An Effective Way to Fight an Objectively Frivolous Lawsuit
Posted in The Real Dirt

An angry client calls: "I have been sued." But this time, there is absolutely no basis in law or fact for the lawsuit.

The client asks: "Can I get the case dismissed and recover my attorney's fees against the lawyer and opposing party who sued me?"

I might answer that being sued is like having a wedding. You pay a lot and get involved in a very protracted, expensive affair, which may not end well even under the best of circumstances. On top of the pain and rigors of litigation, do you really want to pursue an action for malicious prosecution against your adversary after prevailing to try to win back your attorney's fees (where attorney's fees are not otherwise recoverable in the underlying action)? Is this throwing good money after bad?

For truly frivolous legal actions, California Code of Civil Procedure Section 128.7 (like the analogous Federal Rule of Civil Procedure, Rule 11) provides a remedy. Where a case is provably groundless as a matter of law or fact, Section 128.7 might be a viable way to try to force an end to litigation at an early stage, and at the same time, permit a party to recover its attorney's fees.

A recent case, Peake v. Underwood (July 17, 2014), shows how Section 128.7 can work. There, an unhappy buyer of a home (Peake) sued the listing broker (Ferrell) along with the seller (Underwood) for allegedly failing to disclose material facts about the home and committing fraud in the sale. After the case had been pending for over a year, Ferrell had accumulated enough evidence to show that Peake's case was groundless. Ferrell served a Section 128.7 motion on Peake. Peake did not dismiss her complaint within 21 days. Rather, she moved to expand the allegations against Ferrell.

Ferrell then filed his Section 128.7 motion seeking termination of the action and monetary sanctions against Peake and her attorney. The trial court found that Ferrell had shown Peake's claims were “without legal or evidentiary support” and Peake's continued maintenance of the lawsuit demonstrated “objective bad faith” warranting Section 128.7 sanctions. The trial court dismissed Peake's claims against Ferrell and ordered Peake and her attorney to pay Ferrell $60,000 for his attorney’s fees incurred in defending the action. The Court of Appeal affirmed.

Such happy endings do not commonly happen, especially for wrongly sued brokers who may have been added to an action just for leverage. Section 128.7 can be a potent tool against abusive, extortionate lawsuits in those rare cases where an action is totally devoid of merit.

The Real Dirt explores issues in business and real estate litigation. If you have any questions about this blog or any litigation matters, contact Geoffrey M. Gold, Esq. of ECJ's Real Estate and Litigation Departments


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