California Justices Consider Bad Faith in Malicious Prosecution Case

LOS ANGELES (CN) – No lawyer wants to find themselves being sued for malicious prosecution simply for doing their job, but Latham & Watkins – accused of bringing specious trade secrets claims against a client’s former employees – says they’re protected because their clients still won an important ruling, even though they ultimately lost and were later found to have brought their case in bad faith.

The case goes all the way back to 2006, when thermal imaging company FLIR Systems sued two of its former executives, William Parrish and Timothy Fitzgibbons, on claims of misappropriating trade secrets to start their own company, based in part on the discredited legal theory that they would use those trade secrets in the future.

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.

Parrish and Fitzgibbons turned around and sued FLIR’s attorneys at Latham & Watkins, claiming the firm pursued the case even though it knew it had no probable cause.

While the firm won on their defense that Parrish and Fitzgibbons’ lawsuit was barred by a one-year statute of limitations, an appellate court revived the case by finding a two-year statute of limitations applied.

This brings the case to the California Supreme Court, which on Tuesday turned to whether Latham & Watkins had probable cause to bring FLIR’s case.

Justice Leondra Kruger said she was worried that lawyers and their clients would be discouraged from bringing lawsuits at all if they aren’t 100 percent certain of the evidence.

“One thing that is clear is that on one hand, protecting against the harms that are visited upon a person who is called to defend against an unlawfully brought lawsuit,” Kruger said. “But on the other hand, concerns about needlessly chilling lawyers and their clients from bringing lawsuits that they believe have, at the time, an adequate evidentiary foundation, but adversarial testing may later prove that they were wrong. And the malicious prosecution tort is not set to deter those kinds of mistaken judgments. How should we form a rule that authorizes courts to allow malicious prosecution to proceed that wouldn’t raise this risk of deterring lawsuits and clients?”

Parrish’s lawyer Michael Avenatti said the court should allow for a rule based on the possibility of a judge having been hoodwinked in connection with a motion for summary judgment.

“The court can fashion a rule that states if summary judgment is denied but is later found by that same judicial officer to have been improperly denied, then that in fact does not equate to probable cause sufficient to thwart a subsequent malicious prosecution cause of action,” he said.

He added, “If the attorney’s belief is caused by evidence which is determined to be materially false, then that ruling should not establish probable cause.”

But Theodore Boutrous, who argued for Latham & Watkins, said Brown acknowledged in his ruling that he didn’t believe he was misled.

“He wasn’t hoodwinked,” Boutrous said. “The judge’s ruling with respect to bad faith doesn’t say there was anything that hoodwinked him. He just said now the full facts are in and just like any other summary judgment case now I’m going to make another determination.”

Kruger asked Avenatti about the distinction between a deliberately false opinion, and one that later proves not borne out by the facts.

“Is there a difference between false and unsupported? If an expert offers an opinion in a declaration that proves after adversarial testing not to be very persuasive because its unsupported, does that fall into your materially false framework?” Kruger asked.

“If the expert presents the declaration in a way to suggest that his or her unsupported opinion is supported then I would suspect yes,” Avenatti answered. “If it’s presented in a way to mislead the court into denying summary judgment inappropriately, then it’s our position that declaration should not constitute probable cause.”

He added that the firm’s attempt to use its client’s summary judgment win to defend itself against malicious prosecution is an attempt to “have it both ways.”

“They’re trying to say because their client was successful in opposing summary judgment, we’re entitled to a determination of lack of probable cause. Now, when it comes to the trial court’s determination that the action was initiated and maintained in bad faith, that was the client and not us,” Avenatti said.

Justice Mario Florentino-Cuellar then asked the question most lawyers were probably thinking: “Should a finding of bad faith against a client always be imputed against the attorney?”

Avenatti laughed and answered, “No. As an attorney I will gladly answer that no. But it certainly would be sufficient to allow a factual question as to whether or not the attorney was complicit with the client in maintaining the action in bad faith.”

%d bloggers like this: