17.5.5.2 Malicious Prosecution

Malicious prosecution occurs under the following circumstances:

• • A proceeding is instituted;
• • The proceeding is without probable cause or possible valid claim;
• • The proceeding was instituted either maliciously or for an improper purpose; and
• • The proceeding is terminated in favor of the defendant.¹⁹²

Lack of probable cause can be found when an attorney would have found the action not tenable based upon the facts known by the collector at the time the action was instigated.¹⁹³ On the other hand, mere dismissal without prejudice may not be enough to show lack of probable cause,¹⁹⁴ and, when the collector prevails in the collection suit, there cannot be a malicious-prosecution claim.¹⁹⁵

Malice can be found when the collector is bringing an action to collect money even though the collector has no knowledge of the facts of the case.¹⁹⁶ Some states impose an additional requirement of “special injury” such as seizure of property.¹⁹⁷ A proceeding has been held to be terminated in favor of the defendant when the plaintiff voluntarily dismissed the claim after realizing the consumer will put up a strong defense.¹⁹⁸

A recent case presents extraordinary facts and resulted in a malicious prosecution claim against the debt buyer, Portfolio Recovery Associates. The court approved the jury finding of $250,000 compensatory damages and over $82 million in punitive damages and then awarded over $300,000 in attorney fees and other expenses.¹⁹⁹ Despite clear and extensive evidence before and during the litigation that the debt buyer was suing the wrong person, the debt buyer continued with the litigation, took advantage of the consumer’s lack of a Social Security number, admitted it was continuing to press its claim because of the consumer’s counterclaim, admitted its business model did not include independent investigation even when concerns were raised, argued it was the consumer’s burden to prove she was the wrong debtor, demonstrated a general disrespect for the law, and engaged in a pattern of similar practices in other cases.²⁰⁰