California SLAPP Law

Yesterday, a California appellate court overturned the lower court’s dismissal of a malicious prosecution claim against Biglaw mainstay Latham & Watkins. According to the opinion, the lower court was wrong on the statute of limitations, but the opinion also went out of its way to express just how likely the plaintiffs were to prevail on the merits of their claim that Latham doggedly pursued them on a “non-viable” legal theory.

Latham still has an opportunity to defend itself, but the language of this opinion is certainly not encouraging.

The plaintiff already recovered over $1.6 million in fees from Latham’s client, let’s see how they do against the firm…

Source: abovethelaw.com

Shame on the Latham & Watkins law firm.

I have proposed a law akin to the anti-SLAPP statute, which would apply to companies who seek to prevent former employees from creating competing businesses, and this case illustrates why.

The anti-SLAPP statute was passed because companies and individuals would use the time and expense of litigation as a means to silence criticism. If someone is saying something you don’t like, just sue them. The critic is then faced with the prospect of spending tens of thousands of dollars on a defense, or just ceasing the criticism.

In the case of employees who leave a company to start a competing business, the business brings suit claiming the use of “trade secrets,” and ties the former employees up in years of litigation; all the time knowing that the trade secrets do not exist and are certainly not being used. Sound familiar?

The Uniform Trade Secrets Act (UTSA) affords some protection to employees in this position, since it provides for the award of attorney fees to the employees if they prevail in the action, and the court determines that the action was brought in bad faith. But that does little to prevent the misuse of trade secret claims by companies wanting to stifle competition, since they can often bankrupt the former employees and force them to capitulate long before the employees can prevail in the action.

In this case, the plaintiff company brought in experts to testify that the former employees, no matter how good their intentions, had to be prevented from competing under the doctrine of “inevitable disclosure.” One problem, dear experts, inevitable disclosure is not a viable theory in California.

In any event, in this case the former employees beat the bogus suit, and were awarded $1.6 million in attorney fees against the company. They then brought a malicious prosecution action, and Latham & Watkins responded with an anti-SLAPP motion, arguing, inter alia, that the malicious prosecution action was barred by the statute of limitations. The trial court granted the anti-SLAPP motion on that basis.

[UPDATE 6/26/2015]  On appeal, the Court of Appeal affirmed the trial court’s decision to grant the anti-SLAPP motion, but on a different basis. The Court of Appeal found that the trial court erred in concluding that the action was barred by the statute of limitations, but nonetheless affirmed the ruling on the basis of the “Interim Adverse Judgment Rule” (the Rule).

During the trial court proceedings, the employees had brought a motion for summary judgment. The trial court had denied the motion, finding that there were triable issues of fact. Under the Rule, if a dispositive motion is brought, and the action survives that motion, then it cannot be later said that the action was without merit. This is true even though the trial court later specifically found that the action had been brought in bad faith.

For this reason, the malicious prosecution action failed because an element of that claim is that the action was brought without probable cause, but if the claim survived a motion for summary judgment, that establishes that the action at least presented triable issues.

A malicious prosecution action in essence automatically falls under the anti-SLAPP statute, since it involves a party’s right of redress. The first prong is therefore met. Here, the burden then shifted to the employees to show that they were more likely than not to prevail on the malicious prosecution action, and they could not do so since the Rule established that the action was not brought without probable cause, regardless of the court’s later determination of bad faith.

There is logic to the Rule. When a party and its attorney are deciding whether to bring a legal action, they have a certain universe of information and documentation available. From that universe, they decide if there is probable cause for the action. If the action survives a motion for summary judgment, that means that the court agreed that the universe contained sufficient information in support of the action, since the court found triable issues.

The fact that the court later enters judgment in favor of defendants and even makes a determination of bad faith does not change that fact. Those determinations are made with the benefit of 20/20 hindsight, after all the evidence is presented, which is a different viewpoint than the plaintiff originally had when making the determination.