MOSK, J. I dissent.
In 1992, Tremco Incorporated brought an action in the superior court against Walter M. Brennan, a former employee who went to work for one of its competitors, for breach of contract, for the torts of conversion, misappropriation of trade secrets, intentional interference with prospective economic advantage, fraud, and unfair competition, and, later, for declaratory relief—an action entitled Tremco v. Brennan. For the claims other than that for declaratory relief, Tremco sought both compensatory and punitive damages in an unspecified amount. Tremco was represented by counsel; Brennan was represented as well.
In 1993, Tremco dismissed its claim for fraud without prejudice.
Later in 1993, the superior court ordered Tremco and Brennan to judicial arbitration. The arbitrator resolved all of the then remaining claims in Brennan’s favor. He then made an arbitration award accordingly. Tremco demanded a trial de novo.
In 1995, the superior court summarily adjudicated Tremco’s claims for conversion and misappropriation of trade secrets in Brennan’s favor.
In 1996, Tremco and Brennan entered into an arbitration agreement. As recited, in pertinent part, by the superior court on the record and in open court: “With regard to this particular matter, the parties have stipulated to a[d]judicate the matter by binding arbitration. That, of course, means a waiver of any trial de novo, also any right of appeal.” As subsequently reduced, in its entirety, to written form by Tremco and Brennan themselves: “It is stipulated and agreed by the parties and their attorneys that trial by judge or jury is waived and the entire case will be submitted to” a specified retired superior court judge “for final and binding decision from which there is no trial de novo or appeal.” In the course of the arbitration, which was generally conducted as though in superior court, Tremco and Brennan contended solely about the last of Tremco’s remaining claims, for breach of contract, intentional interference with prospective economic advantage, unfair competition, and declaratory relief. In findings of fact and conclusions of law, the arbitrator determined that the evidence that Tremco offered to present would be legally insufficient to support a judgment. He therefore resolved the claims in Brennan’s favor. He then made an arbitration award accordingly. The superior court confirmed the arbitration award and rendered judgment for Brennan.
In 1997, Brennan brought the present action in the superior court against Tremco and its former attorneys for the tort of malicious prosecution with [320]respect to Tremco v. Brennan. Tremco’s former attorneys soon paid Brennan $40,000 in settlement, and were dismissed.
In 1998, relying on the just-decided case of Sagonowsky v. More (1998) 64 Cal.App.4th 122 [75 Cal.Rptr.2d 118], Tremco demurred on the ground that Tremco v. Brennan incorporated arbitration as its terminating mechanism. Relying itself on Sagonowsky, the superior court sustained Tremco’s demurrer without leave to amend. It rendered judgment for Tremco.
Brennan appealed. The Court of Appeal reversed the superior court’s judgment by a judgment of its own.
Tremco petitioned for review. We granted its application.
The majority now proceed to reverse the Court of Appeal’s judgment. I would affirm.
I
The tort of malicious prosecution is committed whenever a prior action is brought with malice and without probable cause by the plaintiff, and is subsequently terminated in favor of the defendant. (Crowley v. Katleman (1994) 8 Cal.4th 666, 676 [34 Cal.Rptr.2d 386, 881 P.2d 1083]; Sheldon Appel Co. v. Albert & Oliker (1989) 47 Cal.3d 863, 871-872 [254 Cal.Rptr. 336, 765 P.2d 498]; Bertero v. National General Corp. (1974) 13 Cal.3d 43, 50 [118 Cal.Rptr. 184, 529 P.2d 608, 65 A.L.R.3d 878].)
The availability of an action for malicious prosecution is justified by the harm that the underlying misconduct inflicts. (See Crowley v. Katleman, supra, 8 Cal.4th at p. 677; Bertero v. National General Corp., supra, 13 Cal.3d at pp. 50-51.)
A malicious prosecution harms the individual who is the defendant in the action. (Crowley v. Katleman, supra, 8 Cal.4th at p. 677; Bertero v. National General Corp., supra, 13 Cal.3d at p. 50.) It “compel[s]” him “to defend against a fabricated claim.” (Bertero v. National General Corp., supra, 13 Cal.3d at p. 50.) It thereby forces him to incur the “cost of defen[se],” including “attorney’s fees.” (Id. at p. 51.) It “subjects him to the panoply of psychological pressures most. . . defendants suffer,” resulting in “mental or emotional distress.” (Id. at pp. 50-51.) But it also “subjects him ... to the additional stress of attempting to resist a suit commenced out of spite or ill will, often magnified by slanderous allegations in the pleadings,” resulting in “injury to his reputation or impairment of his social and business standing in the community.” (Ibid.)
[321]In addition, a malicious prosecution harms the court that entertained the action. (Crowley v. Katleman, supra, 8 Cal.4th at p. 677; Bertero v. National General Corp., supra, 13 Cal.3d at p. 50.) It hampers the “efficient administration of justice.” (Bertero v. National General Corp., supra, 13 Cal.3d at p. 50; accord, Crowley v. Katleman, supra, 8 Cal.4th at p. 677.) It “clog[s] . . . already crowded dockets . . . .” (Bertero v. National General Corp., supra, 13 Cal.3d at p. 51.) It also allows “individuals” to engage in the “unscrupulous use of the courts” “ ‘as instruments with which to maliciously injure their fellow men.’ ” (Ibid.)
A plaintiff can survive a defendant’s demurrer in an action for malicious prosecution if he pleads that a prior action was brought by the defendant, then a plaintiff, with malice and without probable cause, and was subsequently terminated in favor of the plaintiff, then a defendant. (See Crowley v. Katleman, supra, 8 Cal.4th at p. 676; Bertero v. National General Corp., supra, 13 Cal.3d at pp. 50-51.)
In my view, Brennan should have survived Tremco’s demurrer in the present action for malicious prosecution with respect to Tremco v. Brennan. He effectively alleged that Tremco v. Brennan was brought by Tremco with malice and without probable cause, and was subsequently terminated in his favor. In the absence of arbitration, the point would be beyond dispute. In its presence, it is hardly otherwise. The arbitration was incorporated in Tremco v. Brennan as its terminating mechanism. Certainly, the arbitration did not preclude harm to Brennan himself arising from Tremco v. Brennan—over almost four years, he incurred the cost of defense, undoubtedly experienced mental and emotional distress, and likely suffered injury to his reputation and standing in the community, facing as he did claims including conversion, misappropriation of trade secrets, and fraud. Just as certainly, the arbitration did not preclude harm to society generally arising from Tremco v. Brennan—over the same period, the superior court was hampered in the efficient administration of justice, both through the clogging of its already notoriously crowded dockets and also through the misuse of its resources by Tremco.
In arriving at my conclusion, I do not ignore the arbitration agreement in Tremco v. Brennan. What Tremco and Brennan agreed to arbitrate was referred to by the superior court as “this particular matter,” and by the parties themselves as the “entire case.” Which meant—to judge from what Tremco and Brennan in fact arbitrated—the last of Tremco’s remaining claims, and those claims alone. Whatever else may be said of the arbitration agreement, it can hardly be read to encompass any claim by Brennan against Tremco for the malicious prosecution of Tremco v. Brennan. No such claim [322]had yet arisen inasmuch as Tremco v. Brennan, in advance of the superior court’s judgment therein, had not yet become a prior action. This is not to say that the scope of the arbitration agreement could not possibly embrace any such future claim—only that it did not actually do so.
Consistent with my conclusion is Stanley v. Superior Court (1982) 130 Cal.App.3d 460 [181 Cal.Rptr. 878].
In Stanley, the court held that an action for malicious prosecution may be based on a prior action incorporating judicial arbitration as its terminating mechanism. Generally, an action for malicious prosecution may be based on any prior action, including, as there, one in municipal court. There is no exception for a prior action incorporating judicial arbitration as its terminating mechanism. In view of the harms to individual and society that justify the availability of a malicious prosecution action, it should matter greatly that the prior action was brought by the then plaintiff with malice and without probable cause, and was subsequently terminated in favor of the then defendant. But “[i]t should matter little” how the prior action was terminated in favor of the then defendant, “whether . . . by a judgment after [judicial] arbitration award,” as opposed, for example, to a “judgment after trial.” (Stanley v. Superior Court, supra, 130 Cal.App.3d at p. 469.) The fact of termination is indeed crucial. The “particular type of termination” is not. (Id. at p. 467, italics omitted.) If the harms in question eventuate, they eventuate. The means of termination has no effect on their existence.
Stanley supports my conclusion that an action for malicious prosecution may be based on a prior action in superior court, like Tremco v. Brennan, incorporating arbitration as its terminating mechanism. In view of the harms to individual and society that justify the availability of a malicious prosecution action, it does not matter that the prior action was entertained in superior court, where those harms were likely to be greater, rather than municipal court, where they were likely to be lesser. Neither does it matter that the prior action was terminated in favor of the then defendant by a judgment after arbitration award as opposed to a judgment after judicial arbitration award: Although the fact of termination is crucial, the particular type is not.
Not inconsistent with my conclusion is Pace v. Hillcrest Motor Co. (1980) 101 Cal.App.3d 476 [161 Cal.Rptr. 662]. It is, rather, distinguishable.
In Pace, the court held, for “reasons” of “policy” (Stanley v. Superior Court, supra, 130 Cal.App.3d at p. 466), that an action for malicious prosecution may not be based on a prior action in small claims court. The [323]“small claims process was established [by the Legislature] to provide an inexpensive and expeditious means to settle disputes over small amounts. The theory behind its organization was that ordinary litigation ‘fails to bring practical justice’ when the disputed claim is small, because the time and expense required by the ordinary litigation process is so disproportionate to the amount involved that it discourages legal resolution of the dispute. . . . As a result the small claims process is designed to function quickly and informally. There are no attorneys . . . , no pleadings . . . , no legal rules of evidence . . . , no juries, and no formal findings. . . . The judge may informally investigate the controversy and ‘give judgment and make such orders as to time of payment or otherwise as he deems to be just and equitable for disposition of the controversy.’ . . . Consequently, ‘the awards—although made in accordance with substantive law—are often based on the application of common sense; and the spirit of compromise and conciliation attends the proceedings.’ ” (Pace v. Hillcrest Motor Co., supra, 101 Cal.App.3d at pp. 478-479, citations omitted.) “To permit an action for malicious prosecution to be grounded on a small claims proceeding would frustrate the intent of the Legislature in adopting an expeditious and informal means of resolving small disputes, would inject into a simple and accessible proceeding elements of time, expense, and complexity which the small claims process was established to avoid, and would require a prudent claimant to consult with an attorney before making use of this supposedly attorney-free method for settling disputes over small amounts.” (Id. at p. 479.)
Pace does not support any conclusion that an action for malicious prosecution may not be based on a prior action in superior court, like Tremco v. Brennan, incorporating arbitration as its terminating mechanism. First, an action in small claims court necessarily involves a dispute over an amount that is “small” (Pace v. Hillcrest Motor Co., supra, 101 Cal.App.3d at p. 478); an action in superior court necessarily involves a dispute over an amount that is not small, even when, as here, it incorporates arbitration for termination. Second, an action in small claims court operates as a dispute-resolution mechanism that is both “inexpensive and expeditious” (ibid.)\\ an action in superior court operates as a dispute-resolution mechanism that is otherwise, even when, as here, it incorporates arbitration for termination. Third, an action in small claims court proceeds both “quickly and informally” (id. at p. 479); an action in superior court proceeds otherwise, even when, as here, it incorporates arbitration for termination. Fourth, an action in small claims court can have “no attorneys,” “no pleadings,” “no legal rules of evidence,” “no jur[y],” and “no formal findings” (ibid.)\\ an action in superior court can have all, even when, as here, it incorporates arbitration for termination.
[324]Neither is Sagonowsky itself inconsistent with my conclusion. It too is distinguishable.
In Sagonowsky, the court held that an action for malicious prosecution may not be based on arbitration outside of any prior action. Under Stanley, an action for malicious prosecution may be based on a prior action incorporating judicial arbitration as its terminating mechanism. That is because a prior action of this sort inflicts the harms to individual and society that justify the availability of a malicious prosecution action. It does not follow that an action for malicious prosecution may be based on arbitration outside of any prior action. That is because arbitration does not itself inflict such harms, at least not appreciably. It is the “public policy” of this state to “favor[] . . . arbitration” “as a means of dispute resolution which is both ‘speedy and relatively inexpensive.’ ” (Sagonowsky v. More, supra, 64 Cal.App.4th at p. 133, italics omitted.) “[Pjarties who agree ... for whatever reason to stay out of the courts” must be “permit[ted] ... to do so,” even if one subsequently changes his mind. (Ibid.)
Sagonowsky does not support any conclusion that an action for malicious prosecution may not be based on a prior action in superior court, like Tremco v. Brennan, incorporating arbitration as its terminating mechanism. The arbitration there existed outside of any action. As such, it arguably did not inflict the harms to society and individual that justify the availability of a malicious prosecution action, at least not appreciably. The arbitration here was incorporated in Tremco v. Brennan as its terminating mechanism. Even if the arbitration itself, in theoretical isolation, did not appreciably inflict such harms, Tremco v. Brennan, from which it cannot practically be isolated, surely did. Likewise, even if the arbitration itself, in theoretical isolation, was both speedy and relatively inexpensive, Tremco v. Brennan, from which it cannot practically be isolated, surely was neither. True, Tremco and Brennan entered into an arbitration agreement. But they did not agree generally to stay out of court, even as to any not-yet-arisen claim by Brennan against Tremco for malicious prosecution of the not-yet-prior action of Tremco v. Brennan. Rather, they agreed specifically to get out of court as to the last of Tremco’s remaining claims.
II
The majority hold, to the contrary, that an action for malicious prosecution may not be based on a prior action incorporating arbitration as its terminating mechanism.
In support, the majority state that a prior action incorporating arbitration as its terminating mechanism “does not result in a favorable termination” for [325]the plaintiff in the malicious prosecution action. (Maj. opn., ante, at p. 312.) Curiously so, inasmuch as the prior action with which we are here concerned, if none other, did in fact result in a favorable termination for the plaintiff in the malicious prosecution action, indeed a very favorable termination, taking the form of what was essentially a judgment of nonsuit. The majority admit as much. The assertion that arbitration “does not always allow for a ready determination of whether or why the prior action actually terminated in the malicious prosecution plaintiff’s favor” (id. at p. 317) is, of course, pure makeweight. Litigation does not always allow for any readier determination. (See, e.g., Sagonowsky v. More, supra, 64 Cal.App.4th at pp. 128-129.)
The majority imply that a prior action incorporating arbitration as its terminating mechanism assumes an arbitration agreement under which the parties have chosen to get out of court, and thereby justifies a judicially declared rule under which they are barred from coming back in. The assumption is sound. The justification is not. Even if it were, it would hardly extend to persons other than those who have entered into the arbitration agreement. The assertion that “it is the nature of’ arbitration as the terminating mechanism “that matters” (maj. opn., ante, at p. 317) altogether ignores the fact that its nature is defined by the arbitration agreement itself, which does not bind those who are strangers to its terms. It is true that those who have entered into the arbitration agreement must “accept the bad with the good.” (Ibid.) But no one else.
The majority finally make plain that a prior action incorporating arbitration as its terminating mechanism does not result in a favorable termination for the plaintiff in the malicious prosecution action of the “sort. . . needed to support” such an action. (Maj. opn., ante, at p. 317, italics added.) That is ipse dixit, nothing less, nothing more.
If I were inclined to join the majority in holding that an action for malicious prosecution may not be based on a prior action incorporating arbitration as its terminating mechanism, I would so hold only prospectively, in the context of arbitration pursuant to an arbitration agreement entered into on or after finality of any decision herein. The majority effectively declare for the first time that silence equals forfeiture: If an arbitration agreement does not cover a claim for malicious prosecution, the right to bring an action based thereon is lost. If the claim’s holder had notice of such a declaration, he might fairly be compelled to comply. But persons like Brennan had no such notice. Tremco’s conduct proves the point: It did not demur until after Sagonowsky was decided. The conduct of Tremco’s former attorneys proves it even more forcefully: They paid Brennan $40,000 in settlement of a claim [326]that, we are now told, Brennan had already forfeited. Perhaps the majority have not “changed” any “rule” on which Brennan might have “relied.” (Maj. opn., ante, at p. 318.) But they have surely created one that he could not have anticipated. Fairness demands that it not be applied to his detriment.
Ill
For the reasons stated above, I would affirm the judgment of the Court of Appeal.
George, C. J., and Werdegar, J., concurred.