Lawyers Duck Blame for Case Brought in Bad Faith

SAN FRANCISCO (CN) – Thermal imaging company FLIR Systems may have brought a trade secrets case against two of its former executives in bad faith, but that doesn’t mean its lawyers are to blame according to California’s highest court.

On Thursday, the California Supreme Court ruled that law firm Latham & Watkins wasn’t wrong to pursue the case, even though a trial judge found it objectively specious.

In 2006, FLIR Systems sued two of its former executives, William Parrish and Timothy Fitzgibbons, claiming they had misappropriated trade secrets to start their own company.

Parrish and Fitzgibbons lost their motion for summary judgment based on declarations by experts, but after a bench trial where those experts acknowledged their opinions were unsupported, Santa Barbara County Superior Court Judge James Brown sanctioned FLIR for bringing the action in bad faith and awarded Parrish and Fitzgibbons $1.6 million in attorneys’ fees.

Brown found that FLIR, and the microbolometer company Indigo which FLIR had acquired, had knowingly relied in part on the discredited legal theory that Parrish and Fitzgibbons would use those trade secrets in the future, and had brought its action primarily to keep the pair from creating a new competing business.

Parrish and Fitzgibbons eventually settled all claims with FLIR for $39 million, the largest malicious prosecution settlement in California history.

The pair later sued FLIR’s and Indigo’s attorneys at Latham & Watkins for malicious prosecution. An appellate court found the case not bound by a one-year statute of limitations but - applying the adverse judgement rule - sided with Latham & Watkins. Parrish and Fitzgibbons appealed to the Supreme Court.

Writing for the unanimous court, Justice Leondra Kruger said the interim adverse judgment rule gave Latham & Watkins probable cause to pursue the case, since FLIR had won an important victory early on.

“The denial of summary judgment in the underlying trade secrets action established probable cause to bring that action,” she wrote. “The interim adverse judgment rule applies even if the court later rules, after the evidence has been subject to adversarial testing, that the inferences have proved false.”

In an email, Parrish’s and Fitzgibbon’s attorney Michael Avenatti said the ruling will prohibit attorneys from being held liable for deceiving the court.

“The court's ruling will have a chilling effect on the ability to hold lawyers accountable when they hoodwink courts into denying summary judgment by relying on smoke and mirrors,” he said. “There is no question that the underlying case never had any merit and was brought purely to intimidate two highly respected and accomplished engineers who did nothing wrong.”

The high court rejected Parrish’s and Fitzgibbon’s request that the court carve out an exception to the interim adverse judgment rule when lawyers submit “materially false facts” to support their claims. Plaintiffs and their lawyers aren’t required to try to predict how judges will weigh the evidence, or abandon their claims if they think the judge will find against them, the court said.

“It follows that if the facts known to the litigant could support a set of inferences that would justify a favorable ruling on the merits, the litigant may rely on them in bringing suit,” Kruger wrote.

She added, “Of course, when a litigant relies on evidence that she knows to be false, she is not entitled to reap the benefits of the interim adverse judgment rule by deceiving a court into believing that her claim has merit. But no ‘materially false facts’ exception is necessary to address that concern, because we have already recognized that the rule does not apply to interim decisions ‘shown to have been obtained by fraud or perjury.’”

In an emailed statement, Latham & Watkins General Counsel Everett C. Johnson said, “We’re pleased by the Supreme Court’s unanimous ruling, which confirms what we’ve maintained all along – that Latham & Watkins acted properly in this matter.”

Follow @MariaDinzeo

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