Presiding Justice Joan Dempsey Klein, California Court of Appeal for the Second District
Presiding Justice Joan Dempsey Klein, California Court of Appeal for the Second District (Hillary Jones-Mixon / The Recorder)

SAN FRANCISCO — Latham & Watkins is back on the hook for a malicious prosecution claim, after a state appellate panel ruled it’s likely the firm’s attorneys filed a trade secrets suit they knew had no merit.

Two former employees of FLIR Systems and Indigo Systems Corp. went after Latham for malicious prosecution in 2012, after defeating a trade secrets suit prosecuted by Latham partner Daniel Schecter.

Los Angeles County Judge James Dunn ruled Latham’s clients, FLIR and Indigo, filed the trade secrets suit in bad faith, and Dunn held the companies liable for $1.6 million in attorney fees. The employees then tried to saddle Latham with a malicious prosecution claim, but didn’t get far. The court threw the claim out under the anti-SLAPP law, ruling the claim didn’t have a reasonable chance of success because the statute of limitations had expired.

A two-justice panel for the Second District Court of Appeal reversed that ruling Wednesday.

“Former employees have offered sufficient evidence of a probability of prevailing on this element of their malicious prosecution cause of action,” Presiding Justice Joan Dempsey Klein wrote.

McKool Smith founding principal Michael Hennigan of Los Angeles is representing Latham. “We are evaluating our options,” he said, “and we are considering a petition to the Supreme Court.”

FLIR and Indigo are makers of infrared detection technology. FLIR acquired Indigo in 2004 and the two employees, who had been officers and shareholders in Indigo, left the combined company in 2006. FLIR, represented by Latham, sued the two employees, accusing them of soliciting venture capital for a new business which relied on FLIR trade secrets.

Klein ruled the lower court erred when it applied a statute that governs wrongful acts by attorneys and carries a one-year statute of limitations. Instead, the appellate panel ruled, the claim falls under a wrongful injury statute with a two-year statute of limitations.

The panel listed further evidence that supports the employees’ claims of malicious prosecution. Latham first accused the employees of pitching competing companies a business plan they had developed while at FLIR, and was therefore FLIR’s intellectual property, Klein wrote. When the employees showed they had developed the business plan before their employment at FLIR, the Latham lawyers changed their tactic. They argued the employees could not have implemented the business plan unless they had been planning to use FLIR trade secrets.

“That Latham sought an obviously anti-competitive injunction based on the speculative possibility that the former employees’ product might violate its client’s trade secret rights further supports the conclusion that no reasonable attorney would have believed this case had merit,” Klein wrote.

Brian Panish of Panish Shea & Boyle in Los Angeles, who represents the appellant employees, agrees.

“I think the court of appeal made the right decision,” he said, “and I think clearly the case is viable and should proceed to trial.”

Contact the reporter at mkendall@alm.com.