Malicious Prosecution: A Rare but Powerful Counter-Weapon for a Prevailing Defendant

Malicious prosecution is a cause of action often coveted by insureds and other defendants who feel they have been wrongfully sued, but it is a claim that is rarely pursued successfully. A case out of Montana directed at a blue-chip law firm and an heir to the Morton Salt fortune, however, has to this point turned out to be one of those rare cases. The judgment in the case stands at more than $11 million and the Montana Supreme Court has gone on record saying one of the nation’s leading law firms engaged in “legal thuggery” in the underlying case that spawned the malicious prosecution action.

Steve Morton is described as an heir to the Morton Salt fortune. He and his brother purchased a painting of a western scene in 1972, believing the painting to be by Charles M. Russell, a renowned western artist. In 1998 Morton contacted an auction house about the possibility of selling the painting, and later the auctioneer appraised the painting at $650,000. In late 2000 or early 2001, Morton decided to proceed with a sale, but the auctioneer’s partner suspected the painting had actually been done by another artist, O.C. Seltzer, who was a contemporary of Russell’s. The partner suggested an expert opinion be sought on the painting’s authenticity.

O.C. Seltzer’s grandson, Steve Seltzer, is considered (at least by the Montana Supreme Court) to be the world’s foremost expert on the works of his grandfather and also to be an expert on the works of Russell. Steve Seltzer expressed the opinion that the painting clearly was by his grandfather and not an authentic work by Russell. If true, that meant the painting would be worth far less than previously believed because a work by O.C. Seltzer would be worth only about ten percent of the value of a painting by Russell. The auctioneer recommended a second opinion, this time by Ginger Renner, considered the premier expert on Russell’s work and also knowledgeable about the works of Seltzer. She, too, opined that it was unquestionably a painting by O.C. Seltzer.

Having been told by two leading experts the painting was not by Russell and seeming to accept that the opinions at least cast considerable doubt on the authenticity of the work, Morton, according to the Montana Supreme Court, nonetheless attempted to sell the painting as an authentic Russell. But a gallery and a leading auction house refused to sell it.

Nonetheless, Morton’s lawyer, a retired partner and “of counsel” of Gibson Dunn & Crutcher, LLP, sent a remarkable demand letter to Seltzer and Renner, the second expert. The letter said in part:

“1. Each of you will draft a letter to our specifications completely recanting and withdrawing any statement you have previously made regarding the authenticity of the painting… 2. You will admit that you did not perform a detailed examination and that your ‘opinion’ was merely conjecture on your part. 3. You will agree to compensate Mr. Morton for the difference between what the painting sells for today… and what it could have sold for two years ago prior to your defamatory remarks about its authenticity. 4. Independently, you will reimburse Mr. Morton for the time, expense, embarrassment, grief and anxiety he has expended in trying to recover from your actions. The price: an additional $50,000 beyond the loss in value of the painting.”

When Seltzer did not capitulate to the demands, Gibson Dunn filed suit against him on behalf of Morton. The causes of action included defamation, negligence and intentional interference with business relations and prospective economic advantage.

In discovery, Gibson Dunn/Morton did not disclose two letters that tended to show their client realized the painting was not an authentic work by Russell. The court said the letters contained key admissions by Morton; one example was the statement by a previous attorney for Morton that “the Mortons have been shocked to learn that the painting is not a work by Russell.”

Seltzer filed a motion for summary judgment supported by the affidavits of 10 persons, including himself, who had expertise regarding the works of Russell and O.C. Seltzer. Morton and Gibson Dunn apparently were unable to find a single authoritative expert to support their case that the painting was an authentic work by Russell.

Gibson Dunn fired off a letter to the two previous owners of the painting, the Amon Carter Museum and the Kennedy Galleries of New York, demanding that they provide the Morton brothers with “an authentic C.M. Russell” in exchange for the one at issue. A month later Morton’s suit against Seltzer was dismissed. Seltzer had spent over $45,000 defending himself and he, in turn, sued Morton, Gibson Dunn and Gibson Dunn’s lawyers who had worked on the case for malicious prosecution.

The jury awarded Seltzer $1.1 million in compensatory damages. It awarded punitive damages as follows: $100,000 against Morton, $150,000 against the retired partner of Gibson Dunn and $20 million against Gibson Dunn. The trial judge, pursuant to Montana law and the U.S. Constitution, reduced the punitive damages against Gibson Dunn to $9.9 million. Both sides appealed.

The court’s opinion includes an interesting discussion of the application of constitutional law to the issue of punitive damages in this case. The U.S. Supreme Court has taken steps in recent years to curb what it sees as excessive punitive damages awards. Applying those cases to these facts, the Montana Supreme Court agreed with the trial court’s holding that $9.9 million was an appropriate punitive sanction against Gibson Dunn. (Gibson Dunn reportedly had a Lloyd’s policy with a limit of $160 million that would cover punitive damages.)

Malicious prosecution is a state tort cause of action and the elements of proof may vary somewhat by jurisdiction. The Montana Supreme Court did not discuss in this case all of the elements that must be proven in order to prevail in a case of malicious prosecution in Montana, but typical elements are: (1) malicious institution or pursuit of a legal action (2) that is brought without probable cause and for a purpose other than administration of justice (3) that was dismissed in favor of the victim of the malicious prosecution (4) and that caused damages to the victim. Some states may also require proof of injury other than the normal downsides associated with being sued.

While defendants often prevail in litigation, the first and second elements typically pose substantial obstacles to a malicious prosecution case. This is particularly true because courts are generally loathe to punish a party for having availed itself of the benefits of the judicial system. As a matter of public policy, it is preferable to have cases, even some weaker ones, in the judicial system rather than creating stronger barriers to the courts which might encourage disaffected parties from pursuing their own brands of justice. However, there are limits to that openness of the court system, and malicious prosecution is just one of the remedies available to an aggrieved defendant.

To read more about this case, visit the Montana Supreme Court website search page and search for “Seltzer” using the search by text feature.