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Sierra Club Foundation v. Graham6/10/1999
CERTIFIED FOR PUBLICATION
This case has a hint of the "stranger than fiction" flavor:
"Foundation sues former, substantial donor for malicious prosecution based on the donor's fruitless federal suit against the foundation for fraud, breach of contract and other causes. Donor urges attorneys general from two states to get involved. One declines but the other launches an accounting action against the foundation in which a purported beneficiary of the donor's gift intervenes; this action settles."
This appeal-from a judgment for compensatory and punitive damages in favor of the foundation-probes all aspects of the malicious prosecution tort, as well as the constitutionality of punitive damages. It poses the interesting question of where to focus inquiry into whether the underlying action terminated favorably to the foundation-on the federal judgment, or the subsequent settlement in the accounting and related intervention action? We conclude the federal judgment is the proper focus, find the donor's other arguments to be without merit and affirm the judgment but reverse an order for sanctions.
I. FACTUAL AND PROCEDURAL BACKGROUND
A. The Mudd Deed of Gift; Frontera; Land Project
Established in 1960, respondent Sierra Club Foundation (Foundation) is a California nonprofit corporation, organized as a charitable organization under the Internal Revenue Code. Operating as a separate entity from the Sierra Club, the Foundation's mission is to administer and disburse donated funds for broad charitable and environmental purposes.
In 1970, environmental activist Harvey Mudd executed an agreement with the Foundation called "Deed of Gift (Restricted)" which created the Frontera Del Norte Fund (Frontera) for purposes of financing conservation projects primarily located in New Mexico. The deed of gift called for Mudd to establish a committee to propose conservation projects for funding to the Foundation's board of trustees. He initially donated $130,067 to Frontera, with $100,000 treated as an endowment and the remainder passed to the granting fund to be disbursed for projects.
At that time, Frontera was primarily focusing its activities on air pollution. Mudd was also interested in purchasing a large tract of high mountain land for multiple uses. The idea for this "Land Project" was to identify land with some unique environmental qualities, save it from the developers and use it for a variety of activities including recreation for "barrio" children; scientific research in partnership with one or more universities; and limited livestock grazing if grazing could be accomplished conscientiously. In connection with the land project, Discussions were held with La Cooperativa Agricola del Pueblo de Tierra Amarillo (La Cooperativa) about grazing opportunities for their membership. In July 1970 Mudd looked at some properties, but Frontera did not have enough money to proceed with a purchase.
B. Graham's Donation; Status of Land Project
Through their involvement in New Mexico Citizens for Clean Air and Water, appellant Ray A. Graham III and his wife met Mudd around this time. Graham had a reputation as a conscientious developer. Mudd spoke with Graham about all of Frontera's activities, including the land project, and showed him a "topo" map and some photographs.
Graham later expressed an interest in donating to Frontera. He sought assurance that his donation would be tax deductible. On November 11, 1970, Graham transferred stock to the Foundation as a gift, for use by Frontera. Neither Mudd nor anyone else represented that Graham's donation would be used for any particular purpose or for a
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