Dismissal without Prejudice for Corporate Suspension Does Not Constitute “Favorable Termination” in Malicious-Prosecution Actions
A Comprehensive Commentary on Wyles v. Sussman, 10th Cir., 23 June 2025

1. Introduction

Wyles v. Sussman presented the Tenth Circuit with a narrow but recurrent question in tort litigation: Does the dismissal of an underlying action without prejudice—because the plaintiff-corporation was suspended and thus lacked capacity to sue—constitute a “favorable termination” for purposes of a subsequent malicious-prosecution claim?

The appellant, attorney Terrence M. Wyles, had been sued in California state court by his former employer (West Hills Research & Development, Inc., formerly Aluminaid, Inc.). When that suit was thrown out after the corporation’s status was discovered to be suspended, Wyles turned around and sued the law firm Loeb & Loeb LLP and partner Allen Zachary Sussman in Colorado federal court for malicious prosecution. The district court granted summary judgment for the defendants; Wyles appealed.

The Tenth Circuit affirmed, holding that a dismissal predicated solely on the corporate plaintiff’s incapacity—without prejudice to refiling—does not meet the “favorable termination” element under either Colorado or California law.

2. Summary of the Judgment

• The panel (Hartz, Baldock, Moritz, JJ.) reviewed the matter de novo.
• Because no material conflict existed between Colorado and California law on “favorable termination,” the court did not perform a full choice-of-law analysis.
• Both jurisdictions require that the prior proceeding end on the merits in the malicious-prosecution plaintiff’s favor.
• The underlying California action was dismissed solely because West Hills’ corporate status was suspended. The dismissal was without prejudice.
• Such a procedural dismissal “in no way” reflected on the merits of West Hills’ claims and therefore was not a “favorable termination.”
• Unable to satisfy an essential element, Wyles’ malicious-prosecution claim failed as a matter of law; summary judgment for defendants was affirmed.

3. Analysis

3.1 Precedents Cited and Their Influence

1. Hewitt v. Rice, 154 P.3d 408 (Colo. 2007) – Colorado Supreme Court reaffirmed that a plaintiff must show the prior action was resolved “on the merits in circumstances that indicate the plaintiff’s innocence/non-liability.”
2. Parrish v. Latham & Watkins, 400 P.3d 1 (Cal. 2017) – The California Supreme Court restated the three-element test for malicious prosecution and stressed the “legal termination in favor” requirement.
3. Siebel v. Mittlesteadt, 161 P.3d 527 (Cal. 2007) – Clarified that “favorable termination” must reflect on the merits and show plaintiff’s innocence.
4. Casiopea Bovet, LLC v. Chiang, 12 Cal. App. 5th 656 (2017) – Established that a suspended corporation lacks legal capacity to sue or defend, furnishing the procedural basis for the California dismissal in Wyles.
5. Fuentes v. Berry, 38 Cal. App. 4th 1800 (1995) – Recognized that if facts surrounding dismissal are disputed, whether it was “favorable” can become a jury question. Wyles distinguished Fuentes because the facts were undisputed.

Collectively, these cases framed the panel’s analysis: Only a termination reflecting on the substantive merits counts. Procedural or jurisdictional dismissals—unless they contain an affirmative finding of non-liability—do not.

3.2 The Court’s Legal Reasoning

1. Elemental Failure – Malicious prosecution requires (1) institution of prior action, (2) favorable termination, (3) lack of probable cause, (4) malice, and (5) damages. The court resolved the case at the second element, making further inquiries unnecessary.
2. Nature of the California Dismissal – The California judge dismissed the case “based on the representation of counsel that [the corporation] is still suspended.” That dismissal was expressly “without prejudice.” Because West Hills could resurrect its claims after reinstatement, no merits-based adjudication occurred.
3. No Disputed Facts – Unlike Fuentes, the record clearly showed the dismissal was capacity-based. Therefore, the matter was appropriate for summary judgment.
4. Irrelevance of Forum Law Differences – Even if Colorado applied, the substantive rule matches California’s; thus, outcome remained unchanged.

3.3 Potential Impact on Future Litigation

• Clarifies “Favorable Termination” Scope: Litigants in Colorado federal diversity cases (and arguably within the 10th Circuit) now possess persuasive authority that dismissals for plaintiff incapacity—or similar procedural grounds—cannot sustain malicious-prosecution suits.
• Guidance for Corporate Litigants: Counsel must verify client corporate standing before initiating litigation. Failure still carries practical consequences (dismissal, fees), but it will not expose them to malicious-prosecution liability.
• Strategic Considerations for Defendants: Parties defending against potentially abusive corporate suits should understand that securing a dismissal for lack of capacity, though expedient, will not support a later malicious-prosecution action. Achieving a merits-based decision (e.g., via summary judgment on substantive claims) remains essential if a malicious-prosecution remedy is desired.
• Persuasive Value Across Circuits: Although issued as an “unpublished” order and judgment, the opinion may be cited for its persuasive reasoning under Fed. R. App. P. 32.1. State and federal courts confronting similar fact patterns may rely on it to prevent expansion of the tort beyond its traditional boundaries.

4. Complex Concepts Simplified

Favorable Termination

The requirement that the earlier lawsuit ended in a way that affirmatively indicates the current plaintiff did nothing wrong. Think of it as the litigation equivalent of a “not guilty” verdict. A dismissal on technical or procedural issues typically doesn’t qualify.

Dismissal Without Prejudice

A court order ending a case but leaving the plaintiff free to file the same claims again. It contrasts with dismissal with prejudice, which is final and bars refiling.

Corporate Suspension

When a corporation fails to meet statutory obligations (e.g., taxes, filings), the state may suspend its powers. In California, a suspended corporation cannot prosecute or defend lawsuits until reinstated.

Malicious Prosecution

A tort allowing a defendant from a prior, allegedly baseless lawsuit to recover damages. It is strongly disfavored and therefore strictly limited; all elements must be shown.

Summary Judgment

A procedural device allowing courts to dispose of cases lacking any genuine dispute of material fact, avoiding unnecessary trials.

5. Conclusion

Wyles v. Sussman reaffirms a cornerstone of malicious-prosecution jurisprudence: Only a merits-based, liability-negating termination of the prior suit can satisfy the favorable-termination element. Dismissals rooted in the plaintiff’s procedural incapacity—here, corporate suspension—leave the merits untouched and thus provide no springboard for a malicious-prosecution claim.

The decision’s significance lies not only in its immediate outcome but in the practical guidance it offers litigators. It underscores the importance of pursuing (or defending) claims to a substantive resolution when future tort actions are contemplated, and cautions against assuming that any dismissal automatically paves the way for malicious-prosecution relief.

Key Takeaway: A procedural win is not necessarily a “favorable termination” under the tort of malicious prosecution—substance, not mere cessation, is what counts.