SAN FRANCISCO (Legal Newsline) – A law firm can't be sued for pursuing a lawsuit in alleged bad faith, as that case had made it past the summary judgment phase, the California Supreme Court has decided.

On Aug. 10, the court ruled for the firm Latham & Watkins, which had pursued a lawsuit on behalf of its clients against William Parrish and Timothy Fitzgibbons. That case made it all the way to a bench trial before a judge ruled there was no evidence to support the claims against them, and the two successfully motioned to have the plaintiffs pay their attorneys fees.

But their malicious prosecution claim against Latham & Watkins has failed.

"The denial of summary judgment in the underlying trade secrets action established probable cause to bring that action. Because that action was supported by probable cause, Parrish and Fitzgibbons cannot ―establish "a probability of success" on their malicious prosecution claim," the court ruled.

Parrish and Fitzgibbons were officers at Indigo Systems Corps., a company that deals with microbolometers. Two years after FLIR Systems Inc. acquired Indigo, both men left the company and started their own competing company.

FLIR and Indigo then filed suit against Parrish and Fitzgibbons alleging the misappropriation of trade secrets. The defendants claimed Fitzgibbons devised his business plan while working at FLIR. However, when Parrish and Fitzgibbons moved for summary judgment, they argued Fitzgibbons created the business plan before working at Indigo, and that he did not use any trade secrets in the plan.

The trial court denied the summary judgment motions and noted that Parrish and Fitzgibbons failed to show that their business plan was not based on FLIR's and Indigo's intellectual property. 

The case went to a bench trial, and the judge denied FLIR and Indigo their requests for relief. The trial awarded Parrish and Fitzgibbons $1.6 million in costs and attorney fees after concluding that FLIR and Indigo pursued the action on "bad faith" for the purpose of preventing the former employees from becoming competition.

A court of appeal affirmed the trial court's award and the bad faith finding.

Parish and Fitzgibbons brought a malicious prosecution claim against FLIR's and Indigo's lawyers, Latham & Watkins LLP, and Latham partner Daniel Scott Schecter regarding the trade secrets case. The defendants filed a strategic lawsuit against public participation (SLAPP) motion, and in doing so, they were required to "establish that the challenged claim arises from [protected] activity," the Supreme Court stated. 

If they were able to do that, then "the burden shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of success," according to the court.

The trial court granted the motion to strike. Parish and Fitzgibbons appealed. The court of appeals considered whether the anti-SLAPP motion should have been granted based on interim adverse judgment rule. 

The court of appeals decided that the trial court's summary judgement ruling established "probable cause in [that] action" and that the the trial court's "bad faith" finding did not establish a probable cause, the Supreme Court ruling stated.

Parrish and Fitzgibbons petitioned for review. While the petition was pending, the Supreme Court issued a decision in Lee v. Hanley that a one-year statute of limitations "applies to claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services."

The Supreme Court granted the petition for review and affirmed the court of appeals' decision that the interim adverse judgment rule applies. Since the Supreme Court concluded that the malicious prosecution suit was barred because of that rule, the limitations issue was irrelevant. 

The court determined that Parrish and Fitzgibbons are not permitted to "establish a probability of success" on their malicious prosecution claim.

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