Leondra Kruger
Leondra Kruger ()

The California Supreme Court on Thursday delivered a significant victory to lawyers fighting malicious-prosecution claims, ruling that defeating summary judgment in the underlying case bars future claims that they knowingly pursued meritless lawsuits.

The ruling means that Latham & Watkins and one of its partners, Daniel Schechter, are off the hook for potential liability in a malicious-prosecution case—even though a trial judge found in 2008 that the firm acted in bad faith when it litigated a trade secrets suit against two former employees of an infrared-camera manufacturer, FLIR Systems Inc.

Justice Leondra Kruger, writing for the unanimous court in Parrish v. Latham & Watkins, said the court found there was no reason to depart from its precedential 2002 ruling in Wilson v. Parker, Covert & Chidester, where the court held that a summary-judgment denial establishes probable cause even if the denial is later reversed.

“The denial of summary judgment in the underlying trade secrets action established probable cause to bring that action,” Kruger said.

“As we explained in Wilson, California courts have long embraced the so-called interim adverse judgment rule, under which a ‘trial court judgment or verdict in favor of the plaintiff or prosecutor in the underlying case, unless obtained by means of fraud or perjury, establishes probable cause to bring the underlying action, even though the judgment or verdict is overturned on appeal or by later ruling of the trial court,” Kruger said.

“That is to say, if a claim succeeds at a hearing on the merits, then, unless that success has been procured by certain improper reasons, the claims cannot be ‘totally and completely without merit,’” she said, citing the court’s 2004 ruling in Zamos v. Stroud.

Latham’s general counsel, Everett Johnson, issued a statement following the ruling.

“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,” he said. “In the court’s words, ‘[t]he denial of summary judgment in the underlying trade secrets action established probable cause to bring that action.’”

One of the lead attorneys for the two former FLIR employees, Michael Avenatti, said he was disappointed with the ruling.

“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,” said Avenatti, of Eagan Avenatti in Newport Beach. “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 Lawyers Mutual Insurance Co. participated as amicus, arguing that the court’s ruling in Wilson should guide the court in this case.

“The opinion goes down the line with the initial adverse judgment rule,” said the carrier’s attorney, Roy Weatherup.

“The opinion is very helpful to all prospective defendants who are threatened with malicious prosecution,” said Weatherup, of the Los Angeles office of Lewis Brisbois Bisgaard & Smith.

The Association of Southern California Defense Counsel also participated as amicus.

“It’s an important clarifying decision,” said the association’s attorney, Harry Chamberlain II. “If probable cause existed [to bring the suit], that ends the discussion. You have a colorable case.”

A Los Angeles judge found in 2008 that Latham had acted in bad faith when it litigated a trade secrets suit against FLIR, which is based in Oregon.

Despite the bad-faith finding in the underlying case, the Second District Court of Appeal concluded earlier this year that the former FLIR employees—William Parrish and Timothy Fitzgibbons—couldn’t prove a malicious-prosecution claim because the case survived summary judgment, establishing that Latham had probable cause to sue.

A suit for malicious prosecution seeks to recover damages for the target of a lawsuit brought without probable cause, and for an abusive purpose.

Latham’s 2006 suit against Parrish and Fitzgibbons included claims for misappropriation of trade secrets. Los Angeles County Superior Court Judge James Brown initially denied a defense motion for summary judgment but ultimately found FLIR had sued to prevent Parrish and Fitzgibbons from starting a rival business.

After the case was resolved, Parrish and Fitzgibbons sued Latham and Schecter.

In the appellate court’s June decision, Justice Patti Kitching wrote that the summary-judgment denial was enough to thwart a malicious-prosecution claim without a showing that Latham had used fraudulent evidence to defeat the motion. Kitching cited Wilson as the controlling precedent.

A Second District panel originally sided with plaintiffs in 2014, giving them a second chance to go after Latham. But the opinion, filed the day before Justice Walter Croskey died, had only two signatures. The Second District granted rehearing on its own initiative, this time coming down in favor of Latham.

In 2011, FLIR announced it would pay Parrish and Fitzgibbons $39 million to settle claims that the company attempted to kill their business venture.

Contact the reporter at mbooth@alm.com.