North Carolina Supreme Court Clarifies Rule Regarding "Initiation of Proceedings" in Context of Malicious Prosecution Claim

In N.C. Farm Bureau Mutual Insurance Co. v. Cully’s Motorcross Park, Inc., the North Carolina Supreme Court recently clarified an important rule regarding when a third party who provides investigative information to law enforcement may be held liable for malicious prosecution.  In this case, an investigator for the plaintiff, Farm Bureau, who was investigating a house fire found evidence of arson and reported his suspicions to a Wilson Police Department sergeant.  The investigator’s findings included allegations that the defendant, the president and sole stockholder of the company that owned the property at the time of the fire, had failed to report to Farm Bureau that there was a deed of trust on the property when she insured it, when she filed a claim of loss after the fire, or when she later sold the burned property to a purchaser who did not know it was still encumbered.  The defendant was later arrested and charged with obtaining property by false pretenses based on her sale of the encumbered property, although that charge was later dismissed.  When Farm Bureau brought a declaratory judgment action seeking a ruling it was not obligated under the property’s insurance policy, the defendant brought a counterclaim for malicious prosecution against Farm Bureau.

To prove a claim for malicious prosecution, the defendant had to show that (1) Farm Bureau initiated the criminal proceeding against her, (2) malice on the part of Farm Bureau in doing so, (3) lack of probable cause for the initiation of the criminal proceeding, and (4) termination of the earlier proceeding in favor of the defendant.  The issue on appeal was whether the trial court properly found that Farm Bureau had initiated the prosecution of the defendant.  The Court of Appeals held that Farm Bureau had initiated the criminal proceedings, reasoning that without the efforts of Farm Bureau’s investigator in investigating the claim and providing all of his information to the police, it was unlikely that the defendant would have been criminally prosecuted.

On appeal, the Supreme Court disagreed, citing Section 653 of the Restatement (Second) of Torts, which provides that giving a public official information of another’s supposed criminal conduct “or even making an accusation of criminal misconduct does not constitute a procurement of the proceedings initiated by the officer if it is left entirely to his discretion to initiate the proceedings or not.”  The Court reasoned that this rule protects important public interests by allowing citizens to make reports in good faith to the police and prosecutors without fear of retaliation if the information proves to be incomplete or inaccurate.  Moreover, the Court explained that this “sensible approach encourages independent investigation by those in law enforcement who receive the information.”

Applying this test to the facts, the Court held that Farm Bureau had not instituted the proceedings against the defendant, relying on testimony from Farm Bureau’s investigator that he never asked the police to arrest the defendant or initiate a prosecution against her and never made any suggestions as to what the police should do with the information he gave them, as well as testimony from the investigating officer that the decision to criminally charge the defendant was his entirely his decision.  The Court's full opinion can be found here.