Bloomberg BNA’s Daily Manual of Professional Conduct

August 10, 2017

By Joyce E. Cutler

A summary judgment motion that went in an employer’s favor provided a malicious prosecution shield to the law firm representing that company, the California Supreme Court unanimously ruled Aug. 10 (Parrish v. Latham & Watkins LLP, 2017 BL 279570, Cal., No. S228277, 8/10/17).

The justices, in a ruling arising from a trade secrets case FLIR Systems Inc. filed against two former employees, held that the trial court’s subsequent finding that the employer brought the suit in bad faith, based on flimsy evidence, didn’t undo its earlier decision to allow the case to go to trial.

The case against Latham & Watkins LLP and partner Daniel Scott Schecter attracted briefing by lawyers and legal malpractice insurers, who argued against faulting attorneys for facts they didn’t know at the time they acted. Lawyers would be torn between representing clients’ interests in pursuing trade secret appropriations cases and avoiding malicious prosecution cases down the line, the briefs maintained.

The case turned on the “interim adverse judgment rule.” That rule says that if an action succeeds on the merits at some stage of proceedings, this normally establishes that there was probable cause to bring the action—so malicious prosecution can’t be shown. The “rule applies even if the court later rules, after the evidence has been subject to adversarial testing, that the inferences [on which the case was based] have proved false,” Justice Leondra Kruger wrote for the court.

The trial court’s denial of summary judgment to ex-employees William Parrish and E. Timothy Fitzgibbons in the underlying trade secrets action “established probable cause to bring that action,” Kruger wrote. Because that action was supported by probable cause, Parrish and Fitzgibbons cannot establish a probability of success on their malicious prosecution claim, the court held.

Cold Comfort

“If the employees had won the summary judgment or never filed a summary judgment motion, then Latham would not have had that defense for the malicious prosecution action,” said Anthony Oncidi, head of the labor & employment law group at Proskauer Rose LLP in Los Angeles, who is not involved in the litigation and has followed the case.

“In the court world that’s something an employer’s lawyer could not know at the outset of the underlying trade secrets case. This is really cold comfort to a law firm or lawyer representing a party who is prosecuting a frivolous trade secrets claim. There are still ample opportunities for a successful defendant in a trade secrets case to go after the lawyers who had prosecuted that action, to go after them for malicious prosecution,” Oncidi told Bloomberg BNA Aug. 10.

The justices agreed with the appeals court “that this is a rule that should have very few exceptions and should be absolute,” aside from the exception where “the interim ruling [is] a product of a fraud on the court or actually perjured testimony,” Harry Chamberlain, with Buchalter Nemer PC in Los Angeles, who filed a brief supporting Latham for the Southern California Defense Counsel, told Bloomberg BNA Aug. 10.

Opposite Perspectives

“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,” Everett C. Johnson, general counsel of Latham & Watkins, said in an Aug. 10 statement to Bloomberg BNA.

But counsel for the ex-employees disagreed. “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,” Michael J. Avenatti, with Eagan Avenatti LLP in Newport Beach, Calif., said in an Aug. 10 email to Bloomberg BNA.

“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,” Avenatti said.

Trade Secrets

Indigo Systems Corp. and its purchaser FLIR sued former Indigo officers Parrish and Fitzgibbons for misappropriating trade secrets in starting a competing company after they left FLIR.

The trade secrets at issue involve the manufacture of microbolometers, devices for detecting infrared radiation that have uses in infrared cameras, night vision devices, and thermal imaging.

The trial court denied their summary judgment motion, but after a bench trial denied FLIR’s requests for relief. The court awarded the pair $1.6 million in attorneys’ fees and costs after concluding the action was pursued in bad faith. The appeals court in a separate ruling upheld that award. The pair then brought this case against their ex-employer’s law firm.

Eagan Avenatti LLP, Panish, Shea & Boyle LLP, and Esner Chang & Boyer represented Parrish and Fitzgibbons. McKool Smith Hennigan and Gibson Dunn & Crutcher LLP represented Latham & Watkins.