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Parrish v. Latham

California Court of Appeals, Second District, Third Division

June 26, 2015

WILLIAM PARRISH et al., Plaintiffs and Appellants,
LATHAM & WATKINS et al., Defendants and Respondents.

APPEAL from orders of the Superior Court of Los Angeles County, No. BC482394 James R. Dunn, Judge.

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[Copyrighted Material Omitted]

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Eagan Avenatti, Michael J. Avenatti, Scott H. Sims; Panish, Shea & Boyle, Brian J. Panish, Adam K. Shea, Kevin R. Boyle; Esner, Chang & Boyer and Stuart B. Esner for Plaintiffs and Appellants.

McKool Smith Hennigan, J. Michael Hennigan and Michael Swartz for Defendants and Respondents.

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In this case we reaffirm the principle, referred to as the interim adverse judgment rule, that the denial of a dispositive motion on the merits in an underlying action establishes the existence of probable cause and precludes the maintenance of a subsequent malicious prosecution action, unless the prior ruling is shown to have been obtained by fraud or perjury. We hold this principle applies even if the same trial judge later finds that the malicious prosecution defendant initiated the underlying action in bad faith.

In a prior litigation, FLIR Systems, Inc. and Indigo Systems Corporation (collectively, FLIR) brought suit against their former employees, William Parrish and E. Timothy Fitzgibbons (collectively, Former Employees) for, among other things, misappropriation of trade secrets (the Underlying Action). Former Employees moved for summary judgment on FLIR’s complaint. The trial court denied the motion, concluding Former Employees failed to satisfy their moving burden and the evidence raised triable issues of fact. The case proceeded to a bench trial, after which the trial court found in favor of Former Employees in the Underlying Action. Moreover, Former Employees obtained an award of attorney fees pursuant to the Uniform Trade Secrets Act (the UTSA; Civ. Code, § 3426 et seq.) based on the trial court’s finding that FLIR brought the misappropriation claim in bad faith. (See Civ. Code, § 3426.4.) Division Six of this appellate district affirmed the attorney fee order on appeal. (FLIR Systems, Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1274 [95 Cal.Rptr.3d 307].)

Thereafter, Former Employees brought the instant malicious prosecution action against the attorneys who represented FLIR in the Underlying Action, Latham & Watkins LLP and Daniel Schecter (collectively, Latham). Latham moved to strike the complaint under Code of Civil Procedure section 425.16. the anti SLAPP statute, [1] arguing, inter alia, the denial of Former Employees’ defense motion for summary judgment conclusively established FLIR had probable cause for the Underlying Action and, hence, Former Employees could not establish a possibility of prevailing on their malicious prosecution claim. The trial court granted the motion.[2]

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Former Employees principally contend that the interim adverse judgment rule does not preclude this malicious prosecution action because the trial court’s finding of bad faith after a bench trial in the Underlying Action negates its prior ruling denying summary judgment. We conclude this hindsight approach is inconsistent with a core principle of the interim adverse judgment rule-namely, that an interim ruling on the merits establishes probable cause in the underlying action, even though that ruling is later reversed by the trial court, a jury, or an appellate court. Accordingly, we reject Former Employees’ contention and affirm.


1. Underlying Facts

The trade secrets at issue involve the manufacture of microbolometers, which are devices for detecting infrared radiation used in connection with infrared cameras, night vision and thermal imaging.

Former Employees were shareholders and officers of Indigo, a company that developed and sold microbolometers. Former Employees agreed to assign to Indigo any intellectual property they developed during their employment with the company. In 2004, FLIR acquired Indigo and its intellectual property. Former Employees joined FLIR after Indigo’s acquisition. They left FLIR on January 6, 2006, when their contracts expired.

In 2004, while working for FLIR, Former Employees presented FLIR with a business plan to outsource microbolometer manufacture. When they left FLIR in 2006, Former Employees embarked on a plan to launch a competing business that also would outsource the manufacture of microbolometers. FLIR believed the plan for the competing business was its intellectual property insofar as Former Employees had presumably developed it during their employment with Indigo and FLIR. FLIR also maintained that the competing business contemplated by the plan would necessarily use intellectual property that belonged to FLIR.

Former Employees had several meetings with FLIR in an attempt to assure FLIR that they had no intention of using its intellectual property in their new

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business venture. They also explained to FLIR that the business plan had been created by Fitzgibbons before he joined Indigo, and therefore was not FLIR’s intellectual property.

2. Latham Files the Underlying Action

On June 15, 2006, FLIR, represented by Latham, filed the Underlying Action against Former Employees, alleging seven causes of action, including misappropriation of trade secrets. The misappropriation claim alleged, on information and belief, that Former Employees had solicited venture capital for their new business by presenting a business plan that misappropriated FLIR’s confidential information and trade secrets. According to the complaint, Former Employees had ''sought to assuage FLIR’s concerns [about the alleged misappropriation], by representing that they would not use any of... FLIR's confidential trade secrets, would license intellectual property from established owners, [and] would develop a ‘rigorous IP filtering procedure.' " The complaint alleged “[t]hese assurances were belied by Fitzgibbons’[s] claim that he had conceived the idea for the new business before joining Indigo, even though he had joined the company seven years earlier in 1999.”

Former Employees were deep in negotiations with a third party, Raytheon Company, when FLIR filed its complaint. The business venture contemplated that Former Employees would license Raytheon’s intellectual property in the area of microbolometer manufacture. However, once Raytheon learned of the Underlying Action, it broke off negotiations with Former Employees.

After FLIR filed the Underlying Action, counsel for Former Employees and Latham exchanged letters concerning the business plan at the heart of FLIR’s misappropriation of trade secrets claim. On July 16, 2006, Former Employees sought to prove to Latham that their business plan had been formulated by Fitzgibbons prior to joining Indigo by sending Latham a copy of the business plan Fitzgibbons submitted to another third party (The Boeing Company) prior to joining Indigo. Counsel for Former Employees represented to Latham that their then-current business plan did not involve the use of FLIR’s intellectual property but, instead, depended on licensing the necessary intellectual property from a third party. By letter of August 15, 2006, Former Employees’ counsel explained to Latham that Former Employees intended to license a complete technology package, including ...

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