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Penwag Property Co. v. Landau

New Jersey Supreme Court

Decided: July 10, 1978.


On appeal from Superior Court, Appellate Division, whose opinion is reported at 148 N.J. Super. 493 (1977).

For affirmance -- Chief Justice Hughes, Justices Sullivan, Pashman, Clifford, Schreiber and Handler and Judge Conford. For reversal -- None. Pashman, J., concurring. Pashman, J., concurring with result.

Per Curiam

[76 NJ Page 596] This litigation concerns a dispute between plaintiff landlord, Penwag Property Co., Inc., and its tenant, David Landau, the defendant, arising out of a lease agreement under which the tenant leased the first floor and basement

[76 NJ Page 597]

of a building known as 112-114 Nassau Street, Princeton, for use as a department store. The landlord instituted the action for possession and damages due to the tenant's failure to subordinate his lease to a certain mortgage. Defendant's answer questioned the validity of the mortgage and in a counterclaim asserted that the "action has been commenced without reasonable or probable cause and constituted malicious use of process."*fn1

After an extensive trial, the trial court found that defendant had not breached the lease and that the mortgage in question was in fact subordinate to defendant's lease. It also entered a judgment in favor of defendant on his counterclaim, awarding defendant $19,000 compensatory damages, consisting of counsel fees and costs of defense of the main action, and $20,000 punitive damages. The Appellate Division unanimously affirmed the dismissal of plaintiff's claim. Judge Larner, writing for a majority of that court, reversed the judgment based on the counterclaim on the ground that defendant had not suffered a special grievance. 148 N.J. Super. 493 (App. Div. 1977). The dissenting judge held that the circumstances warranted the conclusion that a special grievance had been established.

Defendant filed an appeal, R. 2:2-1(a), and plaintiff a cross appeal, R. 2:3-4. We affirm essentially for the reasons expressed by Judge Larner.

Malicious prosecution or malicious use of process as it is sometimes referred to when the underlying proceeding is civil rather than criminal*fn2 is not a favored cause of action because of the policy that people should not be inhibited

[76 NJ Page 598]

in seeking redress in the courts. Lind v. Schmid, 67 N.J. 255, 262 (1975). Justice (then Judge) Francis expressed the thought in this language:

Although we recognize the countervailing policy that groundless claims motivated by malice should entitle one to maintain such a cause of action, we believe that on balance the rule that the moving party must establish a special grievance should be retained. Special grievance consists of interference with one's liberty or property. Mayflower Industries v. Thor Corp., 15 N.J. Super. at 151-152. Counsel fees and costs in defending the action maliciously brought may be an element of damage in a successful malicious prosecution, but do not in themselves constitute a special grievance necessary to make out the cause of action. Id. at 175-176.

In addition to special grievance the plaintiff in an action for malicious prosecution of a civil suit must show that the suit was brought without reasonable or probable cause, that it was actuated by malice, and that it terminated favorably to the plaintiff. W. Prosser, Torts, ยง 120 at 850-856 (4th ed. 1971). Favorable termination did not exist when defendant's counterclaim was filed in this cause. Though plaintiff had not moved to strike that counterclaim, it should have been eliminated in the pretrial order. It is not appropriate to institute a suit or file a counterclaim until the litigation has terminated in favor of the party who asserts the malicious prosecution cause of action.


[76 NJ Page 599]

PASHMAN, J., concurring. I concur in the Court's holding that in order for a plaintiff to establish a cause of action based upon an alleged malicious use of civil process (or its counterpart in the criminal context, malicious prosecution) he must demonstrate a "special grievance." This seemingly harsh rule is necessary to avoid having prospective plaintiffs discouraged from seeking vindication of their rights by the threat of such a retaliatory suit. I agree with the statement in the recent case of Pantone v. Demos, 375 N.E. 2d 480 (Ill. App. 1978), a suit by former medical malpractice defendants against the plaintiff in the prior suit and his counsel, that

[375 N.E. 2d at 484]

However, this particular plaintiff obviously acted in bad faith and improperly used the courts to prey upon its innocent tenant. I am loathe to see it escape without some sanction for its misdeed. Nevertheless, despite the unfairness in permitting this plaintiff to escape a judgment for malicious use of civil process, the overall administration of justice requires that this remedy be approved sparingly. Thus, I am constrained to join with the Court in relieving this plaintiff of the otherwise richly-deserved consequences of its wrongful conduct.

For similar reasons I join in the Court's ruling that an action for malicious use of process may not be maintained as a counterclaim in the action alleged to have been maliciously brought. The societal cost resulting from the deterrence of just claims by reason of the powerful leverage such a practice would afford defendants far outweighs the utility of any judicial economies it might produce.

Moreover, I am concerned at some of the ramifications of today's upholding of the "special grievance" rule. All

[76 NJ Page 600]

too frequently improperly motivated litigants, such as plaintiff herein, will be able to drain the financial resources of their opponents through burdensome and costly litigation having no legal or factual basis. Permitting such plaintiffs to escape any penalty so long as they are successful in carefully avoiding any action which would create a "special grievance" may be a necessary evil. However, some avenue of relief must be available to defendants so victimized.

Although presently precluded by R. 4:42-9, I believe that our courts should have the discretionary power to award attorney's fees to a prevailing defendant in certain defined classes of litigation upon a finding that the plaintiff's action was instituted vexatiously and in bad faith. This is generally the case in those jurisdictions which adhere to the so-called "American rule" of the common law. See Christiansburg Garment Co. v. EEOC, 434 U.S. 412, 415-417, 98 S. Ct. 694, 697-698, 54 L. Ed. 2d 648, 653-654 and n. 9 (1978); Alyeska Pipeline Co. v. Wilderness Society, 421 U.S. 240, 95 S. Ct. 1612, 44 L. Ed. 2d 141 (1975). Any danger that an undesirable chilling effect as described above would result from the fact that such a rule would be applied with the benefit of hindsight, see Christiansburg, supra, 434 U.S. at 422, 98 S. Ct. at 700, 54 L. Ed. 2d at 657, could be minimized by a requirement that in such case, the losing party's improper purpose be clearly and convincingly established. Such a rule would simultaneously prevent abuse of plaintiffs with arguably meritorious but unsuccessful claims, while ensuring that those who act in capricious disregard of the interests of justice by using the courts as a tool for harassment will not be able to indirectly accomplish their goal. Such persons should not be permitted to visit the potentially ruinous costs of litigation on an innocent party. I commend the issue to our Civil Practice Committee for appropriate consideration.

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