A Legal Boomerang
Can you be sued for bringing a civil action?
Can you be sued for reporting a crime to the police?
Defendants in civil actions, or the accused in criminal matters, often feel that the legal system set up by society for our protection is wrongfully used as a club. On rare occasions, the courts agree.
James Dawley found an answer to the first of these questions when he sued La Puerta Architectural Antiques for breach of a contract to make custom doors for his new ranch house. The contract called for special woods cut with custom tools. However, in response to a request by one of Dawley’s on-site representatives to cut costs, La Puerta prepared sample doors made out of a common wood, using standard tools. When Dawley saw the sample doors, he immediately notified La Puerta that it had breached the contract, and later sued for return of his $20,000 deposit. In the lawsuit that followed, the court found that Dawley had abused the legal process by suing La Puerta without first investigating the facts and by pursuing the lawsuit even after Dawley’s agent acknowledged he had approved the sample.
The court awarded La Puerta $70,200 in punitive damages plus its attorney’s fees. This decision was later upheld by the New Mexico Court of Appeals.*
Courts are very reluctant to award damages based on the wrongful use of the legal system, reasoning that it is in society’s interest that parties follow the law rather than take disputes into their own hands. However, filing a legal action without good cause, or making an irregular use of the system to extort, delay, or harass is also a violation of the law, called “malicious abuse of process.”
Where does the line between permissible use of the legal system and malicious abuse of process lie?
In the case of Weststar Mortgage Corp. v Jackson, it first appeared that Weststar Mortgage Corp. had crossed that line by providing information about a possible crime to the police. Fortunately for the company, the New Mexico Supreme Court reversed a Court of Appeals decision awarding $200,000 to Ken Jackson as damages for Weststar’s reporting of his alleged criminal acts to the police.
Weststar had mistakenly deposited almost $13,000 into Jackson’s account. He removed $12,000 and placed it in a certificate of deposit. On his attorney’s advice, Jackson refused to return the funds to Weststar. After failed negotiations with Jackson for repayment, the company took its documentation to the police, who presented it to the district attorney, who then filed a criminal action against Jackson. Jackson later sued Weststar for malicious abuse of process. (The criminal case against Jackson was ultimately dismissed on procedural grounds.)**
The NM Supreme Court said that in order for it to find that Weststar was liable for malicious abuse of process, at least one of the following would be required:
- Weststar did not reasonably believe the information it was giving the police was true.
- Weststar used its power or position to influence the prosecutor to file the criminal complaint.
In related cases, the courts have also stated that even the threat of criminal prosecution to achieve civil results, such as payment of a debt, is improper.***
How then, to avoid liability for malicious abuse of process? Common sense suggests several ways:
- Don’t present facts to the police that you know are false, or do not have a reasonable basis to believe are true.
- Don’t, other than by reporting facts to the criminal authorities, attempt to influence the decision of a police officer or the district attorney to pursue a criminal complaint.
- Don’t threaten to make a criminal report to achieve civil remedies such as payment of money.
- Don’t use the procedural process of the courts merely for delay or harassment.
- Do conduct a reasonable investigation of the facts before filing a civil action.
By Melissa Morris, Esq.
Fraud Alert
Everyone knows that a cashier’s check cannot bounce because its face amount is paid to the bank when it is issued and the bank then assumes the obligation. So to protect yourself and your business, always insist that customers who are unknown to you pay by cashier’s check. Right?
Wrong! If you receive a fake cashier’s check and present it to your bank for payment, ultimately you may be charged for the funds that were disbursed.
In a new twist on an old scam, you may be contacted by someone, usually from a foreign country, in response to an advertisement you have placed for sale of merchandise. The caller wants to buy the item, often a “big-ticket” item such as a car, a boat, or valuable livestock. The buyer presents you with a cashier’s check, for thousands of dollars more than the asking price, and a story explaining the overpayment. You are asked to wire back the difference. You deposit the cashier’s check in your bank. The buyer calls again, and “something” has come up. He can no longer complete the purchase, but since he’s put you to all this trouble, he insists that you keep half of the original purchase price and send back only half of the remaining funds as a refund. What a fair customer, and what a scam artist! When you later discover that the check is counterfeit, the bank can charge your account for the amount of the fake cashier’s check and you are out the amount of the “refunds” you paid.
In the 1980’s and 90’s many people were duped by the “4-1-9” scams originating in foreign countries, most notably from Nigeria. The scam takes its name from a section of the Nigerian penal code about fraud. In this scheme, con artists contacted their victims and presented themselves as foreign “officials” who needed assistance to move legitimate funds from a secret account, usually to keep them from corrupt government officials in the foreign country. The victim received numerous official looking documents with stamps and seals to show that the proposal was authentic; the scam artists sometimes used the letterhead of previous victims to forge letters of recommendation. The victims were offered magnificent fees, sometimes up to a third of a multimillion dollar transaction, for their assistance. In exchange, they paid up-front fees for taxes, attorneys’ fees, or even bribes to move the money out of the foreign country and into the victim’s US bank account. Invariably, the money was never transferred to the bank account, and the advance fees paid were never recouped.
What can you do to protect yourself? First, be skeptical of any offers from a foreign country. Insist that the check be drawn on a local bank. If that is not possible, confirm the check by calling the out-of-town bank. Don’t use the phone number supplied by the buyer. You can look up the number by checking the FDIC’s “Institution Directory” at www.fdic.gov/idasp. Insist that the check be for the correct amount. Wait several weeks before releasing any merchandise to the buyer and don’t spend the funds in the meantime.
If it is too late and you have already lost funds to this scam or a similar version, you can contact the U.S. Secret Service hotline at (202) 406-5850 to report a fraud or at (202) 406-5572 to report suspicious E-mail. The closest field office of the Secret Service is located in Albuquerque and can be reached by phoning (505) 248-5290. You may write to the United States Secret Service, Financial Crimes Division at 950 H Street, NW, Washington, D.C. 20223. You may also contact the Internet Fraud Complaint Center (IFCC) at www.ifccfbi.gov/contactus.asp to file a complaint or at www.fbi.gov to provide a tip. This hotline is supported by the Federal Bureau of Investigation and the National White Collar Crime Center.
Will you be able to recover your money? Probably not. The USA has no criminal extradition treaty with Nigeria. As with any other counterfeit check you present to your bank, your account may ultimately be charged with the loss. In one case, a consumer was successful in reaching an undisclosed settlement with her bank because the bank had assured her that the check was legitimate, despite her own skepticism — but don’t count on your bank to be as understanding.
It’s up to you to avoid becoming a victim by being informed.
By Sharon Fleming, Esq.
A “Do It Yourself Guide” To Agreements That Work
Attorneys at The Jaffe Law Firm review many contracts submitted by members. Many, for such things as home mortgages and vehicle loans, contain terms that are dictated by the bank or other financial institution doing the lending. In these instances, our job is to explain the legal significance of the contract to the member.
There are also transactions, such as the sale of real estate, which require specific technical clauses in the final documents. For example, in transferring real estate, it is important whether the deed transferring ownership states that the buyers of the land hold the land as joint tenants or as tenants in common.
We can also review documents up to a certain length prepared by our members and give suggestions on how to improve them. More complex contracts should be prepared by an attorney experienced in the area involved. The purpose of this article is to give you some guidelines in helping your attorney draft an agreement tailored to your needs.
As an example, assume you own a retail business and your landlord has just offered to rent you the space next door. You decide that expansion is a good idea, but you’re already putting in as many hours as you reasonably can in running the business, and it will take cash to renovate the new space and expand inventory. So you find someone interested in becoming a partner in your business.
Prepare by asking yourself a series of questions with the general theme, “What am I agreeing to?" It seems simple: the new partner is going to put up a certain sum of money to be used in expanding the business and will work in the shop with you. More specific questions follow:
- What is the business worth right now, and am I being adequately compensated for the one-half I am giving up?
- Who gets to make decisions about the business?
- Are we reasonably confident we can work together?
- How many hours are we each going to put in?
- How will we resolve any disputes that come up?
The attorney has to know the terms and conditions of the agreement before (s)he can reduce them to writing and before writing in the usual legal safeguards for that type of agreement.
A good approach is to write down exactly what it is you are agreeing to, point by point, before meeting with your attorney. State what each side gives and gets under the agreement, and state it in as much detail as you can. This process will bring up points that need to be clarified with your prospective partner. Maybe you decide it’s a good idea to go over numbers with your accountant and have a profit and loss statement prepared. Do you need more insurance for the business? Should you execute a new lease or an addendum to the existing lease? Should your new partner sign on the lease with you?
Write down all questions that occur to you as they come up. The best time to work out the details of an agreement is going into it, not after a problem arises.
People often enter into agreements like this in a fit of enthusiasm and optimism about the future. Remember, however, that when you’re designing the ocean liner you want to be sure there are enough lifeboats, however confident you may be that you’ll never need them. Before you have an agreement vetted by an attorney, you have to be clear as to what you are agreeing to, not only going in, but also getting out. For instance:
- What happens if one party defaults under the agreement?
- What happens if one party dies?
- What happens in a mutual endeavor if you don’t get along and decide to call it quits?
- What happens if the business fails? Who pays the debts?
A written contract memorializes what the parties have agreed to, and reaching that agreement is a process that requires thinking about the situation, communicating about it with the other party, working out the particulars and then getting it all down on paper. Now you’re ready to see a lawyer to sand any rough edges and to include necessary legal protections and terms of art.
By Robert Foster, Esq.
Painfully Punny
• What’s the definition of a will?
(It’s a dead giveaway.)
• What happens if you don’t pay your exorcist?
(You get repossessed.)
• When are you stuck with a debt?
(When you can’t budge it.)
The Business of Business
• A memorandum is written not to inform the reader but to protect the writer.
Dean Acheson
• It is almost as difficult to keep a first class person in a fourth class job as it is to keep a fourth class person in a first class job.
Alexandre Dumas
• I don’t want any yesmen around me. I want everyone to tell me the truth--even if it costs him his job.
Samuel Goldwyn