California Supreme Court Will Review Malicious Prosecution Claim Against Latham & Watkins

Latham & Watkins isn’t off the hook yet.

On April 17, 2012 and September 3, 2014, we blogged about a malicious prosecution claim brought against Latham & Watkins in the Los Angeles Superior Court.  The suit alleged the Plaintiffs, William Parrish and Timothy Fitzgibbons, were former officers and shareholders of Indigo Systems Corporation, which was purchased by FLIR Systems, Inc. in 2004.  From 2004 to 2006 the Plaintiffs worked for FLIR, leaving in 2006 to start their own business.  FLIR retained Latham & Watkins and sued Plaintiffs for, among other things, misappropriation of trade secrets.  The trial court denied the former employees' motion for summary judgment.  At trial, however, it found FLIR brought the trade secrets action in bad faith, entered judgment in favor of the former employees, and awarded them attorney's fees and costs of $1,641,216.78.  The trial court's decision was affirmed on appeal.  FLIR Systems, Inc. v. William Parrish, et al., 174 Cal.App.4th 1270 (2009).

The former employees brought a malicious prosecution action against Latham & Watkins.  Latham  filed a motion pursuant to California's anti-SLAPP law (a strategic lawsuit against public participation – California Code of Civil Procedure Section 425.16) contending, in part, (1) Plaintiffs' claims were barred by the statute of limitations; and (2) the trial court's denial of the former employees’ motion for summary judgment  established that the underlying action was brought with probable cause as a matter of law pursuant to the "interim adverse judgment rule."  The trial court granted Latham's SLAPP motion on the statute of limitations grounds and did not expressly address the other arguments.

The Court of Appeal in the first go around held the applicable statute of limitations for malicious prosecution claims was not the one-year period set forth in Cal. Code Civ. Proc. Section 340.6, but rather the two-year limitations period set forth in the Cal. Code Civ. Proc. Section 335.1 and held that, as such, the claim was not barred.  The court also addressed the issue on the merits and concluded the interim adverse judgment rule would not apply because, in part, Latham had "sought an obviously anti-competitive injunction based on the speculative possibility that the [Plaintiffs'] product might violate its client's trade secrets…." and that when Plaintiffs presented evidence to Latham that there was no actual misappropriation of the business plan at issue, Latham changed the theory of the case to pursue a claim that the Plaintiffs could not effectuate the business plan without using FLIR's intellectual property.   The Court of Appeal initially held that the Plaintiffs had established a reasonable probability of prevailing on the element of lack of probable cause and reversed the trial court's order granting Latham's SLAPP motion.

Latham filed a petition for re-hearing which was denied on September 19, 2014 and then, on the court's own motion, was granted on September 25, 2014.  On June 26, 2015, the Court of Appeal issued its decision, affirming the trial court's order granting Latham's anti-SLAPP motion on the ground that the "interim adverse judgment rule" established Latham had probable cause to bring the action.  The court held that exceptions to the interim adverse judgment rule did not apply in this case because (1) the summary judgment motion was not denied on procedural or technical grounds and (2) the summary judgment motion was not obtained by fraud or perjury.  Parrish v. Latham & Watkins, 238 Cal.App.4th 81, 97 (2015).

The Plaintiffs argued that the trial court's statement in the underlying action that the "former employees failed to sustain their burden of proof on the motion" established the motion was denied on "technical grounds" which would not trigger the interim adverse judgment rule.  The Court of Appeal disagreed because the party moving for summary judgment bears the ultimate burden of persuasion to establish there is no triable issue of material fact.

The Plaintiffs further argued the trial courts’ award of Uniform Trade Secret Act attorney's fees based on a finding of bad faith negated the interim summary judgment rule.  Again, the court disagreed finding that simply because a trial court or jury later rejects a party’s claim, after weighing the competent evidence, does not negate other evidence which, standing alone establishes the existence of probable cause.

The California Supreme Court will now resolve this issue and hopefully clarify the law in this area.

The California Supreme Court’s opinion on this subject will be a must read for California trade secret litigators (and all litigators) and hopefully will articulate the standards that separate hardball litigation tactics from litigation that is deemed anti-competitive, which can create a substantial risk for both Plaintiff and Plaintiff's attorneys.