Court Opinion

ID: 2812290
Source: CourtListenerOpinion
Date Created: 2015-06-26 19:03:42.06438+00
Date Added: 2024-06-11T11:30:24.379695
License: Public Domain

Filed 6/26/15 Opinion after rehearing (reposted to provide correct version)
                                  CERTIFIED FOR PUBLICATION

             IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                                  SECOND APPELLATE DISTRICT

                                             DIVISION THREE

WILLIAM PARRISH et al.,                                             B244841

        Plaintiffs and Appellants,                                  (Los Angeles County
                                                                    Super. Ct. No. BC482394)
        v.

LATHAM & WATKINS et al.,

        Defendants and Respondents.

        APPEAL from orders of the Superior Court of Los Angeles County,

James R. Dunn, Judge. Affirmed.

        Eagan Avenatti, Michael J. Avenatti and Scott H. Sims; Panish, Shea & Boyle,

Brian J. Panish, Adam K. Shea and 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.

                          _______________________________________
                                     INTRODUCTION
         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) 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.)
         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

1
         SLAPP is an acronym for “strategic lawsuits against public participation.”

                                               2
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
       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.
                    FACTS AND PROCEDURAL BACKGROUND
       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

2
       As we discuss below, the trial court granted the motion on a different ground
without addressing the interim adverse judgment rule. The court concluded Former
Employees could not establish a probability of prevailing on their malicious prosecution
action because the action was untimely under Code of Civil Procedure section 340.6’s
one-year limitations period. While this appeal was pending, this court concluded that the
applicable statute of limitations for malicious prosecution is the two-year period supplied
by Code of Civil Procedure section 335.1, “irrespective of whether the party being sued
for malicious prosecution is the former adversary . . . or the adversary’s attorneys . . . . ”
(Roger Cleveland Golf Co., Inc. v. Krane & Smith, APC (2014) 225 Cal. App. 4th 660, 668
(Roger Cleveland Golf).) Accordingly, the parties’ contentions and the principal issue in
this appeal have shifted to whether the interim adverse judgment rule supplies an
independent legal basis for affirming the order, notwithstanding the trial court’s ruling
concerning the applicable limitations period.

                                              3
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 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.”

                                               4
       Former Employees were deep in negotiations with a third party, Raytheon, 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 (Boeing) 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 microbolometer fabrication techniques, from a major aerospace
company. By letter of September 5, 2006, counsel identified the third party as Raytheon,
and pointed out that Raytheon had been in the industry longer than FLIR and Indigo.
       By letter of October 12, 2006, Latham responded to the revelation that Former
Employees intended to license the necessary technology from Raytheon. Latham stated,
“We note [Former Employees’] contention that the Raytheon technology package
provides all the needed intellectual property and know-how for [Former Employees] to
engage in high-volume production of [vanadium oxide] microbolometers. While that
may be the case, it begs two critical questions related to FLIR’s intellectual property.”
First, Latham asked if the “Raytheon package include[s] a design for TEC-less
operation,” because FLIR possessed some patents and trade secrets in this area. Second,
Latham asked how long it would take Former Employees “to achieve a viable design and
production process” for the TEC-less vanadium oxide microbolometers without relying
on FLIR’s trade secrets. Latham stated that it had been informed that Raytheon did not

                                             5
have a then-viable design, and Latham therefore believed that, absent reliance on FLIR’s
intellectual property, it would take Former Employees at least three years to bring a
viable TEC-less vanadium oxide microbolometer to market.
       4.     The Motion for Summary Judgment in the Underlying Action
       In December 2006, Former Employees moved for summary judgment in the
Underlying Action. Their declarations in support of the motion asserted that nothing in
the new business plan contemplated with Raytheon was copied from the 2004 business
plan they presented to FLIR. Former Employees maintained FLIR did not own the
concepts for the new business, as those concepts had been adapted from the 1999
business plan Fitzgibbons conceived before joining Indigo.
       FLIR disputed Former Employees’ contention that the new business plan had not
borrowed concepts from intellectual property that Former Employees developed while
employed by Indigo. Further, FLIR argued Former Employees’ new business plan
“necessarily presumes” the use of FLIR’s trade secrets. To support this latter contention,
FLIR introduced two brief expert declarations. The first, from Dr. Dean Neikirk, stated
that, based on his experience and background, he was “not aware of any third party in the
infrared market, other than Plaintiff FLIR, that has the requisite technology and capability
to produce a high volume of bolometers at yields and costs sufficient to support” Former
Employees’ business plan. He stated that he knew of no “public domain literature
demonstrating that any third party has the ability [to] produce a high volume of TEC-less
[vanadium oxide] bolometers at a low cost.” He therefore concluded that Former

                                             6
Employees “could not pursue” their business plan without the use of FLIR’s trade secrets.
The second expert, Daniel Murphy, submitted a similar declaration.3
       The trial court denied Former Employees’ motion for summary judgment. First,
the court concluded that Former Employees failed to sustain their burden of persuasion.
The court explained, “[Former Employees] have made a compelling argument that they
are entitled to judgment at this stage. Nonetheless, the concepts involved in this action
are highly technical. Following a review of the [1999 business plan, the 2004 plan
presented to FLIR, and the latest version of the business plan], the court is unable to find
as a matter of law, for purposes of this motion only, that [FLIR] own[s] none of the
concepts for [Former Employees’] new business, that nothing in the . . . business plan
made use of [FLIR]’s proprietary confidential information, intellectual property, or work
product, or that all concepts in the [business] plan were identical to those in the 1999
plan.” The court further stated, “Even if defendants had sustained their burden of proof
on the motion, plaintiffs have produced sufficient evidence, for example with the Neikirk
and Murphy declarations, to raise a triable issue as to misappropriation of trade secrets.”
       5.     The Former Employees Prevail at Trial
       The case proceeded to a bench trial before the same judge who denied the
summary judgment motion. Former Employees requested a finding that the action was
brought and pursued in bad faith, and an award of reasonable attorney fees under the
UTSA. After trial, the court issued a lengthy statement of decision, denying FLIR relief
and awarding Former Employees their attorney fees.

3
       At trial, both experts explained that their opinions were based only on public
domain information, and they did not consider private technology that Former Employees
could license from third parties. Murphy also testified that he formerly worked for
Raytheon and had executed a nondisclosure agreement with the company that prevented
him from considering nonpublic Raytheon technology. He therefore deliberately
excluded Raytheon’s nonpublic technology when formulating his opinions in the case,
even though FLIR and Latham had been advised by Former Employees’ counsel of
Former Employees’ intention to license Raytheon’s technology.

                                              7
       After assessing the weight and credibility of the evidence, the trial court concluded
FLIR’s complaint “rested on concern and speculation that [Former Employees] would, in
the future, misappropriate trade secrets if [Former Employees] started a new, competitive
company.” The court explained, “California law prohibits injunctions based on a former
employer’s concern and speculation that a departing employee might commit future trade
secret misuse. The ‘inevitable disclosure’ theory is not followed by California Courts.”4
While the court acknowledged that Former Employees’ conduct had “raised a reasonable
suspicion that they might misuse [FLIR’s] trade secrets,” the court concluded that a
reasonable suspicion is not a basis for relief under the UTSA. FLIR could only prevail if
it established actual misappropriation or a threat of imminent misuse of its trade secrets.
FLIR’s argument that Former Employees might misappropriate trade secrets in the future
did not support relief; rather, the court reasoned, it would only support an argument under
the rejected “ ‘inevitable disclosure’ ” theory.
       As to Former Employees’ request for attorney fees, the court noted that its earlier
denial of the summary judgment motion did not preclude it from finding bad faith. The
court explained, “[Former Employees’] request for a finding of bad faith was not at issue
on the motion for summary judgment. The Court had not heard all the evidence or
considered witness credibility. The denial of the motion was not a ruling on whether
[FLIR] initiated or maintained the lawsuit in bad faith.”

4
        “The doctrine of inevitable disclosure permits a trade secret owner to prevent
a former employee from working for a competitor despite the owner’s failure to prove the
employee has taken or threatens to use trade secrets. Under that doctrine, the employee
may be enjoined by demonstrating the employee’s new job duties will inevitably cause
the employee to rely upon knowledge of the former employer’s trade secrets.” (Whyte v.
Schlage Lock Co. (2002) 101 Cal. App. 4th 1443, 1446.) “[T]his doctrine is contrary to
California law and policy because it creates an after-the-fact covenant not to compete
restricting employee mobility.” (Id. at p. 1447.)

                                              8
       Turning to the merits of the attorney fee request, the court analyzed whether
Former Employees established objective and subjective bad faith by FLIR in initiating or
maintaining the trade secret claim. Objective bad faith, the court observed, is “examined
by whether the facts indicate that the accusation was specious under the elements of the
UTSA claim.” Subjective bad faith is “examined by whether the circumstances indicate
that the plaintiff knew or was reckless in not knowing that the claim lacked merit.”
       Considering these factors, the trial court concluded that FLIR “initiated and
continued to pursue this action against [Former Employees] in bad faith and primarily for
the anticompetitive motive of preventing [Former Employees] from attempting to create
a new business in competition with [FLIR].” It concluded that FLIR had been “unwilling
to take the risk that [Former Employees] might be able successfully to compete without
misuse of [FLIR’s] trade secrets.”
       The trial court specifically found that FLIR’s suspicions regarding Former
Employees “were not sufficient to justify the filing of this lawsuit on June 15, 2006, or
the maintenance of the lawsuit through trial in December 2007.” The court made several
findings consistent with objective and subjective bad faith, including that FLIR
“unreasonably discounted ways in which [Former Employees] could have proceeded with
their new company lawfully,” “downplayed [Former Employees’] plans to license
technology from Raytheon and to make sales to Raytheon,” and “failed to take reasonable
measures to allay [its] fears by learning more about [Former Employees’] plans.” In
particular, the court noted, “[t]hree of [FLIR’s] witnesses testified that they did not know
at the time of the June 2006 filing of the lawsuit that [Former Employees] planned to
work with Raytheon, on a non-commercial military business model, and that, had they
known such facts, their concerns regarding [Former Employees] would have been
allayed.” The court awarded Former Employees over $1.6 million in attorney fees.

                                             9
       6.     Division Six Affirms the Judgment and Attorney Fee Award
       FLIR appealed the judgment and attorney fee award. Division Six affirmed.
(FLIR Systems, Inc. v. Parrish, supra, 174 Cal.App.4th at p. 1274.) In affirming the
attorney fee award, the appellate court observed, “[FLIR] does not appear to appreciate
the trial court’s factfinding power and its discretionary power to award attorney fees and
costs to curtail a bad faith claim of trade secret misappropriation.” (Id. at p. 1276.) The
court rejected FLIR’s claim that the denial of Former Employees’ motion for summary
judgment estopped the trial court from finding bad faith. (Id. at p. 1282.) The court
further noted that FLIR’s experts’ trial testimony undermined their declarations submitted
in opposition to summary judgment (see fn. 3, ante), and explained that the trial court
denied Former Employee’s summary judgment motion “because it had not heard all the
evidence or considered witness credibility.” (Id. at p. 1283.)
       7.     The Instant Action
       On April 6, 2012, Former Employees filed the instant malicious prosecution action
against Latham.5 They alleged that Latham brought and pursued the Underlying Action
with malice and without probable cause. They asserted that Latham pursued the action
on the theory that Former Employees would misuse trade secrets in the future, even
though the legal basis for that theory (inevitable disclosure) was discredited. Former
Employees further alleged that Latham brought the action knowing FLIR had an anti-
competitive purpose in suing them.

5
       Former Employees and Latham executed a tolling agreement, accounting for part
of the delay in filing suit.

                                             10
       8.     Latham’s Anti-SLAPP Motion
       Latham moved to strike the complaint under the anti-SLAPP statute. Latham
argued, and Former Employees did not dispute, that the malicious prosecution action
arose out of Latham’s protected petitioning activity and was therefore the proper subject
of an anti-SLAPP motion. Thus, the parties agreed the dispositive issue was whether
Former Employees could establish, as required by the anti-SLAPP statute, a reasonable
probability of prevailing on their complaint. (Code Civ. Proc., § 425.16, subd. (b)(1).)
       Latham argued that Former Employees could not establish a probability of
prevailing for two reasons: (1) the action was untimely under Code of Civil Procedure
section 340.6;6 and (2) the trial court’s denial of summary judgment in the Underlying
Action established that Latham had probable cause to bring the Underlying Action as a
matter of law.
       Former Employees opposed the motion. First, they argued that Code of Civil
Procedure section 340.6 is not the appropriate statute of limitations and that, under the
appropriate statute, Code of Civil Procedure section 335.1,7 the action was indisputably
timely. Second, Former Employees argued there was evidence that Latham brought the
Underlying Action without probable cause. Specifically, they argued the trial court’s
later finding of bad faith undermined the value of the denial of summary judgment for
purposes of assessing the existence of probable cause.
       The trial court granted Latham’s anti-SLAPP motion on the statute of limitations
ground without addressing whether the interim adverse judgment rule conclusively
established that Latham had probable cause to bring the trade secret claim. Former
Employees filed a timely notice of appeal.

6
        Code of Civil Procedure section 340.6, subdivision (a), provides a one-year
limitations period for “[a]n action against an attorney for a wrongful act or omission,
other than for actual fraud, arising in the performance of professional services . . . . ”
7
       Code of Civil Procedure section 335.1 provides a two-year limitations period for
an action for injury “caused by the wrongful act or neglect of another.”

                                              11
                                   ISSUES ON APPEAL
       The initial issue on appeal is whether the trial court erred in concluding the action
was untimely under Code of Civil Procedure section 340.6. While this appeal was
pending, we decided Roger Cleveland Golf, supra, 225 Cal. App. 4th 660, in which we
concluded that “the applicable statute of limitations for malicious prosecution is [Code of
Civil Procedure] section 335.1, irrespective of whether the party being sued for malicious
prosecution is the former adversary . . . or the adversary’s attorneys . . . . ” (Roger
Cleveland Golf, at p. 668.) As Latham concedes the action is timely under Code of Civil
Procedure section 335.1, and since we have no cause to reverse our holding in Roger
Cleveland Golf, the trial court’s rationale for granting the anti-SLAPP motion is no
longer viable.
       The focus has thus shifted to the alternative basis on which Latham pursued its
motion—that is, whether Former Employees established a probability of prevailing with
respect to the lack of probable cause element of their malicious prosecution claim.
Latham argues the trial court’s denial of summary judgment in the Underlying Action
establishes probable cause under the interim adverse judgment rule as a matter of law.
Former Employees argue the interim adverse judgment rule does not apply because the
trial court denied summary judgment on a technical ground and, in any event, the court’s
subsequent finding of objective bad faith negates the probable cause presumption created
by the interim adverse ruling. We conclude the Supreme Court’s decision in Wilson v.
Parker, Covert & Chidester (2002) 28 Cal. 4th 811 (Wilson) is controlling and mandates a
finding of probable cause under the interim adverse judgment rule.
                                       DISCUSSION
       1.        Standard of Review
       “[T]he issue on appeal is whether [the malicious prosecution plaintiff] presented
evidence in opposition to [the malicious prosecution] defendants’ anti-SLAPP motions
that, if believed by the trier of fact, would be sufficient to support a judgment in his favor.
This question is one of law, and we review the trial court’s decision de novo. [Citations.]
In doing so, we ‘consider[] the pleadings and evidentiary submissions of both the plaintiff

                                              12
and the defendant [citation]; though [we do] not weigh the credibility or comparative
probative strength of competing evidence, [we will] grant the motion if, as a matter of
law, the defendant’s evidence supporting the motion defeats the plaintiff’s attempt to
establish evidentiary support for the claim.’ [Citation.]” (Plumley v. Mockett (2008) 164
Cal. App. 4th 1031, 1047-1048 (Plumley).)
       2.     The Statute of Limitations Does Not Bar This Action
       Latham prevailed on its anti-SLAPP motion on the theory that Former Employees’
action was barred under Code of Civil Procedure section 340.6’s one-year limitations
period. While there is some authority applying Code of Civil Procedure section 340.6 to
malicious prosecution actions against attorneys, we disagreed with that authority in Roger
Cleveland Golf, supra, 225 Cal.App.4th at p. 668. Considering the statutory language,
the legislative history, the applicable public policy, and the interests of interpreting a
statute to avoid absurd results, we concluded Code of Civil Procedure section 340.6 does
not apply to malicious prosecution actions. (Id. at p. 677.) Latham agrees that Former
Employees’ malicious prosecution action is timely when considered under Code of Civil
Procedure section 335.1’s two-year limitations period. We therefore turn to the
alternative basis on which Latham argued Former Employees could not establish a
probability of prevailing: the lack of probable cause element of malicious prosecution
and the interim adverse judgment rule.
       3.     Probable Cause
       “Malicious prosecution has long been considered a disfavored tort both because of
‘its “potential to impose an undue ‘chilling effect’ on the ordinary citizen’s
willingness . . . to bring a civil dispute to court” [citation] and because, as a means of
deterring excessive and frivolous lawsuits, it has the disadvantage of constituting a new
round of litigation itself [citation].’ ” (Paiva v. Nichols (2008) 168 Cal. App. 4th 1007,
1018 (Paiva); Wilson, supra, 28 Cal.4th at p. 817 [“A preferable approach is ‘the
adoption of measures facilitating the speedy resolution of the initial lawsuit and
authorizing the imposition of sanctions for frivolous or delaying conduct within that first
action itself.’ ”].) Thus, as our Supreme Court observed, “the elements of [malicious

                                              13
prosecution] have historically been carefully circumscribed so that litigants with
potentially valid claims will not be deterred from bringing their claims to court by the
prospect of a subsequent malicious prosecution claim.” (Sheldon Appel Co. v. Albert &
Oliker (1989) 47 Cal. 3d 863, 872 (Sheldon Appel); Paiva, at p. 1018.)
         “To establish a cause of action for malicious prosecution, a plaintiff must plead
and prove that the underlying action was (1) commenced by or at the direction of the
defendant and pursued to a legal termination in the plaintiff's favor; (2) brought without
probable cause; and (3) initiated with malice.” (Plumley, supra, 164 Cal.App.4th at
p. 1047; Crowley v. Katleman (1994) 8 Cal. 4th 666, 676.) Unlike the malice element,
which is a factual question (Sheldon Appel, supra, 47 Cal.3d at p. 874), “the existence or
nonexistence of probable cause is a legal question to be resolved by the court in the
malicious prosecution case; litigants are thus protected against the danger that a lay jury
would mistake a merely unsuccessful claim for a legally untenable one.” (Wilson, supra,
28 Cal.4th at p. 817; Sheldon Appel, at pp. 874-877; Paiva, supra, 168 Cal.App.4th at p.
1018.)
         “The presence or absence of probable cause is viewed under an objective standard
applied to the facts upon which the defendant acted in prosecuting the prior case” (Paiva,
supra, 168 Cal.App.4th at p. 1018), and “without reference to whether the attorney
bringing the prior action believed the case was tenable” (Wilson, supra, 28 Cal.4th at
p. 817). (Sheldon Appel, supra, 47 Cal.3d at pp. 878, 881.) The test for determining
probable cause is “whether any reasonable attorney would have thought the claim
tenable.” (Sheldon Appel, at p. 886.) This “rather lenient standard” (Wilson, at p. 817) is
based upon the test for determining frivolous appeals (see In re Marriage of
Flaherty (1982) 31 Cal. 3d 637), and “more appropriately reflects the important public
policy of avoiding the chilling of novel or debatable legal claims.” (Sheldon Appel, at
p. 885; Paiva, at pp. 1018-1019.)

                                              14
       “[P]robable cause to bring an action does not depend upon it being meritorious, as
such, but upon it being arguably tenable, i.e., not so completely lacking in apparent merit
that no reasonable attorney would have thought the claim tenable. [Citation.]” (Wilson,
supra, 28 Cal.4th at p. 824.) “ ‘Counsel and their clients have a right to present issues
that are arguably correct, even if it is extremely unlikely that they will win . . . .’
[Citation.]” (Sheldon Appel, supra, 47 Cal.3d at p. 885, quoting In re Marriage of
Flaherty, supra, 31 Cal.3d at p. 650.) “Reasonable lawyers can differ, some seeing as
meritless suits which others believe have merit, and some seeing as totally and
completely without merit suits which others see as only marginally meritless. Suits
which all reasonable lawyers agree totally lack merit—that is, those which lack probable
cause—are the least meritorious of all meritless suits. Only this subgroup of meritless
suits present no probable cause.” (Roberts v. Sentry Life Insurance (1999)
76 Cal. App. 4th 375, 382 (Roberts); Wilson, at p. 817 [“Only those actions that ‘ “any
reasonable attorney would agree [are] totally and completely without merit” ’ may form
the basis for a malicious prosecution suit.”].)
       4.      The Interim Adverse Judgment
       “Under established law, certain nonfinal rulings on the merits may serve as the
basis for concluding that there was probable cause for prosecuting the underlying case on
which a subsequent malicious prosecution action is based.” (Paiva, supra,
168 Cal.App.4th at p. 1020; Wilson, supra, 28 Cal.4th at pp. 817–818.) This principle,
referred to as the interim adverse judgment rule, draws on the “rather lenient standard” of
probable cause articulated in Sheldon Appel to recognize that “[c]laims that have
succeeded at a hearing on the merits, even if that result is subsequently reversed by the
trial or appellate court, are not so lacking in potential merit that a reasonable attorney or
litigant would necessarily have recognized their frivolousness.” (Wilson, at p. 818.)
       The interim adverse judgment rule originated with decisions in which the
underlying case resulted in a plaintiff’s verdict or judgment that was subsequently set
aside or reversed by the trial or an appellate court. (See, e.g., Fairchild v. Adams (1959)
170 Cal. App. 2d 10 (Fairchild); Cowles v. Carter (1981) 115 Cal. App. 3d 350 (Cowles).)

                                               15
Those decisions recognized that a judgment in favor of the plaintiff in the underlying
case—i.e., the defendant in the subsequent malicious prosecution action—is, in the
absence of fraud, conclusive evidence of probable cause to bring the underlying action,
notwithstanding the subsequent reversal of the judgment. (Fairchild, at p. 15 [although
jurors were “declared by the Supreme Court to be in error,” their judgment in favor of the
plaintiff in underlying will contest was “conclusive evidence, in the absence of fraud, of
the existence of probable cause”]; Cowles, at p. 354 [trial judge’s denial of nonsuit
motion coupled with verdict in favor of plaintiff sufficient to establish probable cause
despite same trial judge’s subsequent grant of defense judgment notwithstanding the
verdict].)
       In Wilson, our Supreme Court recognized that the rationale for the interim adverse
judgment rule applies with equal force when the trial court in the underlying case denies
an interim dispositive motion on the merits. As the high court explained, “[d]enial of a
defense summary judgment motion on grounds that a triable issue exists, or of a
nonsuit, while falling short of a determination of the merits, establishes that the plaintiff
has substantiated, or can substantiate, the elements of his or her cause of action with
evidence that, if believed, would justify a favorable verdict.” (Wilson, supra, 28 Cal.4th
at p. 824.) That is, “[a] trial court’s conclusion that issues of material fact remain for trial
‘necessarily impl[ies] that the judge finds at least some merit in the claim. The claimant
may win, if certain material facts are decided favorably. This finding (unless
disregarded) compels [the] conclusion that there is probable cause, because
probable cause is lacking only in the total absence of merit.’ [Citation.] Giving effect to
this conclusion ‘serves the policy expressed in Sheldon Appel to discourage dubious
malicious prosecution suits.’ ” (Id. at p. 819, first italics added, abrogated by statute on
another ground, as stated in Hutton v. Hafif (2007) 150 Cal. App. 4th 527, 547.)
       Critically, success in defeating an interim dispositive motion on the merits
establishes probable cause “even if that result is subsequently reversed by the trial or
appellate court.” (Wilson, supra, 28 Cal.4th at p. 818.) As the Wilson court explained,
“[i]t would be a ‘ “hard law,’ ” indeed, that ‘ “would render a plaintiff liable in damages

                                              16
for instituting an action . . . in the event that, notwithstanding a judge of the superior
court was satisfied that upon those facts the plaintiff had a meritorious case, a ruling to
that effect should afterwards be set aside.” ’ ” (Id. at p. 822.) Because “ ‘ “[t]he inquiry
[is] not whether the plaintiff had in fact a good and valid cause of action, but whether this
was apparently true, . . . [it is] the right of the plaintiff to invoke a judicial decision
concerning the merits of the case presented for determination,” ’ ” notwithstanding that
the decision is subsequently reversed. (Id. at p. 818, italics omitted; Cowles, supra,
115 Cal.App.3d at p. 354.)
       Certain exceptions apply to the operation of the interim adverse judgment rule.
If the summary judgment motion was denied “on procedural or technical grounds, rather
than for existence of triable issues of material fact,” the summary judgment denial does
not establish that probable cause existed. (Wilson, supra, 28 Cal.4th at p. 823.) This is
because a denial on procedural grounds “says nothing regarding the potential merit of the
action.” (Id. at p. 823; see, e.g., Code Civ. Proc., § 437c, subds. (b) [motion may be
denied if supporting papers do not include a separate statement of undisputed facts] & (e)
[motion may be denied if the only proof of one or more material facts is the declaration
of the sole witness to the fact, or a material fact as to a person’s state of mind is sought to
be established solely by the person’s testimony].)
       Further, if the interim ruling was obtained by fraud or perjury, the ruling does not
establish probable cause. (Wilson, supra, 28 Cal.4th at pp. 817, 820.) Fraud or perjury in
this sense is not established simply by showing the plaintiff or attorney discounted
adverse evidence in the underlying action. An “attorney who possesses competent
evidence to substantiate a legally cognizable claim for relief does not act tortiously by
bringing the claim, even if also aware of evidence that will weigh against the claim.”
(Id. at p. 822.) “[T]he fraud exception requires ‘ “knowing use of false and perjured
testimony.” ’ ” (Antounian v. Louis Vuitton Malletier (2010) 189 Cal. App. 4th 438, 452.)

                                                17
       5.     The Interim Adverse Judgment Rule Applies; The Trial Court’s Summary
              Judgment Denial Establishes Probable Cause and Precludes Former
              Employees’ Malicious Prosecution Claim
       The trial court in the Underlying Action, viewing the evidence in the light most
favorable to Latham’s clients as the non-moving parties, concluded it could not grant
Former Employees’ defense motion for summary judgment on the trade secret claim.
Though it acknowledged Former Employees had made a “compelling argument” for
summary judgment, the court ruled that, “[f]ollowing a review of the [1999 business plan
submitted, the 2004 plan presented to FLIR, and the new business plan], the court is
unable to find as a matter of law, for purposes of this motion only, that [FLIR] own[s]
none of the concepts for [Former Employees’] new business, that nothing in the [new]
business plan made use of [FLIR]’s proprietary confidential information, intellectual
property, or work product, or that all concepts in the [new] plan were identical to those in
the 1999 plan.” Accordingly, the court found Former Employees had “failed to sustain
their burden of proof on the motion.”
       Former Employees do not contend Latham obtained this ruling through fraud or
perjury. Rather, they argue the court’s statement that Former Employees “failed to
sustain their burden of proof on the motion” establishes the motion was denied on a
technical ground that does not trigger the interim adverse judgment rule. (See Wilson,
supra, 28 Cal.4th at p. 823.) We disagree. As our Supreme Court stated in Aguilar v.
Atlantic Richfield Co. (2001) 25 Cal. 4th 826, 850, “the party moving for summary
judgment bears the [ultimate] burden of persuasion that there is no triable issue of
material fact and that he is entitled to judgment as a matter of law.” (Italics added.)
Former Employees sought to meet that burden by demonstrating the new business plan
was based on a prior business plan Fitzgibbons prepared in 1999, as opposed to the 2004
plan Former Employees developed at Indigo and presented to FLIR. As the trial court
noted in its written ruling, FLIR disputed this contention in opposing summary judgment

                                             18
by citing the purportedly different business plans, while arguing the plans were
substantively the same.8 Consistent with that contention, the trial court concluded, after
comparing the 1999, 2004 and new business plans, that it was “unable to find as a matter
of law . . . that [FLIR] own[s] none of the concepts for [Former Employees’] new
business, that nothing in the [new] business plan made use of [FLIR]’s proprietary
confidential information, intellectual property, or work product, or that all concepts in the
[new] plan were identical to those in the 1999 plan.” Though the court framed its
conclusion in terms of Former Employees’ failure to sustain their burden as the moving
party, the necessary implication of the court’s ruling is that the evidence raised a triable
issue of material fact. (See Aguilar, at p. 850.) This is not a “technical ground,” but
rather an acknowledgement that FLIR’s claim had some conceivable merit. (Wilson,
supra, 28 Cal.4th at p. 823.)
       Regardless of the trial court’s reasons for denying the motion, Former Employees
contend the court’s subsequent finding of bad faith in connection with awarding UTSA
attorney fees negates the summary judgment ruling for purposes of invoking the interim
adverse judgment rule. In advancing this argument, Former Employees rely principally
upon the Court of Appeal’s opinion in Slaney v. Ranger Ins. Co. (2004) 115 Cal. App. 4th
306 (Slaney). In view of its seeming inconsistencies with our Supreme Court’s statement
of the law in Wilson, Slaney is not persuasive on this point.
       In Slaney, an insurance company denied a claim by its insureds for damage to a
plane. The plane’s prior owner prepared an estimate for repair to the plane, which the
insureds submitted with their claim. The insurer denied the claim and asserted the
insureds and the prior owner had conspired to present a fraudulently excessive claim.

8
       FLIR disputed the contention in its separate statement, citing the new business
plan and the 2004 presentation for the proposition that “both [Former Employees’
proposed new business] and FLIR have stated intentions to pursue high-volume
production of low-cost microbolometers and related components, in order to reach
commercial markets” and “[Former Employees] conceived of this idea while under and in
violation of the non-compete agreements which they signed at the time of the merger.”

                                             19
The insureds sued their insurer for bad faith, and the insurer cross-complained against the
insureds and the prior owner for fraud. The prior owner moved for summary judgment;
the trial court denied the motion. However, the prior owner subsequently renewed the
motion before a different trial judge who granted the motion. Thereafter, in the litigation
between the insurer and the insureds, the insureds prevailed in their claim for bad faith,
and the jury concluded the insurer’s denial of the claim—based on its assertion of fraud
against the insureds and the prior owner—was malicious. (Slaney, supra,
115 Cal.App.4th at p. 309.) The prior owner brought a malicious prosecution action
against the insurer. The insurer filed an anti-SLAPP motion, arguing the initial denial of
the prior owner’s summary judgment motion established it had probable cause to pursue
its claim. The trial court denied the motion and the Slaney court affirmed. (Id. at
pp. 309-310.)
       The Slaney court concluded the interim adverse judgment rule did not apply under
the circumstances of the case. (Slaney, supra, 115 Cal.App.4th at pp. 309-310.) The
court recognized that the denial of summary judgment is normally sufficient to establish
probable cause, and the prior owner’s subsequent success on the renewed summary
judgment motion was not enough to undermine this conclusion. (Id. at p. 320.)
However, the fact that the jury ultimately found the insurer denied the claim with malice
was sufficient, in the court’s view, to undermine the effect of the prior summary
judgment denial. The court explained it was “reasonable to infer” from the malice
finding that the jury “concluded [the insurer’s] theory of conspiracy . . . was itself
fraudulent and prosecuted in bad faith.” (Id. at p. 321.) “This,” the Slaney court held,
“along with the ultimate grant of summary judgment in favor of [the prior owner] [was]
sufficient to offset the first denial of the motion for summary judgment and support
inferences of lack of probable cause and malice.” (Ibid.)
       Slaney is difficult to square with the interim adverse judgment rule’s core
principles as articulated in Wilson. To begin, Slaney holds that while a prior summary
judgment denial standing alone establishes probable cause, this result can be negated by a
subsequent grant of summary judgment coupled with a jury finding of malice. That

                                              20
conclusion is inconsistent with the “rather lenient standard” for finding probable cause
(Wilson, supra, 28 Cal.4th at p. 817) and the Supreme Court’s concomitant holding that
the denial of an interim dispositive ruling on the merits “precludes the maintenance of a
subsequent malicious prosecution action, unless the prior ruling is shown to have been
obtained by fraud or perjury.” (Id. at p. 820, italics added.) Because probable cause
exists unless “all reasonable lawyers agree [the suit] totally lack[s] merit” (Roberts,
supra, 76 Cal.App.4th at p. 382), and an interim adverse ruling conclusively establishes
that at least one neutral jurist believes the suit has “at least some merit” (id. at p. 383), a
different finding in later proceedings by the trial court or jury cannot negate the necessary
conclusion that probable cause existed. (See Wilson, at p. 819.) As the Supreme Court
put it in Wilson, “[i]t would be a ‘ “hard law,” ’ indeed, that ‘ “would render a plaintiff
liable in damages for instituting an action . . . in the event that, notwithstanding a judge of
the superior court was satisfied that upon those facts the plaintiff had a meritorious case,
a ruling to that effect should afterwards be set aside.” ’ ” (Id. at p. 822.)
       Moreover, the hindsight approach employed in Slaney is inconsistent with the
principle that plaintiffs and their attorneys “have the right to bring a claim they think
unlikely to succeed, so long as it is arguably meritorious.” (Wilson, supra, 28 Cal.4th at
p. 822, citing Sheldon Appel, supra, 47 Cal.3d at p. 885.) Contrary to the Slaney court’s
conclusion, the fact that the trial court or jury later rejects a plaintiff’s claim and, after
weighing the competent evidence, finds the claim was brought with malice, does not
negate other evidence which, standing alone, establishes the existence of probable cause.
“A litigant or attorney who possesses competent evidence to substantiate a legally
cognizable claim for relief does not act tortiously by bringing the claim, even if also
aware of evidence that will weigh against the claim. Plaintiffs and their attorneys are not
required, on penalty of tort liability, to attempt to predict how a trier of fact will weigh
the competing evidence, or to abandon their claim if they think it likely the evidence will
ultimately weigh against them.” (Wilson, at p. 822, italics added.)

                                               21
       When viewing the evidence in the light most favorable to Latham’s clients, the
trial court in the Underlying Action concluded FLIR’s trade secret claim and the
similarity of the various business plans presented triable issues that could not be resolved
on summary judgment. Notwithstanding that ruling, after evaluating the weight and
credibility of the evidence at trial, and finding, in particular, that FLIR and Latham
“unreasonably discounted” and “downplayed” adverse evidence and Former Employees’
explanations concerning the alleged misappropriation, the court ultimately concluded
FLIR filed and maintained the claim in bad faith, thereby warranting an attorney fee
sanction under the UTSA. That conclusion is not inconsistent with the existence of
probable cause or the court’s prior ruling denying summary judgment.
       As the trial court explained in its statement of decision, “[Former Employees’]
request for a finding of bad faith was not at issue on the motion for summary judgment,”
and “[t]he Court had not heard all the evidence or considered witness credibility” when it
denied the motion. The finding, based on the more complete record developed at trial,
that Latham and FLIR downplayed or unreasonably discounted evidence weighing
against the trade secret claim, though supporting the bad faith finding, does not establish
a lack of probable cause. As noted, if FLIR and Latham had evidence to substantiate the
trade secret claim, as the trial court concluded they had in denying summary judgment,
there was probable cause, “even if [they were] also aware of evidence that [would] weigh
against the claim.” (Wilson, supra, 28 Cal.4th at p. 822.) The bad faith finding does not
negate the court’s prior conclusion that the trade secret claim had “ ‘at least some merit’ ”
so as to warrant a trial on the conflicting evidence.9 (Id. at p. 819.) The interim adverse
judgment rule applies and precludes Former Employees’ malicious prosecution claim.

9
       Because the trial court’s denial of summary judgment based on the similarities
between the 2004 and new business plans is alone sufficient to invoke the interim adverse
judgment rule, we do not address Former Employees’ contention that Latham
fraudulently procured the summary judgment denial by offering expert declarations that
deliberately ignored Former Employees’ plan to license the needed technology from
Raytheon. (See fn. 3, ante; Robert, supra, 76 Cal.App.4th at p. 384.)

                                             22
                                    DISPOSITION
       The order granting Latham’s anti-SLAPP motion is affirmed. Latham is entitled
to recover its costs on appeal.

       CERTIFIED FOR PUBLICATION

                                         KITCHING, J.
WE CONCUR:

              EDMON, P. J.

              EGERTON, J.*

*
        Judge of the Los Angeles Superior Court, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.

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