Wednesday, July 18, 2007, 6:39 AM

COA Allows Abuse Of Process Claim Based On Issuance Of Injunction

Yesterday, in a split decision, the Court of Appeals (COA) allowed a plaintiff to go forward on abuse of process and tortious interference claims which were filed against defendants for obtaining and using a preliminary injunction. Abuse of process is, of course, this is one of the most difficult torts to advance, because it requires a plaintiff to speculate about a defendant's ulterior motive in doing something that the law permits--obtaining and using process. The case is Pinewood Homes, Inc. v. Harris.

Here's what happened. In an earlier case, defendants obtained a judgment for several hundred thousand dollars against Ritchie. Fearing that Ritchie would try to avoid execution, defendants obtained, after entry of the judgment, a preliminary injunction against Ritchie and all companies in which he maintained an ownership interest from selling, transferring, or encumbering assets until post-judgment collection proceedings were completed.

Because Ritchie was a shareholder of Pinewood Home, Inc. (Pinewood), the injunction effectively enjoined Pinewood--and, in effect, the real estate assets it held as trustee, which were subject to deed-of-trust liens, and which were not owned by Ritchie. Defendants may have mistakenly believed that Ritchie controlled those assets.

Pinewood was not a party in the suit against Ritchie and was not named in the injunction.

Pinewood sued defendants, contending they maliciously sought the injunction to coerce Pinewood to pay the judgment against Ritchie, a judgment for which Pinewood wasn't legally responsible. Pinewood asserted tort claims for abuse of process and tortious interference.

Meanwhile, after Pinewood filed suit, the COA, in an earlier case, vacated the preliminary injunction on an unrelated ground (to wit, that N.C.G.S. 1-355 doesn't allow a preliminary injunction to be entered until either a judgment has been returned unsatisfied or the terms of 1-355 are met).

Pinewood pressed on with its tort action. The trial court dismissed the complaint, holding that granting Pinewood relief would violate the rule against collateral attacks on judgments, since the case would require the trial court to interpret and affirm, limit, or redefine the (vacated) injunction.

Yesterday the COA reversed. The court held that the collateral-attack rule didn't apply because injunction had been vacated. And the court held that Pinewood stated claims for abuse of process and tortious interference.

Abuse of process requires the plaintiff to plead facts to support these elements: 1) that the defendant sought court process for an ulterior motive to achieve a collateral purpose not within the normal scope of the process used, and 2) that after issuance of the process, the defendant maliciously used or misapplied that process to accomplish some unwarranted purpose. In this case, the COA found it sufficient that plaintiff alleged: 1) defendants had an ulterior purpose of coercing Pinewood to pay a judgment it was not not obligated to pay; 2) defendants "maliciously refused to recognize the validity" of the trusts; and 3) defendants therefore gained "an advantage over the assets" held by plaintiffs. Based on these same allegations, the COA also held that Pinewood had adequately pleaded the legal malice element of tortious interference (i.e., absence of legal justification).

Judge Wynn dissented. He concluded the action was barred by the collateral-attack doctrine, because Pinewood was trying to collaterally attack an order (the injunction) granted in another proceeding. He also concluded that Pinewood's complaint didn't adequately plead abuse of process because the complaint didn't plead any use of the injunction other than for the purpose for which it was intended -- to prevent the sale or transfer of assets to which defendants believed, perhaps mistakenly, they were entitled. He also concluded that Pinewood didn't adequately plead the lack-of-justification element of tortious interference because, he said, the complaint admitted there was also a legitimate motive in seeking the injunction--maintaining assets and titles until Ritchie had satisfied the judgment.

This case should make counsel for judgment creditors think twice before ambitiously seeking broad injunctive relief during the judgment collection process.


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