The “Litigation Privilege”, and the Possible Recovery of Damages In a Suit for Disparagement or Slander of Title to Real Estate Due to the Wrongful Recording of a Mechanics Lien Under California Law

Usually, recording false, fraudulent or invalid documents, deeds, or claims against another’s title to real property can subject the recording party to actual and punitive damages for Slander or Disparagement of Title. See 5 Witkin, Summary of California Law (10 thEd. 2008) Torts, § 642-643; Restatement (2 nd) Torts § 629.

“The recordation of an instrument facially valid but without underlying merit will give rise to an action for slander of title. Seeley v. Seymour, 190 Cal.App.3d 844, 857, 237 Cal. Rptr. 282 (1987). A recorded document may have no effect on title yet still give rise to a slander of title cause of action. Id. (Rejecting argument that if the recorded document is facially insufficient to create a legal "cloud," the party whose property is affected is deprived of an action for wrongful disparagement of title.)” (Emphasis added)

Stamas v. County of Madera (E.D. Cal. 2011) 795 F. Supp. 2d 1047, 1068

The damages recoverable equal the difference between the value of the property without the disparagement of title and the reduced value of the property after the disparagement has been made, or the wrongful claim to title recorded. 6 Witkin, Summary of California Law, supra, Torts, § 1703; Restatement (2 nd) Torts § 633, Comments c & e.

“It is recognized, however, that the property owner may recover for the impairment of the vendibility "of his property" without showing that the loss was caused by prevention of a particular sale. "The most usual manner in which a third person's reliance upon disparaging matter causes pecuniary loss is by preventing a sale to a particular purchaser. . . . The disparaging matter may, if widely disseminated, cause pecuniary loss by depriving its possessor of a market in which, but for the disparagement, his land or other thing might with reasonable certainty have found a purchaser." (3 Rest., Torts (1938) § 633, coms, a & f, pp. 348 and 349.)” (Emphasis added)


Glass v. Gulf Oil Corp . (1st Dist. 1970) 12 Cal. App. 3d 412, 424.

“A recorded document may have no effect on title yet still give rise to a cause of action for slander of title. Gudger v. Manton, 21 Cal. 2d 537, 543,134 P.2d 217 (1943) (if the publication as reasonably understood casts doubt on the existence and extent of another's interest in property, it is disparaging to his or her title where it is so understood by the person to whom it is published) (overruled in part on other grounds by, Albertson v. Raboff, 46 Cal. 2d 375, 295 P.2d 405 (1956)). "[T]he key to whether the defendant's conduct is actionable is not whether he has succeeded in casting a legal cloud on the plaintiff's title, but whether he could reasonably foresee that 'the conduct of a third person as purchaser or lessee ... might be determined thereby.'" Seeley, 190 C.A.3d at 857.” (Emphasis added)

Stamas v. County of Madera , supra, 795 F. Supp. 2d at 1068-1069.

“It is not necessary, however, to show that a particular pending deal was hampered or prevented, since recovery may be had for the depreciation in the market value of the property. Hill, 259 Cal.App.2d at 489. The disparagement and ensuing damage may be established by other than showing a loss of a particular potential sale. Glass v. Gulf Oil Corp., 12 Cal.App.3d 412, 96 Cal. Rptr. 902 (1970).” (Emphasis added)

Stamas v. County of Madera , supra, 795 F. Supp. 2d at 1069.

The costs and expenses - including attorneys fees and litigation costs -incurred in removing the cloud from the title created by the improper recording of some document against the real estate are also usually recoverable.

“While it is true that an essential element of a cause of action for slander of title is that the plaintiff suffered pecuniary damage as a result of the disparagement of title (Manhattan Loft, LLC v. Mercury Liquors, Inc., supra, 173 Cal.App.4th at p. 1057), the law is equally clear that the expense of legal proceedings necessary to remove the doubt cast by the disparagement and to clear title is a recognized form of pecuniary damage in such cases (Seeley v. Seymour, supra, 190 Cal.App.3d at p. 865; Wright v. Rogers, supra, 172 Cal.App.2d at pp. 366–367; Rest.2d Torts, § 633, subd. (1)(b)).n48 Since California law expressly recognizes that attorney fees and costs are a form of pecuniary damages in slander of title cases, it would seem that in the absence of legal authority to the contrary, such damages are presumptively sufficient to satisfy the pecuniary damage element of the cause of action. No cogent authority to the contrary has been brought to our attention.

FOOTNOTES
n48 When the Restatement of Torts defines the two recognized forms of pecuniary damage in slander of title cases, it does not suggest that the damage described in subdivision (b) is dependent upon the existence of the damage mentioned in subdivision (a). (Rest.2d Torts, § 633, subd. (1)(a) & (b).) It simply lists both as varieties of pecuniary damage that are recoverable in slander of title cases.

“More than that, the rationale for allowing attorney fees as damages in slander of title cases supports the proposition that such damages are independently recoverable, and are not merely an add-on to other forms of pecuniary loss. That rationale may be articulated as follows: When a defendant's tortious conduct (i.e., the unprivileged publication of a falsehood constituting a slander of title) forces the plaintiff to litigate in order to clear his title, the plaintiff's attorney fees and costs necessary to accomplish that purpose constitute actual harm or injury to the plaintiff that was proximately caused by the tort and therefore should be compensated. (Wright v. Rogers, supra, 172 Cal.App.2d at p. 366; Contra Costa County Title Co. v. Waloff, supra, 184 Cal.App.2d at pp. 67–68.) In other words, allowing the recovery of attorney fees as damages in such cases is an application of the rule that a plaintiff is entitled to recover the amount of damages that will compensate for all the detriment proximately caused by the defendant's tortious conduct. (Civ. Code, § 3333; Wright v. Rogers, supra, at p. 365; Forte v. Nolfi, supra, 25 Cal.App.3d at p. 686; Contra Costa County Title Co. v. Waloff, supra, at pp. 67–68.) As aptly stated by the highest court of another state: “[A]ttorney fees are permissible as special damages in slander of title actions because ‘the defendant … by intentional and calculated action leaves the plaintiff with only one course of action: that is, litigation. … Fairness requires the plaintiff to have some recourse against the intentional malicious acts of the defendant.’ ” (Horgan v. Felton (2007) 123 Nev. 577 [170 P.3d 982, 987–988], fn. omitted, quoting Rorvig v. Douglas (1994) 123 Wn.2d 854 [873 P.2d 492, 497].) In view of the above stated purposes for allowing recovery of fees as damages in slander of title causes of action, we see no reason to strictly limit the recovery of such damages to those cases in which the plaintiff has also proven some other pecuniary harm, such as a lost sale, property depreciation or impairment of marketability.

“In considering this issue, we believe it is helpful to note the analogy between a cause of action for slander of title and that of malicious prosecution. As one case put it, “[t]o clear a slandered title is akin to defending an unfounded lawsuit,” since in both instances the defendant's tortious conduct was “calculated to result in litigation.” (Contra Costa County Title Co. v. Waloff, supra, 184 Cal.App.2d at p. 68.) In both types of cases, the necessary attorney fees incurred are recoverable as special damages caused by the defendant's wrongful conduct. (Ibid.) Moreover, in malicious prosecution actions, the attorney fees and costs incurred in defending the frivolous suit may sometimes be the only special damages recovered by the plaintiff. (Peebler v. Olds (1945) 71 Cal.App.2d 382, 389 [162 P.2d 953].) Arguably the same should be true with respect to slander of title claims, since as the present appeal illustrates, the sole or primary damage sustained may be the fees incurred by the plaintiff to clear his title. As observed by another court: “In malicious prosecution, wrongful attachment, and slander of title, the defendants actually know their conduct forces the plaintiff to litigate,” but aside from litigation expenses “actual damages are difficult to establish and often times are minimal in slander of title.” (Rorvig v. Douglas, supra, 873 P.2d at p. 497.) Although there are differences between the two torts, we think the similarities are significant as they relate to this issue. Those similarities lend further support to the view we adopt herein.

“Additionally, we note that courts in other jurisdictions have directly confronted this issue and have concluded that attorney fees incurred in removing the effects of slander of title are recoverable as special damages even in the absence of proof of an impairment of vendibility. For example, in Paidar v. Hughes (Minn. 2000) 615 N.W.2d 276, the only damages the plaintiff claimed were attorney fees incurred as a result of the defendant's slander of title. The Supreme Court of Minnesota held that the plaintiff could recover the fees as special damages: “Hughes does not claim a ‘loss of sale’ as his special damages; he claims attorney fees as his damages. The fact that Hughes ultimately was able to sell the property at issue here should not prevent him from recovering his attorney fees if he can show that he necessarily incurred them as a direct result of [the defendant's] tortious actions.” (Id. at p. 281.) Likewise, in Colquhoun v. Webber (Me. 1996) 684 A.2d 405, the defendant argued that the plaintiffs' failure to allege and prove a specific lost sale as a result of the defendant's filing a frivolous deed was fatal to the plaintiffs' slander of title claim. The Supreme Court of Maine rejected that argument and held that “attorney fees incurred in removal of a cloud on a title caused by a spurious and vexatious deed do constitute proof of special damages in a slander of title action even in the absence of proof of an impairment of vendibility.” (Id. at p. 411.) We concur with the reasoning of these courts” (Emphasis added)

.
Sumner Hill Homeowners' Assn., Inc. v. Rio Mesa Holdings, LLC (2012) 205 Cal. App. 4th 999,

1032-1034.

“As was stated in Reynolds Metals Co. v. Alperson (1979) 25 Cal.3d 124 [158 Cal.Rptr. 1, 599 P.2d 83] (Reynolds) at pages 129 to 130: “Attorney's fees need not be apportioned when incurred for representation on an issue common to both a cause of action in which fees are proper and one in which they are not allowed.” (See also Bell v. Vista Unified School Dist. (2000) 82 Cal.App.4th 672, 687 [98 Cal. Rptr. 2d 263] [apportionment not required when claims for relief are “so intertwined that it would be impracticable, if not impossible, to separate the [***81] attorney's time into compensable and noncompensable units”]; Drouin v. Fleetwood Enterprises (1985) 163 Cal.App.3d 486, 493 [209 Cal. Rptr. 623] [“Attorneys fees need not be apportioned between distinct causes of action where plaintiff's various claims involve a common core of facts or are based on related legal theories.”].)” (Emphasis added)

Sumner Hill Homeowners' Assn., Inc. v. Rio Mesa Holdings, LLC , supra, 205 Cal. App. 4th at 1035-

1036.

In addition to such actual or special damages, a wronged property owner may recover Punitive Damages in a Slander of Title action.

Cases where courts have upheld punitive damages for slander of title include Castaic Clay Manufacturing Co. v. Dedes (1987) 195 Cal.App.3d 444 [fraudulent deeds] and Seeley v. Seymour (1987) 190 Cal.App.3d 844 [phony ground lease].

“Punitive damages may be awarded in a slander of title action where fraud, oppression or malice is shown by the evidence. (Civ. Code, § 3294, subd.(a); Wright v. Rogers, supra, 172 Cal.App.2d 349, 368; Spencer v. Harmon Enterprises, Inc. (1965) 234 Cal.App.2d 614, 626 [44 Cal.Rptr. 683].) There was ample evidence for the jury to infer that, in recording the memorandum, Seymour acted with "conscious disregard of the plaintiff's rights." ( Neal v. Farmers Ins. Exchange (1978) 21 Cal.3d 910, 922 [148 Cal.Rptr. 389, 582 P.2d 980].)”

Seeley v. Seymour (1st Dist. 1987) 190 Cal. App. 3d 844, 866.

However, under California Civil Code § 47(b) statements made and things said or done in connection with a planned or pending Court action or other legal proceeding authorized by law are considered “privileged”, and no legal action may be brought to collect damages from such statements or actions.

While the express words of Civil Code § 47 apply only to communications during litigation, courts have extended it to apply to a limited set of pre-litigation communications, with a number of limitations.

Such “statements” or “communications” thus can include statements or claims made in documents recorded with the County Recorder in connection with actual or planned litigation or legal proceedings.

“From the simple statement of the privilege in the original statute, the courts have derived this ‘usual formulation’: ‘[T]he privilege applies to any communication (1) made in judicial or quasi-judicial proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the objects of the litigation; and (4) that have some connection or logical relation to the action. [Citations.]’ (Silberg, supra, 50 Cal. 3d at p. 212.) . . . In other words, the litigation privilege is intended to encourage parties to feel free to exercise their fundamental right of resort to the courts for assistance in the resolution of their disputes, without being chilled from exercising this right by the fear that they may subsequently be sued in a derivative tort action arising out of something said or done in the context of the litigation. (50 Cal. 3d at p. 213.)” (Emphasis added)

Edwards v. Centex Real Estate Corp. (1st Dist. 1997) 53 Cal. App. 4th 15, 29.

But there are also some limitations on this “litigation privilege”

“More than a mere possibility or vague ‘anticipation’ of litigation must be required for the privilege to attach [to prelitigation communications], or else the privilege may be misused in ways for which there is no public policy justification or purpose. To paraphrase the words of the Restatement, the ‘bare possibility’ that a judicial proceeding ‘might be instituted’ in the future ‘is not to be used as a cloak to provide immunity’ for fraud and other tortious conduct when the possibility has not ripened into a proposed judicial proceeding that is contemplated in good faith and under serious consideration. (Rest.2d Torts, § 588, com. e, p. 251.)

“In order to ensure that the privilege does not become merely a shield for fraud, the parameters of the privilege must be defined by the reasons providing justification for its existence. . . .”(Emphasis added)

Edwards v. Centex Real Estate Corp. , supra, 53 Cal. App. 4th 15, 33.

“First, the communication must have been made preliminary to a proposed judicial or quasi-judicial proceeding. (Rest.2d Torts, § 586-588 & com. e, pp. 247-251.) That is, a lawsuit or some other form of proceeding must actually be suggested or proposed, orally or in writing. Without some actual verbalization of the danger that a given controversy may turn into a lawsuit, there is no unmistakably objective way to detect at what point on the continuum between the onset of a dispute and the filing of a lawsuit the threat of litigation has advanced from mere possibility or subjective anticipation to contemplated reality.

“Second, the verbal proposal of litigation must be made in good faith. (Rest.2d Torts, § 586-588 & com. e, pp. 247-251) It is not necessary that a party make an actual ‘threat’ of litigation, as long as there is a serious, good faith proposal [for filing suit]. By the same token even a threat to file a lawsuit would be insufficient to activate the privilege if the threat is merely a negotiating tactic and not a serious proposal made in good faith contemplation of going to court.”(Emphasis added)

Ibid at 34-35; Action Apartment Assn., Inc. v. City of Santa Monica (2007) 41 Cal. 4th 1232, 1251.

“Third, the contemplated litigation must be imminent. . . . Unless and until the parties are negotiating under the actual threat of impending litigation, the original justification for the litigation privilege of encouraging access to the courts can have no relevance to their communications.”

Finally, the litigation must be proposed in order to obtain access to the courts for the purpose of resolving the dispute. . . .” (Emphasis added)

Ibid at 35. See also, 5 Witkin, Summary of California Law (10th Ed. 2008), Torts, § 571, pp. 836-839, 2011 Supp. pp. 152-154.

“Respondents' statements to appellants are therefore unprotected by the privilege if there is no substantial evidence that, at the time respondents made the alleged misrepresentations, imminent litigation was seriously proposed and actually contemplated in good faith as a means of resolving the parties' dispute.”

Edwards v. Centex Real Estate Corp ., supra, 53 Cal. App. 4th 15, 39.

Although earlier case held that “the filing of a claim of mechanic's lien in conjunction with a judicial proceeding to enforce it is privileged within the meaning of Civil Code section 47, subdivision 2" [Frank Pisano & Associates v. Taggart (1972) 29 Cal. App. 3d 1, 25 (Emphasis added)], that case was decided nearly 40 ago, long before any of the cases discussed above.

Subsequently, it was held that the service of a Stop Notice - which serves similar purposes under the Mechanics Lien Law to a mechanics lien (See, Civil Code § 8500, et seq) - was not protected by the litigation privilege “because defendants failed to establish that a lawsuit was under serious consideration, they failed to demonstrate the litigation privilege covered the challenged communications”. A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc. (2006)137

Cal. App. 4th 1118, 1128.

Consequently, it appears that an action for Slander of Title to Real Estate may be brought against a person recording a mechanics lien where that party never really intended to bring an action to enforce the lien, or where such an action was never “seriously proposed and actually contemplated in good faith.”

The failure of a lienholder to file suit to “perfect” the lien within 90 days of recording (Civil Code § 8460) presumably could be evidence that there was never any “serious, good faith proposal [for filing suit]”

However, in those circumstances the lien expires, is no longer valid, and does not constitute constructive notice to third parties of any claim of lien (Civil Code § 8494), so it appears likely that no valid cause of action for damages for Slander of Title could be brought after the 90 day period expired without suit being filed.

Even if there were some need to otherwise formally remove or expunge the recorded lien after the expiration of the 90 days, the statute provides an expeditious procedure for a Petition to release the property from the lien (Civil Code §§ 8480-8490), which presumably would need to be followed by the property owners to mitigate their damages.

Attorneys fees are recoverable by the prevailing party in such a case (Civil Code § 8488( c)), which would eliminate one item of damages in a Slander of Title case.

Despite this release procedure, the property owner may still have suffered recoverable damages in the 90 days before the lien expired, such as the loss of an advantageous sale, business transaction, or the loss of favorable financing.

Additionally, although no court has so held yet, a Slander of Title action might be able to be brought where the filing of the lien was not “ authorized by law” under the factual circumstances in question in a particular case.

For example, where the lien was recorded by someone who had no statutory or legal right to a lien (Civil Code §§ 8400-8404 ), an argument could be made that the lien was not “authorized by law”.

Likewise, a similar argument might be able to be made that the recording was not “authorized by law” where the lien was recorded outside the time after “completion” or “cessation of work” within which liens must be recorded (Civil Code § 8412-8414), or where a lien was recorded by someone who was required - but failed - to serve a timely and valid preliminary notice as a condition precedent to a valid lien (Civil Code §§ 8200-8216; 8410).

Also, where the lien includes items or amounts (such as claims for lost profits, delay damages, or attorneys fees, etc. ) not allowed to be included in a lien (Civil Code § 8430-8432), where the lien fails to take into account payments received for the work (Civil Code § 8434), or where the lien is otherwise fraudulently or wilfully grossly excessive in amount or includes sums for work not supplied to the property so as to invalidate the lien (Civil Code § 8422(a) & (b)), it might be able to be argued that the liens were not “authorized by law”.

In these - and possibly some other - circumstances, the argument possibly could be that the liens were not filed or recorded by a "’participant authorized by law’", or that that person had no “legal right to assert the liens”, or that the lienor was not “following validly enacted statutes” in recording the liens. See generally, Olszewski v. Scripps Health (2003) 30 Cal. 4th 798, 831-832; Edwards v. Centex Real Estate Corp., supra, 53 Cal. App. 4th at 29.

However, again, no Appellate court has yet held that the recording of a mechanics lien is not privileged under the circumstances outlined above, so the filing of a Slander of Title Cause of Action is still potentially risky, pending further clarification of the law on these points.

The danger, of course, in bringing a Slander of Title in connection with the recording of a Mechanics Lien, or in connection with any other “publication” in connection with proposed or pending litigation, is that Civil Code § 47, when combined with the California “SLAPP” statute (Strategic Lawsuit Against Public Participation) under Code Civil Proc. § 425.16, might enable the lienholder to file a SLAPP motion to strike your Complaint, which if successful would entitle the lienholder to attorneys fees and costs against you!

“Section 425.16 provides: “A cause of action against a person arising from any act of that person in furtherance of the person's right of petition or free speech under the United States or California Constitution in connection with a public issue shall be subject to a special motion to strike, unless the court determines that the plaintiff has established that there is a probability that the plaintiff will prevail on the claim.” (§ 425.16, subd. (b)(1).)”

“To prevail on an anti-SLAPP motion, the movant must first make “ ‘a threshold showing the challenged cause of action’ arises from an act in furtherance of the right of petition or free speech in connection with a public issue.” ( Varian Medical Systems, Inc. v. Delfino (2005) 35 Cal.4th 180, 192 [25 Cal. Rptr. 3d 298, 106 P.3d 958].) Once the movant meets this burden, the plaintiff must demonstrate “ ‘a probability of prevailing on the claim.’ ” (Ibid.) If plaintiff fails to do so, the cause of action must be stricken. (Ibid.)” (Emphasis added)


A.F. Brown Electrical Contractor, Inc. v. Rhino Electric Supply, Inc. , supra, 137 Cal. App. 4th at

1128.

Thus, very thorough research and selection of competent counsel should be done before bringing any such action.

Likewise, attempts should probably be made before filing suit to write the lienholder, explain why you think there is no valid lien, and attempt to get them to release the lien, both to try to avoid unnecessary litigation, as well as to try to discover beforehand if the actually lienholder has any plausible or arguable rights to their lien or defenses to your causes of action, which information may be helpful in analyzing your chances of success as well as your ability to defend against a SLAPP motion.

N.B. The contents of this Article do not constitute legal advice or create an attorney-client relationship, and you may not rely on it without seeking legal advice regarding your particular situation and contract from a competent government contracts lawyer or public works contract attorney. Please also note that statutes and case law are frequently changing and these materials may become outdated. For further information on this topic and how the current law may apply to your particular project and issues, Contact Us via email, phone (415)788-1881 or visit our website at www.wolfflaw.com.