. (2004) 115 Cal.App.4th 306

3,

26,

14,

18,

31,

29,

22,

31,

20,

26,

25,

31

32

30

20

21

31

23

32

21

32

22

27

33

30

Sosinsky v. Grant (1992) 6 Cal.App.4th 1548 30, 31, 32

Soukup v. Law Offices of Herbert Hafil (2006) 39 Ca1.4th 260 33

Swat-Fame, Inc. v. Goldstein (2002) 101 Cal.App.4th 613 5, 25, 26, 28

Two Pesos, Inc. v. Taco Cabana, Inc. (1992) 505 U.S. 763 [112 S.Ct. 2753, 120 L.Ed.2d 615] 22, 23

United We Stand Am. v. United We Stand, America N. Y. (2d Cir. 1997) 128 F.3d 86 22

Verdier v. Verdier (1957) 152 Cal.App.2d 348 17

Waits v. Frito-Lay, Inc. (9th Cir. 1992) 978 F.2d 1093 20

Weiner v. Mitchell, Silberberg & Knupp (1980) 114 Cal.App.3d 39 30

Wilson v. Parker, Covert & Chidester (2002) 28 Ca1.4th 811 3, 28

Zamos v. Stroud (2004) 32 CaL4th 958 5

Statutes

15 U.S.C.A.

§ 1052(e) 22

§ 1052(f) 22

§ 1125(a)(1)(A) 11

§ 1125(a)(1)(C) 11

-iv-

§ 1125(c)

Federal Trademark Act

§ 43(a)(2)

§ 43(c)

Business & Professions Code

§ 17200

§ 17500

Code of Civil Procedure § 425.16

Rules of Court

Cal. Rules of Court, rule 8.504(d)(1)

Miscellaneous

2 Hazard & Hodes, The Law of Lawyering (3d ed. 2010) § 27.12

2 Jefferson's Cal. Evidence Benchbook (2d ed. 1982) § 47.2

5,

11

10

10

11

11

30

35

18

31

IN THE SUPREME COURT OF CALIFORNIA

FRANKLIN MINT COMPANY et a . Plaintiffs and Appellants,

V.

MANATT, PHELPS & PHILLIPS, LLP et al., Defendants and Respondents.

PETITION FOR REVIEW

ISSUES PRESENTED

Following the death of Diana, Princess of Wales, her

Memorial Fund and the executors of her estate (the Fund) retained

Manatt Phelps & Phillips, LLP to pursue legal action in federal

district court against the Franklin Mint for selling unauthorized

"Diana" memorabilia and misrepresenting that "all" proceeds of

certain products would be donated to "Diana, Princess of Wales'

Charities." The federal court denied Franklin Mint's motion to

dismiss the claims here at issue, finding that they stated tenable

causes of action. After obtaining summary judgment, Franklin

Mint sued Manatt and the Fund in California state court for

malicious prosecution, alleging that two of the five claims

(trademark dilution and false advertising) were brought without

1

probable cause. After 17 days of trial, the trial court found it

"overwhelmingly clear that [Manatt} had probable cause"—and that

it might have raised a "serious question" of "legal malpractice" if

Manatt had failed to pursue these claims.

Over a vigorous dissent, in a published opinion, a majority of

the Court of Appeal reversed. The majority opinion finds a lack of

probable cause despite the contrary conclusions of three judges in

the case, all presumptively reasonable attorneys. The opinion

raises serious questions about the meaning and application of the

"any reasonable attorney" standard. (Sheldon Appel, Co. v. Albert &

Oliker (1989) 47 Ca1.3d 863, 872, fn. 5 (Sheldon Appel).) It creates

or exacerbates conflicts among Court of Appeal decisions regarding

the significance to be accorded interim rulings allowing claims to

proceed in an underlying case and the admissibility and sufficiency

of judicial hearsay from the underlying case as proof of lack of

probable cause.

The majority decision presents the following questions for

review by this Court:

1. How should a Court of Appeal apply the cc any

reasonable attorney" standard in a malicious prosecution action

based on an underlying case raising novel claims that other judges

have found tenable?

2. May a malicious prosecution plaintiff contest the legal

tenability of a claim where a judge in the underlying case has

overruled a demurrer or denied a motion to dismiss that claim?

3. May a malicious prosecution plaintiff meet its burden of

proof on the element of lack of probable cause merely by submitting

2

the underlying judicial decisions for their supposed truth, without

independent evidence of legal or factual untenability?

INTRODUCTION

The majority opinion erodes the "probable cause" barrier to

bringing a malicious prosecution claim, long and consistently

regarded a "disfavored cause of action." (Sheldon Appel, supra, 47

Ca1.3d at p. 872.) The most vital bulwark against the overuse of

this tort is the requirement that the plaintiff prove that the lawyers

who brought the challenged claim lacked probable cause—a

standard so stringent that it requires proof that "no" reasonable

lawyer would pursue such a claim. (Wilson v. Parker, Covert &

Chidester (2002) 28 Ca1.4th 811, 824.)

The majority's decision renders that bulwark an illusion. The

majority ruled that the claims at issue were legally and factually

untenable even though (a) there were, as the majority

acknowledged, no cases precluding the claims, and (b) three other

judges found the two claims at issue tenable: (i) the federal district

court judge, who found the claims legally tenable and denied the

Mint's motion to dismiss them; (ii) the trial court judge in the state

malicious prosecution action, who found it "overwhelmingly clear"

that Manatt had probable cause, and (iii) the dissenting justice, who

explained in 35 pages why the trial court was right.

The federal district court's finding that these federal claims

survived a motion to dismiss should have been the end of any

contention that no reasonable attorney could think the claims were

3

legally tenable. If a majority of a Court of Appeal can ignore this

finding as well as a trial court's finding—after a 17 day trial—that

it was "overwhelmingly clear" that there was probable cause, then

the "any reasonable attorney" standard provides no meaningful

protection to practicing attorneys, and simply allows the last judge

standing to determine whether a legal position is or is not tenable.

This Court should grant review in this case for three reasons:

First, the Court of Appeal has lowered the bar to malicious

prosecution actions where it matters most, where the law applicable

to a claim is unsettled. The duty of zealous advocacy is most

important and most easily chilled for clients in need of the

protection of the law in new and novel circumstances. The contrast

between the trial judge's finding and the majority's finding well

illustrates the peril the majority creates. The trial judge heard

extensive testimony about the preparation of the claims; the trial

judge heard the percipient testimony of the specialist who was

consulted by Manatt about the claims in advance of filing-

consultation that, in other circumstances, would establish probable

cause. The trial court found not only that probable cause was CCoverwhelmingly clear," but that, given the duties of counsel to

advocate for their clients, failing to pursue these claims might have

raised a "serious question" of "legal malpractice."

Law evolves through lawyers urging clients' bona fide

interests in the extension of existing principle into new and

changing settings. Protection of advocacy is vital in such settings,

where, of necessity, the lawyer finds no clear authority, no decisive

case, no perfect parallel. If lawyers are subject to tort liability for

4

bringing an unprecedented claim any time there is reasonable

disagreement even among judges as to the tenability of the claim,

lawyers will predictably shrink from taking on such causes. Indeed,

they must do so; that is the alarming message of the majority and

the dire warning of the dissent.

In an era when resort to malicious prosecution actions is

escalating, this Court should provide guidance to the lower courts

about how the "any reasonable attorney" standard is to be applied

in novel cases. The law already contains numerous, carefully

calibrated measures that place bounds on over-zealous advocacy.

Where courts already have power to impose sanctions and in some

cases attorneys' fees for causes of action later deemed groundless,

there is no need to lower the bar to malicious prosecution suits as

the majority has done. The decision below will encourage the filing

of malicious prosecution cases and chill "not only the zeal but the

creativity of lawyers who operate on the leading edge of legal

development." (Dis. opn., 5 (original emphasis), quoting 2 Hazard &

Hodes, The Law of Lawyering (3d ed. 2010) § 27.12, p. 27-26.)

Second, this Court should grant review to resolve the conflict

the majority opinion creates with the decision in Swat-Fame, Inc. v.

Goldstein (2002) 101 Cal.App.4th 613 (Swat-Fame), disapproved on

another ground in Zamos v. Stroud (2004) 32 Ca1.4th 958, 973.

Swat-Fame held that, "because the trial court overruled [the

defendant's] demurrer. . . . the lawyers necessarily had probable

cause to bring the claim." (Id. at p. 626.) Swat-Fame recognized

that, notwithstanding later contrary rulings, the initial ruling by

the trial judge—a presumptively reasonable and unbiased

5

attorney—established that a reasonable attorney could indeed think

the claims were legally tenable. The majority holds, instead, that a

later ruling in the underlying matter "negates" the earlier ruling

and (somehow) renders it possible to say that no reasonable

attorney could think what the district court had in fact concluded,

i.e., that the claims were legally tenable. This approach undercuts

the protection afforded by the "any reasonable attorney" standard

and encourages malicious prosecution actions in any case where the

defendant in the underlying matter was initially unsuccessful but

ultimately prevailed. This Court should grant review to resolve the

conflict about what weight should be accorded to a ruling in the

underlying action overruling a demurrer or denying a motion to

dismiss.

Third, this Court should grant review to resolve a stark and

enduring conflict among Court of Appeal decisions over whether a

lack of probable cause may be established simply by accepting, for

their truth, judicial "findings" from the underlying action. Proof by

judicial hearsay is improper from any evidentiary perspective and,

by substantially lowering (or even shifting) the burden of proof, the

majority approach erodes the protection of the stringent probable

cause requirement and increases the incentive to bring malicious

prosecution claims. This Court should grant review to resolve the

conflict among the Court of Appeal decisions as to whether the

judicial findings in the underlying action are admissible for their

truth and whether malicious prosecution plaintiffs must prove the

factual untenability of a claim by other, competent evidence.

6

In all three respects, the majority opinion raises important

questions as to which road this state will take, encouraging or

discouraging the tortification of the judicial process; encouraging or

discouraging access to the courts for plaintiffs seeking the law's

protection in novel circumstances; or encouraging or discouraging

the evolution and extension of the law to deal with ever-evolving

world circumstances. Few questions could call more urgently for

this Court's review and guidance.

STATEMENT OF THE CASE

A. Franklin Mint's ad campaign.

When Princess Diana died unexpectedly in August 1997, the

world saw a massive outpouring of public support for her charitable

works. The executors of her estate, Princess Diana's mother, her

sister, and the Bishop of London, moved immediately to establish

the "Diana, Princess of Wales Memorial Fund" to direct these

spontaneous donations to the causes Princess Diana had so

famously supported. The Estate transferred to the Memorial Fund

the exclusive right to use the Princess's name and likeness for

charitable purposes. (2RA212.)

Five days after Diana's death, Franklin Mint sought to

capitalize on the overwhelming wave of sympathy and support for

Princess Diana's charities. Franklin Mint initially asked the

Memorial Fund's permission to advertise an officially sanctioned

tribute plate bearing Diana's name and image. (1RA28-29.) Five

days later, without waiting to hear from the Fund, Franklin Mint

7

began unilaterally marketing its tribute plate, supposedly to

support Princess Diana's Charities. (2RA214.) 1

Franklin Mint issued a press release, claiming that, "to carry

on [Diana's] mission of charity," it had created a "Princess Diana

Tribute Plate" from which "absolutely all of the proceeds will go

directly to The Diana, Princess of Wales Charities." (1RA47,

emphases added.)

Franklin Mint initially took out print ads, featuring an

official-looking portrait of Princess Diana. The ads purported to

invite customers to "join with the Franklin Mint to continue

Princess Diana's important work." (1RA54, capitalization omitted.)

The top of the ad stated simply: "A Limited Edition

Commemorative Portrait Plate in Loving Tribute: Celebrating the

enduring spirit and compassion of the woman who will forever be

'England's Rose.' All proceeds to go to Diana, Princess of Wales'

Charities." (Ibid., partial capitalization omitted, emphasis added;

7RT1082.)

Then, without correcting its press release stating that

"absolutely all proceeds" of the plate "will go directly to The Diana,

Princess of Wales Charities," Franklin Mint slightly revised its

ads—to omit this promise. (1RA26.) Franklin Mint received $3.5 to

$4 million in sales from the revised ads and kept those funds for

itself. (7RT1001-1002.)

Franklin Mint ultimately received approximately $94 million

from the sale of Princess Diana memorabilia, including $10 million

1 The Fund rejected Franklin Mint's request. (2RA213.)

8

for sales of the tribute plates and another $84 million for sales of

other items, using ads that made various references to the Franklin

Mint's supposed support of Princess Diana's Charities. (2RA331;

7RT1095.) Of the $94 million in total receipts, the Mint paid only

$1.5 million (as a licensing fee) to a charity with any relationship

with Princess Diana, the "Greater Ormond Street Hospital."

(4RT394-395.)

It was only after it was sued by the Fund in the underlying

case that Franklin Mint "interpleaded" any of the funds, and then it

deposited not "all proceeds" ($10 million) received from sales of the

plate, but only the $2.5 million it claimed it could specifically trace

to the initial ads stating that "all proceeds" from the plate would go

to Princess Diana's Charities. (7RT996-999.) Franklin Mint

subsequently distributed that $2.5 million to charities having no

association with Princess Diana. (9RT1298-1304.) Its largest

contribution went to a medical facility with no connection to

Princess Diana. The facility is named for the owners of the Franklin

Mint. (9RT1364-1366.)

B. The Fund's pre-lawsuit inquiries.

Both the Estate of Diana, Princess of Wales, and the

Memorial Fund retained attorneys specializing in trademark, false

advertising and related issues. Those attorneys reviewed the facts

and concluded that the Estate and the Fund had claims against

Franklin Mint, including claims for false advertising and trademark

dilution.

9

Princess Diana's estate retained Paul LiCalsi, an intellectual

property specialist in New York. LiCalsi reviewed Franklin Mint's

ads. He concluded they violated federal trademark law, because

they falsely implied that they were sponsored or approved by

Princess Diana or her representatives. (Typed opn., 7.)

The Fund retained Randy Lipsitz, a specialist in trademark

and copyright law, who sent Franklin Mint a cease and desist letter

(also recommended by LiCalsi). Lipsitz informed Franklin Mint

that the Memorial Fund "owns the worldwide trademark rights

concerning Princess Diana including, but not limited to the Diana,

Princess of Wales and Diana, Princess of Wales Memorial Fund

names and trademarks." (Typed opn., 7; 1RA151, 156; 13RT2003-

2006.) Franklin Mint's contention in this case—that no reasonable

attorney could have thought Princess Diana had such rights—was

rejected by other knowledgeable and experienced counsel at the

time.

Lipsitz recommended that the Memorial Fund bring the very

trademark dilution claim that has divided the judges in this case.

Lipsitz advised the Fund in writing to "proceed immediately with

the preparation of a Complaint which would assert causes of action

under sections 43(a) (false designation of origin) and 43(c) (dilution

of famous marks) of the Federal Trademark Act." (1RA144,

emphasis added.) Lipsitz advised the Fund that if it asserted such

claims, including the dilution claim here at issue, it had a high

likelihood of success. (1RA146.)

10

C. Preparation and filing of the federal district court action.

To pursue such claims against Franklin Mint in Los Angeles,

the Fund retained Mark Lee, a Manatt partner specializing in

entertainment and intellectual property law. Lee had recently

represented Tiger Woods in a similar action against the Franklin

Mint.

Lee drafted a complaint against Franklin Mint, alleging five

claims: (i) violation of Diana's right of publicity under California

law, (ii) false endorsement under the federal Lanham Act, 15

U.S.C.A. § 1125(a)(1)(A), (iii) trademark dilution under the same

statute, § 1125(c), (iv) false advertising under the same

statute, § 1125(a)(1)(C), and (v) unfair competition (Bus. & Prof.

Code §§ 17200, 17500). (1AA44.)

Lee sent the draft complaint to LiCalsi. LiCalsi concluded

that the complaint stated "a very strong and compelling case

against Franklin Mint." (11RT1629, 1632.) He recommended that

the Estate join the complaint. (11RT1632; 1AA80-81.)

Manatt filed the complaint in the federal district court in Los

Angeles. Franklin Mint moved to dismiss all five claims. Then-

federal district court Judge Paez denied the motion to dismiss the

trademark dilution claim on the ground that the complaint alleged

legally sufficient grounds to establish a dilution claim: namely, that

"Princess Diana's name and image have been intensively and

extensively advertised and promoted throughout the world in

connection with her charitable activities, and as a result of this

advertising and promotion, the name and image have come to mean

11

and are recognized . . . as distinctive marks which identify the

source of the charitable activities of Diana, Princess of Wales."

(Cairns v. Franklin Mint Co. (C.D.Cal. 1998) 24 F.Supp .2d 1013,

1034-1035 (Cairns).) Judge Paez did not require Manatt to plead or

prove that, when the public heard the name "Princess Diana," it

first thought of her charitable work and then thought of her as a

person.

Judge Paez denied the motion to dismiss the false advertising

claim on the ground that complaint, which attached the ads in

question, "adequately allege [s] that defendants' advertisements

falsely imply plaintiffs' endorsement, Princess Diana's endorsement,

and/or that defendants will donate proceeds to the Fund." (Cairns,

supra, 24 F.Supp.2d at p. 1036.)

After Judge Paez was appointed to the United States Court of

Appeals for the Ninth Circuit, a different federal district court judge

(Judge Cooper) granted Franklin Mint's motion for summary

judgment. On the trademark dilution claim, Judge Cooper ruled

that the Fund needed to, but could not, prove that the public took

the primary meaning of the phrase "Diana, Princess of Wales" as a

reference to her charitable work and not to Diana as a person—a

requirement not imposed by Judge Paez. (Cairns v. Franklin Mint

Co. (C.D.Cal. 2000) 107 F.Supp.2d 1212, 1222 (Cairns II)) No such

absolute requirement had been imposed in previous celebrity

trademark cases.

Judge Cooper also granted summary judgment on the false

advertising claim, based on her conclusion that the ads, as she read

them, were "literally true"—again a different standard than that

12

used by Judge Paez—because some ads said all proceeds would go

to charity and some did not, and the Franklin Mint claimed it could

trace purchases to ads. (Cairns II, supra, 107 F.Supp.2d at p. 1223.)

She also noted that Franklin Mint had by that time contributed

$1.5 million to the Great Ormond Street Hospital and "interpleaded

with the Court" another $2.5 million "to be given to charity upon

resolution of this lawsuit." (Ibid.) Judge Cooper did not address the

press release, which literally stated that all proceeds from the plate

(i.e., $10 million) would go to charity; nor did she address the

possibility that some customers would be misled into thinking that

an ad which stated "A Limited Edition Commemorative Portrait

Plate in Loving Tribute: . . . All proceeds to go to Diana, Princess of

Wales' Charities" meant that all proceeds from the plate, not just

proceeds from particular ads, would go to charity, and to Diana's

own personal charities in particular.

The district court awarded attorneys' fees to Franklin Mint on

the trademark dilution and false advertising claims, finding that

those claims—but not the unfair competition or trademark

infringement claims—were "groundless and unreasonable." (Cairns

v. Franklin Mint Co. (C.D.Cal. 2000) 115 F.Supp.2d 1185, 1188-

1189.) The court, however, stated that the trademark dilution claim

was short of frivolous. (Id. at p. 1189.)

D. The state malicious prosecution action.

Franklin Mint filed suit for malicious prosecution against the

executors of the Estate, the Trustees of the Fund and Manatt.

During the five week trial, the court heard testimony from Lee,

13

other Manatt attorneys, and LiCalsi—all of whom testified as

percipient witnesses. At the conclusion of the evidence, the parties

agreed that there were no significant credibility disputes, and that

the question of whether Manatt had probable cause to pursue the

challenged claims (as distinct from the issue of malice) should be

decided by the court before the matter was submitted to the jury.

The trial court stated, and the parties agreed, that the court would

make factual findings incidental to the probable cause

determination. (20RT2896; 21RT3058-3059, 3061; see Roberts v.

Sentry Life Ins. (1999) 76 Cal.App.4th 375, 382 (Roberts).)

The parties thereafter presented closing arguments to the

court on the factual and legal basis for the trademark dilution and

false advertising claims. Following oral argument, the court noted

that the lawyers had "gathered together lots of disparate pieces of

evidence and painted for the jury and for me . . . a very thoughtful

presentation and thoughtful picture of the situation that faces the

court and faces lawyers who are facing clients who want them to

bring actions." (21RT3170.) Judge Ettinger stated his conclusion

that, based on all the evidence, it was "overwhelmingly clear that

Mr. Lee had probable cause to bring his action" and that Lee might

have "committed malpractice" if he had "failed to file a cause of

action." (21RT3173.)

E. The Court of Appeal decision.

A majority of the Court of Appeal (Wilhite, J., joined by

Suzakawa, J.) concluded, over dissent by Justice Mosk, that Manatt

did not have probable cause to pursue the two claims at issue.

14

The majority held that "we cannot conclude that 'any

reasonable attorney would have thought' a tenable legal argument

could be made that Princess Diana used her name or likeness as a

trademark." (Typed opn., 26.) Finding no authority squarely on

point, the majority nevertheless stated that it seemed "doubtful"

that Princess Diana's extreme fame would allow her to obtain

sufficient renown for her charitable work to qualify her name for

trademark protection. (Typed opn., 30.) The majority declared

that, because Diana was so famous, her name was better

characterized as "descriptive" rather than "distinctive" (typed opn.,

27), invoking what one federal court of appeals has called a mere

judge-made generalization requiring proof of "secondary meaning"—

here, that "that the primary significance of 'Diana, Princess of

Wales' was to identify the provider of charitable services rather

than to identify Princess Diana herself." (Typed opn., 31.)

The majority then opined, without evidentiary support, that

"there is little question" but that members of the public, if asked

what came to mind when they hear the words "Diana, Princess of

Wales," would think of a person and not her charitable work (typed

opn., 33-34); and that Princess Diana's fame was "unconnected to

any [charitable] goods or services she provided" (typed opn., 40).

The majority reached each of these conclusions without citing

any evidence from the malicious prosecution trial. Franklin Mint

offered none of the voluminous evidence from the federal court

trademark action, nor any evidence as to the extent or nature of

Princess Diana's fame or the extent to which the public did or did

not associate her with her well-known charitable work. Justice

15

Mosk's dissent criticized the majority's approach, stating that "[w]e

cannot distinguish other celebrity cases from this case based on our

own assumptions and views about Princess Diana." (Dis. opn., 28,

emphasis added.)

As to the false advertising claim, the majority ruled that no

reasonable attorney would argue that Franklin Mint had falsely

promised to donate "all proceeds" from the sales of the tribute plate

to Princess Diana's Charities, notwithstanding the majority's

acknowledgement that Franklin Mint had issued a press release

stating precisely that. (Typed opn., 46-50.)

The dissent concluded that "the trial court correctly

determined that Manatt had tenable claims and thus probable

cause." (Dis. opn., 2.) Citing Swat-Fame, Justice Mosk wrote that

the federal district court's denial of the motion to dismiss had

"established as a matter of law the legal tenability of the trademark

dilution claim" as well as that of the false advertising claim. (Dis.

opn., 19, 28.) Justice Mosk rejected as incorrect, and as inconsistent

with Swat-Fame, the idea that the federal court's original finding

that the claims were legally valid could be "negate[d]" by later

rulings to the contrary by a different federal judge. (Typed opn., 42,

fn. 19; dis. opn., 19-20.) Justice Mosk also concluded that Manatt's

arguments were supported by "establish[ed] principles from which a

reasonable lawyer. . . . could argue that a legal framework had been

established that would permit Manatt's clients to recover under a

trademark dilution theory." (Dis. opn., 20.)

Justice Mosk found that Franklin's Mint's "all proceeds" ads

were facially misleading. As the dissent noted, lo]ne of the

16

advertisements [attached to the underlying complaint] offered for

sale a limited edition commemorative plate and stated, 'All proceeds

go to Diana, Princess of Wales' Charities.' It did not state, as

mischaracterized by the Mint, that the Mint 'would donate all of the

proceeds of a particular portrait plate ordered through a particular

ad.' It is undisputed that, when the action was filed, none of the

proceeds from the sale of that plate had been donated to any

charity, let alone 'Diana, Princess of Wales' Charities.' Manatt had

probable cause to bring a false advertising claim based on that

advertisement." (Dis. opn., 29-30.)

In Justice Mosk's view, Franklin Mint's failure to introduce

evidence should have been fatal: he would have affirmed "for the

simple reason that the Mint did not introduce into evidence in this

case the factual record developed in the underlying case." (Dis.

opn., 22; see also Verdier v. Verdier (1957) 152 CaLApp.2d 348, 353-

354 [affirming judgment for defendant in malicious prosecution

action because of plaintiff s "failure of proof of want of probable

cause].)

17

REASONS FOR GRANTING REVIEW

I. REVIEW SHOULD BE GRANTED BECAUSE THE COURT OF APPEAL'S DECISION PROVIDES NO MEANINGFUL PROTECTION IN MALICIOUS PROSECUTION ACTIONS FOR CLIENTS OR ATTORNEYS SEEKING REASONED APPLICATION OR EXTENSION OF EXISTING LAW TO NOVEL FACTS.

Claims that are extremely unlikely to prevail may strike

many judges as unreasonable. Yet this Court has emphasized that

Ic]ounsel and their clients have a right to present issues that are

arguably correct, even if it is extremely unlikely that they will

win . . . ." (Sheldon Appel, supra, 47 Ca1.3d at p. 885, quoting In re

Marriage of Flaherty (1982) 31 Ca1.3d 637, 650, emphases added.)

To protect that right, this Court has imposed the "any reasonable

attorney" standard for probable cause, a standard that "reflects the

important public policy of avoiding the chilling of novel or debatable

legal claims" and "takes into account the evolutionary potential of

legal principles." (Id. at pp. 885-886.) 'Even "settled" legal

questions must be open to challenge at some point, or else the law

would stultify." (Dis. opn., 5, quoting 2 Hazard & Hodes, The Law

of Lawyering, supra, § 27.12, p. 27-26.)

The majority's approach will chill such advocacy, to the

detriment of lawyers, clients, and the law. Reasoned arguments for

the extension of existing law—arguments on which judges disagree

as to tenability—cannot be brought or sustained if the penalty is

potentially ruinous malicious prosecution liability.

18

While the underlying case here focused on federal issues

whose detailed parsing by the state court below was especially

inappropriate, similar uncertainties will confront all attorneys, in

all actions, state or federal, that arise at the evolving boundary of

the law. In this case, the issue underlying the trademark claim was

whether one of the most famous women in the world (or her

surviving family) could invoke federal trademark protection for the

use of her name for the promotion of charities—something she had

made her life's work in her later years. No case had settled that

question.

Invoking celebrity trademark cases by analogy, as well as the

underlying principles and policies of various statutory and judge-

made rules, several attorneys and judges—Mark Lee at Manatt;

Paul LiCalsi and Randy Lipsitz at independent New York firms;

Judge Paez in the federal district court; Judge Ettinger at the trial

court below; and Justice Mosk on appeal—all concluded that such a

claim was tenable. In ignoring the views of all these lawyers and

judges, and treating itself as free to resolve the tenability of the

claim in a vacuum, the majority contravened the "any reasonable

attorney" standard set forth by this Court. Under the majority's

approach, tenability of novel claims will be judged by the last judge

to consider the question, without regard for the reasoned differences

of other opinions. The majority opinion thus encourages more

malicious prosecution claims, chills the advocacy of uncertain

claims, retards the essential development of the law, and restricts

client access to the protections of the courts.

19

In this case, the application of trademark law to the use of

Princess Diana's name to promote charities involved the resolution

of several unsettled federal questions. For example:

1. The majority expressed skepticism that Diana, Princess

of Wales could ever obtain trademark protection for her name. Yet,

when Princess Diana's estate and the Fund sued Franklin Mint, it

was well-settled that famous celebrities could acquire protectable

trademarks in their names—and in their likenesses and even in

their distinctive characteristics. Johnny Carson had successfully

trademarked "JOHNNY CARSON." (In re Carson (1977) 197

U.S.P.Q. 554, 555 [1977 WL 22654].) Band Leader Glenn Miller

was recently held to have had a protectable mark in the name

"Glenn Miller." (Miller v. Glenn Miller Productions, Inc. (9th Cir.

2006) 454 F.3d 975, 991-992). Elvis Presley had acquired service

marks in "Elvis," "Elvis in Concert," and "Elvis Presley" by using

them to promote entertainment services. (Estate of Presley v.

Russen (D.N.J. 1981) 513 F.Supp. 1339, 1363 (Presley),

capitalization omitted.) The Ninth Circuit had held that singer Tom

Waits had a protective trademark in his voice. (Waits v. Frito-Lay,

Inc. (9th Cir. 1992) 978 F.2d 1093, 1107.) Rosa Parks, famous for

insisting on a change in the law, has recently been held by the Sixth

Circuit to have a protectable trademark interest in her name.

Whether or not she had done enough to warrant registration of her

name as a trademark, her commercial activity in authorizing

television programs and books about her life, and her "international

recognition as a symbol of the civil rights movement endow her with

a trademark interest in her name the same as if she were a famous

20

actor or musician." (Parks v. LaFace Records (6th Cir. 2003) 329

F.3d 437, 447.)

It was equally well-settled that such trademarks could pass to

the estate of a deceased celebrity, and that the estate could sue to

enforce them—as the Estate of Elvis Presley did in a lawsuit

brought by the very lawyer and law firm (Mark Lee of Manatt

Phelps) that are sued in the present action. (See Presley, supra, 513

F.Supp. at p. 1365.)

If Johnny Carson had a trademark in his name for his

entertainment work; if Rosa Parks has a trademark interest in her

name as a result of her recognition as "symbol of the civil rights

movement," could Princess Diana's international recognition for her

work with, and support for, causes like pediatric AIDS and

landmine eradication endow her with a trademark interest in her

name? Or are the celebrity trademark cases limited (as the

majority reasons) to people who have become celebrated as a result

of their careers as performers? At the time of suit, no case had

answered that question.

2. None of the celebrity trademark cases held, as the

majority below holds, that trademark protection required the

celebrity to show that when the public heard the name "Johnny

Carson" or "Elvis Presley" or "Rosa Parks," it had to think first and

foremost of the "services" these individuals provided, rather than

the individuals themselves. 2

2 It is difficult to see how this requirement makes any sense in the celebrity context; the value of a trademark like "Johnny Carson"

(continued...)

21

3. The majority also expressed skepticism that, when

Princess Diana sponsored or attended charitable events, she was

providing a "service." (Typed opn., 2-3.) It was well settled, at the

time of the underlying suit, that charities have protectable interests

in their marks. (See, e.g., Purcell v. Summers (4th Cir. 1944) 145

F.2d 979, 985 [trademark protection available even when a

charitable organization "has no goods to sell and does not make

money"]; accord, United We Stand Am. v. United We Stand, America

N.Y. (2d Cir. 1997) 128 F.3d 86.) Could Princess Diana obtain

trademark protection for using her name to promote charities, or

did she have to provide some more traditional "goods" or "services,"

as the majority seems to suggest? Prior to the majority opinion

below, no case answered this question.

4. The majority held "Diana, Princess of Wales" subject to

the judge-made requirement that names acquire "secondary

meaning" before trademark protection will apply, but ignored

arguments that there should be an exception for names so

distinctive. 3 As Judge Posner explained in Peaceable Planet, Inc. v.

(...continued) is not like "Betty Crocker." Celebrity trademarks have value because they refer to famous people.

3 Marks that are not inherently distinctive ("Apple" or "McDonalds") are protected only if they have acquired distinctiveness through use in the marketplace—such acquired distinctiveness being known as "secondary meaning." (Two Pesos, Inc. v. Taco Cabana, Inc. (1992) 505 U.S. 763, 769 [112 S.Ct. 2753, 120 L.Ed.2d 615], citing 15 U.S.C.A. § 1052(e), (f).) Secondary meaning is generally not required where the proposed mark is inherently distinctive—i.e., its "intrinsic nature serves to identify a

(continued...)

22

Ty, Inc. (7th Cir. 2004) 362 F.3d 986, 990, the "rule" that common

names must acquire "secondary meaning" to be protectable as

trademarks is merely a judge-made generalization, not a statutory

absolute. Peacable Planet held that this generalization must yield,

and a name should be afforded trademark protection, where "none

of the purposes that animate the 'personal name' rule is

present . . . ." (Ibid.)

Given the purposes of the rule articulated by Judge Posner-

to prevent monopolistic use of truly common names (like "John

Smith, Plumber")—could a reasonable attorney argue that the rule

should not apply to a name as famous and distinctive as "Diana,

Princess of Wales"? No case answered that question, and judges

have disagreed as to the tenability of the argument.

The majority recognized there were no cases answering these

questions: "there was no previous case quite like the underlying

case"; "there is no case law with the same facts that establishes that

the underlying claim was untenable." (Typed opn., 40.) The

majority gave its own answer to these legal questions, but provided

no explanation as to how or why Mark Lee, Paul LiCalsi, Judge

Paez, Judge Ettinger and Justice Mosk, who reviewed the claims

and found them tenable, are all beyond the pale of reason.

The majority adopts a similar approach to the false

advertising claim, disregarding the reasoned views of other lawyers

and judges.

(... continue d) particular source," such as "Coca Cola" or "The New York Yankees." (Id. at p. 768.)

23

Franklin Mint issued a press release stating unequivocally

that "absolutely all of the proceeds" from its tribute plate would "go

directly to The Diana, Princess of Wales Charities." (1RA47,

emphases added.) That statement turned out to be false. Of $10

million in proceeds, $2.5 million went to some charity; none went to

charities having any affiliation with, or support by, Princess Diana.

The Mint then ran ads announcing a "limited edition

commemorative tribute plate," with the unqualified bold caption:

"All proceeds to go to Diana, Princess of Wales' Charities."

(1RA54.) That statement was false for the same reason. Only a

quarter of the proceeds of the plate went to charity, and none of the

proceeds went to charities sponsored by or affiliated with Princess

Diana. The majority offered a contrary reading, based on language

at the bottom of the ad which stated "100% of Your Purchase Price

Will Be Donated to Diana, Princess of Wales Favorite Charities."

The majority interpreted the ad as promising purchasers to donate

to charity only "the entire purchase price paid as a result of that

[particular] advertisement"—a different interpretation than that

adopted by other judges to consider the issue. And even under the

majority's interpretation, a promise to donate some funds to

Princess Diana's Favorite Charities can be tenably argued as

requiring that the funds be donated to charities in some manner

affiliated with Princess Diana—not Franklin Mint's favorite

charities.

If a Court of Appeal may deem untenable questions that

occasion such reasonable disagreement among lawyers and among

presumptively reasonable judges, then no attorney arguing at the

24

cutting edge of the law is safe from potentially crippling liability

under the tort of malicious prosecution. The majority's radical

expansion of such liability warrants this Court' s review.

II. REVIEW SHOULD BE GRANTED TO RESOLVE A CONFLICT AMONG COURT OF APPEAL DECISIONS AS TO WHETHER THE DENIAL OF A MOTION TO DISMISS IN THE UNDERLYING CASE CONCLUSIVELY ESTABLISHES, IN A SUBSEQUENT MALICIOUS PROSECUTION ACTION, THE LEGAL TENABILITY OF A CLAIM.

A malicious prosecution plaintiff must establish that the

claims were either legally or factually untenable. (Arcaro v. Silva &

Silva Enterprises Corp. (1999) 77 Cal.App.4th 152, 156; see Sheldon

Appel, supra, 47 Ca1.3d at p. 884.)

When the federal district court denied Franklin Mint's motion

to dismiss in the underlying action, an unbiased, presumptively

reasonable federal judge found the federal claims legally tenable.

The state-court majority's holding, that the denial of the motion to

dismiss is "negate [d]" by a subsequent contrary ruling on summary

judgment by a different federal judge (typed opn., 42, fn. 19), not

only undermines the protection of the "any reasonable person"

standard, but also is in direct conflict with the Court of Appeal's

opinion in Swat-Fame, supra, 101 Cal.App.4th at p. 613.

In Swat-Fame, the trial court in the underlying action had

overruled a demurrer to the claim later challenged as lacking

probable cause. The Court of Appeal held that the ruling on

demurrer—the functional equivalent of denying a motion to dismiss

in a federal case—conclusively established the legal tenability of the

25

claim. In Swat-Fame, because it was established that the lawyers

had a tenable factual basis for their factual allegations in the

complaint, "and because the trial court overruled Swat-Fame's

demurrer to the fraud claim," the claims were held tenable both

factually and legally: the trial court's overruling of the demurrer in

the underlying case established that "the lawyers necessarily had

probable cause to bring the claim for fraud." (Swat-Fame, supra,

101 Cal.App.4th at p. 626, emphasis added.)

Other interim rulings in an underlying case have received

similar deference. A judge's interim ruling in favor of the claim has

been held to establish probable cause to bring the action, and

preclude the maintenance of a subsequent malicious prosecution

action, unless the prior ruling is shown to have been obtained by

fraud or perjury. (See Fleishman v. Superior Court (2002) 102

Cal.App.4th 350, 355-356 [issuance of preliminary injunction in

underlying action showed probable cause]; Roberts, supra, 76

Cal.App.4th at p. 384 [denial of defendant's summary judgment

motion in the underlying lawsuit, even though the defendant

ultimately prevailed, "normally establishes there was probable

cause to sue, thus barring a later malicious prosecution suit"];

Hutton v. Hafif (2007) 150 Cal.App.4th 527, 549-550 [same]; see also

Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1053 (Plumley)

[discussing situations in which an "interim victory" will establish

probable cause].)

It is appropriate to defer to the trial judge's ruling in the

underlying action permitting the claim to proceed. The judge is a

presumptively neutral arbiter, and his or her assessment of the

26

merits of a claim "likely will agree with some hypothetical

'reasonable lawyers." (Roberts, supra, 76 Cal.App .4th at p. 384,

emphasis added.) This rationale applies with equal force to Judge

Ettinger's findings that Manatt's claims were tenable.

The judge in the underlying matter will often have experience

and knowledge concerning the claims in question. Here, the view of

the federal district court that the federal Lanham Act claims were

tenable should not be easily cast aside by other courts. In a

malicious prosecution action filed in federal court, but arising out of

an underlying state court case, a federal judge would need to give

similar deference to a state court's overruling of a demurrer to the

state law claims.

As Justice Mosk pointed out in dissent, Swat-Fame's holding

should have been dispositive on whether Manatt's trademark

dilution claim was legally tenable. (Dis. opn., 19 ['the district

court's ruling established as a matter of law the legal tenability of

the trademark dilution claim"].) Likewise for the legal tenability of

the false advertising claim. In denying the motion to dismiss the

false advertising claim:

Judge Paez considered both the allegations in the body

of the complaint and the advertisements themselves,

which were attached to the complaint. . . . Accordingly,

the legal tenability of the false advertising was

established as a matter of law.

(Dis. opn., 28-29.) In short, Judge Paez, in denying the motion to

dismiss, rejected the majority's conclusion that the ads could not, as

a matter of law, be interpreted as false. The majority below simply

27

substituted its judgment of what is tenable for that of the federal

district court.

The majority reasoned that "any inference of probable cause

that might arise from the court's earlier denial of Franklin Mint's

motion to dismiss" was "negate[d]" by the fact that a different

judge's ruling on summary judgment later concluded the ads could

not be interpreted as false. (Typed opn., 42, fn. 19.) This holding is

in conflict with Swat-Fame. There, too, the malicious prosecution

defendant had won on demurrer in the underlying action and then

lost on summary judgment. (Swat-Fame, supra, 101 Cal.App.4th at

p. 621-622.)

No prior case supports the idea that a favorable ruling by a

judge on an interim ruling can be rendered irrelevant to the

probable cause determination simply because a different judge

reaches a contrary conclusion. (See Wilson, supra, 28 Ca1.4th at p.

818 [claims that have succeeded at hearing on merits, "even if that

result is subsequently reversed by the trial or appellate court, are

not so lacking in potential merit that a reasonable attorney or

litigant would necessarily have recognized their frivolousness"].)

Since the test is whether any reasonable attorney would believe the

claims tenable, the original decision of the trial court that the

claims are legally tenable means that there is probable cause,

absent evidence that the lawyer had no factual basis for the claim.

The majority reasons that Judge Paez's ruling on a motion to

dismiss is irrelevant, because he "was required to accept all

material allegations [in the Fund's complaint] as true." (Typed

opn., 41, fn. 19.) Once again, this is in conflict with the holding in

28

Swat-Fame—where the trial court had upheld the claims on

demurrer, necessarily accepting the factual conclusion in the

complaint as correct. As Justice Mosk noted in dissent, a decision

overruling a demurrer or denying a motion to dismiss establishes

the legal tenability of the claim as pled.

The majority's substitution of its own judgment of legal

untenability for the contrary judgment of Judge Paez directly

conflicts with Swat-Fame. This Court should grant review to

resolve that conflict.

III. REVIEW SHOULD BE GRANTED TO RESOLVE A CONFLICT AMONG COURT OF APPEAL DECISIONS AS TO WHETHER JUDICIAL FINDINGS IN THE UNDERLYING CASE MAY BE ADMITTED FOR THEIR TRUTH IN A SUBSEQUENT MALICIOUS PROSECUTION ACTION.

The decision of the Court of Appeal also deepens another split

requiring this Court's resolution. Citing Mattel, Inc. v. Luce,

Forward, Hamilton & Scripps (2002) 99 Cal.App.4th 1179, 1191

(Mattel), the majority held that, "even though the district court

rulings are not binding in this case, they nevertheless can be

considered as evidence relevant to the issue of probable cause."

(Typed opn., 21, emphases added.)

In contrast, Justice Mosk stated that "[t]he rulings in the

underlying case cannot be considered substantive evidence of lack of

probable cause." (Dis. opn., 23, emphasis added; see also dis. opn.,

at 23-27 [criticizing Mattel as "demonstrably incorrect and

29

inconsistent with other authorities" such as Sosinsky v. Grant

(1992) 6 Cal.App.4th 1548 (Sosinsky)].)

Both Mattel and Slaney involved an appeal from the denial of

an initial motion to dismiss malicious prosecution actions under the

anti-SLAPP statute, Code of Civil Procedure section 425.16. (See

Mattel, supra, 99 Cal.App.4th at p. 1183; Slaney v. Ranger Ins. Co.

(2004) 115 Cal.App.4th 306, 321.) Without discussion, both courts

held that it was permissible for the trial court, in ruling on the anti-

SLAPP motion, to take judicial notice of rulings in the underlying

action in determining whether there was probable cause for the

prior suit. (Mattel, at p. 1191 ["The findings made in connection

with the rule 11 [citation] sanctions, the appropriate subject of

judicial notice requested of the trial court [citation], are evidence

that the underlying action was filed without probable cause"];

Slaney at p. 321 [holding that judgments "in the underlying action .

. . support inferences of lack of probable cause and malice," so that

"[t]he trial court did not err in denying the SLAPP motion"].)

Another Court of Appeal similarly had held that a court in a

legal malpractice case could take judicial notice of the truth of facts

in an appellate opinion in the underlying action. (Weiner v.

Mitchell, Silberberg & Knupp (1980) 114 Cal.App .3d 39, 45-46.) The

court's rationale was that it knew "from our own personal

experience" that appellate opinions are "completely accurate

reflection[s] of the record." (Id. at p. 46.)

By contrast, the Court of Appeal in Sosinsky rejected this

approach, observing that "Thhe Weiner court's view ofjudicial notice

indicates an erroneous concept of judicial notice and is clearly

30

fallacious and indefensible." (Sosinsky, supra, 6 Cal.App.4th at p.

1566, quoting 2 Jefferson's Cal. Evidence Benchbook (2d ed.

1982) § 47.2, P. 1758). Other courts have been equally critical. (See

Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort

(2001) 91 Cal.App.4th 875, 885 (Lockley) [Weiner "appears to run

counter to the well-established principle that courts may not take

judicial notice of hearsay allegations"].)

Sosinsky—like Weiner and the present case—was a malicious

prosecution action. Sosinsky held that, in a malicious prosecution

action, "judicial notice could not properly be taken of the truth of the

factual findings of the trial judge" in a prior proceeding. (Sosinsky,

supra, 6 Cal.App.4th at p. 1563; accord, Arce v. Kaiser Foundation

Health Plan, Inc. (2010) 181 Cal.App.4th 471, 484; Plumley, supra,

164 Cal.App.4th at pp. 1050-1051; Laabs v. City of Victorville (2008)

163 Cal.App.4th 1242, 1266; Kilroy v. State of California (2004) 119

Cal.App.4th 140, 148; Lockley, supra, 91 Cal.App.4th at pp. 885-887;

Party City Corp. v. Superior Court (2008) 169 Cal.App.4th 497, 507;

Fowler v. Howell (1996) 42 Cal.App.4th 1746, 1749.)

Sosinsky refused to accept the underlying rulings as evidence

as to probable cause for three sound reasons:

First, a trial court's factual rulings are not "indisputably

true,' which is a prerequisite for judicial notice. (Sosinsky, supra, 6

Cal.App.4th at p. 1568 [taking judicial notice of truth of judge's

factual finding is "tantamount to taking judicial notice that the

judge's factual finding must necessarily have been correct and that

the judge is therefore infallible"].)

31

Second, taking judicial notice of the truth of the facts in the

underlying proceeding effectively gives those facts collateral

estoppel effect, even though the prerequisites for collateral estoppel

are not met. (See Sosinsky, supra, 6 Cal.App.4th at p. 1564 [if court

could take judicial notice of truth of facts in court opinion, "[t]he

effect would be that without resort to concepts of collateral estoppel

or res judicata . . . a finding of fact would be removed from dispute

in the other action in which it was judicially noticed"]; see also

Plumley, supra, 164 Cal.App.4th at pp. 1050-1051 [quoting

Sosinsky]; see, e.g., Dawson v. Toledano (2003) 109 Cal.App.4th 387,

398-399 [collateral estoppel generally does not bind parties'

lawyers] .) 4

Third, taking judicial notice of the truth of factual findings in

a prior proceeding contravenes the well-established principle that

courts may not take judicial notice of hearsay allegations: "[a]n

appellate court's description of the facts is merely the hearsay

assertions of the justices who delivered the opinion." (See Lockley,

supra, 91 Cal.App.4th at p. 885.)

This Court has never analyzed and addressed the conflict

between the Mattel and Sosinsky lines of cases, 5 and the lower

4 The majority ruled that Franklin Mint had waived any contention that Manatt was collaterally estopped by the district court's summary judgment "from relitigating probable cause" for the trademark dilution and false advertising claims. (Typed opn., 19- 21.)

5 A dissenting opinion of this court cited Sosinsky with approval (see Professional Engineers v. Department of Transportation (1997) 15 Ca1.4th 543, 590 [dis. opn. of Ardaiz, J., sitting by assignment]),

(continued...)

32

courts have continued to issue conflicting opinions. Resolving this

split of authority is especially important in the malicious

prosecution context, where application of Mattel reduces the

plaintiff s burden to prove lack of probable cause (Soukup v. Law

Offices of Herbert Hafif (2006) 39 Ca1.4th 260, 292 [plaintiff has

burden to show lack of probable cause]; Sheldon Appel, supra, 47

Ca1.3d at p. 874 [same]), and effectively shifts the burden of proof to

the defendant.

Relying solely on the opinions in the underlying action,

Franklin Mint presented no evidence as to any lack of probable

cause for belief in the factual allegations in the underlying case.

Franklin Mint offered no evidence as to how Princess Diana used

her name (whether in trademark fashion or otherwise) in

connection with her charitable work, nor any evidence as to how

well she was known or the extent to which Princess Diana was

known for charitable work. Nor did it offer evidence as how in fact

the Mint's ads were perceived (or misperceived) by the public.

Allowing a malicious prosecution plaintiff to prove lack of

probable cause simply by submitting the underlying rulings

effectively eliminates lack of probable cause as a distinct element of

the tort: The plaintiff simply offers the rulings below as sufficient

to show both the element of termination in the plaintiff s favor and

the element of lack of probable cause; the burden effectively shifts to

the defendant to prove a tenable basis for claims the underlying

(...continued) and in an earlier case, this court cited Weiner in a brief footnote (see Crowley v. Katleman (1994) 8 Ca1.4th 666, 672, fn. 2).

33

court rejected. Such an approach lowers the burden on plaintiff to

demonstrate a lack of probable cause, and encourages the filing of

malicious prosecution suits, with all the ills for the profession, for

clients, and for the law discussed above. Resolution of the Mattel-

Sosinsky conflict thus urgently warrants this Court's review.

CONCLUSION

For the foregoing reasons, this Court should grant this

petition for review.

June 14, 2010 QUINN EMANUEL URQUHART & SULLIVAN, LLP

KATHLEEN M. SULLIVAN

MUNGER TOLLES & OLSON LLP RONALD L. OLSON BRAD D. BRIAN MICHAEL R. DOYEN

HORVITZ & LEVY LLP DAVID M. AXELRAD JOHN A. TAYLOR, JR. FREDERIC D. COHEN CURT CUTTING

Attorneys for Defendant and Respondent MANATT, PHELPS & PHILLIPS, LLP

HILL FARRER & BURRILL KEVIN H. BROGAN

Attorneys for Defendant and Respondent MARK S. LEE

34

David M. elrad

CERTIFICATE OF WORD COUNT (Cal. Rules of Court, rule 8.504(d)(1).)

The text of this petition consists of 8,195 words as counted by

the Microsoft Word version 2007 word processing program used to

generate the petition.

Dated: June 14, 2010

35

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION FOUR

B190482

(Los Angeles County Super. Ct. No. BC285388)

COURT OF APPEAL - SECOND DIS-

TR, [DI MAY 0 3 Z010

Clerk

------------157Frr-AtY

FRANKLIN MINT COMPANY, et al.,

Plaintiffs and Appellants,

V.

MANATT, PHELPS & PHILLIPS, LLP, et al.,

Defendants and Respondents.

APPEAL from a judgment of the Superior Court for Los Angeles County,

Warren L. Ettinger, Judge. Reversed.

Loeb & Loeb, Andrew S. Clare, Lawrence B. Gutcho; Akin Gump Strauss

Hauer & Feld, William A. Norris, Edward P. Lazarus, L. Rachel Helyar, Michael

C. Small and Rex Heinke for Plaintiffs and Appellants.

Horvitz & Levy, David M. Axelrad, John A. Taylor, Jr., Frederic D. Cohen;

Munger, Tolles & Olson, Michael R. Doyen and Brad D. Brian for Defendant and

Respondent Manatt, Phelps & Phillips, LLP.

Hill Farrer & Burrill, Kevin H. Brogan, Neil D. Martin and Dean E. Dennis

for Defendant and Respondent Mark S. Lee.

The Franldin Mint Company and its principals, Stewart and Lynda Resnick,

(collectively, Franklin Mint) appeal from a judgment dismissing their malicious

prosecution action against the law firm Manatt Phelps & Phillips LLP and attorney

Mark S. Lee (collectively, Manatt). Manatt represented the executors of the estate

of Diana, Princess of Wales and the trustees of The Diana, Princess of Wales

Memorial Fund (collectively, the Fund) in a lawsuit filed against Franklin Mint

alleging claims related to Franklin Mint's use of Princess Diana's name and image

in connection with merchandise Franklin Mint advertised and sold. Franklin

Mint's malicious prosecution claim is based upon two of the claims that were

alleged in that underlying lawsuit, for false advertising and trademark dilution

under the Lanham Act (15 U.S.C. § 1125(a), (c)). After a 17-day jury trial, the

trial court granted Manatt's motion for nonsuit or directed verdict, finding that

Manatt had probable cause to prosecute those claims.' We reverse.

We conclude that, based on the record before us, no reasonable attorney

could find tenable the false advertising claim as it was alleged and litigated in the

underlying action. Therefore, we hold there was no probable cause to prosecute

that claim.

We also hold there was no probable cause to prosecute the trademark

dilution claim because no reasonable attorney could conclude that the claim could

satisfy two fundamental, long-standing principles of trademark law. First, to be

protectable as a trademark, 2 a word, phrase, name, or symbol must be used in

commerce to identify goods or services and their source. Although Manatt

Franklin Mint also sued the Fund for malicious prosecution of those claims; it settled with the Fund before trial. (See Franklin Mint Co. v. Superior Court (2005) 130 Cal.App.4th 1550.)

2 For simplicity, we use the term "trademark" to include a service mark.

2

contends that Princess Diana used her name in connection with her appearances at

charitable events, that use does not demonstrate trademark use. Second, a

trademark that is descriptive -- such as a personal name -- must acquire secondary

meaning to be protectable in a trademark dilution action. In other words, the

primary meaning of the mark (i.e., the descriptive meaning) must in the minds of

the public be subordinate to its meaning as the source of goods or services.

Because "Diana, Princess of Wales" has such an extraordinarily strong primary

meaning as descriptive of Princess Diana as a person, the contention that it had

acquired secondary meaning at the time of the underlying lawsuit was, as the

district court in the underlying lawsuit observed, "absurd." (Cairns v. Franklin

Mint Co. (C.D. Cal. 2000) 107 F.Supp.2d 1212, 1222 (Cairns II1).) Therefore, we

conclude that the trademark dilution claim was untenable.

Manatt argues, however, that we should not find that the claim lacked

probable cause, because the issues are complex and there is no directly controlling

authority. But the fundamental principles of trademark law -- a trademark must

identify a source of a product or service, and a descriptive mark such as a personal

name must acquire secondary meaning in the minds of the public -- were clear and

well-established, and their application to this case is straightforward and

uncomplicated. The complexity of the issues arises only from Manatt's attempts to

avoid those fundamental principles. Accordingly, we reverse the judgment and

remand for trial on malice and damages issues.

BACKGROUND

The parties' briefs on appeal contain extensive discussion of the factual

background of this case, including many facts relevant only to the issue of malice.

Because the only issue in this appeal is whether there was probable cause for the

3

trademark dilution and false advertising claims, our discussion of the facts will be

limited to those facts relevant to that issue.

A. Events Leading Up To The Underlying Lawsuit

From the time of her engagement to Charles, Prince of Wales, in 1981, until

her untimely death on August 31, 1997, Diana, Princess of Wales (Princess Diana)

"was one of the most beloved, most photographed and most talked about

celebrities" of the latter part of the twentieth century. (Cairns v. Franklin Mint Co.

(C.D. Cal. 1988) 24 F.Supp.2d 1013, 1021 (Cairns 1).) During her lifetime,

Franklin Mint, a direct mail marketer of collectible memorabilia, sold over $9

million of products related to Princess Diana.

Immediately after her death, Franklin Mint decided to design a line of

products featuring Princess Diana, including one product from which all proceeds

would be donated to charity in her honor. On September 5, 1997, the vice

president and general counsel of Franklin Mint, Howard Lucker, wrote to the

trustees of The Diana, Princess of Wales Memorial Fund, which was a charitable

trust established on September 4, 1997, at the direction of the executors of Princess

Diana's estate, to receive contributions made in her memory. Lucker informed the

trustees that Franklin Mint wanted to create and market a collectible porcelain

plate in tribute to Princess Diana, from which all net proceeds would be donated to

her favorite charities, and proposed that the Fund distribute those proceeds.

Lucker stated that, if Franklin Mint and the Fund were able to come to an

agreement quickly, Franklin Mint could advertise that it was officially authorized

by the Fund and that all profits would be donated to the Fund.

The Fund did not immediately respond. Franklin Mint then decided that it

would donate all proceeds from the tribute plate to charity. On September 9, 1997,

Franklin Mint issued a press release stating that it was developing a tribute plate at

4

its own expense and that all of the proceeds from the sale of the plate "will go

directly to The Diana, Princess of Wales Charities." Five days later, it ran print

advertisements for the tribute plate that featured a picture of the plate and stated,

"All proceeds to go to Diana, Princess of Wales' Charities" and "100% of your

purchase price will be donated to Diana, Princess of Wales' favorite charities."

The Fund eventually declined Franklin Mint's proposal on October 31, 1997.

Because Franklin Mint wanted to "associate" its Princess Diana collectibles

with donations to charities that supported causes that were important to her, and

the Fund was not responsive to its proposal, Franklin Mint entered into an

agreement with the Great Ormond Street Children's Hospital (a charity in England

with which Princess Diana had been involved). Under that agreement, the charity

allowed Franklin Mint to use its name in advertising Princess Diana collectibles in

exchange for a promise by Franklin Mint to donate a minimum of £250,000 to the

charity from sales of the tribute plate. Franklin Mint ultimately paid over $1.5

million to Great Ormond Street Children's Hospital from sales of the tribute plate

outside the United States.

At some point, Franklin Mint stopped running advertisements for the tribute

plate that included the "all proceeds" language, although it continued to advertise

the tribute plate. Those later advertisements, as well as additional advertisements

for other Princess Diana collectibles, instead included a statement that Franklin

Mint had pledged a minimum of $1.5 million worldwide to charity in tribute to

Princess Diana. Franklin Mint included a "response code" on all of its

advertisements so it could track which purchases came from each advertisement.

When a customer sent in the coupon at the bottom of the advertisement to purchase

an item, the response code was printed on the coupon, and if the customer called

Franklin Mint to order an item, the customer service representative asked for the

response code; Franklin Mint sorted all purchases by response code. Using the

5

response code, Franklin Mint was able to determine that the "all proceeds" tribute

plate advertisement generated approximately $2.5 million in sales, and the tribute

plate advertisement without the "all proceeds" language generated approximately

$3.5 million in sales in the United States, and $3.5 million to $4 million in sales

outside the United States ($1.5 million of which was paid to Great Ormond Street

Children's Hospital). Franklin Mint eventually interpleaded with the district court

in the underlying lawsuit $2,527,107 from sales attributable to the "all proceeds"

advertisement, to be distributed to charity upon resolution of the lawsuit.

B. The Underlying Lawsuit

1. Princess Diana's estate and the Fund retain US. attorneys

By the middle of September 1997, Princess Diana's estate had retained an

attorney in New York who specialized in intellectual property litigation, Paul

LiCalsi, to advise it about intellectual property issues in the United States. The

estate was aware of the advertisement for the tribute plate, which had run in the

New York Times on September 16, 1997. It also was aware that, a few weeks

before Princess Diana's death and in the weeks after, Franklin Mint had applied to

the United States Patent and Trademark Office to register various trademarks

related to its Princess Diana products, all of which used some form of Princess

Diana's name or nicknames (such as "The People's Princess"). 3 On September 19,

1997, LiCalsi advised the estate that a "cease and desist" letter should be sent to

Franklin Mint, and a few days later he sent to the attorneys in England who

3 Those applications were denied by the Patent and Trademark Office in December 1997 and January 1998. The examiner noted that the wording of the proposed trademarks were "commonly used designation[s] for the late Diana, Princess of Wales," and that the marks therefore refer to "a well-known individual," namely Princess Diana, and that a connection with her would be presumed by the public.

6

represented the estate a draft of a proposed letter to Franklin Mint. That draft letter

stated that Franklin Mint's use of Princess Diana's name and likeness in its

advertisements "not only violate many states' laws of publicity, but also violate

federal trademark law in that they are so orchestrated as to mislead the public that

they were sponsored or approved by Princess Diana or her personal

representatives." He did not send the letter because he was told that counsel for

the Fund would take over that function.

The Fund had hired separate counsel in New York to represent its interests.

On September 25, 1997, that attorney, Randy Lipsitz, sent a letter to counsel for

Franklin Mint, stating that the Fund "owns the worldwide trademark rights

concerning Princess Diana including, but not limited to the Diana, Princess of

Wales and Diana, Princess of Wales Memorial Fund names and trademarks." The

Fund then asked Lipsitz to consider whether litigation should be instituted against

Franklin Mint. Lipsitz wrote to the Fund's English attorneys on October 14, 1997,

recommending that litigation be commenced in California, with the estate as co-

plaintiff, asserting causes of action under Lanham Act section 43(a) for false

designation of origin (15 U.S.C. § 1125(a)(1)(A)) and under section 43(c) for

trademark dilution (15 U.S.C. § 1125(c)). He provided no legal analysis in the

letter.

Institution of litigation was delayed, however, due to complications that

arose regarding the transfer of Princess Diana's name and likeness rights from her

estate to the Fund. Eventually, the estate granted exclusive licenses to the name

and likeness rights in Princess Diana to the Fund. Those licenses were not

approved by the Charities Commission in England and Wales until February 27,

1998.

7

2. The Fund hires Manatt to file a lawsuit against Franklin Mint

In the meantime, on October 9, 1997, defendant Lee wrote to English

counsel for Princess Diana's estate. He introduced himself, and said that his office

was representing Tiger Woods in litigation against Franklin Mint. He noted that

during the course of that litigation, he discovered that Franldin Mint was planning

to exploit Princess Diana's name and likeness. He said that Franklin Mint had

applied for a trademark in the phrase "Diana, A Princess Forever" shortly before

her death, and that it recently began advertising a "Commemorative Plate"

featuring Princess Diana's name and image. He commented that "[t]he

advertisement states that all proceeds from the sale will go to 'Diana, Princess of

Wales' charities,' but based on our experience in the [Tiger Woods] litigation we

are not confident this will actually occur." He explained that "there are several

avenues available to Princess Diana's estate under U.S. laws" to prevent

unauthorized commercial exploitation of her name and image, and mentioned that

"legal theories of unfair competition and what is known as the 'right of publicity'

provides significant remedies through litigation." He closed by inviting counsel to

contact him if he could be of further assistance to the estate.

English counsel for the Fund contacted Lee sometime in early to mid-March

1998, and retained him in late March 1998 (sometime around March 27, 1998) to

conduct the litigation against Franklin Mint. Lee spoke by telephone with LiCalsi,

the New York attorney representing Princess Diana's estate, a few times in late

March, and faxed him a draft of the complaint on March 31. After receiving the

draft complaint, LiCalsi spoke to Lee about certain issues, including the trademark

dilution claim. LiCalsi asked Lee "about the issue of establishing secondary

meaning for Princess Diana under trademark law," and specifically, "whether the

fact that she had not been in commerce prior to her death, would that affect the

secondary meaning issue." According to LiCalsi, Lee "indicated that there was

8

substantial case law which supported using Princess Diana's very well-known

charitable activities as a basis for establishing secondary meaning." LiCalsi relied

upon Lee's statement as being accurate. He returned Lee's draft complaint to Lee

with a few minor suggested changes.

3. The Complaint

On May 18, 1998, Manatt, representing the Fund and the executors of

Princess Diana's estate, filed the complaint in federal district court. The complaint

alleged five causes of action against Franklin Mint, Roll International Corporation,

Inc., and Stewart and Lynda Resnick: 4 (1) false designation of origin under the

Lanham Act (15 U.S.C. § 1125(a)); (2) trademark dilution under the Lanham Act

(15 U.S.C. § 1125(c)); (3) infringement of the California statutory right of

publicity (former Civ. Code, § 990, repealed and replaced by Civ. Code, § 3344.1);

(4) false advertising under the Lanham Act (15 U.S.C. § 1125(a)); and (5) unfair

competition and false and misleading advertising under Business and Professions

Code sections 17200 and 17500.

The complaint alleged that Princess Diana "was one of the best known and

most widely admired public figures of the last half of the 20th century" and "for 16

years was the object of intensive public interest and media scrutiny." It went on to

allege that lals a member of the British Royal family and a tireless worker for

charitable causes, Princess Diana's name, likeness and image have become

uniquely identifiable throughout the United States and the world, have achieved

extraordinary fame, are identified in the minds of the public as the source of the

charitable activities which Princess Diana performed, and possess a valuable

4 Roll International Corporation is a holding company that owns a number of operating companies, including Franklin Mint; the Resnicks own Roll International.

9

goodwill." The complaint alleged that after Princess Diana's death, "[h]er assets,

including the rights to her name, likeness, image and marks, passed by will to the

Estate," which granted exclusive licenses to Princess Diana's name and likenesses

and the trademarks "Diana, Princess of Wales" and "Diana, Princess of Wales

Memorial Fund" to the Fund. It asserted that, both before and immediately after

her death, Franklin Mint filed applications for trademarks for Princess Diana's

name, image, and phrases identified in the public's mind with Princess Diana, and

used Princess Diana's name and image on products and in advertising. Finally, the

complaint alleged that, by using Princess Diana's name and likeness on products

and in advertising, Franklin Mint was falsely and misleadingly implying an

endorsement, association, or affiliation with Princess Diana, her estate, and the

Fund.

The false designation of origin (also known as false endorsement) cause of

action simply incorporated all of the previous allegations and requested injunctive

and monetary relief, destruction of infringing articles, treble damages, and cost and

attorney fees.

The trademark dilution claim alleged that the Fund's "mark" was inherently

distinctive and had acquired distinction "from its past use for charitable activities"

such that Princess Diana's name and image had come to mean and be recognized

as distinctive marks that identify the source of the charitable activities of Princess

Diana. It alleged that "[the] marks including 'Diana Princess of Wales' and 'Diana

Princess of Wales Memorial Fund' are famous and distinctive within the meaning

of [the Lanham Act]" and that Franklin Mint's unauthorized use of those marks

had caused and would continue to cause dilution of the Fund's marks.

The right of publicity claim alleged that Franklin Mint had willfully

misappropriated the Fund's rights under former Civil Code section 990 (now Civ.

Code, § 3344.1), causing the Fund irreparable harm.

10

The false advertising claim alleged that Franldin Mint had carried out "a

large scale program of deceptive advertising" in which it made misleading and

deceptive representations about the use of the proceeds from the sale of its

products. It alleged that "[a]mong the false and misleading representations made

by Defendants are, inter alia, that '100% of the . . . price [of Defendants' dolls and

plates] will be donated to Diana, Princess of Wales' charities' and that 'all

proceeds to go to Diana, Princess of Wales' Charities.' (Ellipses and additions in

original.) The claim asserted that those representations were false "in that

Defendants have never donated a penny to the Fund," and that the Fund had been

and would continue to be damaged by the false advertisements in that the

advertisements attempt to benefit from the goodwill associated with Princess

Diana's identity. The claim also included the following allegation: "As a result of

Defendants' representations, members of the public are induced to purchase

Defendants' dolls and plates in the mistaken belief that Defendants' products are

endorsed by and/or associated or affiliated with Princess Diana, her Estate, and/or

the Fund."

• The state law unfair competition and false and misleading advertising claim

basically repeated the previous claim's allegations regarding the false and

misleading advertisements and sought injunctive relief.

4. The right of publicity claim is dismissed and the remaining claims are disposed of on summary judgment

Franklin Mint moved to dismiss each of the claims, and moved to strike

certain inflammatory language referring to Franklin Mint and the other defendants

as "vultures feeding on the dead"; the Fund moved for a preliminary injunction

with respect to the false endorsement, false advertising, and trademark dilution

claims. The district court granted Franklin Mint's motion to dismiss with respect

1 1

to the right of publicity claim, on the ground that the law of Great Britain (which

does not recognize a right of publicity) applied, and granted the motion to strike

the inflammatory language. 5 (Cairns I, supra, 24 F.Supp.2d at pp. 1022-1023.)

The court denied the motion to dismiss the remaining claims and denied the motion

for a preliminary injunction. (Ibid)

With regard to the trademark dilution claim, the district court noted that a

party alleging trademark dilution with respect to a personal name asserted as a

mark must allege that the mark has acquired secondary meaning. The court

observed that the Fund had made such an allegation, by alleging that Princess

Diana's name and image had come to mean and be recognized as distinctive marks

that identify the source of the charitable activities of Princess Diana. (Id. at pp.

1034-1035.) Although the court indicated that "Diana, Princess of Wales has such

a clear primary meaning as a description of the person herself that it seems

unlikely that any secondary meaning could be acquired in her name, at least in the

context of fimdraising for charitable services similar to those she was allegedly

famous for endorsing," the court concluded that it was required to take the

allegations as true on a motion to dismiss and therefore denied the motion as to the

trademark dilution claim. (Id. at p. 1036.) The court also denied the Fund's

motion for a preliminary injunction with respect to that claim, finding that the

Fund did not show it had a fair chance of succeeding on the merits of the claim

because the evidence presented did not suggest it could establish that Princess

Diana's name or likeness had acquired secondary meaning. (Id. at p. 1044.)

With regard to the false advertising claim, the district court denied Franklin

Mint's motion to dismiss because it found that the Fund had adequately alleged

5 The Fund sought to reinstate the right of publicity claim after the statute was amended. The district court denied the Fund's motion. (Cairns v. Franklin Mint Co. (C.D. Cal. 2000) 120 F.Supp.2d 880 (Cairns I1).)

12

that Franklin Mint's advertisements falsely implied that it would donate proceeds

to the Fund and/or that Princess Diana and the Fund endorsed Franldin Mint's

products or advertisements. (Cairns I, supra, 24 F.Supp.2d at p. 1036.) But the

court denied the Fund's motion for preliminary injunction on that claim because it

found that the Fund did not provide sufficient evidence to support a finding that it

had a fair chance of demonstrating the likelihood of confusion necessary to prove

false endorsement, and because "neither the Court's reading of the advertisements

nor the record before the Court supports [the Fund's] position" that the

advertisements falsely imply that proceeds would be donated to the Fund. (Id. at p.

1043.)

The Fund appealed the dismissal of the right of publicity claim and the

denial of the motion for preliminary injunction. The Ninth Circuit affirmed the

district court. (The Diana Princess of Wales Memorial Fund v. Franklin Mint (9th

Cir. Feb. 24, 2000, Nos. 98-56722, 99-55157) 1999 WL 1278044.) With respect to

the trademark dilution claim, the circuit court stated: "The name 'Diana, Princess

of Wales' has not acquired a secondary meaning such that it is synonymous in the

public mind with charitable activities. [Citation.] While Princess Diana received a

great deal of media attention for her charitable acts, she received equal if not

greater attention for her status as a member of England's royal family, her divorce

from Prince Charles, and her tragic death. Thus, the district court's finding that the

Estate/Fund had failed to show a fair chance of success on their trademark dilution

claim was not an abuse of discretion." (Id. p. 4.) With respect to the false

advertising claim, the circuit court noted that the Fund did not challenge the district

court's holding regarding whether Franldin Mint's advertisements falsely implied

that proceeds would be donated to the Fund. (Id at p. 4, fn. 5.)

13

Franklin Mint subsequently moved for summary judgment, which the

district court granted. 6 With regard to the trademark dilution claim, the court noted

that the Fund was required to demonstrate that Diana, Princess of Wales had

acquired secondary meaning as to charitable and humanitarian services. It

observed, "[i]n this case, secondary meaning would occur when, 'in the minds of

the public, the primary significance of a [mark]' identifies charitable and

humanitarian services rather than Princess Diana the individual." (Cairns III,

supra, 107 F.Supp.2d at p. 1222.) It continued: "Although Princess Diana is

certainly well-recognized for her humanitarian work and fund-raising, she is

undisputably also well-recognized for her status as a member of the royal family,

her role as a mother, and her image as a fashionable princess. A finding of

secondary meaning in this case would mean that the words 'Diana, Princess of

Wales' would no longer primarily identify the individual, Princess Diana, but

instead identify [the Fund's] charitable activities. This is an absurd contention to

say the least. 'Diana, Princess of Wales' has not, and the Court suspects, will

never, acquire a secondary meaning limited to charitable works. [Citation.] [T]

Because secondary meaning is required for an otherwise descriptive name to be

'famous,' and famousness is required for protection under 15 U.S.C. § 1125(c)(1),

[Franklin Mint is] entitled to summary adjudication of [the Fund's] claim for

dilution." (Id. at p. 1222.)

In granting summary adjudication of the false advertising claim, the district

court observed that the claim as alleged in the complaint -- and as argued in

opposition to Franklin Mint's motion for summary judgment -- was based upon the

6 Judge Richard A. Paez, who ruled on the motion to dismiss and motion for preliminary injunction, was appointed to the Ninth Circuit a few months before the motion for summary judgment was heard, and Judge Florence-Marie Cooper was assigned to the matter.

14

assertion that advertisements saying that "all proceeds" or "100% of the proceeds"

from sales of Franklin Mint products would go to charity were false because

Franklin Mint "retained 'many times more from [its] sales of Princess Diana

merchandise than they have "pledged" to. charity.' (Cairns III, supra, 107

F.Supp.2d at p. 1223, quoting the Fund's opposition to Franklin Mint's motion for

summary judgment.) The court also noted that only one of the advertisements

before the court included the "all proceeds" or "100% of the proceeds" language --

the advertisement for the tribute plate -- and that uncontroverted evidence

demonstrated that Franklin Mint contributed $1,538,640 to the Great Ormond

Street Children's Hospital and had interpleaded another $2,527,107 with the court

to be given to charity upon resolution of the lawsuit. In light of evidence that the

amount of money given to charity reflected the amount of cash Franklin Mint

collected from sales associated with that advertisement, the court concluded that

undisputed evidence established that the "all proceeds" advertisement (which was

the only advertisement the Fund pointed to) was literally true. (Ibid)

5. Franklin Mint is awarded attorney fees under the Lanham Act

Franklin Mint moved for attorney fees under the Lanham Act.' In ruling on

the motion, the district court noted that the Lanham Act permits an award of

attorney fees to a prevailing party only "in exceptional circumstances,' which

"can be found when the non-prevailing party's case "is groundless, unreasonable,

vexatious, or pursued in bad faith." (Cairns v. Franklin Mint Co. (C.D. Cal.

2000) 115 F.Supp.2d 1185, 1187 (Cairns IV)) The court examined the three

7 Franklin Mint also moved for, and was awarded, attorney fees under Civil Code section 3344.1, subdivision (a)(1), as the prevailing party on the right of publicity claim.

15

Lanham Act claims that the Fund alleged -- false endorsement, trademark dilution,

and false advertising -- in light of this standard.

Addressing the false endorsement claim, the court observed that, "[all -though

it is clear that this case was well outside the bounds of any previous decision, [the

Fund's false endorsement] claim could be considered an attempt to extend existing

law," and therefore did not "rise to the level of 'groundless, unreasonable,

vexatious or bad faith.' (Cairns IV, supra, 115 F.Supp.2d at p. 1188.) The court

continued: "In contrast, [the Fund's] claims for dilution and false advertising were

groundless and unreasonable. Unlike the endorsement claim which could be

considered argument for an extension of existing law, the dilution claim had no

legal basis." (Ibid.) The court noted that the dilution claim "was based on the

'absurd' contention that 'Diana, Princess of Wales' had taken on a meaning other

than identification of an individual," and remarked that arguing that that name had

acquired secondary meaning "falls just short of frivolous." (Id. at p. 1189.) The

court also noted that the false advertising claim was groundless because the

statements at issue were true, and the Fund presented no evidence to cast doubt on

their veracity. The court concluded that the claim also was =reasonable because

the Fund "should have either not brought the claim in the first instance, or

voluntarily dismissed it when it was clear that there was no evidence to support it."

(Ibid.)

Having found that the trademark dilution and false advertising claims were

groundless and unreasonable, the district court awarded Franklin Mint $1,635,000

for defending those two claims.

16

6. The judgment becomes final and Franklin Mint disperses the funds that had been interpleaded

The Fund appealed from the denial of its motion to reinstate the right of

publicity claim, the summary adjudication of the false endorsement claim, and the

award of attorney fees. (Cairns v. Franklin Mint Co. (9th Cir. 2002) 292 F.3d

1139, 1144 (Cairns V).) The Ninth Circuit affirmed all three orders in June 2002.

(Id. at p. 1159.)

At some point after the litigation was over, the $2.5 million that had been

interpleaded with the district court was returned to Franklin Mint. Franklin Mint

then distributed the money to several charities in the United States that Franklin

Mint determined supported causes that Princess Diana had supported. Only one of

those charities, however, had a direct connection with Princess Diana -- the Breast

Cancer Research Foundation, to which Princess Diana had donated a dress for a

fund raiser. Most of the remaining charities focused on medical issues or

education and arts programs for underprivileged children or adults.

The Present Lawsuit

On November 15, 2002, Franklin Mint filed the instant lawsuit against

Manatt and the Fund, alleging a single cause of action for malicious prosecution of

the trademark dilution and false advertising claims. Manatt moved for summary

judgment on the ground that there was probable cause for both claims. The trial

court (Hon. John P. Shook, presiding) denied the motion, declaring that neither

claim was tenable.

With respect to the trademark dilution claim, the court found (1) that Manatt

had "failed to produce any evidence that Princess Diana's name is inherently

distinctive as opposed to descriptive of the person Princess Diana"; (2) that "Nile

name Diana, Princess of Wales has not acquired a secondary meaning attributable

17

to her charitable activities"; and (3) that the items Manatt submitted to show

"Princess Diana's name being used in conjunction with certain charity events . . .

do not mention any services she provided." With respect to the false advertising

claim, the court found that Manatt "provided no evidence [Franklin Mint] had

misled a substantial segment of its advertising audience regarding [Franklin

Mint's] donation of proceeds to charity. The evidence presented [in the underlying

lawsuit], of which [Manatt was] aware, was that [Franklin Mint] had donated a

portion of the more than $4 million in sales to one of Princess Diana's favorite

charities and had interpled the balance into district court. The evidence was

uncontroverted then and remains so, even in this lawsuit."

The case went to trial before a different judge (Hon. Warren L. Ettinger).

Both parties filed pretrial briefs on the issue of probable cause, in which Franklin

Mint argued that the issue could be decided by the court based upon undisputed

facts, while Manatt argued that there were factual issues that needed to be decided

by the jury before the court could rule on probable cause. The case proceeded to

jury trial, without a prior determination regarding probable cause. After Franklin

Mint rested, Manatt filed a motion for nonsuit based on probable cause. The trial

court did not rule on the motion at that time, and the jury trial continued. Shortly

before the close of evidence, the court stated that it would allow Manatt to orally

supplement the motion in order to consider it as a motion for a directed verdict.

The parties argued the issue of probable cause following the close of

evidence. After extensive argument, the trial court stated its ruling: "[I]t seems to

me that it is overwhelmingly clear that Mr. Lee had probable cause to bring his

action and indeed confronted by a client seeking a remedy . . . and having

consulted with other lawyers to determine whether or not that client's cause had

merit, had he failed to file a cause of action, one would have had a serious question

of whether or not he committed malpractice."

18

Based on its finding that there was probable cause to prosecute the

underlying lawsuit, the court entered judgment in favor of Manatt. Franklin Mint

timely filed a notice of appeal from the judgment.

DISCUSSION

Franklin Mint contends the trial court improperly ruled that Manatt had

probable cause to prosecute the trademark dilution and false advertising claims

because (1) Manatt is bound by the district court rulings in the underlying case that

those claims were "groundless and unreasonable"; (2) the Fund did not own a

protectable trademark in Princess Diana's name or image; and (3) the Fund did not

have standing to bring a false advertising claim and lacked evidence to show that

the advertisements at issue were false.

A. Effect of District Court Rulings

As noted above, the district court in the underlying case awarded Franklin

Mint its attorney fees under the Lanham Act (15 U.S.C. § 1117(a)), finding that the

trademark dilution claim "had no legal basis" and that there was no reasonable

basis to believe that the advertising at issue was false, and therefore both claims

were "groundless and unreasonable." (Cairns IV, supra, 115 F.Supp.2d at pp.

1188-1189.) Franklin Mint argues that the district court's ruling establishes that

there was no probable cause to prosecute those claims and that, under the

principles of collateral estoppel, Manatt is barred from relitigating probable cause.

Manatt contends that Franklin Mint failed to preserve the collateral estoppel issue

on appeal because it failed to present evidence in the trial court to support its

argument, failed to obtain a ruling on the issue, and expressly waived the issue

during the hearing on probable cause in the trial court. Manatt is correct.

19

"[C]ollateral estoppel must be proved [in the trial court] or it is waived."

(Jordan v. Consolidated Mut. Ins. Co. (1976) 59 Cal.App.3d 26, 45.) Although

Franklin Mint made references to the collateral estoppel effect of the district court

rulings, it did not identify the elements of collateral estoppel, let alone attempt to

apply the facts of the case to those elements. 8 Indeed, Franklin Mint never

attempted in the trial court to submit evidence from the underlying proceedings to

prove that the same issues were tried and determined in that action. 9 (See Haun v.

Hyman (1963) 223 CaLApp.2d 615, 619 ["a party relying upon the doctrine of

collateral estoppel has the burden of proving that a particular issue was actually

tried and determined in the prior action"].) In any event, Franklin Mint waived the

issue during the hearing on the probable cause issue, by failing to argue that the

district court decisions were binding on Manatt under collateral estoppel and

8 Those references consisted of: (1) simply stating in its opposition to Manatt's motion for summary judgment and in its opposition to Manatt's motion in limine to exclude the opinions that the rulings "are res judicata" and citing generally to Witkin; (2) stating in its opposition to Manatt's pretrial brief on probable cause that "the Mint continues to respectfully suggest that these findings are law of the case via collateral estoppel. The doctrine of collateral estoppel 'operates as an estoppel or conclusive adjudication as to such issues as were actually litigated and determined in the first action' (citing Todhunter v. Smith (1934) 219 Cal. 690, 695); and (3) stating in its opposition to Manatt's motion for nonsuit that "these findings are binding on Manatt under the doctrine of collateral estoppel" (again citing Todhunter), acknowledging that Manatt had argued that it was not bound because its interests were not represented in the underlying lawsuit, and arguing that Manatt's subsequent admission that it was the representative of the plaintiffs in the underlying lawsuit establishes that Manatt is bound by the district court rulings.

9 Franklin Mint did submit in this court those materials from the underlying lawsuit, and requested that we take judicial notice of them for the purpose of determining whether Manatt is collaterally estopped. We decline to do so, because they were not before the trial court. (See Vons Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Ca1.4th 434, 444, fn. 3 [absent exceptional circumstances, appellate court will not judicially notice matters that were not presented to the trial court].)

20

instead stating that the district court "decisions are not binding on a state court."

We note, however, that even though the district court rulings are not binding in this

case, they nevertheless can be considered as evidence relevant to the issue of

probable cause. (Mattel, Inc. v. Luce, Forward, Hamilton & Scripps (2002) 99

Cal.App.4th 1179, 1191.)

B. Probable Cause in a Malicious Prosecution Case

To establish a cause of action for malicious prosecution, a plaintiff must

prove that the underlying action was (1) terminated in the plaintiff's favor, (2)

prosecuted without probable cause, and (3) initiated with malice. (Zamos v. Stroud

(2004) 32 Ca1.4th 958, 966, 973.) A claim for malicious prosecution need not be

addressed to an entire lawsuit; it may, as in this case, be based upon only some of

the causes of action alleged in the underlying lawsuit. (Bertero v. National

General Corp. (1974) 13 Ca1.3d 43, 57 ["We see no reason for permitting plaintiffs

. . . to pursue shotgun tactics by proceeding on counts and theories which they

know or should know to be groundless"]; see also Crowley v. Katleman (1994) 8

Ca1.4th 666 [reaffirming Bertero].) In this appeal, we are concerned only with the

second element, i.e., whether there was probable cause to prosecute the claims for

trademark dilution and false advertising.

The existence or absence of probable cause is a question of law to be

determined by the court from the facts established in the case. (Sheldon Appel Co.

v. Albert & Oliker (1989) 47 Ca1.3d 863, 875 (Sheldon Appel).) "The question

whether, on a given set of facts, there was probable cause to institute an action

requires a sensitive evaluation of legal principles and precedents." (Ibid.) This is

because "[cjounsel and their clients have a right to present issues that are arguably

correct, even if it is extremely unlikely that they will win." (Id. at p. 885.) Thus,

the court "must properly take into account the evolutionary potential of legal

21

principles" and determine, in light of the facts known to counsel, "whether any

reasonable attorney would have thought the claim tenable." (Id. at p. 886; see also

Leonardini v. Shell Oil Co. (1989) 216 Cal.App.3d 547, 568 ["A litigant will lack

probable cause for his action if he relies upon facts which he has no reasonable

cause to believe to be true, or seeks recovery upon a legal theory which is

untenable under the facts known to him"].) This is an objective standard, and does

not take into account the subjective mental state of the defendant; if the underlying

claims were objectively tenable, the malicious prosecution claim fails, regardless

of any evidence of malice on the part of the defendant. (Sheldon Appel, supra, 47

Ca1.3d at p. 878.)

With this objective standard in mind, we examine the trademark dilution and

false advertising claims in light of relevant legal principles and precedents and the

relevant facts.

C. There Was No Probable Cause to Prosecute the Trademark Dilution Claim

The trademark dilution claim at issue here was alleged under the Federal

Trademark Dilution Act, which provided in relevant part: "The owner of a famous

mark shall be entitled . . . to an injunction against another person's commercial use

in commerce of a mark or trade name, if such use begins after the mark has

become famous and causes dilution of the distinctive quality of the mark." (15

U.S.C. § 1125(c)(1), Pub.L. 104-98, § 3(a), 109 Stat. 985.) To prove a dilution

claim a plaintiff must show that he or she owns a mark, and that "(1) the mark is

farnous; (2) the defendant is making a commercial use of the mark in commerce;

(3) the defendant's use began after the mark became famous; and (4) the

defendant's use of the mark dilutes the quality of the mark by diminishing the

capacity of the mark to identify and distinguish goods and services." (Panavision

Intern., L.P. v. Toeppen (9th Cir. 1998) 141 F.3d 1316, 1324.)

22

Franklin Mint contends that Manatt lacked probable cause to prosecute a

trademark dilution claim against it because the Fund had no plausible claim that

Princess Diana used her name or image as a trademark (which passed to the Fund

after her death), 1° but even if Princess Diana did use her name and image as a

trademark, no reasonable attorney would argue that "Diana, Princess of Wales" or

Princess Diana's likeness had acquired the secondary meaning necessary to qualify

for protection under the Federal Trademark Dilution Act. We agree.

1. There is no legally tenable argument that Princess Diana used "Diana, Princess of Wales" as a trademark

The Lanham Act defines a trademark or service mark as a "word, name,

symbol, or device, or any combination thereof' that is used by a person "to identify

arid distinguish" that person's goods or services from the goods or services of

others and to indicate the source of the goods or services. (15 U.S.C. § 1127.)

"Implicit in this statutory definition is a requirement that there be a direct

association between the mark . . . and the services specified in the application, i.e.,

that it be used in such a manner that it would be readily perceived as identifying

such services." (In re Moody's Investor Service, Inc. (T.T.A.B. 1989) 13

U.S.P.Q.2d 2043, 2047; accord Self-Realization Fellowship Church v. Ananda (9th

Cir. 1995) 59 F.3d 902, 906-907.)

10 In the underlying lawsuit, the Fund alleged that Princess Diana owned a trademark in her name and likeness during her lifetime, and the trademark was passed to her estate (which licensed it to the Fund) after she died. Therefore, our analysis is limited to that alleged trademark. It may well be that the Fund has, in the 12 years since the underlying lawsuit was filed (or 10 years since judgment was entered), acquired a valid trademark with regard to Princess Diana's name or likeness in connection with the Fund's charitable activities, but any such trademark has no bearing on this case.

23

Manatt contends that the mark at issue -- Princess Diana's name and likeness

-- qualifies as a trademark because it was used on promotional materials to inform

the public that she would perform a service. Manatt identifies that service as

"promoting charities through personal appearances."

Initially, a question arises whether simply making personal appearances is a

cognizable service under the Lanham Act. In its respondent's brief, Manatt seems

to assume it is, and compares Princess Diana's use of her name to promote her

appearances to Johnny Carson's and Elvis Presley's use of their names to "promote

[their] appearance" at clubs or concerts. But Johnny Carson and Elvis Presley

obtained trademarks in their names (see In re Carson (T.T.A.B. 1977) 197

U.S.P.Q. 554; Estate of Presley v. Russen (D.N.J. 1981) 513 F.Supp. 1339), not

because they used their name in conjunction with merely appearing at certain

venues, but because they used their names "in close association with a clear

reference . . . to entertainment services" they provided at those venues. (Estate of

Presley v. Russen, supra, 513 F.Supp. at p. 1363, italics added.) Indeed, Carson's

initial application to register his name as a service mark failed because he did not

show that he used his name with a clear reference to the services he performed:

the specimens he filed to show use of the name "JOHNNY CARSON" as a service

mark were copies of a page from a newspaper showing his picture and the words

"JOHNNY CARSON is in the Congo Room at Del Webb's hotel Sahara with Bette

Midler." The Examiner of Trademarks rejected those specimens because they

contained no reference to the services to be performed, even though they clearly

referred to his appearance in the Congo Room. (In re Carson, supra, 197 U.S.P.Q.

at p. 555.) Carson succeeded in registering his service mark only after he

submitted additional specimens that used the mark in connection with the words

"IN CONCERT." (Ibid.)

24

Thus, it is not enough for a person to use his or her name or likeness in

connection with simply making appearances. That person may obtain a trademark

only if his or her name or likeness was used as a trademark -- in other words, it

was being used "in such a manner that it would be readily perceived as identifying

• . . services." (In re Moody's Investor Service, Inc., supra, 13 U.S.P.Q.2d at p.

2047.) As the Trademark Trial and Appeal Board explained in In re Carson, "the

name of an individual may function not only to identify the individual but also as a

trademark or service mark to identify goods sold or services rendered by the

individual . . . in commerce," but to qualify as a trademark, there must be evidence

of "use of the name not just to identify the individual but rather to identify goods

sold or services rendered by the applicant in commerce." (In re Carson, supra,

197 U.S.P.Q. at p. 555, citing In re Lee Trevino Enterprises, Inc. (T.T.A.B. 1974)

182 U.S.P.Q. 253 [application to register "LEE TREVINO" as a service mark for

promoting goods or services of others by means of endorsements, golfing

exhibitions, and personal appearances by golfer Lee Trevino was denied because

the name was not set off in a service mark manner but rather was used as part of a

textual reference to Lee Trevino as an individual].)

Here, there is no dispute that Princess Diana supported many charities and

promoted them through personal appearances. But the question that must be

answered is, is there a tenable argument that she used her name and likeness as a

trademark in connection with providing services? The judge who denied Manatt's

motion for summary judgment on the probable cause issue (a different judge than

the judge who presided over the trial) indicated that she did not, when he observed

that the items Manatt submitted in support of its motion, purportedly to

demonstrate Princess Diana's use of her name in connection with charitable events,

25

"do not mention any services she provided." 11 (Italics added.) And while Manatt

asserts that Princess Diana exercised significant control over the use of her name

and image in connection with her appearances at charitable events or promotion of

charities, that fact is not particularly relevant here. 12 Under In re Lee Trevino

Enterprises, Inc., supra, 182 U.S.P.Q. 253, if Princess Diana's name was used only

as part of a textual reference to Princess Diana as an individual (i.e., that she would

be appearing at, or supporting, a charitable event), even if Princess Diana exercised

significant control over that use of her name, her name was not used in a service

mark manner and therefore did not qualify as a trademark. Given Manatt's own

description of the purported services Princess Diana provided -- "promoting

charities through personal appearances" -- we cannot conclude that "any

reasonable attorney would have thought" a tenable legal argument could be made

that Princess Diana used her name or likeness as a trademark. (Sheldon Appel,

supra, 47 Ca1.3d at p. 886.)

2. There was no tenable argument that "Diana, Princess of Wales " acquired secondary meaning

A trademark may be protected under the common law or the Lanham Act if

it is either inherently distinctive or has acquired distinctiveness. (Two Pesos, Inc.

v. Taco Cabana, Inc. (1992) 505 U.S. 763, 769.) Inherently distinctive trademarks

Because the record on appeal does not include all of the documents submitted in support of (or opposition to) the summary judgment motion, we cannot verify the trial court's obs ervation.

12 We note that the evidence Manatt cites in support of this assertion -- the declaration of the Comptroller to Princess Diana's Household -- was hearsay admitted only for a limited purpose (attorney state of mind), and not for the truth of the matter asserted. In any event, there was evidence admitted that appeared to contradict that declaration.

26

-- such as fanciful, arbitrary, or suggestive words and symbols -- are protected

"because their intrinsic nature serves to identify a particular source of a product [or

service]." (Id at p. 768.) But trademarks that are not inherently distinctive -- such

as descriptive words or symbols -- are protected only if they have acquired

secondary meaning, i.e., they "Nave] become distinctive of the [owners'] goods

[or services] in commerce." (Id. at p. 769) Generally, "personal names are

regarded as in the same category as descriptive terms" and "are placed by the

common law into that category of noninherently distinctive terms which require

proof of secondary meaning for protection." (2 McCarthy, Trademarks and Unfair

Competition (4th ed.) § 13:2 (McCarthy); see also Lane Capital Management v.

Lane Capital Management (2d Cir. 1999) 192 F.3d 337, 345; Pirone v. MacMillan,

Inc. (2d Cir. 1990) 894 F.2d 579, 583; Cairns I, supra, 24 F.Supp.2d at p. 1034; 4

Callmann, Unfair Competition, Trademarks & Monopolies (4th ed. 2009) § 22:42,

pp. 22-549-22-550 (Callmann).) 13

13 After oral argument in this appeal, Manatt brought to our attention a recent decision of the Trademark Trial and Appeal Board (TTAB) of the U.S. Patent and Trademark Office, which Manatt contends is relevant to the issue of secondary meaning in this case. That decision, Christopher Brooks v. Creative Arts by Calloway, LLC (T.T.A.B. Feb. 17, 2010) U.S.P.Q.2d [2010 WL 595585], does not assist Manatt. First, the decision confirms that a personal name does not qualify as a trademark unless "the record shows that it is used in a manner that would be perceived by purchasers as identifying the services in addition to the person." (Id. at p. *.8.) Second, although the decision states that a personal name when used in the trademark sense is deemed inherently distinctive, it does so in the context of discussing whether it is registrable on the Principal Register without a showing of secondary meaning. The TTAB noted that it had determined as early as 1949, shortly after the Lanham Act replaced the Trade Mark Act of 1905, that "while surnames continue to require a showing of secondary meaning under the Lanham Act [for purposes of registration of trademarks], personal or full names do not." (Ibid) This is due to a change in the language governing registration; the 1905 Act generally prohibited registration of a mark that "consists merely of the name of an individual," while the Lanham Act prohibits registration only if the mark "is primarily merely a surname" and does not have secondary meaning. (Id. at p. *9, quoting Ex Parte Dallioux (Conun'r 1949) 83 U.S.P.Q. 262, 263.) Despite this "settled

27

Franklin Mint contends that, to establish secondary meaning, Manatt (in

representing the Fund) was required to show that Princess Diana's name or image

"no longer describe[d her as an] individual but instead refer[red] to goods or

services" she provided. It overstates the test somewhat. The Fund was not

required to show that "Diana, Princess of Wales" no longer described Princess

Diana as an individual. A trademark's primary meaning does not need to

disappear for the mark to acquire secondary meaning. (See McCarthy, supra, at

§ 15:1.) But the mark's primary (i.e., descriptive) meaning must be subordinate to

its secondary meaning as an indicator of the source of goods or services. (See,

e.g., Callmann, supra, at § 22:42 [where a name is used in connection with goods

or services, "[n]o protection will be available if the name is merely descriptive; [fn.

omitted] it may, however, enjoy trademark protection if its primary meaning is less

significant than a secondary meaning it may have acquired"].)

The United States Supreme Court has explained that secondary meaning

"occurs when, 'in the minds of the public, the primary significance of a [mark] is

to identify the source of the product rather than the product itself." (Wal-Mart

Stores, Inc. v. Samara Brothers Inc. (2000) 529 U.S. 205, 211 (Wal-Mart), quoting

Inwood Laboratories, Inc. v. Ives Laboratories, Inc. (1982) 456 U.S. 844, 851, fn.

11.) Thus, in the underlying lawsuit here, the district court, relying upon Wal-

Mart, stated: "In this case, secondary meaning would occur when, 'in the minds of

interpretation of the [registration] statute, followed by the USPTO for over 50 years, that personal name marks are inherently distinctive under the Lanham Act" (id at p. *10), the TTAB acknowledged that a different rule applies in cases involving trademark protection based upon use rather than registration of the mark. In such cases, the TTAB noted there is a "general requirement that secondary meaning be shown for a personal name, for such name to be protectible." (Id. at p. *8, fn. 4.) In short, this recent TTAB decision, which reiterates a 50-year-old rule governing the registration of personal names as trademarks, does not change the equally well settled rule that a personal name that has not been registered is not protectable as a trademark without a showing of secondary meaning.

28

the public, the primary significance of a [mark]' identifies charitable and

humanitarian services rather than Princess Diana the individual." (Cairns III,

supra, 107 F. Supp.2d at p. 1222.)

Manatt argues that the district court was incorrect in its application of Wal-

Mart. According to Manatt, even if the Wal-Mart language applies, the proper

interpretation would be that "the Fund would have to show that the primary

significance was to identify the source of the services rather than the services

themselves." Manatt's assertion is belied by the footnote immediately following

the quotation in Wal-Mart. (Wal-Mart, supra, 529 U.S. at p. 211, fn. *.) In that

footnote, the Supreme Court explained that the phrase "secondary meaning"

originally arose in the context of word marks "to distinguish the source-identifying

meaning from the ordinary, or 'primary,' meaning of the word." (Ibid) Thus, the

district court in the underlying case here correctly understood that, to prove

secondary meaning, the Fund would have to show that the primary significance of

"Diana, Princess of Wales" in the minds of the public was to the charitable services

performed by Princess Diana (the source-identifying meaning) rather than to

Princess Diana as an individual (the primary meaning of the words).

Manatt maintains, however, that the correct test for a celebrity's name or

image used as a trademark is found in cases such as Estate of Presley v. Russen,

supra, 513 F.Supp. at page 1363, and Miller v. Glenn Miller Productions, Inc. (9th

Cir. 2006) 454 F.3d 975 at pages 991 to 992, where secondary meaning is fonnd in

a person's name through use of the name in connection with entertainment

services, even if the name continues to refer to the person. (Manatt also cites to In

re Carson, supra, 197 U.S.P.Q. at p. 555 and Prudhomme v. Proctor & Gamble

Co. (E.D. La. 1992) 800 F.Supp. 390, 394, involving celebrity chef Paul

Prudhomme's likeness, in support of its contention.) Manatt interprets those cases

as standing for the proposition that Princess Diana could acquire a trademark in her

29

name simply by using her name to promote her charitable appearances, without

showing that her name no longer primarily referred to her as a person. That

interpretation is untenable. First, as discussed in section C.1., ante, it is not

sufficient for trademark purposes that Princess Diana's name was used in the

promotion of charity events as part of a textual reference to Princess Diana as an

individual; the term "Diana, Princess of Wales" had to be used in a trademark

sense, to identify services that were being performed. (In re Carson, supra, 197

U.S.P.Q. 554; In re Lee Trevino Enterprises, Inc., supra, 182 U.S.P.Q. 253.)

But more importantly, there is a critical distinction between the celebrity

cases and the case of Princess Diana. Elvis Presley, Glenn Miller, Johnny Carson,

and chef Paul Prudhomme achieved public name (or image) recognition in

connection with their provision of services. Princess Diana did not. Thus,

although the "primary meaning" of the celebrities names (or images) was to

describe them as individuals, the public did not know their names or images except

through their services, i.e., in the "secondary meaning" sense. In contrast, the

public knew Princess Diana's name and image, and came to strongly associate

"Diana, Princess of Wales" with the person (the "primary meaning"), long before

she became associated with charitable work. Therefore, unlike the previously

unknown celebrities, whose names did not have a strong "primary meaning" to

overcome in the mind of the public and could achieve secondary meaning simply

by promoting their names in association with the entertainment services they

provided, Princess Diana's name had such an extraordinarily strong "primary

meaning" it is doubtful that the words "Diana, Princess of Wales" could ever

overcome that "primary meaning."

In short, given the enormously widespread use of Princess Diana's name and

likeness to identify Princess Diana as an individual -- Manatt itself described her in

the underlying complaint as "one of the best known and most widely admired

30

public figures of the last half of the 20th century" who "for 16 years was the object

of intensive public interest and media scrutiny" -- no reasonable attorney would

contend, especially in the immediate aftermath of her death, that the primary

significance of "Diana, Princess of Wales" was to identify the provider of

charitable services rather than to identify Princess Diana herself. 14 Thus, there was

no probable cause to allege that "Diana, Princess of Wales" had acquired

secondary meaning -- a basic requirement for trademark protection of a descriptive

personal name.

3. Manatt's argument that the Fund did not need to prove secondary meaning ignores basic trademark law

Manatt argues that the general rule requiring proof of secondary meaning

does not apply in this case because (a) "Diana, Princess of Wales" is inherently

distinctive inasmuch as it identifies only one specific person, and therefore

designates a single source; and (b) celebrity endorsement cases do not require

secondary meaning when affording protection to a celebrity's "persona" under the

false designation of origin provision of the Lanham Act. As with Manatt's other

attempts to avoid well established trademark law, neither argument is tenable.

Moreover, even if Manatt were correct the Fund was not required to show

secondary meaning to prove ownership of a protectable trademark, proof of

14 We emphasize that we do not determine whether "Diana, Princess of Wales Memorial Fund" can, or has, acquired secondary meaning. While it is possible that "Diana, Princess of Wales Memorial Fund" has acquired secondary meaning in the more than 12 years since her death, there is a significant difference in terms of public recognition between "Diana, Princess of Wales" standing alone and "Diana, Princess of Wales Memorial Fund."

3 1

secondary meaning nevertheless was required to establish that the alleged

trademark met the requirements of a claim for trademark dilution.

a. Inherent Distinctiveness

In making the argument that "Diana, Princess of Wales" is inherently

distinctive, Manatt correctly observes that inherently distinctive marks are those

that uniquely identify a particular source of goods or services and therefore do not

require a showing of secondary meaning. Because "Diana, Princess of Wales" can

refer only to a single person, Manatt posits, it identifies a single source, and

therefore is an inherently distinctive mark. But Manatt's postulation focuses only

on the "source designation" aspect of trademark and completely ignores the

companion aspect, that the trademark must designate the source of goods or

services. In doing so, Manatt overlooks a significant reason why personal name

marks generally are considered a subset of descriptive marks: a personal name

usually is understood to refer to a person rather than a provider of goods or

services. (See Abdul-Jabbar v. General Motors Corp. (9th Cir. 1996) 85 F.3d 407,

412 ["an individual's given name, unlike a trademark, has a life and a significance

quite apart from the commercial realm"]; see also Pirone v. MacMillan, Inc.,

supra, 894 F.2d at p. 583 ["Personal names used as trademarks are generally

treated as descriptive terms, since a name might be regarded as a convenient

description of the fact that the individual was affiliated with the fine].)

Indeed, the fact that "Diana, Princess of Wales" can refer only to a single

person ("one of the best known and most widely admired public figures of the last

half of the 20th century," according to the complaint Manatt filed in the underlying

lawsuit ) makes that term extraordinarily descriptive. The descriptive nature of

the term is precisely why the case on which Manatt relies to support its assertion

that the term is inherently distinctive is inapplicable.

32

In that case, Peaceable Planet, Inc. v. Ty, Inc. (7th Cir. 2004) 362 F.3d 986,

the maker of a toy stuffed camel it named "Niles" sued a competitor for trademark

infringement and false advertising after the competitor started marketing its own

toy stuffed camel named "Niles." The district court ruled that the original maker

did not have a protectable trademark in the name "Niles" because it was a personal

name and the maker had not shown secondary meaning. (Id. at p. 988.) The

Seventh Circuit reversed. The appellate court found that the rule that personal

name marks require secondary meaning did not apply because the name "Niles"

was not descriptive of a toy camel, and its use for a toy camel did not trigger any of

the reasons the court identified for applying the personal name rule. (Id. at p. 989

[discussing three concerns that are reflected in the personal name rule], pp. 990-

991 [noting that 'Niles,' at least when affixed to a toy camel, is a suggestive mark

. . . rather than . . . a descriptive mark"].) In short, the court concluded that "the

'rule' does not apply if the public is unlikely to understand the personal name as a

personal name." (Id. at p. 990.) The court conceded, however, that "[i]f people

were asked what came to mind when they saw the word 'Niles' and they said a

camel, there would be an argument that 'Niles' was a descriptive mark," which

would require secondary meaning to be protectable as a trademark. (Id. at p. 992.)

In this case, there is little question that if people were asked what came to

mind when they saw the words "Diana, Princess of Wales," they would say a

person, Princess Diana (particularly in the months or first few years after her death,

when the underlying lawsuit was being prosecuted). That those words can refer

only to a single person does not make them inherently distinctive in the trademark

protection sense. They remain descriptive for the purposes of trademark protection

because they refer to a person, albeit a specific person, and thus require proof of

secondary meaning to be protected as a trademark. No reasonable attorney,

33

possessing a reasonable understanding of basic trademark law, would contend

otherwise.

b. Celebrity Endorsement Cases

As further support for its assertion that proof of secondary meaning is not

required in this case, Manatt relies upon several cases in which celebrities

successfully sought protection under section 43(a) of the Lanham Act (15 U.S.C.

§ 1125(a)) from the misuse by others of their names or other attributes, without

having to prove secondary meaning. (E.g., White v. Samsung Electronics America,

Inc. (9th Cir. 1992) 971 F.2d 1395; Waits v. Frito-Lay, Inc. (9th Cir. 1992) 978

F.2d 1093; Wendt v. Host Intern., Inc. (9th Cir. 1997) 125 F.3d 806; Downing v.

Abercrombie & Fitch (9th Cir. 2001) 265 F.3d 994.) 15 Manatt asserts that, because

the courts in those cases referred to the celebrity's name, persona, or other attribute

as a "mark" without discussing secondary meaning, the cases stand for the

proposition that no secondary meaning is required to find a trademark in a

celebrity's name. The cases do no such thing.

A plaintiff bringing a claim under section 43(a) of the Lanham Act (15

U.S.C. § 1125(a)) -- unlike a plaintiff bringing a trademark dilution claim under

section 43(c) (15 U.S.C. § 1125(c)) -- is not required to prove that he or she has a

valid trademark. Rather, the plaintiff must show that the defendant's use in

commerce of "any word, term, name, symbol, or device, or any combination

thereof, or any false designation of origin, false or misleading description of fact,

or false or misleading representation of fact" in connection with the defendant's

15 Manatt also cited to another celebrity endorsement case, Newton v. Thomason (9th Cir. 1994) 22 F.3d 1455, in which the court applied the same analysis as the others, but the celebrity was unsuccessful in his lawsuit because his name recognition was weak. (Id. at p. 1462.)

34

goods or services "is likely to cause confusion, or to cause mistake, or to deceive

as to the affiliation, connection, or association" of the defendant with the plaintiff,

"or as to the origin, sponsorship, or approval" of defendant's goods or services by

the plaintiff. (15 U.S.C. § 1125(a)(1).) In other words, if the defendant uses a

name, symbol, or device in connection with his or her goods or services that is

likely to cause confusion as to the defendant's association with the plaintiff, or

confusion as to whether the defendant's goods or services were originated,

sponsored, or approved by the plaintiff, the defendant is liable to the plaintiff for

damages. While the terms used in the statute -- "any word, term, name, symbol, or

device" used "in connection with any goods or services" (id.) -- are similar to the

definition of "trademark" in the Lanham Act, those terms relate to defendant's use,

not plaintiff's. A plaintiff is entitled to relief under an endorsement claim

regardless of whether the plaintiff owns a trademark.

Manatt is correct that the courts referred to the celebrities' "marks" when

determining whether the celebrities could recover damages under the Lanham Act.

But the courts did so not because the celebrities' names or other attributes

constituted trademarks, but simply because each case transplanted the "likelihood

of confusion" test from a trademark infringement case to determine whether the

celebrity established that the defendant's use of an image, voice, or name was

likely to mislead consumers to associate the defendant's product with the celebrity.

(White v. Samsung Electronics America, Inc., supra, 971 F.2d at p. 1400; Newton

v. Thomason, supra, 22 F.3d at p. 1462; Wendt v. Host Intern., Inc., supra, 125

F.3d at p. 812; Downing v. Abercrombie & Fitch, supra, 265 F.3d at p. 1007.) And

that "likelihood of confusion" test, because it was formulated for trademark

infringement claims, naturally used the term "mark": the test required examination

of "(1) the strength of the plaintiff's mark; VII] (2) relatedness of the goods; [T] (3)

similarity of the marks; rif] (4) evidence of actual confusion; [T] (5) marketing

35

channels used; [If] (6) likely degree of purchaser care; rg (7) defendant's intent in

selecting the mark; [11 and] (8) likelihood of expansion of the product lines."

(White v. Samsung Electronics America, Inc., supra, 971 F.2d at p. 1400.)

Because the language used in the trademark infringement test did not make

much sense in the context of a celebrity endorsement case, some of the courts

explained that "mark" as used in the test means the celebrity's "persona" and

"strength of the mark" refers to the level of recognition the celebrity has in society.

(White v. Samsung Electronics America, Inc., supra, 971 F.2d 1395 at p. 1400;

Newton v. Thomason, supra, 22 F.3d at p. 1462; Wendt v. Host Intern., Inc., supra,

125 F.3d at p. 812, fn. I.) But in doing so, the courts did not conduct any analysis

to determine whether the celebrity did, in fact, possess a trademark in his or her

"persona"; they merely used "mark" as shorthand. In fact, the court in Downing v.

Abercrombie & Fitch, recognizing that the wording of the trademark infringement

likelihood of confusion test was somewhat awkward in the context of celebrity

endorsement cases, restated the trademark infringement test to make it more clear.

The newly worded factors are: (1) the level of recognition that the plaintiff has

among the segment of the society for whom the defendant's product is intended;

(2) the relatedness of the fame or success of the plaintiff to the defendant's

product; (3) the similarity of the likeness used by the defendant to the actual

plaintiff; (4) evidence of actual confusion; (5) marketing channels used; (6) likely

degree of purchaser care; (7) defendant's intent on selecting the plaintiff; and (8)

likelihood of expansion of the product lines. (Downing v. Abercrombie & Fitch,

supra, 265 F.3d at pp. 1007-1008.) Thus, some courts' use of the term "mark"

when referring to the celebrity's persona in the context of a false endorsement case

does not support Manatt's argument that a celebrity does not have to prove

secondary meaning to establish the existence of a trademark in the celebrity's

36

name, image, or other attribute. To the contrary, Manatt's reliance on the celebrity

endorsement cases reflects a fundamentally distorted view of the Lanham Act.

c. Secondary Meaning and Dilution Claims

Aside from Manatt's unreasonable reliance on celebrity endorsement cases,

its argument that the Fund did not have to prove secondary meaning to establish

ownership of a trademark in Princess Diana's name or likeness ignores the

requirements of a trademark dilution claim. When asserting such a claim, it is not

enough to simply own a trademark. Instead, the plaintiff must establish that the

trademark is both distinctive (the requirement to prove ownership) and famous. As

the Ninth Circuit has explained, "[d]ilution is a cause of action invented and

reserved for a select class of marks -- those marks with such powerful consumer

associations that even non-competing uses can impinge on their value. [Citation.]

Dilution causes of action, much more so than infringement and unfair competition

laws, tread very close to granting 'rights in gross' in a trademark. [Citation.] In

the infringement and unfair competition scenario, where the less famous a

trademark, the less the chance that consumers will be confused as to origin,

[citation] a carefully-crafted balance exists between protecting a trademark and

permitting non-infringing uses. In the dilution context, likelihood of confusion is

irrelevant. [Citations.] If dilution protection were accorded to trademarks based

only on a showing of inherent or acquired distinctiveness, we would upset the

balance in favor of over-protecting trademarks, at the expense of potential non-

infringing uses. [Citation.] [I] We view the famousness prong of both dilution

analyses [i.e., under federal law and California law] as reinstating the balance -- by

carefully limiting the class of trademarks eligible for dilution protection, Congress

and state legislatures granted the most potent form of trademark protection in a

manner designed to minimize undue impact on other uses. [Citation.] [1]

37

Therefore, to meet the `famouSness' element of protection under the dilution

statutes, "a mark [must] be truly prominent and renowned." [Citationd" (Avery

Dennison Corp. v. Sumpton (9th Cir. 1999) 189 F.3d 868, 875.)

Thus, even if Manatt were correct that "Diana, Princess of Wales" was

inherently distinctive in the trademark sense, that fact alone is not sufficient to seek

protection under the dilution statute. "Acquired distinctiveness is the essential

ingredient in the determination of fame, within the meaning of the statute. The

statute's requirement of fame is not satisfied by any kind of fame. The mark must

have become famous as the designator of the plaintiff's goods or services. A

merchant's taking a famous name -- Shakespeare or Zeus -- as the mark for its

product would not thereby satisfy the statute's requirement of fame. It is true, such

a mark would be famous in the sense that universal recognition would attach to the

name Shakespeare or Zeus. To satisfy the statute, however, the mark must be

famous in its capacity as a mark designating the plaintiff s goods." (TCPIP

Holding Co. v. Haar Communications (2d Cir. 2001) 244 F.3d 88, 97; 16 see also

McCarthy, supra, at § 24:104 ["To be capable of being diluted, a designation must

have a significant degree of 'strength' beyond the minimum threshold of

'distinctiveness' that is needed to serve as a trademark in the first place. This is

certainly true of the status of marks that are inherently distinctive. Inherent

distinctiveness or the acquisition of secondary meaning merely establishes the

16 We acknowledge that the holding in TCPIP Holding Co. v. Haar Communications Inc., supra, 244 F.3d 88, that only trademarks that are inherently distinctive are eligible for dilution claims (assuming, of course, that the trademark is also famous) (id at p. 96) has not been followed by other circuits. (See, e.g., Avery Dennison Corp. v. Sumpton, supra, 189 F.3d at p. 877.) That disagreement, however, does not affect the soundness of the TCPIP court's reasoning regarding the requirement that a mark must be famous as the designator of the plaintiff s goods or services.

38

minimum threshold necessary for trademark status: section 43(c) requires a great

deal morel fns. omitted.)

In short, to prevail on its dilution claim, the Fund would have had to show

not only that "Diana, Princess of Wales" was inherently distinctive because it can

relate to only one source, but also that it was famous as a designator of Princess

Diana's services. Princess Diana's personal fame as an individual is not the

relevant issue. Instead, the Fund would have to show that "Diana, Princess of

Wales" had achieved significant fame as the designator of Princess Diana's

charitable services rather than simply referring to Princess Diana herself. In other

words, the Fund would have to establish secondary meaning. 17 Manatt's argument

to the contrary is not tenable.

4. Despite the complexity of Manatt's attempts to avoid them, application of fundamental principles of trademark law to the facts of this case show there was no probable cause to prosecute the trademark dilution claim

In arguing in support of the trial court's finding of probable cause, Manatt

observes that under the standard for frivolous appeals, which the Supreme Court in

Sheldon Appel found applicable to the probable cause determination (Sheldon

Appel, supra, 47 Cal.3d at pp. 885-886), a claim is tenable if it "presents a unique

issue which is not indisputably without merit, involves facts which are not

amenable to easy analysis in terms of existing law, or makes a reasoned argument

17 Indeed, in the Fund's opposition to Franklin Mint's motion for summary judgment in the underlying lawsuit the Fund, represented by Manatt, recognized that trademark dilution claims required proof of secondary meaning: "Princess Diana's persona is a 'mark' for both [15 U.S.C.] § 1125(a) and (c) purposes, but evidence of secondary meaning with regard to that persona is needed to prevail on the § 1125(c) claims." (See also Cairns I, supra, 24 F.Supp.2d at p. 1035, fn. 18.)

39

for the extension, modification, or reversal of existing law." (Westphal v. Wal-

Mart Stores, Inc. (1998) 68 Cal.App.4th 1071, 1081.) Manatt also notes that,

"[c]onsistent with the goal of 'avoiding the chilling of novel or debatable legal

claims' [citation], reported cases holding legal claims to be frivolous have involved

simple legal issues arising in uncomplicated factual contexts." It asserts that in this

case, given the complexity of the issues and the lack of directly controlling

authority, we should find that it had a legally tenable basis for asserting a

trademark dilution claim.

To be sure, the law of trademark is specialized and requires a rigorous

analysis. It also is true that there was no previous case quite like the underlying

case, where a person achieved worldwide fame unconnected to any goods or

services she provided and her successor subsequently sought protection for her

name and image under the trademark dilution law. But a lawyer is not immune

from liability for malicious prosecution simply because the general area of law at

issue is complex and there is no case law with the same facts that establishes that

the underlying claim was untenable. Lawyers are charged with the responsibility

of acquiring a reasonable understanding of the law governing the claim to be

alleged. That achieving such an understanding may be more difficult in a

specialized field is no defense to alleging an objectively untenable claim. Nor is it

a defense to say that an attorney is arguing for an extension, modification, or

reversal of existing law when that attorney is asserting legal theories that simply

ignore fundamental principles on which that law is based. 18 That is especially true

18 We note that the district court in the underlying case distinguished between those theories Manatt advanced that, although unsuccessful, "could be considered an attempt to extend existing law," and those that could not because they were "groundless and unreasonable," when it denied Franklin Mint's request for attorney fees for the false endorsement claim but granted the request for the trademaxk dilution claim. (Cairns IV, supra, 115 F.Supp.2d at p. 1188.) We do not by this reference mean to imply that we

40

here, because the fundamental principles of trademark law -- that a trademark must

be used to identify a product or service and its source, and that a descriptive mark

(such as a personal name) must acquire a secondary meaning such that the source-

identifying meaning predominates over its descriptive meaning in the minds of the

public -- are clear and well established. Indeed, a proper understanding of those

principles, and proper application of them to the facts of the underlying case, is

neither difficult nor mysterious. Application of those fundamental principles

establishes that no reasonable attorney would have thought the trademark dilution

claim tenable. 19

rely on the truth of the district court's findings when we conclude that Manatt's assertion of the legal theories at issue here did not constitute an attempt to extend, modify, or reverse existing law.

19 Manatt's argument that the federal district court's denial of Franklin Mint's motion to dismiss in the underlying case establishes probable cause as a matter of law is meritless. The underlying complaint alleged that "Princess Diana's name and image have been intensively and extensively advertised and promoted throughout the world in connection with her charitable activities, and as a result of this advertising and promotion, the name and image have come to mean and are recognized in worldwide trading areas and channels of trade as distinctive marks which identify the source of the charitable activities of Diana, Princess of Wales." On a motion to dismiss, the district court was required to accept all material allegations as true and construe them in the light most favorable to the nonmoving party. (Cairns I, supra, 24 F.Supp.2d at p. 1023, citing Barron v. Reich (9th Cir. 1994) 13 F.3d 1370, 1374.) Indeed, the court noted there is "‘ a powerful presumption against rejecting pleadings for failure to state a claim." (Cairns I, supra, 24 F.Supp.2d at p. 1023, quoting Gilligan v. Jamco Development Corp. (9th Cir. 1997) 108 F.3d 246, 249.) Thus, the court was required to accept as true that Princess Diana had used her name as a trademark and that it had acquired secondary meaning in determining whether the trademark dilution claim stated a claim for relief. Although the district court expressed skepticism that the Fund would be able to prove secondary meaning given that "Diana, Princess of Wales has such a clear primary meaning as a description of the person herself," it concluded that "whether Princess Diana's name has acquired secondary meaning indicative of the source of her charitable works is best resolved on a motion for summary judgment." (Cairns I, supra, 24 F.Supp.2d at p. 1036.) Because the Fund had alleged that Princess Diana had used her name as a trademark and that the mark had acquired secondary meaning, the district court's

41

C. There Was No Probable Cause to Prosecute the False Advertising Claim

Section 43(a) of the Lanham Act (15 U.S.C. § 1125(a)) provides two distinct

bases of liability with respect to the wrongful use of another's name, symbol, or

device in connection with goods or services: (1) false representations concerning

the association, origin, or endorsement of those goods or services (15 U.S.C.

§ 1125(a)(1)(A)) (false endorsement); and (2) false advertising or promotion that

misrepresents the nature, characteristics, qualities, or geographic origin of goods,

services, or commercial activities (15 U.S.C. § 1125(a)(1)(B)) (false advertising). 20

(See Waits v. Frito-Lay, Inc., supra, 978 F.2d at p. 1108; Kournikova v. General

Media Communications Inc. (C.D. Cal. 2003) 278 F.Supp.2d 1111, 1116-1117.) In

the underlying case here, the Fund brought separate claims for false endorsement

and false advertising. Only the false advertising claim is at issue in this malicious

prosecution case.

"The elements of a Lanham Act § 43(a) false advertising claim are: (1) a

false statement of fact by the defendant in a commercial advertisement about its

decision to defer its determination of the merits of the claim until summary judgment was correct. Denial of the motion to dismiss simply means that the complaint sufficiently alleged ownership of a trademark by alleging, in general terms, trademark use and secondary meaning; it says nothing about whether Manatt's legal theory -- that using Princess Diana's name or likeness in connection with appearing at charitable events constituted trademark use -- was tenable. In any event, the district court's subsequent determination that the trademark dilution and false advertising claims were groundless and unreasonable negates any inference of probable cause that might arise from the court's earlier denial of Franklin Mint's motion to dismiss. (Slaney v. Ranger Ins. Co. (2004) 115 Cal.App.4th 306, 321.)

20 In its discussion in the respondent's brief regarding the false advertising claim, Manatt quotes the wrong subdivision; rather than quoting the false advertising provision of section 1125(a)(1)(B), it quotes the false endorsement provision of section 1125(a)(1)(A).

42

own or another's product; (2) the statement actually deceived or has the tendency

to deceive a substantial segment of its audience; (3) the deception is material, in

that it is likely to influence the purchasing decision; (4) the defendant caused its

false statement to enter interstate commerce; and (5) the plaintiff has been or is

likely to be injured as a result of the false statement, either by direct diversion of

sales from itself to defendant or by a lessening of the goodwill associated with its

products." (Southland Sod Farms v. Stover Seed Co. (9th Cir. 1997) 108 F.3d

1134, 1139, fns. omitted.)

A false advertising claim may be based on a statement that is "literally false,

either on its face or by necessary implication," or a statement that is "literally true

but likely to mislead or confuse customers." (Ibid.) If the statement is literally

false, consumer deception is presumed, and there is no need to demonstrate the

impact of the advertisement on consumers. (See, e.g., Time Warner Cable, Inc. v.

DIRECTV, Inc. (2d Cir. 2007) 497 F.3d 144, 153; Johnson & Johnson Vision Care

v. 1-800 Contacts (11th Cir. 2002) 299 F.3d 1242, 1247; Cashmere & Camel Hair

Mfrs. Institute v. Saks Fifth Ave. (1st Cir. 2002) 284 F.3d 302, 315.) "Where a

statement is not literally false and is only misleading in context, however, proof

that the advertising actually conveyed the implied message and thereby deceived a

significant portion of the recipients becomes critical." (William H. Morris Co. v.

Group W, Inc. (9th Cir. 1995) 66 F.3d 255, 258.)

The false advertising claim in the underlying action alleged that Franklin

Mint "carried out in California and in interstate commerce a large scale program of

deceptive advertising" in which false and misleading representations were made

that "100% of the . . . price [of Defendant's dolls and plates] will be donated to

Diana, Princess of Wales' charities' and that 'all proceeds to go to Diana, Princess

of Wales' Charities." (Ellipses and additions in original.) The claim alleged that

"[Franklin Mint's] representations are false in that [Franklin Mint] ha[s] never

43

donated a penny to the Fund." 21 On appeal, Franklin Mint argues there was no

probable cause to bring or prosecute this claim because (1) the Fund did not have

standing to bring a false advertising claim under the Lanham Act, and (2) there was

no evidence that the advertisements at issue were false or that they actually misled

consumers. Although we find that Franklin Mint is precluded from raising the

standing issue for the first time on appeal, we agree there was no probable cause to

bring or prosecute the claim that was alleged.

1. Franklin Mint is Precluded From Raising the Issue of the Fund's Standing to Assert the False Advertising Claim

The Ninth Circuit has held that a plaintiff bringing a false advertising claim

under the Lanham Act must establish that the injury suffered as a result of the

alleged false advertising "was 'competitive,' i.e., harmful to the plaintiff's ability

to compete with the defendant." (Barrus v. Sylvania (9th Cir. 1995) 55 F.3d 468,

470; see also Waits v. Frito-Lay, Inc., supra, 978 F.2d at p. 1109.) Franklin Mint

contends there was no probable cause for the false advertising claim because the

Fund did not have standing to bring the claim, since the Fund did not compete with

Franklin Mint and therefore could not have suffered any competitive injury.

21 We note that the false advertising claim in the underlying case included an allegation that, as a result of Franklin Mint's alleged misrepresentations that the proceeds from the sale of certain items would be donated to Princess Diana's charities, members of the public were induced to purchase the items in the mistaken belief that the items were endorsed by Princess Diana, her estate or the Fund. To the extent Manatt attempts to show probable cause for the false advertising claim by reference to the false endorsement allegation included in that claim, we will disregard those attempts. A party cannot avoid liability for malicious prosecution by repeating an arguably tenable allegation from one claim in a separate and distinct claim.

44

Franklin Mint did not make this contention in the trial court in this case. 22

"A party may not for the first time on appeal present a new theory that . .

contemplates a factual situation the consequences of which are open to controversy

and were not put in issue or presented at the trial. . . {Citations.] A new theory

may be advanced for the first time on appeal only where it involves 'a legal

question determinable from facts which are not only uncontroverted in the record

but could not be altered by the presentation of additional evidence.' [Citationsi"

(Cramer v. Morrison (1979) 88 Cal.App.3d 873, 887.) Manatt argues that had

Franklin Mint made this argument in the district court, "the Fund would have had

an opportunity to present additional evidence concerning the manner in which it

conducted business, and the impact Franklin Mint's sales had on the Fund's ability

to compete." Although we question whether Franklin Mint would have been

required to raise the standing issue in the underlying lawsuit in order to assert lack

of standing as evidence of lack of probable cause in the instant case, we cannot

find -- and Franklin Mint has not directed us to -- anyplace in the record on appeal

in which such an assertion was made. Because it appears that the standing issue

presents a legal question that "could . . . be altered by the presentation of

additional evidence' (ibid.), Franklin Mint is precluded from raising it for the first

time on appeal.

22 We cannot determine whether Franklin Mint made this argument in the underlying case; we do not have the entire record of that case, the appellate record in this case does not show any such argument having been made, and the various opinions by the district court and Ninth Circuit do not address the Fund's standing to bring the false advertising claim.

45

2. The Claim As Alleged and Prosecuted Was Not Tenable

We now turn to the merits of the false advertising claim to determine

whether there was probable cause to prosecute. In making this determination, we

limit our examination to the claim as it was alleged and prosecuted in the district

court. "The test in a malicious prosecution action is not whether defendant had

reasonable grounds to seek some kind of relief in the original action; it is instead

whether he had reasonable grounds for asserting the theory for relief contained in

the complaint and tried to the factfinder. . . . [C]ounsel for an unsuccessful

plaintiff cannot shield himself from a malicious prosecution action by arguing that

even if the only theory advanced in the complaint and at trial was groundless and

maliciously asserted, he nonetheless possessed some other undisclosed and

unlitigated, but tenable, theory. He must stand or fall on the theory advanced and

if that theory is one which he knows, or should know, is groundless and he

nevertheless maliciously advances it, he must fall." (Williams v. Coombs (1986)

179 Cal.App.3d 626, 644, disapproved on another ground in Sheldon Appel, supra,

47 Ca1.3d at p. 883, fn. 9; see also Leonardini v. Shell Oil Co., supra, 216

Cal.App.3d at p. 571 ["Probable cause for the initiation of an action depends upon

the legal tenability of the action which was actually brought"].)

Here, the theory alleged in the underlying complaint was that Franklin Mint

made statements in advertisements that all proceeds from all Princess Diana

merchandise would be donated to Princess Diana's charities, and those statements

were false because Franklin Mint did not donate any money to the Fund. But the

actual advertisements, which were attached to the complaint, clearly do not make

the representation alleged, and no reasonable attorney could argue that the

advertisements could be construed to even suggest that all proceeds from all

Princess Diana merchandise would be donated to charity (let alone to the Fund).

One of the advertisements, for a tribute plate, stated at the top:

46

"A LIMI ED EDITION COMMEMORATIVE PORTRAIT PLA E IN LOVING TRIBUTE

Celebrating the enduring spirit and compassion of the woman who will forever be 'England's Rose'

All proceeds to go to Diana, Princess of Wales' Charities"

At the bottom, the advertisement stated: "100% OF YOUR PURCHASE PRICE

WILL BE DONATED TO DIANA, PRINCESS OF WALES' FAVORITE

CHARITIES." A subsequent advertisement for the tribute plate did not include the

"all proceeds" or "100% of your purchase price" language, but instead included the

following: "THE FRANKLIN MINT HAS PLEDGED A MINIMUM OF 1.5

MILLION DOLLARS WORLDWIDE TO CHARITY IN TRIBUTE TO THE

BELOVED PRINCESS DIANA." Another advertisement, for a Princess Diana

porcelain portrait doll, states that the doll is presented by the Franklin Mint, in

association with Great Ormond Street Hospital Children's Charity. The

advertisement also notes that Princess Diana was President of Great Ormond Street

Children's Hospital, and that "[t]he doll wears the only exact replica of the dress

The Franklin Mint purchased at Christie's auction where all proceeds were donated

to Diana's favorite charities." The remaining advertisements include the statement

that the Franklin Mint had pledged a minimum of $1.5 million worldwide to

charity in tribute to Princess Diana.

Despite the actual language of these advertisements, Manatt, representing

the Fund, continued to assert in opposition to Franklin Mint's motion for summary

judgment that "at least one" of the advertisements stated that all proceeds from all

Princess Diana merchandise would be donated to Princess Diana's charities.

Manatt, however, modified slightly its theory of liability at the summary judgment

stage; Manatt argued that the advertisements were false because Franklin Mint

"retained many times more from their sales of Princess Diana merchandise than

47

they have 'pledged' to charity," and it had not even pledged an amount equal to the

proceeds it obtained from sales of "the particular product which used that [all

proceeds] ad." Manatt also offered another theory in opposition to the summary

judgment motion, arguing that a number Franklin Mint customers believed that the

advertisements' "references to having 'pledged a minimum of $4 million [sic]

worldwide to charity in tribute to the beloved Princess Diana' meant that Franklin

Mint was donating a portion of the proceeds from the particular products depicted

in the ads, when in fact [Franklin Mint was] not doing so." 23 We examine those

theories, and the facts Manatt contends support them, to determine whether "any

reasonable attorney would have thought the [theories] tenable." (Sheldon Appel,

supra, 47 Ca1.3d at p. 886.)

Manatt's first theory was premised upon its assertion that the advertisements

were "literally false" -- because they allegedly stated that all proceeds from all

products would be donated to charity -- and therefore consumer deception is

presumed. (See, e.g., Time Warner Cable, Inc. v. DIRECTV, Inc., supra, 497 F.3d

at p. 153.) As we noted above, no reasonable attorney could have thought that any

of the advertisements even suggested that all proceeds from all Princess Diana

merchandise would be donated to charity. To the extent Manatt contends only that

the "all proceeds" advertisement for the tribute plate was literally false, that

contention also is untenable. That advertisement -- which stated that "100% OF

YOUR PURCHASE PRICE WILL BE DONATED TO DIANA, PRINCESS OF

WALES' FAVORITE CHARITIES" -- could only be construed to mean that the

entire purchase price paid as a result of that advertisement would be donated to

23 Manatt also argued that summary judgment could not be granted on the false advertising claim because the advertisements falsely imply an endorsement. In making this argument, Manatt merely referred to its argument with regard to the false endorsement claim.

48

Princess Diana's favorite charities. The undisputed evidence is that all proceeds

generated by that advertisement were interpleaded in the district court to be

distributed to charity after resolution of the underlying lawsuit. The fact that

Franklin Mint did not donate proceeds from sales of the tribute plate that were

generated by other advertisements that did not include the "all proceeds" language

does not render the "all proceeds" advertisement false, and no reasonable attorney

could argue that it did. 24

Manatt's second theory -- that the advertisements led customers to believe

that Franklin Mint was donating to charity a portion of the proceeds from the

particular products depicted -- is premised upon an assertion that the

advertisements, even if not literally false, were misleading in context. Thus, this

theory requires proof that the advertisements "deceived a significant portion of the

recipients." (William H. Morris Co. v. Group W, Inc., supra, 66 F.3d at p. 258.)

The only evidence in the record on appeal that might support this theory is a single

sentence in a single declaration by a Franklin Mint customer. Although most of

that three page declaration focused upon the customer's belief that Franklin Mint's

Princess Diana merchandise was associated in some way with the Fund

(information that was relevant to the false endorsement claim, which is not at issue

in this lawsuit), the declaration also included a sentence that arguably could

support Manatt's theory: the customer stated that she bought a Princess Diana doll

"under the assumption that part of the price of the doll ($195.00) was going to the

Fund." The other customer declarations in the record, however, do not include

24 Manatt's attempt to show there was probable cause by pointing to evidence that after the underlying lawsuit was concluded Franklin Mint donated the interpleaded funds to charities that had no direct connection to Princess Diana is unavailing. The issue is whether there was probable cause based upon the evidence in existence at the time of the underlying lawsuit; evidence of events that took place after the lawsuit play no part in that determination.

49

similar statements, and instead focus solely on the customers' belief that the

Princess Diana merchandise was associated with the Fund. In light of the absence

of any evidence that a "significant portion" of Franklin Mint's customers were

deceived into thinking that part of the purchase price of every Princess Diana

product would be donated to charity, we conclude that no reasonable attorney

would have thought that theory was tenable. In short, we hold there was no

probable cause to prosecute the false advertising claim.

DISPOSITION

The judgment is reversed. Franklin Mint shall recover its costs on

appeal.

CERTIFIED FOR PUBLICATION

WILLHITE, Acting P. J.

I concur:

SUZUKAWA, J.

50

MOSK, J., Dissenting

I respectfully dissent.

One can sympathize with any party that is sued and prevails. The cost in

money and reputation can be significant. (Here, the Mint 25 was fortunate to have

recovered its attorney fees incurred in defending the claims and an additional sum

from the party that sued it.) But that does not mean that the lawyers who

represented the losing party should be fair game.

I hope there is not a diminishing appreciation by the judiciary for the

increasing hazards and pitfalls faced by those in private legal practice. "With

increasing frequency, disgruntled defendants have brought claims for malicious

prosecution and abuse of process against attorneys for opposing parties." (Crystal,

Limitations on Zealous Representation In An Adversarial System (1997) 32 Wake

Forest L.Rev. 671, 687 (Crystal); Wasserman, Malicious Prosecution: The

Disfavored Tort That Will Not Go Away (Aug. 11, 1999) 4 Andrews Sec. Litig. &

Reg. Rptr. No. 23, p. 13 ["there may have been more malicious prosecution

opinions published in the past several years by California courts than on almost

any other subject involving attorney liability claims"].) An attorney who asserts

claims on behalf of a client should not be exposed to a malicious prosecution claim

25 I refer to plaintiffs and appellants Fran'din Mint Company, Roll International Corporation, Steward Resnick and Lynda Resnick collectively and in the singular as the Mint. I refer to defendants and respondents Manatt, Phelps & Phillips, LLP and Mark S. Lee collectively as Manatt. Reference to the "federal" or "underlying" action is to the underlying lawsuit. (See Cairns v. Franklin Mint Co. (C.D. Cal. 1998) 24 F.Supp.2d 1013 (Cairns I); The Diana Princess of Wales Memorial Fund v.. Franklin Mint Co. (9th Cir. 1999) 216 F.3d 1083 [nonpub. opn.] [1999 WL 1278044] (Cairns II); Cairns v. Franklin Mint Co. (C.D. Cal. 2000) 107 F.Supp.2d 1212 (Cairns III); and Cairns v. Franklin Mint Co. (C.D. Cal. 2000) 115 F.Supp.2d 1185 (Cairns IV).) When I refer to "Manatt's claims," I speak of Manatt in its representative capacity.

51

just because those claims do not fall within the four corners of established case

precedent or the specific words of a statute, even though the claims are supported

by defensible analogical reasoning from existing authority and evidence that

arguably permits an inference of the ultimate facts to be proved.

As I discuss, the trial court correctly determined that Manatt had tenable

claims and thus probable cause. The burden was on the Mint to prove that Manatt

lacked probable cause to assert its clients' claims in the federal action. The Mint

has not established that the trial court erred in concluding that the Mint failed to

meet that burden. The burdens of production and persuasion should not be shifted

to Manatt.

Moreover, the record is inadequate to support the Mint's position that

Manatt was not entitled to a directed verdict on the issue of probable cause. As

reflected in the Mint's request for judicial notice, properly denied by this court,

Manatt submitted literally volumes of evidence in support of the claims during the

course of the federal action. That evidence was not before the trial court, nor is it

before this court. One cannot conclude that the evidence was legally untenable

when one does not know what that evidence was. The Mint's failure to present that

evidence to the trial court compelled the trial court to rule on Manatt's motion for

nonsuit that, as a matter of law, the Mint did not establish that Manatt lacked

probable cause in the underlying action. I would affirm the judgment.

A. Malicious Prosecution and the Element of Probable Cause

It might be useful to review some of the fundamental principles regarding

the tort of malicious prosecution and the related law governing the ethical and legal

52

obligations of lawyers presenting their clients' civil claims to a court. 26 (See

Sheldon Appel, supra, 47 Ca1.3d at p. 872; see also Hufstedler, Kaus & Ettinger v.

Superior Court (1996) 42 Cal.App.4th 55, 62-63 (Hufttedler).)

1. The Tort of Malicious Prosecution

The tort of malicious prosecution serves two distinct purposes. First, the tort

is one aspect of a body of law intended to deter frivolous or malicious lawsuits.

(See generally, Note, Groundless Litigation and the Malicious Prosecution

Debate: A Historical Analysis (1979) 88 Yale L.J. 1218, 1221-1232, cited in

Sheldon Appel, supra, 47 Ca1.3d at p. 873.) Similar objectives are also served by

court rules and statutes that authorize court-imposed sanctions against parties and

their attorneys for asserting frivolous or vexatious claims, 27 and by ethics rules that

subject attorneys to professional discipline for advocating such claims on behalf of

their clients. 28 (See Brennan v. Tremco, Inc. (2001) 25 Ca1.4th 310, 314-315;

Sheldon Appel, supra, 47 Ca1.3d at pp. 873-874; see generally, Wade, supra, 14

26 My discussion concerns malicious prosecution claims asserted against lawyers arising from the prosecution of civil litigation on a client's behalf. I do not specifically discuss claims asserted directly against the client (see, e.g., Paulus v. Bob Lynch Ford, Inc. (2006) 139 Cal.App.4th 659, 665 (Paulus)), or claims asserted by a person maliciously subjected to unwarranted criminal charges. (See Sheldon Appel Co. v. Albert & Oliker (1989) 47 Ca1.3d 863, 871 (Sheldon Appel); 1 Harper, James & Gray on Torts (3d ed. 2006) §§ 4.1-4.7, pp. 455-515; 5 Witkin, Summary of Cal. Law (10th ed. 2005) Torts, § 475, pp. 701-702.)

27 See, e.g., Code Civ. Proc., § 128.5, subd. (a); Fed. Rules Civ. Proc., rule 11(b), 28 U.S.C. (Rule 11); see generally, Wade, Frivolous Litigation: A Study of Tort Liability and Procedural Sanctions (1986) 14 Hofstra L.Rev. 433, 457-490 (Wade) [surveying statutes and court rules authorizing sanction awards].

28 See, e.g., Cal. Rules Prof. Conduct, rule 3-200(B); ABA Model Rules of Prof. Conduct, rule 3.1 (Model Rules); Rest.3d Law Governing Lawyers, § 110(1), p.171.

53

Hofstra L.Rev. at pp. 433-436; 1 Mallen & Smith, Legal Malpractice (2010 ed.)

§6:17, p. 804 (Mallen & Smith) ["the most useful and meaningful tests [of

probable cause in a malicious prosecution action] derive from an examination of an

attorney's ethical and professional obligations to a client"].) 29

Second, the tort action for malicious prosecution is "intended to protect an

individual's interest 'in freedom from unjustifiable and unreasonable litigation'

[citation] . . . ." (Sheldon Appel, supra, 47 Ca1.3d at p. 878; see also Siebel v.

Mittlesteadt (2007) 41 Ca1.4th 735, 740; Bertero v. National General Corp. (1974)

13 CaL3d 43, 50-51 (Bertero); Hufstedler, supra, 42 Cal.App.4th at p. 65.)

"Frivolous lawsuits cause appreciable harm to many persons, and in many ways.

The person against whom the groundless suit is brought is subjected to serious

harassment and inconvenience, pecunialy loss through necessary attorney's fees,

deprival of time from his business or profession, and, in some cases, harm to

reputation and even physical damage to person or property." (Wade, supra, 14

Hofstra L.Rev. at p. 433.) The tort remedy permits the party so injured to obtain

compensation from the vexatious litigant or attorney. (Sheldon Appel, supra, 47

Ca1.3d at p. 871.)

Providing a tort remedy for malicious prosecution, however, has significant

drawbacks. "Courts have long recognized that the tort has the potential to impose

an undue 'chilling effect' on the ordinary citizen's willingness to . . . bring a civil

dispute to court . . . ." (Sheldon Appel, supra, 47 Ca1.3d at p. 872; accord, Wilson

v. Parker, Covert & Chidester (2002) 28 Ca1.4th 811, 817 (Wilson), superseded by

29 I do not mean to suggest that we are bound by either the rules governing sanctions or the ethics rules in deciding this case under the common law of malicious prosecution. Those authorities, however, serve similar objectives and employ broadly similar legal standards and terminology. Accordingly, I find those authorities sufficiently analogous that the principles they express are useful in examining the issues before this court.

54

statute on another point as stated in Hutton v. Hafif (2007) 150 Cal.App.4th 527,

545-550; Paiva v. Nichols (2008) 168 Cal.App.4th 1007, 1018 (Nichols); Paulus,

supra, 139 Cal.App.4th at p. 674.) "[I]t is . . . important 'that an individual be free

to protect personal rights by resort to the courts without the threat of a countersuit

for damages in the event the suit is unsuccessful' [citation], and courts have

generally been sensitive to the need to carefully limit tort liability in the context of

malicious prosecution of a civil proceeding . . . ." (Sheldon Appel, supra, 47

Ca1.3d at p. 872, fn. 5.)

Moreover, the adversary system is premised on the notion that an advocate

may zealously protect his or her client's interests. "Lawyers in an adversarial

system are free to inflict hard blows on their opponents as part of their

responsibility to zealously guard the interests of their clients . . . ." (Caro v. Smith

(1997) 59 Cal.App.4th 725, 739.) As one authority has observed, "One of the most

serious threats to zealous advocacy is the imposition of sanctions against lawyers

who file pleadings or make arguments that are deemed to be 'frivolous."

(Freedman & Smith, Understanding Lawyer's Ethics (2d ed. 2002) § 4.07, p. 93.)

Attorneys fearful of a retaliatory lawsuit "might temper the zealousness of their

advocacy to avoid increasing the incentive for the adversary to pursue" such a suit.

(Kracht v. Perrin, Gartland & Doyle (1990) 219 Cal.App.3d 1019, 1028

[discussing assignment of malpractice claims to former adversaries]; see Crystal,

supra, 32 Wake Forest L.Rev. at pp. 687-688.) Moreover, "overuse of the charge

of frivolousness would chill not only the zeal but the creativity of lawyers who

operate on the leading edge of legal development. Even 'settled' legal questions

must be open to challenge at some point, or else the law would stultify." (2 Hazard

& Hodes, The Law of Lawyering (3d ed. 2010) § 27.12, p. 27-26, italics added

(Hazard & Hodes); see also 1 Mallen & Smith, supra, § 6:17, pp. 804-805.) "The

law. . . . is not immutable. It remains in flux to allow for constructive change

55

through the efforts of diligent and conscientious lawyers. It is through legal

imagination and ingenuity in pleading that evolution of the law occurs. Whether

we examine the law of torts and the development of strict liability for product

defect [citation] or family law and the division of retirement benefits as community

property [citation], we note the effect of the dynamics of the legal process.

Statutes which withstand constitutional challenge in one year may be declared

unconstitutional in later years." (Umansky v. Urquhart (1978) 84 Cal.App.3d 368,

372.)

Because of these potential chilling effects and the general "antipathy for

litigation spawning litigation" (Brennan v. Tremco, Inc., supra, 25 Ca1.4th at p.

315), the tort of malicious prosecution "has traditionally been regarded as a

disfavored cause of action." (Sheldon Appel, supra, 47 Ca1.3d at p. 872; accord,

Zamos v. Stroud (2004) 32 Ca1.4th 958, 966 (Zamos); Wilson, supra, 28 Ca1.4th at

p. 817; Nichols, supra, 168 Cal.App.4th at p. 1018; Paulus, supra, 139

Cal.App.4th at p. 674.) Accordingly, "the elements of the tort have historically

been carefully circumscribed so that litigants with potentially valid claims will not

be deterred from bringing their claims to court by the prospect of a subsequent

malicious prosecution claim." (Sheldon Appel, supra, 47 Ca1.3d at p. 872.) One of

the "carefully circumscribed" elements a malicious-prosecution plaintiff must

prove—and the only element at issue on this appeal—is that the defendant lacked

probable cause to bring the underlying claim. (Id. at p. 871.)

2. The Lack of Probable Cause Element

Professor Wade stated that lack of probable cause is "[p]erhaps the most

vital single requirement" of a malicious prosecution claim because, when

combined with the element of malice, it "identiflies] the real 'sting' of the tortious

conduct." (Wade, supra, 14 Hofstra L.Rev. at p. 444.) Our Supreme Court has

56

stated that it is the "strict requirements" of the probable-cause element that help

ameliorate the negative aspects of the tort. "Concerns over the potential chilling

effect [of malicious prosecution claims] are readily assuaged by stringent

enforcement of the probable cause element of the malicious prosecution tort.'

[Citation.] It is up to malicious prosecution plaintiffs to ensure that their lawsuits

can survive the rigorous judicial scrutiny given to such actions." (Siebel v.

Mittlesteadt, supra, 41 Ca1.4th at p. 745, italics added, fn. omitted.) Accordingly,

it is worthwhile to examine what "lack probable cause" means and what it does not

mean.

In Sheldon Appel, supra, 47 Ca1.3d at pages 885-886, our Supreme Court

analogized the lack-of-probable-cause element in a malicious prosecution action to

a frivolous appeal. (Ibid, citing In re Marriage of Flaherty (1982) 31 Ca1.3d 637,

650.) The court held that for purposes of malicious prosecution, a claim is asserted

with probable cause if it is "legally tenable"—that is, if "any reasonable attorney

would have thought the claim tenable." (Sheldon Appel, supra, 47 Ca1.3d at p.

886, italics added.) A claimant lacks probable cause "only if 'any reasonable

attorney would agree that the [claim] is totally and completely without merit.'

(Id at p. 885, italics added; accord, Zamos, supra, 32 Ca1.4th at p. 970; Wilson,

supra, 28 Ca1.4th at p. 817; Nichols, supra, 168 Cal.App.4th at p. 1018; Paulus,


Generally, a claim is legally tenable if the claim is (1) legally sufficient, and

(2) substantiated by competent evidence. (Wilson, supra, 28 Ca1.4th at p. 821;

Nichols, supra, 168 Cal.App.4th at pp. 1019-1020.) But a claim need not be

meritorious, or even likely to be so, to be legally tenable. "Probable cause may be

present even where a suit lacks merit. Favorable termination of the suit often

establishes lack of merit, yet the plaintiff in a malicious prosecution action must

separately show lack of probable cause. Reasonable lawyers can differ, some

57

seeing as meritless suits which others believe have merit, and some seeing as

totally and completely without merit suits which others see as only marginally

meritless. Suits which all reasonable lawyers agree totally lack merit—that is,

those which lack probable cause—are the least meritorious of all meritless suits.

Only this subgroup of meritless suits present[s] no probable cause.' [Citationsl"

(Jarrow Formulas, Inc. v. LaMarche (2003) 31 Ca1.4th 728, 743, fn. 13 (Jarrow

Formulas)) This is because "it is not 'true charges' but rather legally tenable

claims for relief that the law seeks to protect. [Citationsd" (Sheldon Appel, supra,

47 Ca1.3d at p. 885.) "Counsel and their clients have a right to present issues that

are arguably correct, even if it is extremely unlikely that they will win. . .

[Citationl" (Ibid., italics added; accord, Wilson, supra, 28 CaL4th at p. 817;

Hufstedler, supra, 42 Cal.App.4th at p. 66.) "A litigant or attorney who possesses

competent evidence to substantiate a legally cognizable claim for relief does not

act tortiously by bringing the claim, even if also aware of evidence that will weigh

against the claim. Plaintiffs and their attorneys are not required, on penalty of tort

liability, to attempt to predict how a trier of fact will weigh the competing

evidence, or to abandon their claim if they think it likely the evidence will

ultimately weigh against them. They have the right to bring a claim they think

unlikely to succeed, so long as it is arguably meritorious." (Wilson, supra, 28

Ca1.4th at p. 822; accord, Zamos, supra, 32 Ca1.4th at p. 970, fn. 9; Paulus, supra,

139 Cal.App.4th at pp. 674-675; Marijanovic v. Gray, York & Duffii (2006) 137

Cal.App.4th 1262, 1271.)

Accordingly, a civil litigant is held to a "relatively low standard of probable

cause . . . . [Citation.]" (Wilson, supra, 28 Ca1.4th at p. 823, fn. 8, citing Sheldon

Appel, supra, 47 Ca1.3d at p. 885; Nichols, supra, 168 Cal.App.4th at p. 1018

["less stringent' standard"]; Plumley v. Mockett (2008) 164 Cal.App.4th 1031,

1047 (Plumley) ["low threshold" and "lenient standard"]; Paulus, supra, 139

58

Cal.App.4th at p. 674 ["lenient standard"].) "[P]robable cause to bring an action

does not depend upon it being meritorious, as such, but upon it being arguably

tenable, i.e., not so completely lacking in apparent merit that no reasonable

attorney would have thought the claim tenable." (Wilson, supra, 28 Ca1.4th at p.

824.)

Although this standard is easy to state, our Supreme Court has recognized

that it may be difficult to apply in a particular case. (Zamos, supra, 32 Ca1.4th at p.

970.) As one authority has observed, "judges display different levels of tolerance

for ultimately losing arguments, or when they disagree among themselves as to

where the 'leading edge' of present law is, and hence the starting place for good

faith argument over extension and modification. The problem is compounded

because different judges may be more or less likely to see possibilities in a case

that counsel has not recognized or has not articulated well." (Hazard & Hodes,

supra, § 27.7, p. 27-13.) Accordingly, our Supreme Court has cautioned that "[t]he

question whether, on a given set of facts, there was probable cause to institute an

action requires a sensitive evaluation of legal principles and precedents" to

preserve "the distinction between a merely unsuccessful and a legally untenable

claim." (Sheldon Appel, supra, 47 Ca1.3d at p. 875; see also Wilson, supra, 28

Ca1.4th at p. 817.) The "court must properly take into account the evolutionary

potential of legal principles. [Citation.]" (Sheldon Appel, supra, 47 Ca1.3d at p.

886, italics added; accord, Nichols, supra, 168 Cal.App.4th at p. 1019; Paulus,

supra, 139 Cal.App.4th at p. 674.) As the court stated in Nichols, "Consideration

of this question [of whether the underlying suit was legally tenable] requires that

the court take account of the evolutionary potential of legal principles and any

uncertainty which might be embedded there. [Citation.] `To hold that the person

initiating civil proceedings is liable unless the claim proves to be valid, would

throw an undesirable burden upon those who by advancing claims not heretofore

59

recognized nevertheless aid in making the law consistent with changing conditions

and changing opinions. There are many instances in which a line of authority has

been modified or rejected. To subject those who challenge this authority to

liability for wrongful use of civil proceedings might prove a deterrent to the

overturning of archaic decisions." [Citations.]' [Citation.]" (Nichols, supra, 168

Cal.App.4th at p. 1019.)

These principles make clear that a claim is not untenable cause merely

because there is no existing authority that indisputably establishes its legal

viability. Indeed, a claim is not necessarily untenable even if the existing authority

is directly adverse, provided there is a tenable basis to argue for an extension,

modification, or reversal of existing law. (See, e.g., Rest.3d Law Governing

Lawyers, § 110(1), p. 171; Model Rules, rule 3.1.)es

One notorious example from a different but related context illustrates the

wisdom of this rule. In Hunter v. Earthgrains Co. Bakery (4th Cir. 2002) 281 F.3d

30 "Legal conventions necessarily require that, at any point in time, well-trained lawyers be able to distinguish more plausible arguments from less plausible ones and, more to the point, plausible legal arguments from frivolous ones. However, it follows from the basic premises of legal historicism that what makes a good legal argument a good legal argument changes historically. The judgments of well-socialized lawyers about what is more plausible and less plausible, and even between what is 'on the wall' and what is totally 'off the wall,' are not fixed; rather, they evolve over time in response to historical and political forces in addition to the inevitable internal changes in legal doctrine. There is, therefore, no such thing as an inherently 'frivolous' legal argument considered transhistorically, although at any point in time there are plenty of 'frivolous' legal arguments, and well-trained lawyers are defined in part by their ability to spot and denounce them. Indeed one of the most remarkable features of any study of American legal history is watching arguments migrate from the category of 'frivolous' or 'unthinkable' to 'reasonable, albeit, all things considered, unpersuasive' to 'reasonable, and on the whole the better argument,' to being so overwhelmingly persuasive that to criticize them is to be tarred with the brush of 'frivolity' and, possibly, subjected to legal sanctions under Rule 11." (Balkin & Levinson, Legal Historicism and Legal Academics: The Roles of Law Professors in the Wake of Bush v. Gore (2001) 90 Geo. L.J. 173, 181.)

60

144 (Hunter), a federal district court in the Fourth Circuit entered summary

judgment against the plaintiffs in an employment discrimination case on the

ground, inter alia, that the plaintiffs were required to arbitrate their claims. (Id. at

p. 148.) The district court then suspended the plaintiff's lawyer for five years as a

sanction under Rule 11 because, "first and foremost," the lawyer had asserted a

legal position on the arbitration issue that was directly contrary to existing Fourth

Circuit precedent. (Id. at p. 150.) The district court judge characterized the

attorney's argument as 'utter nonsense' and "paradigmatic of a frivolous legal

contention.' (Id. at p. 153.)

The Fourth Circuit Court of Appeals reversed the sanction order. The

appellate court agreed that the argument advanced by the lawyer was directly

contrary to existing Fourth Circuit authority. (Hunter, supra, 281 F.3d at p. 154.)

But, the appellate court noted, six other federal circuits had rejected the Fourth

Circuit's reasoning, and none had agreed with it. (Ibid.) Moreover, by the time the

district court issued its sanction order, the United States Supreme Court had, in a

different case, adopted the legal position advocated by the plaintiffs' lawyer. (Id.

at pp. 155.) As a result, "[w]hen the district court suspended [the lawyer] for

advancing a legal position that was 'not the law of this circuit,' . . . it was itself

propounding a legal proposition in conflict with the Supreme Court's . . .

decision." (Id. at pp. 155-156.) The appellate court thus concluded that the lawyer

"was plainly entitled (and probably obligated) to maintain that [the Fourth Circuit

precedent] was incorrectly decided." (Id. at p. 156, italics added.) The court

observed, "[I]f it were forbidden to argue a position contrary to precedent, 'the

parties and counsel who in the early 1950s brought the case of Brown v. Board of

Ed., 347 U.S. 483, 74 S.Ct. 686, 98 L.Ed. 873 (1954), might have been thought by

some district court to have engaged in sanctionable conduct for pursuing their

claims in the face of the contrary precedent of Plessy v. Ferguson, 163 U.S. 537,

61

16 S.Ct. 1138, 41 L.Ed. 256 (1896). The civil rights movement might have died

aborning.' [Citation.]" (Hunter, supra, 281 F.3d at p. 156, quoting Blue v. United

States Dept. of Army (4th Cir. 1990) 914 F.2d 525, 534; see also Cochran, Rule 11:

The Road to Amendment (1991) 61 Miss. L.J. 5, 9 & fns. 16, 19; Stein, Rule 11 in

the Real World: How the Dynamics of Litigation Defeat the Purpose of Imposing

Attorney Fee Sanctions for the Assertion of Frivolous Legal Arguments (1990) 132

Fed. Rules Dec. 309, 318.)

Of course, I do not suggest that this case is comparable to Brown v. Board of

Education of Topeka, supra, 347 U.S. 483. But the policy of fostering the sort of

zealous and creative advocacy that led to the Brown decision may be endangered

if, in cases like this one, courts hold that attorneys lacked probable cause to assert

claims on behalf of their clients. Examples such as Hunter, supra, 281 F.3d 144

should caution judges adjudicating the legal tenability of a claim that, unless the

claim is patently meritless, the benefit of the doubt should go to the lawyer. As the

United States Supreme Court stated, "In searching for the strongest arguments

available, the attorney must be zealous and must resolve all doubts and ambiguous

legal questions in favor of his or her client." (McCoy v. Court of Appeals of

Wisconsin (1988) 486 U.S. 429, 444, italics added [discussing criminal defense

attorneys].)

3. Determining Probable Cause

"Whereas the malice element is directly concerned with the subjective

mental state of the defendant in instituting the prior action, the probable cause

element calls on the trial court to make an objective determination of the

'reasonableness' of the defendant's conduct, i.e., to determine whether, on the

basis of the facts known to the defendant, the institution of the prior action was

legally tenable. The resolution of that question of law calls for the application of

62

an objective standard to the facts on which the defendant acted. [Citationl"

(Sheldon Appel, supra, 47 Ca1.3d at p. 878.) "[I]fthe trial court concludes that, on

the basis of the facts known to the defendant, the filing of the prior iction was

objectively reasonable, the court has necessarily determined that the malicious

prosecution plaintiff was not subjected to an unjustified lawsuit." (Ibid.) Whether

a reasonable lawyer would have thought the claim legally tenable—an objective

inquiry—is a legal issue that is reviewed de novo. (See Arcaro v. Silva & Silva

Enterprises Corp. (1999) 77 Cal.App.4th 152, 156 (Arcaro).) Another component

of probable cause—the state of a defendant's knowledge of the supporting facts at

the time of the initiation of the underlying lawsuit and thereafter—is potentially a

factual issue that is reviewed under the substantial evidence standard of review.

(Sheldon Appel, supra, 47 Ca1.3d at p. 884; see Estate of Tucker v. Interscope

Records (9th Cir. 2008) 515 F.3d 1019, 1031.)

Applying the objective standard for determining whether a claim is tenable

may be challenging in a particular case. Some ancillary principles, however, may

guide the court's decision. I have already discussed one of these—the concept that

the "court must properly take into account the evolutionary potential of legal

principles. [Citationl" (Sheldon Appel, supra, 47 Ca1.3d at p. at p. 886.) There

are others.

First, the malicious-prosecution plaintiff bears the burden of producing

evidence and persuading the court that the attorney defendant lacked probable

cause. (Soukup v. Law Offices of Herbert Hafif(2006) 39 Ca1.4th 260, 292

(Soukup); Sheldon Appel, supra, 47 Ca1.3d at p. 874; Sangster v. Paetkau (1998)

68 Cal.App.4th 151, 164 (Sangster).) The defendant is not required affirmatively

to establish probable cause. Moreover, the plaintiff cannot establish lack of

probable cause merely by establishing that the claim was determined to be

unmeritorious in the underlying action. As discussed ante, Iflavorable

63

termination of the suit often establishes lack of merit, yet the plaintiff in a

malicious prosecution action must separately show lack of probable cause."

(Jarrow Formulas, supra, 31 Ca1.4th at p. 743, fn. 13, italics in original; 1 Mallen

& Smith, supra, § 6:17, p. 808 ["The plaintiff must show both a lack of merit and a

lack of probable cause," italics added].) 31 When considering probable cause,

"[T]he inquiry [is] not whether the plaintiff had in fact a good and valid cause of

action, but whether this was apparently true, and it was accordingly the right of

the plaintiff to invoke a judicial decision concerning the merits of the case

presented for determination. . . [Citations.]" (Wilson, supra, 28 Ca1.4th at p.

818, italics in original; see also 1 Mallen & Smith, supra, § 6:17, p. 807 ["[T]he

inquiry concerns the apparent existence of reasonable grounds for the attorney's

decision to initiate or continue the proceedings," italics added].) For example,

neither a defense summary judgment nor a denial of a motion for preliminary

injunction in the underlying action establishes that a claim is untenable. (Jarrow

Formulas, supra, 31 Ca1.4th at p. 742 [defense summary judgment]; Paulus, supra,

139 Cal.App.4th at p. 667, fn. 6 [denial of preliminary injunction].)

Second, the malicious-prosecution plaintiff may prove lack of probable

cause in two ways that, although related, are distinct. (See Morrison v. Rudolph

(2002) 103 Cal.App.4th 506, 512 (Morrison), disapproved on another ground in

Zamos, supra, 32 Ca1.4th at p. 973; Sangster, supra, 68 Cal.App.4th at pp. 164-

165; Puryear v. Golden Bear (1998) 66 Cal.App.4th 1188, 1195 (Puryear).) "In

31 As Professor Wade observed, "[t]his requirement is unusual in that it places the burden on the present plaintiff to prove a negative . . . ." (Wade, supra, 14 Hofstra L.Rev. at p. 444.) But it is by placing such burdens on the malicious-prosecution plaintiff—and by enjoining courts to enforce strictly such requirements—that the law seeks to mitigate the chilling effects of the tort. (See Siebel v. Mittlesteadt, supra, 41 Ca1.4th at p. 745; Leonardini v. Shell Oil Co. (1989) 216 Cal.App.3d 547, 566 (Leonardini).)

64

considering the issue of probable cause there is an analytical dichotomy which

arises due to the factual/legal duality involved in virtually all lawsuits. In a typical

case the merits of the lawsuit depend upon the factual circumstances established by

the evidence and the legal theory upon which relief is sought. A litigant will lack

probable cause for his action if he relies upon facts which he has no reasonable

cause to believe to be true, or seeks recovery upon a legal theory which is

untenable under the facts known to him. The probable cause analysis may differ

depending upon where the alleged deficiency lies." (Leonardini, supra, 216

Cal.App.3d at p. 568.)

Thus, one method of showing lack of probable cause is to prove that no

reasonable attorney would contend that the facts alleged in the underlying action

would establish liability under the legal theory advanced—i.e., the claim is legally

untenable. (See Soukup, supra, 39 Ca1.4th at p. 292; Slaney v. Ranger Ins. Co.

(2004) 115 Cal.App.4th 306, 319 (Slaney).) "[F]rom the legal perspective,' an

action is tenable 'if it is supported by existing authority or the reasonable extension

of that authority." (Morrison, supra, 103 Cal.App.4th at p. 512, citing Arcaro,


The other method is to prove that the attorney (1) alleged facts the attorney

knew or subsequently learned were not true, or (2) the attorney had no reasonable

basis to infer that evidence of the alleged facts could be developed through

discovery or further investigation—i.e., the claim is factually untenable. (See

Soukup, supra, 39 Ca1.4th at p. 292; see also Daniels v. Robbins (2010) 182

Cal.App.4th 204, 222; Slaney, supra, 115 Cal.App.4th at p. 319; Morrison, supra,

103 Cal.App.4th at p. 512; Swat-Fame, Inc. v. Goldstein (2002) 101 Cal.App.4th

613, 625-627 (Swat-Fame), disapproved on another ground in Zamos, supra, 32

Ca1.4th at p. 973; Arcaro, supra, 77 Cal.App.4th at pp. 156-157.)

65

Related to this standard of factual tenability is the rule that a lawyer is not

required to possess all of the evidence necessary to prove a claim prior to filing a

complaint. A reasonable lawyer may rely on discovery and further investigation

conducted after filing the lawsuit to supply the evidentiary foundation for the

claim. (Hazard & Hodes, supra, § 27.6, p. 27-10.) All that is required is that the

lawyer have a reasonable factual basis to believe that such evidence may be

developed. (See Swat-Fame, supra, 101 Cal.App.4th at p. 625 [lawyer had

probable cause to assert fraud claim when lawyer's information "reasonably

suggest[ed] that . . . evidence might come to light during discovery"]; Arcaro,

supra, 77 Cal.App.4th at p. 156 [probable cause "requires evidence sufficient to

prevail in the action or at least information reasonably warranting an inference

there is such evidence," citing Puryear, supra, 66 Cal.App.4th at p. 1195].) This is

because the threat of a malicious prosecution action "must not bar the courthouse

door to people who have some support for a complaint but need discovery to prove

their case." (Frantz v. US. Powerlifting Federation (7th Cir. 1987) 836 F.2d 1063,

1068 [discussing sanctions under Rule 11]; see also Model Rules, rule 3.1, cmt. [2]

["The filing of an action or defense or similar action taken for a client is not

frivolous merely because the facts have not first been fully substantiated or

because the lawyer expects to develop vital evidence only by discovery"].)

Third, in determining whether the malicious-prosecution plaintiff has met

his or her burden of proving lack of probable cause, the court should view the

allegations in the underlying action most favorably to the attorney defendant.

(Sangster, supra, 68 Cal.App.4th at p. 165; Leonardini, supra, 216 Cal.App.3d at

p. 571.) As the court in Leonardini explained, "Three sound but separate policies

compel liberality in construction of the pleadings. First, . . . the policy which

favors open access to the courts for the resolution of conflicts. This policy is

inconsistent with a rigid construction of the prior pleadings to support a malicious

66

prosecution action. Second, the law favors the early resolution of disputes,

including voluntary dismissal of suits when the plaintiff becomes convinced he

cannot prevail or otherwise chooses to forego the action. This policy would be ill-

served by a rule which would virtually compel the plaintiff to continue his

litigation in order to place himself in the best posture for defense of a malicious

prosecution action. [Citation.] Finally, and in any event, in this state pleadings are

required to be liberally construed in favor of the pleader. [Citations.] The factual

allegations of the complaint are controlling over the title or label given the

pleading and over the prayer or demand for relief. [Citation.] In these respects

federal rules of pleading are similar. [Citation.] Together these policies compel

the conclusion that [the defendant's] complaint must be construed liberally in

determining whether the action was legally tenable." (Leonardini, supra, 216

Cal.App.3d at p. 571.)

Fourth, "[c]laims that have succeeded at a hearing on the merits, even if that

result is subsequently reversed by the trial or appellate court, are not so lacking in

potential merit that a reasonable attorney or litigant would necessarily have

recognized their frivolousness." (Wilson, supra, 28 Ca1.4th at p. 818.) As relevant

here, an order overruling a demurrer—or, in federal practice, denying a motion to

dismiss—establishes as a matter of law the legal tenability of a cause of action as

alleged. (Swat-Fame, supra, 101 Cal.App.4th at p. 625.) Because such an order

does not address the evidence, however, it does not establish thefactual tenability

of the claim.

B. The Mint Failed to Establish Lack of Probable Cause

The principles discussed in the preceding section compel the conclusion that

the trial court was correct in determining that the Mint failed as a matter of law to

establish that Manatt lacked probable cause to assert the trademark dilution and

67

false advertising claims at issue here. The legal tenability of both claims, as

alleged, was established by the order of United States District Judge Richard Paez

denying the Mint's motion to dismiss. Moreover, properly taking into account the

evolutionary principles of the law, Manatt had an arguable legal basis for asserting

both claims. As to factual tenability, the Mint produced no evidence whatever to

establish that the factual allegations in the underlying complaint were false; Manatt

knew them to be false; after filing the complaint, Manatt learned specific,

verifiable facts that precluded the claims; or Manatt had no reasonable basis to

believe that competent evidence to support the claims could be developed through

discovery or additional investigation.

1. Trademark Dilution

a. Legal Tenability

In Swat-Fame, supra, 101 Cal.App.4th at page 626, the Court of Appeal

held, inter alia, "Because the allegations in the complaint were true to the best of

the [lawyer-defendants] knowledge at the time the complaint was filed, and

because the trial court overruled Swat-Fame's demurrer. . . . , the lawyers

necessarily had probable cause to bring the claim . . . ." This is a sound rule, for it

is consistent with the principle that "[c]laims that have succeeded at a hearing on

the merits . . . are not so lacking in potential merit that a reasonable attorney or

litigant would necessarily have recognized their frivolousness" (Wilson, supra, 28

Ca1.4th at p. 818); it mitigates 'the potential [of malicious prosecution claims] to

penalize and deter the legitimate invocation of the judicial process for redress of

grievances' (Plumley, supra, 164 Cal.App.4th at p. 1052, quoting Wilson, supra,

28 Ca1.4th at p. 818); and it "vindicat[es] . . . the dignity and authority of judicial

tribunals . . . in order that their judgments and decrees may be invested with that

force and sanctity which shall be a shield and protection to all parties and persons

68

in privity with them.' (Plumley, supra, 164 Cal.App.4th at p. 1052, fn. 8, quoting

Crescent Live Stock Co. v. Butchers' Union (1887) 120 U.S. 141, 159.) That rule

disposes of the legal tenability issue here.

In the underlying case, the Mint moved to dismiss the trademark dilution

claim. (Cairns I, supra, 24 F.Supp.2d at pp. 1033-1036.) After an examination of

the allegations stated in the complaint and the relevant legal authorities, Judge Paez

concluded that—although the claim might be difficult to prove—the complaint

stated a claim for trademark dilution. (Ibid.) Under the rule of Swat-Fame, supra,

101 Cal.App.4th at page 626, the district court's ruling established as a matter of

law the legal tenability of the trademark dilution claim.

Plaintiff argues that Judge Paez's ruling was not conclusive as to probable

cause because, in ruling on a motion to dismiss, he was required to accept all

material allegations as true and construe them in a light most favorable to the

nonmoving party. But that observation concerns onlyfactual tenability. Plaintiff

does not seek to distinguish Swat-Fame, supra, 101 Cal.App.4th 613, or argue that

it was wrongly decided. Accordingly, legal tenability of the trademark dilution

claim was established as a matter of law by Judge Paez's denial of the Mint's

motion to dismiss.

United States District Judge Florence-Marie Cooper, who characterized the

dilution claim as "absurd" in her order granting the summary judgment in favor of

the Mint in the federal action, stated in awarding the Mint its attorney fees that the

dilution claim was "just short of frivolous." (Cairns IV, supra, 115 F.Supp.2d at p.

1189, italics added.) Short of frivolous is not frivolous; not frivolous is legally

tenable. (See Sheldon Appel, supra, 47 Ca1.3d at p. 885 {defining probable cause

by reference to standard for frivolous appeals].) To the extent Judge Cooper's

69

decision on the attorney fee motion is relevant, 32 it supports rather than contradicts

the conclusion that the claim had a tenable legal basis.

Even if Judge Paez's ruling did not establish the legal tenability of the claim,

the authorities cited by Manatt are sufficient to permit a reasonable lawyer to argue

its legal merit, particularly taking into account the evolutionary potential of the

law. Lack of probable cause is not established by Judge Paez's order denying

Manatt's motion for a preliminary injunction, nor by Judge Cooper's order

granting the defense summary judgment. (Jarrow Formulas, supra, 31 Ca1.4th at

p. 742; Paulus, supra, 139 Cal.App.4th at p. 667, fn. 6.) The issue is not whether

Manatt's legal position was meritorious, but whether the contrary position was "so

absolutely correct that no reasonable attorney would have thought otherwise."

(Hufstedler, supra, 42 Cal.App.4th at p. 67, italics added.) _

The Mint has cited no authority directly adverse to Manatt's dilution claim,

and to my knowledge there is none because of the unique circumstances presented

by who Princess Diana was and the fame she achieved. The trademark authorities

cited by Manatt establish principles from which a reasonable lawyer, zealously and

creatively representing his client's interests, could argue that a legal framework

had been established that would permit Manatt's clients to recover under a

trademark dilution theory. That is how the law evolves—good lawyers, usually in

32 Judge Cooper's award of attorney fees was expressly based, as she said, "on [Manatt's] 'absurd' contention that 'Diana, Princess of Wales' had taken on a meaning other than identification of an individual. (June 27, 2000 Order at 21.) Attempting to argue that 'Diana, Princess of Wales' had acquired a secondary meaning falls just short of frivolous." (Cairns IV, supra, 115 F.Supp.2d at p. 1189.) Manatt's allegation that 'Diana, Princess of Wales' had taken on a meaning other than identification of an individual," however, was afactual allegation subject to proof, not a legal claim. Judge Cooper's decision on the attorney fee motion in Cairns IV thus might relate to the factual tenability of the claim, but it does not affect Judge Paez's original conclusion that, as pleaded, the dilution claim was legally tenable.

70

weak cases, reasoning from established principles to advocate an extension,

modification, or reversal of existing law. Even cases that "are factually

dissimilar. . . . may be relied on as furnishing some basis for finding . . . a claim to

have been objectively tenable." (Paulus, supra, 139 Cal.App.4th at p. 682, fn. 19.)

Indeed, in Peaceable Planet, Inc. v. Ty, Inc. (7th Cir. 2004) 362 F.3d 986,

990, United States Court of Appeals Judge Richard Posner observed that the rule

that a personal name cannot obtain trademark protection without secondary

meaning is a conunon law "generalization" rather than a statutory absolute, and

stated that when the "rule" "would impede rather than promote competition and

consumer welfare, an exception should be recognized." Such views hardly signify

an immutable legal precept when it comes to determining whether a there is

trademark protection. It is precisely the fluidity of legal principles that licenses

creativity by attorneys in formulating their clients' claims and the legal arguments

that support them. Based on the foregoing, the only question remaining is whether

the Mint proved by a preponderance of the evidence that the claim was factually

untenable.

b. Factual Tenability

To establish that the dilution claim was factually untenable, the Mint bore

the burden of proving by a preponderance of the evidence that (1) Manatt knew

when it filed the complaint, or it subsequently learned, that the facts alleged in the

complaint were not true, or (2) when the complaint was filed, Manatt had no

reasonable basis to infer that evidence of such facts could be developed through

discovery or further investigation. (See Soukup, supra, 39 Ca1.4th at p. 292; see

also Daniels v. Robbins, supra, 182 Cal.App.4th at p. 222; Slaney, supra, 115

Cal.App.4th at p. 319; Morrison, supra, 103 Cal.App.4th at p. 512; Swat-Fame,

supra, 101 Cal.App.4th at pp. 625-627; Arcaro, supra, 77 Cal.App.4th at pp. 156-

71

157.) Implicit in the former standard, of course, is the requirement that the Mint

prove that the factual allegations were, in fact, false. The Mint failed to meet its

burden under either standard.

The Mint failed as a matter of law to prove factual untenability for the

simple reason that the Mint did not introduce into evidence in this case the factual

record developed in the underlying case. (See Hufstedler, 42 Cal.App.4th at pp.

65-66 [noting that, in some circumstances when there are no disputed facts, "the

record in the underlying action" may "constitute[] all the evidence needed to

determine whether the underlying action was objectively tenable].) There is no

dispute that Manatt submitted evidence to the district court in support of the

dilution claim both on its motion for a preliminary injunction (Cairns I, supra, 24

F.Supp.2d at p. 1038, 4043-1045) and in opposition to the Mint's motion for

summary judgment. (Cairns III, supra, 107 F.Supp.2d at pp. 1221-1222.) The

Mint's request for judicial notice, properly denied by this court because the

material was not before the trial court, contains nine volumes of material exceeding

2500 pages, a substantial portion of which is comprised of evidence submitted by

Manatt in the underlying case. As the plaintiff in this malicious prosecution action,

the Mint had the burden to produce the evidence necessary to prove factual

untenability by a preponderance of the evidence. (Soukup, supra, 39 Ca1.4th at p.

292; Sheldon Appel, supra, 47 Ca1.3d at p. 874; Sangster, supra, 68 Cal.App.4th at

p. 164.) Now, as the appellant, it is the Mint's burden to provide a record

sufficient to permit this court to conclude, as a matter of law, that the trial court

erred by finding (after 17 days of trial) that it was "overwhelmingly clear" that

Manatt had a tenable basis to assert the claim. (Ballard v. Uribe (1986) 41 Ca1.3d

564, 574-575.) The trial court rightfully concluded that the Mint could not prevail

on its contention that there was no tenable evidence to support the claims pleaded

by Manatt when the evidence actually submitted by Manatt in support of those

72

claims in the underlying action was not before the trial court. To conclude

otherwise would have been extraordinary.

Even if the Mint's failure to introduce the factual record in the underlying

action does not compel judgment against it as a matter of law, the Mint

nevertheless has failed to show that it is entitled to a reversal. In briefing this issue

on appeal, the Mint has cited no cognizable evidence to establish that the

trademark dilution claim was factually untenable. 33

The rulings in the underlying case cannot be considered substantive

evidence of lack of probable cause. Mattel, Inc. v. Luce, Forward, Hamilton &

Scripps (2002) 99 Cal.App.4th 1179, 1191 (Mattel) and Slaney, supra, 115

Cal.App.4th 306, to the extent they suggest otherwise, are demonstrably incorrect

and inconsistent with other authorities. Both cases are nevertheless distinguishable

from the instant case.

In Mattel, supra, 99 Cal.App.4th 1179, the malicious-prosecution plaintiff

settled a federal trademark infringement action brought by the defendant and later

filed a malicious prosecution action against the defendant in California state court.

The defendant moved under the so-called anti-SLAPP statute (Code Civ. Proc.,

§ 425.16) ("strategic lawsuits against public participation" (Navellier v. Sletten

33 In its opening brief, the Mint cited a few pages from its request for judicial notice, but this court has refused to judicially notice that material. In its written and oral arguments in the trial court in opposition to Manatt's motions for nonsuit and a directed verdict, the Mint also relied testimony from (1) Mark Lee that Princess Diana was (as characterized by the Mint's trial attorney) "known for her royalty, her beauty, her style, her social life, her status as the mother of the future kings of England, and perhaps scandal"; and (2) the notes of a solicitor at a British law firm, attributing to Mr. Lee the statement that the trademark dilution claim was alleged solely "so that the wealth of evidence on charities could be introduced." The Mint's failure to argue such evidence in its briefs as grounds for reversing the judgment forfeited the Mint's right to rely such evidence. (See Paulus, supra, 139 Cal.App.4th at p. 685.) In any event, such evidence appears immaterial to a determination of objective probable cause.

73

(2002) 29 Ca1.4th 82, 85)) to strike the malicious prosecution action. The trial

court denied the motion, finding that the plaintiff had demonstrated a probability of

prevailing on the merits. The appellate court affirmed. (Mattel, supra, 99

Cal.App.4th at pp. 1182-1183.) As relevant here, the primary issue on appeal was

whether the settlement of the federal trademark action constituted a termination of

that action favorable to the malicious-prosecution plaintiff. The appellate court

concluded that it did because the plaintiff had obtained sanctions against the

defendant under Rule 11 for filing a meritless claim, reflecting a determination on

the merits in favor of the malicious-prosecution plaintiff. (Id. at pp. 1190-1191.)

With respect to the probable cause and malice elements, however, the court in

Mattel stated only the following, with no additional authority or analysis: "The

findings made in connection with the Rule 11 . . . sanctions, the appropriate subject

of judicial notice requested of the trial court (Evid. Code, § 451, subd. (a)), are

evidence that the underlying action was filed without probable cause. Malice may

be inferred from the lack of probable cause. [Citations.]" 34 (Mattel, supra, 99

Cal.App.4th at p. 1191.) The Court of Appeal in Slaney, supra, 115 Cal.App.4th at

page 321, relied on Mattel without independent analysis. In those cases, the courts

relied upon Rule 11 sanctions, which were not involved here. In both cases,

however, the use of findings in the underlying case as substantive evidence of

factual untenability, without discussion, was an improper use of judicial notice.

34 I note that the latter point—that malice is inferable solely from the lack of probable cause—probably was an incorrect statement of the law when Mattel, supra, 99 Cal.App.4th 1179, was decided. (See Downey Venture v. LMI Ins. Co. (1998) 66 Cal.App.4th 478, 498, citing Sheldon Appel, supra, 47 Ca1.3d at pp. 885-886.) In any event, shortly thereafter, our Supreme Court expressly rejected the notion that subjective malice can be inferred solely from an objective lack of probable cause. (Jarrow Formulas, supra, 31 Ca1.4th at p. 743.)

74

When a court takes judicial notice of a court ruling in another action, it may

notice the existence of the ruling, but it may not take judicial notice of the truth of

a factual finding made by a judge sitting as a trier of fact. (Arce v. Kaiser

Foundation Health Plan, Inc. (2010) 181 Cal.App.4th 471, 484; Plumley, supra,

164 Cal.App.4th at pp. 1050-1051; Fowler v. Howell (1996) 42 Cal.App.4th 1746,

1749 ["a court may not take judicial notice of the truth of a factual finding made in

another action"]; Sosinsky v. Grant (1992) 6 Cal.App.4th 1548, 1563-1569 & fn. 8

(Sosinsky).)

The reasons for this rule recently were restated by this Division in Plumley,

supra, 164 Cal.App.4th 1031: "While we have no quarrel with the fact that a

judge, after hearing a factual dispute between litigants A and B, may choose to

believe A, and make a finding of fact in A's favor, and while we have no quarrel

that at some subsequent time it may be proper to take judicial notice that the judge

did in fact make that particular finding in favor of A, the taking of judicial notice

that the judge made a particular factual finding is a far cry from the taking of

judicial notice that the 'facts' found by the judge must necessarily be the true facts,

i.e., must necessarily be 'the truth.' To state this a bit more simply, the taking of

judicial notice that the judge believed A (i.e., that the judge ruled in favor of A on

a particular factual dispute) is different from the taking of judicial notice that A's

testimony must necessarily have been true simply because the judge believed A

and not B.' [Citationl" (Id. at p. 1050, quoting Sosinksy, supra, 6 Cal.App.4th at

p. 1565.) "Neither a finding of fact made after a contested adversary hearing nor a

finding of fact made after any other type of hearing can be indisputably deemed to

have been a correct finding. As we have noted, '[u]nder the doctrine of judicial

notice, certain matters are assumed to be indisputably true, and the introduction of

evidence to prove them will not be required.' [Citation.] Taking judicial notice of

the truth of a judge's factual finding would appear to us to be tantamount to taking

75

judicial notice that the judge's factual finding must necessarily have been correct

and that the judge is therefore infallible. We resist the temptation to do so.'

[Citation.]" (Plumley, supra, 164 Cal.App.4th at p. 1050, fn. 7.) "It is the

consequence of judicial notice that the 'fact' noticed is, in effect, treated as true

for purposes of proof . . . Therefore, a finding offact that was judicially noticed

would be removed as a subject of dispute and would be accepted for evidentiary

purposes as true. The effect would be that without resort to concepts of collateral

estoppel or res judicata that would litigate whether the issue was fully addressed

and resolved, a finding of fact would be removed from dispute in the other action

in which it was judicially noticed.' [Citation.]" (Plumley, supra, 164 Cal.App.4th

at p. 1051, italics added.)

Although not directly on point, also instructive is Soukup, supra, 39 Ca1.4th

260. In that case, the malicious-prosecution defendant attempted to establish

probable cause for the underlying claims by reference to "rulings in other cases,"

involving parties other than the malicious-prosecution plaintiff, that were favorable

to the defendant. The other rulings included a judgment in the defendant's favor in

a factually related malicious prosecution action brought by another person. (Id at

pp. 294-295.) The Supreme Court rejected the defendant's argument, stating, "But

defendants do not contend, much less demonstrate, that these rulings have

collateral estoppel effect on the issue of whether probable cause existed to support

the [claims] in the underlying suit . . . Absent such effect, they are irrelevant to

that issue." (Id. at p. 295, italics added.)

In this case, we should not repeat the errors in Mattel, supra, 99 CaLApp.4th

1179 and Slaney, supra, 115 Cal.App.4th 306 by taking judicial notice of the truth

of the findings in the underlying case that Manatt's claims were "groundless and

unreasonable." (Cairns IV, supra, 115 F.Supp.2d at p. 1188.) We can judicially

notice only that the district court in the underlying case made such findings—but

76

that fact has no bearing on whether Manatt knew the claims to be false or had no

reasonable basis to believe it could develop evidence to support the claims. This

court properly has rejected the Mint's argument that the district court's findings

have a collateral estoppel effect as to the probable cause determination in this case.

"Absent such effect, [those findings] are irrelevant to [the probable cause] issue."

(Soukup, 39 Ca1.4th at p. 295.) As a result, the Mint has produced no cognizable

evidence whatever to sustain its burden of proving lack ofprobable cause. That

should be the end of this case.

The Mint asserts that Manatt introduced no evidence at trial to show that

Princess Diana used her name and likeness as a trademark. But this improperly

shifts the burden of production from the plaintiff—the Mint—to the defendant-

Manatt. In fact, as discussed, the Mint has cited no cognizable evidence in the

record to establish that Diana did not use her name and likeness as a trademark, or

that Manatt was aware of "specific information as to verifiable facts that, if true,

would totally negate its cause of action." (Swat-Fame, supra, 101 Cal.App.4th at

p. 627.) This improper burden shifting is a pervasive flaw in the Mint's argument.

That the trial court judge who denied Manatt's motion for summary

judgment in this case suggested that Manatt's summary judgment evidence failed

to refer to services provided by Princess Diana is irrelevant. That motion for

summary judgment was denied and is not on review—we are reviewing the

decision of a different trial judge made after trial based on the trial record.35 The

evidence submitted by Manatt in support of its summary judgment motion has no

relevance here, particularly when that evidence is not part of the record on appeal.

Of even less relevance—i.e., less than none, if that is possible—is the trial judge's

characterization of that evidence in connection with the summary judgment

35

This is different than relying on a prior court decision to establish probable cause.

77

motion. Furthermore, there is no basis in the record to restate the trial judge's

comment that the evidence did "not mention any services"—a negative—as an

affirmative statement that Princess Diana s name was used only as part of a textual

reference to Princess Diana as an individual.

We cannot distinguish other celebrity cases from this case based on our own

assumptions and views about Princess Diana. It is, of course, undisputed that

Princess Diana was quite famous. Without evidence, neither the trial court nor this

court can make categorical conclusions about people's perceptions at a particular

point in time with respect to the words "Diana, Princess of Wales." Whether the

"public" associates the phrase "Diana, Princess of Wales" with the Diana of the

fairytale wedding and tabloid divorce, on the one hand, or the Diana who did

charitable work, on the other, is a matter subject to proof as is the questionable

assumption that the words "Diana, Princess of Wales" could never gain secondary

meaning. Such statements and assumptions are not undisputed facts supported by

competent evidence in the record. They provide no basis for reversing the trial

court's judgment in this case. Parenthetically, even if "Diana, Princess of Wales"

did not have a secondary meaning during Princess Diana's life, it is conceivable

that at some point after her death, Princess Diana's name might well become

associated with her charities and thus achieve a secondary meaning. That this

association might have occurred is an issue that Manatt tenably could argue.

2. False Advertising

The false advertising claim was not legally untenable. First, Judge Paez

denied the Mint's motion to dismiss. In so doing, Judge Paez considered both the

allegations in the body of the complaint and the advertisements themselves, which

were attached to the complaint. Under federal pleading practice, documents

attached to the pleadings as exhibits are considered part of the pleadings for the

78

purposes of' a motion to dismiss. (Cagan v. Intervest Midwest Real Estate Corp.

(N.D. Ill. 1991) 774 F. Supp. 1089, 1091, fn. 2; Fed. Rules Civ. Proc., rule 10(c);

Schwarzer, et al., Rutter Group Practice Guide: Federal Civil Procedure Before

Trial (Cal. & 9th Cir. ed. 2010) ¶ 8:680.) In ruling on the Mint's motion to dismiss

in the federal action, Judge Paez observed that the court could consider "exhibits

submitted with the complaint . . . ." (Cairns I, supra, 24 F.Supp.2d at p. 1023.)

Accordingly, the legal tenability of the false advertising was established as a

matter of law.

Second, as discussed, in determining whether the malicious-prosecution

plaintiff has met its burden of proving lack of probable cause, the court must view

the allegations in the underlying action most favorably to the attorney defendant.

(Sangster, supra, 68 Cal.App.4th at p. 165; Leonardini, supra, 216 Cal.App.3d at

p. 571.) This is not a case in which there was an attempt in the body of a

complaint to misstate the facts or mislead the court. As stated, the advertisements

were appended to the complaint and considered on the motion to dismiss.

Accordingly, in determining whether Manatt had probable cuse, we should

reconcile the allegations stated in the body of the complaint with the

advertisements appended to it, and construe the allegations most favorably to

Manatt.

So construed, the false advertising claim was tenable. One of the

advertisements offered for sale a limited edition commemorative plate and stated,

"All proceeds go to Diana, Princess of Wales' Charities." It did not state, as

rnischaracterized by the Mint, that the Mint "would donate all of the proceeds of a

particular portrait plate ordered through a particular ad[." (Italics added.) It is

undisputed that, when the action was filed, none of the proceeds from the sale of

that plate had been donated to any charity, let alone "Diana, Princess of Wales'

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Charities." Manatt thus had probable cause to bring a false advertising claim based

on that advertisement.

The deposit with the court by the Mint of a portion of the revenue generated

by sales of the plate (as distinct from revenue from sales generated by the ad) did

not divest Manatt of probable cause. It is also undisputed that, in fact, a significant

portion of the proceeds from the sales of the plates were never donated to "Diana,

Princess of Wales' Charities," but instead were donated to charities favored by the

Mint's owners. The representation in the ad can be viewed as having been proved

to be actually false. Even if such subsequent events cannot establish probable

cause at the time the lawsuit was filed (see Soukup, supra, 39 Ca1.4th at p. 295

[evidence obtained after filing action did not provide probable cause for filing, but

that evidence was inadmissible in any event)), we should not permit a tortfeasor to

maintain a malicious prosecution action simply because the tort was not finally

completed until after the underlying action was terminated. These circumstances

suggest that there was evidence that Manatt could develop to support its false

advertising claim. This is another basis for supporting the trial court's

determination that the Mint could not prevail on its malicious prosecution suit

based on the false advertising claim.

Manatt's failure to establish that all of the Mint's advertisements appended

to the complaint were false or misleading does not mean that Manatt lacked

probable cause as to the claim or theory or ground of recovery. (See Kreeger v.

Wanland (2006) 141 Cal.App.4th 826, 834.) It cannot be that an attorney is liable

for malicious prosecution if probable cause was lacking for an alleged fact within

the claim even if there was probable cause for the claim or theory of recovery.

80

C. Malicious Prosecution as to an Alternative Ground

I have given my reasons why I believe the trial court's decision should be

affirmed. I append a few additional comments on the subject of malicious

prosecution.

By virtue of the Supreme Court's decision in Crowley v. Katleman (1994) 8

Ca1.4th 666 (Crowley), we are justified in examining each of the causes of action

in the underlying complaint prepared by Manatt in this case to determine if Manatt

can be held liable for malicious prosecution. In Crowley, the court reaffirmed the

rule of Bertero, supra, 13 CaL3d 43, which held "that a suit for malicious

prosecution lies for bringing an action charging multiple grounds of liability when

some but not all of those grounds were asserted with malice and without probable

cause." (Crowley, supra, 8 Ca1.4th at p. 671.)

Both the majority and the dissent in Crowley, supra, 8 Ca1.4th 666 made

valid points on whether the rule of Bertero, supra, 13 Ca1.3d 43, should be

continued.36 I note that in 2007 the Supreme Court of New Mexico addressed this

issue as follows: "Viewing the certified questions with an eye toward protecting

honest litigants, we believe that a court's analysis of probable cause should be

undertaken in a manner that will likely have the least chilling effect on a litigant's

access to the courts. Accordingly, we conclude that probable cause relates to the

complaint as a whole, and the original plaintiff need not show favorable

termination of each individual claim to establish an effective defense to a

subsequent suit for malicious abuse of process. It would be too inhibiting of the

36 A court has gone even further than did the court in Crowley, supra, 8 Ca1.4th 666, holding that "a malicious prosecution action [can] be maintained where most but not all of the amount sought in the prior action was claimed without probable cause." (Citi-Wide Preferred Couriers, Inc. v. Golden Eagle Insurance Corporation (2003) 114 Cal.App.4th 906, 914.)

81

right to seek redress in court if plaintiffs had to win on every count or be subject to

a malicious abuse of process claim for any count that was unsuccessful. See, e.g.,

(Teefey v. Cleaves 73 S.W.3d 813, 817 (Mo.Ct.App. 2002) ("Separate counts in an

underlying petition do not support separate actions for malicious prosecution: To

allow a party to separate the unsuccessful claims from the successful claims in the

underlying proceeding and bring a malicious prosecution action on the

unsuccessful ones would invite a multitude of unwarranted litigation . . . ."

(quoted authority omitted)). [In By allowing 'some form of recovery' for the

plaintiff in the underlying suit, even though not on all counts, to serve as

conclusive evidence of probable cause, we remain true to [the] mandate that the

malicious abuse of process tort be construed narrowly in favor of the right of

access to the courts. [Citation.] As the Tennessee Supreme Court in Swepson v.

Davis, 109 Tenn. 99, 70 S.W. 65, 69 (1902), aptly observed in the context of a

malicious prosecution case: [11] We know of no authority, and have been cited to

none, holding that it is necessary for the plaintiff in his original suit to sustain

every allegation or charge made in his bill, or else be liable to a suit for malicious

prosecution. If this be the correct doctrine, then in every suit for malicious

prosecution there must be a separate investigation and retrial of each separate

allegation made in the original suit, without reference to the result of the suit as a

whole, and the final decree therein. The only sound and tenable rule in cases of

malicious prosecution is . . . to settle the question whether the original suit was

successfully prosecuted or not by the decree therein upon the final adjudication,

and not by the separate allegations and charges, and the proof for and against each.

[T] This rationale recognizes that the litigation process must allow plaintiffs room

to frame the issues and make changes in their approach when necessary."

(Fleetwood Retail Corp. v. LeDoux (N.M. 2007) 164 P.3d 31, 37-38; see also

Joseph H Held & Associates, Inc. v. Wolff(Mo.App. 2001) 39 S.W.3d 59; Moity v.

82

Bodin (La.App. 1986) 489 So.2d 474; see Crystal, supra, 32 Wake Forest L.Rev. at

p. 688 rthe California Supreme Court's decision in Crowley v. Katleman seems

wrong"].)

It does seem odd that a remedy for excessive litigation expands the

opportunity for lawsuits. (See Southern Christian Leadership Conference v. Al

Malaikah Auditorium Co. (1991) 230 Cal.App.3d 207, 228) 37 Moreover, a

proliferation of malicious prosecution actions against attorneys can increase the

cost of legal services38 and affect the attorney-client relationship.

The civil litigators face difficulties as a result of the decision in Crowley,

supra, 8 Ca1.4th 666, which difficulties are highlighted by the instant case. They

may believe that their clients have a right to recovery, but if they assert various

alternative causes of action, they face a possible malicious prosecution claim; and

if they fail to allege such alternative causes of action they face a malpractice

claim—as suggested by the trial court in the instant case. (See Marijanovic v.

Gray, York & Dufb>, supra, 137 Cal.App.4th at p. 1272, fn. 5 ["it could well

constitute malpractice for an attorney to drop a lawsuit, for which supporting

evidence existed, merely because opposing counsel asserted the action was

baseless"].) 39

37 See Drummond v. Desmarais (2009) 176 Cal.App.4th 439 [malicious prosecution action brought against an attorney for bringing a malicious prosecution action].

38 If there is insurance coverage for malicious prosecution, there might be a duty to defend even though under Insurance Code section 533 and Civil Code section 1668 there is no obligation to indemnify. (See Downey Venture v. LMI Insurance Co., supra, 66 Cal.App.4th 478.)

39 I concede that if there is probable cause for one cause of action, it would be more difficult to establish malice for an alternative cause of action lacking probable cause.

83

Attorneys defending a claim often file an answer denying all liability and

asserting a score of affirmative defenses, most of which have no relationship to the

case. At worst, the assertion of a frivolous defense may lead to sanctions under

Code of Civil Procedure section 128.5, but not to exposure to a claim in an

independent lawsuit.° An attorney who asserts a good faith defense for a client

does not expect any adverse consequences for alleging a variety of possible

defenses that may have no applicability to the litigation. The same conduct by an

attorney filing a complaint exposes him or her to a malicious prosecution action.

In this case, it would not be unreasonable to assume that the Mint's

marketing campaign interfered with the rights of Manatt's clients. At first glance,

the executors of the Princess Diana estate and trustee of the Diana, Princess of

Wales Memorial Fund, might reasonably be apprehensive about a United States

company marketing goods that use the name and likeness of Princess Diana and

suggest that proceeds from the sale of those goods will go to an undisclosed

Princess Diana charity. 41 The executors and the trust justifiably could believe this

was a prelude to many other companies doing the same thing, thereby adversely

affecting the charitable activities of the Princess Diana estate and trust. Whether or

not there is under existing law a valid claim that can be asserted to prevent such

conduct is another matter. But if there was probable cause to assert a claim under

one theory, should the attorneys be vulnerable to a malicious prosecution for

asserting other claims arising out of the same operative facts? The claims of right

of publicity and false designation of origin under the Lanham Act (Title 15 U.S.C.

40 A tort of malicious defense is recognized in few jurisdictions. (California Physicians' Service v. Superior Court (1992) 9 Cal.App.4th 1321, 1325; Young v. Allstate Ins. (Haw. 2008) 198 P.2d 666; see also generally Aranson v. Schroeder (N.H. 1995) 671 A.2d 1023 [adopting malicious defense tort].)

41 As plaintiffs prevailed in the underlying action, I do not question their conduct.

84

§ 1125(a))—the two claims found to be based on probable cause—seemingly arise

for the most part under the same operative facts upon which the trademark dilution

claim under the Lanham Act (15 U.S.C. § 1125(c)) is based. The false advertising

claim under the Lanham Act may be more distinct from the other claims, although

related.

My point in this section is to suggest the dangers attorneys face making

allegations in a complaint in the hopes of fitting the injury to a client into several

alternative legal theories, expanding a legal theory, and developing facts during

discovery to support the claims or theories. Perhaps it is safer to omit alternative

theories in the anticipation that after discovery, the complaint may be amended.

But I doubt that many choose this potentially unwieldy option.

I would affirm the judgment.

MOSK, J.

*Associate Justice, Court of Appeal, Second Appellate District, Division Five, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.

85

PROOF OF SERVICE

STATE OF CALIFORNIA, COUNTY OF LOS ANGELES

At the time of service, I was over 18 years of age and not a party to this action. I am employed in the County of Los Angeles, State of California. My business address is 15760 Ventura Boulevard, 18th Floor, Encino, California 91436-3000.

On June 14, 2010, I served true copies of the following document(s) described as PETITION FOR REVIEW on the interested parties in this action as follows:

SEE ATTACHED SERVICE LIST

BY MAIL: I enclosed the document(s) in a sealed envelope or package addressed to the persons at the addresses listed in the Service List and placed the envelope for collection and mailing, following our ordinary business practices. I am readily familiar with Horvitz & Levy LLP's practice for collecting and processing correspondence for mailing. On the same day that the correspondence is placed for collection and mailing, it is deposited in the ordinary course of business with the United States Postal Service, in a sealed envelope with postage fully prepaid.

I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct.

Executed on June 14, 2010, at Encino, California.

Party epresented

Counsel for Plaintiffs and Appellants THE FRANKLIN MINT COMPANY, ROLL INTERNATIONAL CORPORATION, STEWART RESNICK AND LYNDA RESNICK

SERVICE LIST

Franklin Mint Company et al. v. Manatt Phelps & Phillips LLP et al.

Supreme Court Case No. S

Counsel Name / Address

William A. Norris (SBN 25989) Rex S. Heinke (SBN 66163) L. Rachel Helyar (SBN 193080) Gia Kim (SBN 237326) Akin Gump Strauss Hauer & Feld LLP 2029 Century Park East, Suite 2400 Los Angeles, CA 90067-3012

Andrew S. Clare (SBN 050289) Loeb & Loeb LLP 10100 Santa Monica Blvd., Suite 2200 Los Angeles, CA 90067-4164

Kevin H. Brogan (SBN 089427) Dean E. Dennis (SBN 112616) Hill, Farrer & Burrill LLP 300 South Grand Avenue 37th Floor — One California Plaza Los Angeles, CA 90071-3147

Ronald L. Olson (SBN 44597) Brad D. Brian (SBN 79001) Michael R. Doyen (SBN 119687) Munger Tolles & Olson LLP 355 South Grand Avenue, 35th Floor Los Angeles, CA 90071-1560

Counsel for Plaintiffs and Appellants THE FRANKLIN MINT COMPANY, ROLL INTERNATIONAL CORPORATION, STEWART RESNICK AND LYNDA RESNICK

Counsel for Defendant and Respondent MARK S. LEE

[Courtesy Copy]

Co-Counsel for Defendant and Respondent MANATT, PHELPS &PHILLIPS LLP

[Courtesy Copy]

Kathleen M. Sullivan (SBN 242261) Quinn Emanuel Urquhart & Sullivan, LLP 555 Twin Dolphin Drive, 5th Floor Redwood Shores, CA 94065

Co-Counsel for Defendant and Respondent MANATT, PHELPS &PHILLIPS LLP

[Courtesy Copy]

Hon. Warren L. Ettinger, Judge

Trial Judge Los Angeles County Superior Court

(L.A.S.C. Case No. BC285388)

111 North Hill Street, Department 04 Los Angeles, California 90012

Clerk of the Court California Court of Appeal Second Appellate District, Division Four 300 S. Spring Street, Second Floor North Tower Los Angeles, California 90013-1213

Case No. B190482

IN THE SUPREME COURT OF CALIFORNIA - The Am...

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