PARRISH v. LATHAM & WATKINS (To be called and continued to the June 2017 calendar.)Appellants’ Opening Brief on the MeritsCal.December 15, 2015 S228277 Bont IN THE SUPREME COUR ee STATE OF CALIFORNIA - DEC 15 2015 Frank A. McGuire Clerk WILLIAM PARRISHand E. TIMOTHY FITZGIBBONS, Deputy Plaintiffs and Appellants, VS. LATHAM & WATKINS, LLP and DANIEL SCHECTER, Defendants and Respondents, AFTER A DECISION BY THE COURT OF APPEAL SECOND APPELLATEDISTRICT, DIVISION 3, CASE No. B244841 ' HON. JAMES R. DUNN, JUDGE, SuP. CT. No. BC482394 OPENING BRIEF ON THE MERITS EAGAN AVENATTI LLP PANISH, SHEA & BOYLE, LLP MICHAEL J. AVENATTI, SBN 206929 BRIAN J. PANISH, SBN 116060 SCOTT H. SIMs, SBN 234148 ADAMK. SHEA, SBN 166800 450 NEWPORT CENTER DRIVE., 2ND FLOOR KEVIN R. BOYLE, SBN 192718 NEWPORT BEACH, CALIFORNIA 92660 11111 SANTA MONICA BOULEVARD, TELEPHONE: (949) 706-7000 SUITE 700 Los ANGELES, CALIFORNIA 90025 TELEPHONE: (310) 477-1700 ESNER, CHANG & BOYER STUARTB. ESNER, SBN 105666 234 EAST COLORADO BOULEVARD, SUITE 750 PASADENA, CALIFORNIA 91101 TELEPHONE: (626) 535-9860 Attorneysfor Plaintiffs and Appellants TABLE OF CONTENTS TABLE OF AUTHORITIES .......... 0.0. cee cee ene nent nee eens iii ISSUES PRESENTED ...... 02... cece ee een eee nee e een nnees 1 INTRODUCTION ....... 0. ccc cccee ene e nen e nent eens 2 STATEMENTOF FACTS... 0... 0. cee ccetn tenn e eens 8 A. Background. ....... 2... cece eet teen eens 8 B. Latham’s Motion To Strike AndPlaintiffs’ Subsequent Appeal. . 11 ARGUMENT..... 0...cccenn teen en nee ee ee ene eens 15 I. BECAUSE THE SUMMARY JUDGMENTDENIAL IN THE UNDERLYING ACTION WAS PROCURED BY LATHAM’S SUBMISSION OF MATERIALLY FALSE FACTS,IT DID NOT CONCLUSIVELY ESTABLISH PROBABLE CAUSETO INITIATE AND MAINTAIN THE UNDERLYING ACTION UNDER THE INTERIM ADVERSE JUDGMENTRULE. ........... 0.0 ee eens 15 A. The Interim Adverse Judgment Rule. ................0.0000- 16 B. Wilson Does Not Support The Court Of Appeal’s Conclusion. ... 21 C. The Court Of Appeal’s Conclusion Is At Odds With The Moorings Of The Probable Cause Element Of The Malicious Prosecution Standard. ......... 0c eee ceeeee 24 II. THIS COURT’S RECENT LEE V. HANLEYOPINION DOES NOT SUPPORT AFFIRMING THE ORDER GRANTING LATHAM’S MOTION TO STRIKE. ....... 2... cceeee 31 A. If This Court Were To Conclude That Section 340.6 Applies To Malicious Prosecution Actions Against Adverse Counsel, Then That Decision Should Not Be Given Retroactive Effect......... 33 B. EvenIf Section 340.6 Applies, Plaintiffs’ Malicious Prosecution Action Is Timely Because They Commenced This Action Within One Year Of Discovering “The Facts Constituting The Wrongful Act,” And Through The Use OfReasonable Diligence Should Not Have Discovered ThoseFacts Earlier. .................. 40 CONCLUSION 2.0... 0.0. occneeeen e ene e neces 42 CERTIFICATE OF WORD COUNT ..... 0.0... cece cette eee eee 43 ii TABLE OF AUTHORITIES CASES Camperv. Workers’ Comp. Appeals Bd. (1992) 3 Cal.4th 679 ............0 ee eee 36 Canales v. City ofAlviso (1970) 3 Cal.3d 118 2.0... 6.eeenes 22 Carpenter v, Sibley (1908) 153 Cal. 215 10... ceceeect eee 17, 20 Cheong Yu Yee v. Cheung (2013) 220 Cal.App.4th 184 .............00. 19, 20, 38, 39 Cowles v. Carter (1981) 115 Cal.App.3d 350 2.0... 6. ceceee ee eens 23 Crowley v. Katleman (1994) 8 Cal.4th 666 2.0... ... cece cee ence eens 30 FLIR Sys., Inc. v. Parrish (2009) 174 Cal.App.4th 1270 ........-..--45- 3, 10, 11, 13 Foley v. Interactive Data Corp (1988) 47 Cal.3d 654 2.00... ce eect eee eee 37 Gemini Aluminum Corp. v. California Custom Shapes, Inc. (2002) 95 Cal.App.4th 1249 0... et25 Knoell v. Petrovich (1999) 76 Cal.App.4th 164 2... cece ee eee 35 Laird v. Blacker (1992) 2 Cal.4th 606 2... 0. ceeeeeeens 35, 37 Lee v. Hanley (2015) 61 Cal.4th 1225 2... oeeee 6, 7, 31-33, 39 McAdoryv. Rogers (1989) 215 Cal.App.3d 1273 1.0... cececece 23 Minasian v. Sapse (1978) 80 Cal.App.3d 823 2.0.0... ccc cee eee eens 30 Moradi-Shalal v. Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287 ........... 37 Newman v. Emerson Radio Corp. (1989) 48 Cal.3d 973 2.0.0... cece cece ene 37 Parrish v. Latham & Watkins (Cal. Ct. App., June 26, 2015, B244841) 2015 WL 3933988,at *6 ....... 21, 27, 29, 30 People v. Banks (1993) 6 Cal.4th 926 0.0... cccenceenn 22 iii +People v. Myers (1987) 43 Cal.3d 250 2.1... cece cece eee eens 22 People v. Superior Court (Marks) (1991) 1 Cal.4th 56 ......-.-- 0. se eee eee eee 22 Plumley v. Mockett (2008) 164 Cal-App.4th 1031.2... 0... ccc cece eee eee eens 17 Roberts v. Sentry Life Ins. (1990) 76 Cal.App.4th 375 2.0... cece eee cee eens 18, 20 Roger Cleveland GolfCompany, Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660 2.0...cc ce centre eee eens 13 Samuels v. Mix, (1999) 22 Cal.4th 1.0...ccceee n ee ennnes 40 Sangster v. Paetkau (1998) 68 Cal.App.4th 151 ...........re25 Silas v. Arden (2012) 213 Cal.App.4th 75 2... 0... eee cece eee eee 33, 34, 36, 38, 39 Slaney v. Ranger Insurance Co. (2004) 115 Cal.App.4th 306 ............. 2, 4, 15, 26 Stavropulos v. Superior Court (2006) 141 Cal.App.4th 190 ..........-..44. 34-36, 39 Vafi v. McCloskey (2011) 193 Cal.App.4th 874 .......-..2 e+e eee 33, 34, 36, 38, 39 Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811 ............... 15, 21-23 Woods v. Young (1991) 53 Cal.3d 315 1.0... ceeeeeeens 36-38 Zamos v. Stroud (2004) 32 Cal.4th 958 20...eeeteens 16, 20 iv STATUTES Civ. Code, § 3426.4 20... . ccc ccc cen teen ene t nent nee e een enes 3 Code Civ. Proc., § 1013 2.0...cccetree teen e eens 36 Code Civ. Proc., § 304.6 0.0... ccc ccc ce re eee eee eee tee eee nene 1,31 Code Civ. Proc., § 335.1...eeceteen enn tenes 12, 38 Code Civ. Proc., § 340.6 2... 0... ccc ce eee tenn eee eens Passim Code Civ. Proc., § 364 00...icteeent teen eee eens 37 Code Civ. Proc., § 425.16 0.0... 0cccee tte eee eens 11, 42 ISSUES PRESENTED (1) Does the denial of former employees’ motion for summary judgmentin an action for misappropriation of trade secrets conclusively establish that their former employer had probable cause to bring the action and thus preclude the employees’ subsequentaction for malicious prosecution, evenifthe trial court in the prior action later foundthat it had been broughtin bad faith? (2) Is the former employees’ malicious prosecution action against the employer’s former attorneys barred by the one-yearstatute of limitations in Code of Civil Procedure section 304.6? INTRODUCTION In its published opinion, the Court of Appeal expressly rejected Slaney v. Ranger Insurance Co. (2004) 115 Cal.App.4th 306, creating a direct conflict among the Courts of Appealas to when a malicious prosecution plaintiff can establish lack of probable cause when a summary judgment motion in the underlying action is denied. The Court adopted a rigid interpretation of the “interim adverse judgmentrule” concluding that the denial of summary judgmentin the underlying action conclusively establishes probable cause to initiate and prosecute that action unless the malicious prosecution plaintiff can establish that the evidence submitted in opposition to the summary judgment motion wasthe productofeither “fraud”or “perjury.” This Court should nowreestablish that it is proper to consider circumstances beyond whetherthere was fraud or perjury in determining whether the earlier denial of summary judgmentconclusively establishes probable cause. The defendantsin this action are a law firm (Latham & Watkins, LLP) and a partnerat the firm (Daniel Schechter, collectively with Latham & Watkins, LLP, “Latham’”) whopreviously 'In the Opinion, the Court stated that plaintiffs did not assert that the evidence submitted in opposition to the summary judgment was the productoffraud or perjury and, therefore, the Court would not reach that issue. This was inaccurate. Plaintiffs did directly and extensively argue that the denial of summary judgment wasobtained in the underlying action through the submission of evidence that was the product of fraud or perjury. (See, e.g., AOB at pp. 37-38; ARB at pp. 9-12.) Indeed, Plaintiffs pointed out this important inaccuracyin their Petition for Rehearing, which was denied. 2 represented FLIR Systems, Inc. and Indigo Systems Corporation (collectively “FLIR”) in an underlying trade secret action styled FLIR Systems, Inc., et al. v. Parrish, et al. (the “Underlying Action”). Plaintiffs in this action, William Parrish (“Parrish”) and E. Timothy Fitzgibbons (“Fitzgibbons”and collectively with Parrish “Plaintiffs”) were the defendants in the Underlying Action. In the Underlying Action, the trial court rendered express findings, later affirmed by the Court ofAppealin a published decision, that the action was both objectively specious and prosecuted with subjective bad faith. (F'LIR Sys., Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1275.) Based upon these express findings the trial court in the Underlying Action awarded, and the Court of Appealaffirmed, attorney’s fees under Civil Code section 3426.4. Importantly, the Court concluded that the denial ofsummary judgmentin that action did notpreclude sanctions because the expert declarations submitted in support ofthe summaryjudgment opposition were materiallyfalse. This decision was subsequently affirmed by the Court of Appeal in a detailed published opinion. (Jd. at p. 1282 [Appellants opposed the summary judgment motion with expert declarations suggesting there wasa scientific methodology to predict the likelihood of trade secret misuse. Thetrial court found that respondents made a compelling argument for summary judgmentbut‘the concepts involvedin this action are highly technical.’ . . . Attrial, appellants’ experts admitted there wasnovalid scientific methodology to predict trade secret misuse and agreed that no trade secrets were misappropriated.”]) Plaintiffs subsequently initiated this action for malicious prosecution. Latham then filed a special motionto strike raising the same argument (amongother things) that was rejected in the Underlying Action, namely that under the interim adverse judgmentrule Latham had probable cause as a matter of law to initiate and prosecute the Underlying Action becausethetrial court in the Underlying Action had denied a defense motion for summary judgment. Plaintiffs explained that this argument failed because, among other things, the trial court and the Court of Appeal in the underlying action each concluded that the actions was prosecutedin bad faith and that the claims were subjectively and objectively specious. Plaintiffs further explained that the trial court’s denial of summary judgmentin the underlying case did notestablish probable cause because, among other things, the evidence submitted in opposition to the summary judgment motion wasfalse and fraudulent. In its first published opinion in this matter written by Justice Klein and signed by Justice Kitching, the Court of Appeal agreed with Plaintiffs. The third memberofthe panel, Justice Croskey did not sign the opinion for health reasons, and passed away shortly after it was issued. Later, however, the Court of Appeal granted rehearing sua sponte and withdrew its previous published opinion. The Court of Appeal then issued a second published opinion in this matter on the sameissue. In it, the Court of Appeal directly contradicted its earlier published opinion written by Justice Klein only months prior, and in doing so expressly rejected another published opinion from the Second District (Slaney v. Ranger Insurance Co. (2004) 115 Cal.App.4th 306). The Court of Appeal concludedthat unless the evidence submitted in opposition to a summary judgmentmotion in the underlying action can be labeled as “perjury”or “fraud”(it can be here), then as a matter of law, a ruling in the underlying action denying summary judgmentconclusively establishes probable cause such that no malicious prosecution claim can lie. The Court of Appeal then failed to address Plaintiffs’ extensive arguments that the evidence submitted in opposition to the summary judgmentin the underlying action was the product of fraud or perjury. (See, e.g., AOB at pp. 37-38; ARB at pp.9- 12.) In issuing its second opinion, the Court of Appeal expandedthe application of the interim adverse judgment doctrine well beyondit intended boundaries. That doctrine only requires, at most, that there be “unfair conduct” which maybe,butis notlimited to, fraud or perjury in order to rebut the presumption of probable cause. When a lawyer submits materially false evidence (such as the expert declarations here) to support a legally untenable claim (as the underlying trial court and Court of Appeal found) then there is at least a triable issue of fact whether there has been “unfair conduct”sufficient to rebut the presumption of probable cause and defeat an anti-SLAPP motion. Probable cause is based on an objective test, and thus in orderto establish lack of probable cause the malicious prosecution plaintiff need only show either no reasonable law firm would have thoughtthe claim tenable. Yet, under the Court of Appeal’s opinion, where the underlying plaintiff survived summary judgment, the malicious prosecution plaintiff must go even further and demonstrate that the law firm secured the summary judgment denial through actualfraud or perjury. This is a significant departure from the law. Therule adopted by the Court of Appeal will cause considerable mischief. For instance, if, in the immediate aftermath of a summary judgmentdenialin the underlying action, the party prosecuting that action becomes aware that there is no probable cause for the continued prosecution of that action then it will know that it nevertheless is insulated from malicious prosecution for that continued prosecution unless it can be established that the evidence submitted in opposition to the summaryjudgment motion wasthe product of fraud or perjury. The effect of such a ruleis that parties who believe they are being victimized by a maliciously prosecuted action will be deterred from attempting to minimize their damages by moving for summary judgment. They will knowthatif the motion is denied (whether rightly or wrongly) then they will likely be precluded from seeking recovery for malicious prosecution no matter how apparentit is in the aftermath of the summary judgmentdenial that the underlying action should notbe prosecuted. Second, the Court of Appeal in this case concludedthatthe statute of limitations in Code of Civil Procedure section 340.6 did not apply to an adverse party’s claim for malicious prosecution against the lawyer who prosecuted the underlying action. In the aftermath of the Court’s decision, this Court decided Lee v. Hanley (2015) 61 Cal.4th 1225. There, this Court concluded that section 340.6 applied to claims that “necessarily depend onproofthat an attorney violated a professionalobligation in the course of providing professional services... .. ” Cd. at pp. 1236-1237.) Leeis therefore not controlling here. An attorney’s liability for malicious prosecution is not dependent on proofthat the attorney violated a professional obligation. Just as with the conversion claim in Lee, the very fact that a non-attorney can beliable for malicious prosecution demonstrates that an attorney’s liability is not dependent on the attorney violating a professional obligation. There is therefore no basis to conclude that a malicious prosecution claim against a client may be timely but that same claim arising from the very same conduct maybe time barred against the lawyer who represented thatclient. In any event, even if this Court concluded that Lee applied to malicious prosecution claims against adverse counsel, that conclusion would not support dismissal of this action because (1) since plaintiffs were entitled to rely upon existing case law that their malicious prosecution claim was governedby a twoyearstatute of limitations, any such conclusion should be given prospective application only and (2) evenif section 340.6 were held to control plaintiffs’ claims, questions of fact remain whetherplaintiffs’ malicious prosecution claim was timely underthe delayed discovery rule as Plaintiffs were not on notice of their claims against Latham until Latham’s formerclients asserted in a separate malicious prosecution action filed by Plaintiffs that they were relying on advice of their counsel (Latham) in prosecuting the Underlying Action. That disclosure occurred within the one-year period and thusPlaintiffs’ lawsuit wastimely. In short, this Court should reverse the Court of Appeal’s opinion in this case and reinstate Plaintiffs’ malicious prosecution claim. STATEMENTOF FACTS A. Background. Plaintiffs Parrish and Fitzgibbons are former shareholders andofficers of Indigo, a company which manufactures and sells microbolometers. (AA 772, 775.) A microbolometer is a device used in connection with infrared cameras, night vision, and thermal imaging. (Jbid.) In 2004, FLIR purchasedIndigo for approximately $185 million, acquiring Indigo’s patents, technology andintellectual property. FLIR manufactures andsells infrared cameras, night vision and thermal imaging systemsthat use microbolometers. Immediately after the sale, Parrish and Fitzgibbons went to work for FLIR. However,late in 2005 as they approachedthe end of their non-compete agreements with FLIR, Parrish and Fitzgibbons decided that they would start a new company to mass produce bolometers after completing their non-compete agreements. The new company wasbased ona business plan previously developed by Fitzgibbonsin 1998, while he was self-employed and before he joined Indigo in September 1999. (/bid.) Before leaving their employment with FLIR,Parrish and Fitzgibbons discussed with FLIR the possibility of allowing FLIR to participate in the new business venture, and proposed outsourcing bolometer production to a third party. (AA 772, 775.) Parrish and Fitzgibbons also offered FLIR a non-controlling interest in their new business venture, but FLIR rejected the offers. Accordingly, on or about January 6, 2006, having completed their non-compete agreements, Parrish and Fitzgibbons endedtheir employment with FLIR. (/bid.) Aspart of their new business venture, which would compete with FLIR for market share, Parrish and Fitzgibbons entered into business discussions with Raytheon Corporation (“Raytheon”). (AA 772, 775.) Raytheon is a major American defense contractor and an industrial corporation with core manufacturing concentrations in defense systems and defense and commercialelectronics. Parrish and Fitzgibbons’ negotiations with Raytheon involved the new business venture acquiring licensing, technology and manufacturing facilities from Raytheon, and selling goods to Raytheon. (Ibid. ) Fearful of losing sales, customers and revenue, and unwilling to accept competition from Parrish and Fitzgibbons, FLIR, represented by Latham,initiated the malicious and bad faith Underlying Action in June 2006. (AA 300, 773, 776.) The Underlying Action wastried before the Hon. James Brown in December 2007. On June 13, 2008, Judge Brownissued a 25-page Statement of Decision and entered judgmentin favor of Parrish and Fitzgibbons and against Latham’s client FLIR. (AA 93.) Judge Brown foundthat FLIR “initiated and continued to pursue [the] action in bad faith and primarily for the anticompetitive motive of preventing [Parrish and Fitzgibbons] from attempting to create a new business in competition with [FLIR].” (AA 108.) Judge Brownfurther heldthat “[FLIR’s] suspicions regarding [Parrish and Fitzgibbons] were not sufficient to justify the filing of the lawsuit on June 15, 2006" and that FLIR and Latham “proceeded on a theory that Defendants would misuse trade secret[s] in the future, [even though] that ‘inevitable disclosure] type of theory is not supported by California law.” (AA 112.) Judge Brownfurther held that FLIR “initiated and maintained the lawsuit in bad faith in that [FLIR] did not have a sufficient basis to initiate and maintain the lawsuit and failed to take reasonable measuresto allay their fears by learning more about[Parrish and Fitzgibbons’] plans” (AA 114) and that FLIR “knew, or should have known,that they did not havea sufficient evidentiary basis to initiate the lawsuit.” (AA 115.) Healso rejected the argumentthat the earlier denial of summary judgment prevented a finding of bad faith. Importantly, he specifically found that FLIR (and Latham) “opposed the summary judgment motion with expert declarations suggesting that there was a scientific methodology to predict the likelihood oftrade secret misuse.” (FLIR Systems, 174 Cal.App.4th at 1282.) Judge Brownrelied on these expert declarations in denying summary judgment,specifically citing them as the evidence givingrise to a triable issue. (AA 87 [“plaintiffs have produced sufficient evidence, for example with the Neikirk and Murphy declarations, to raise a triable issue as to misappropriation oftrade secrets.”].) Thetrial court in the Underlying Action was deceived by Latham because,as thetrial court later found, the ideathat there is a scientific methodologyto predict the likelihood of trade secret misuse was a “materially false fact” -- “[a]t trial, [FLIR’s] experts admitted there was no valid scientific methodology to predict trade secret misuse and agreed that no trade secrets were 10 misappropriated.” (FLIR Systems, Inc., 174 Cal.App.4th 1272; AA 361, 781-782 [in sealed volume].) Additionally, Judge Brown found “{t}he lawsuit caused business harm”to Parrish and Fitzgibbons. (AA 116.) Based onhis finding of bad faith, Judge Brown awarded Parrish and Fitzgibbonsattorneys’ fees and costs under the Uniform Trade Secrets Act. (AA 117.) Thereafter, the Court of Appeal affirmed the judgment and Judge Brown’s finding that FLIR initiated and maintained the lawsuit in bad faith. (F'LIR Systems,Inc. v. Parrish (2009) 174 Cal.App.4th 1270; AA 282.) Plaintiffs later initiated this malicious prosecution action. B. Latham’s Motion To Strike And Plaintiffs’ Subsequent Appeal. In response to Plaintiffs’ malicious prosecution claim, Latham filed a special motion to strike under Code of Civil Procedure section 425.16. Latham arguedthat it satisfied the first prong of the anti-SLAPP statute because a claim for malicious prosecution implicates protected activity. (AA 54.) Latham then arguedthat Plaintiffs did not have a probability of prevailing on the merits sufficient to satisfy the second prong ofthe anti-SLAPPstatute becausePlaintiffs’ claims were time barred under the one yearstatute of limitations applicable to actions for legal malpractice. (Code Civ. Proc., § 340.6.) Latham claimedthis statute applies to all actions against lawyers relating to 11 services they provide, including actions for malicious prosecution brought by a non-client and former adversary. (AA 64.) Latham also argued that plaintiffs would not be able to establish a probability of prevailing on their malicious prosecution claim because, in the Underlying Action, Parrish and Fitzgibbons had moved for summary judgmentasto the claims against them and the trial court in the Underlying Action court had denied that motion. Based on this denial, Latham argued Plaintiffs were precluded from establishing that the Underlying Action wasinitiated and prosecuted without probable cause. (AA 68.) In their opposition to the motionto strike, Plaintiffs argued they wereable to establish a probability of prevailing on the merits for multiple reasons. First, there was ample evidence that Latham initiated the Underlying Action and continued its prosecution without probable cause. This evidence included the samefacts that led the trial court and the Court of Appeal in the Underlying Action to conclude that action was both objectively specious and prosecuted with subjective bad faith. In addition, Plaintiffs subsequently learned of FLIR’s assertion it had prosecuted the Underlying Action based uponthe advice of Latham. (AA 253-259.) Second, Plaintiffs also argued that this action was not time barred under Code of Civil Procedure section 340.6 because: (1) the two yearstatute of limitations contained in section 335.1 applies; (2) the text, history ofpurpose of section 340.6 demonstratesthat it wasnot intendedto apply to third party actions for malicious prosecution against a lawyer and (3) even if section 340.6 did apply, then Plaintiffs’ action was timely under the 12 delayed discovery doctrine because Plaintiffs did not have cause to allege that Latham was responsible for the malicious prosecution of the underlying action until Latham’s former client (FLIR) asserted it had acted on the advice of their counsel in filing and prosecuting the Underlying Action. (AA 259-264.) Thetrial court granted the motionto strike on statute of limitations grounds only and declined to address Latham’s probable cause argument. Plaintiffs then appealed. During the pendencyofplaintiffs’ appeal, the Court of Appeal decided Roger Cleveland GolfCompany, Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660, concluding that Code of Civil Procedure section 340.6 does not apply to malicious prosecution claims against an adverse lawyer. Thus, the focus of the appealshifted to Latham’s assertion that the denial of summary judgmentin the underlying action conclusively established that the action was initiated and prosecuted with probable cause even though the underlyingtrial court rendered expressfindings, affirmed by the Court of Appealin a published decision, that the underlying action was both objectively specious and prosecuted with subjective bad faith and even though those courts concludedthat materially false evidence was submitted in opposition to the summary judgment motion. (FLIR Sys., Inc. v. Parrish (2009) 174 Cal.App.4th 1270, 1275.) The Court of Appealin this caseinitially issued an unanimouspublished decision reversing the anti-SLAPP dismissal and concluding that the denial of summary judgment in the underlying action did not conclusively establish probable cause because(1) the underlying trial court and the Court ofAppeal each concludedthat the underlying action 13 was objectively and subjectively specious and (2) the summary judgment was denied as a result of materially false expert declarations. That opinion was filed one day before Justice Croskey died and wassigned by then Presiding Justice Klein and Justice Kitching, only. Latham petitioned for rehearing in part on the ground that the Opinion was signed by only two Justices. That Petition was denied. However, shortly thereafter, the Court granted rehearing on its owninitiative. Following further briefing and argument, the Court of Appeal issued an opinion authored by Justice Kitching, whichis directly contrary to its earlier opinion.?. The Court of Appeal concludedthat the denial of summary judgment in the Underlying Action conclusively established probable cause and further incorrectly foundthat Plaintiffs had not argued on appeal that the evidence submitted in opposition to that summary judgment motion wasthe product of fraud or perjury. Plaintiffs filed a petition for rehearing pointing out that in fact they had extensively argued fraud or perjury in their briefs across many pages(see, e.g., AOB at pp. 37-38; ARB at pp. 9-12) and, in any event, the fact that Latham submitted materially false evidence in opposition to the summary judgment motion and the fact that the underlying trial court and the Court of Appeal concluded that the underlying action was objectively > The panel which renderedtheinitial opinion was comprised of Presiding Justice Klein (who authoredthat opinion and whohassinceretired), Justice Croskey and Justice Kitching. The panel who rendered the current opinion is Presiding Justice Edmon, Justice Kitching and Justice Pro Tem Egerton. 14 and subjectively specious, were sufficient to establish that the underlying action was not prosecuted with probable cause. The Court of Appeal denied the Petition for Rehearing and Plaintiffs then sought review by this Court. ARGUMENT 1 BECAUSE THE SUMMARY JUDGMENT DENIAL IN THE UNDERLYING ACTION WAS PROCURED BY LATHAM’S SUBMISSION OF MATERIALLY FALSE FACTS, IT DID NOT CONCLUSIVELY ESTABLISH PROBABLE CAUSE TO INITIATE AND MAINTAIN THE UNDERLYING ACTION UNDER THE INTERIM ADVERSE JUDGMENT RULE. The Court of Appeal concluded that underthe interim adverse judgmentrule the summary judgmentdenial in the Underlying Action conclusively established probable cause unless Plaintiffs could establish that the evidence Latham submitted in opposition to the underlying summary judgment motion wasthe product of fraud or perjury. The Court reasonedthat (1) such a rigid rule was mandatedby this Court’s opinion in Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811 and that (2) the more flexible approach employed by Slaney v. Ranger Insurance Co. (2004) 115 Cal.App.4th 15 306 was inconsistent with the probable cause requirement of the malicious prosecution standard. As explained, the Court of Appeal wasincorrect on both grounds. Asaninitial matter, however, it is important to understand the genesis and the developmentofthe interim adverse judgmentrule. A. The Interim Adverse Judgment Rule. In order to state a malicious prosecution claim the plaintiff must establish that the underlying action waseither initiated or prosecuted without probable cause. For purposes of this Petition it should be remembered that a claim for malicious prosecution is not limited to only those causes of action that lacked probable cause when the complaint was filed. In Zamos v. Stroud (2004) 32 Cal.4th 958, 970, this Court determined that the standard for probable cause “will apply to the continuation as [well as] to the initiation of a suit.” Thus, “an attorney maybeheld liable for malicious prosecution for continuing to prosecute a lawsuit discovered to lack probable cause.” (/bid.) Moreover, “[b]ecause an attorney will be liable only for the damages incurred from the time the attorney reasonably should have caused the dismissal of the lawsuit after learning it has no merit, an attorney can avoidliability by promptly causing the dismissal of, or withdrawing as attorney in, the lawsuit....” Ud. at pp. 969-970.) “California courts have held that victory attrial, though reversed on appeal, conclusively establishes probable cause to bring the underlying action. (Wilson, supra, 28 16 Cal.4th at p. 817, 123 Cal.Rptr.2d 19, 50 P.3d 733, citing Bealmearv. So. Cal. Edison Co. (1943) 22 Cal.2d 337, 340, 139 P.2d 20; Carpenter v. Sibley (1908) 153 Cal. 215, 218, 94 P. 879; Holliday v. Holliday (1898) 123 Cal. 26, 32, 55 P. 703; Cowles v. Carter (1981) 115 Cal.App.3d 350, 356, 359, 171 Cal._Rptr. 269; Fairchild v. Adams (1959) 170 Cal.App.2d 10, 15, 338 P.2d 191; see also Crescent Live Stock Co. v. Butchers’ Union (1887) 120 US. 141, 149-151, 7 S.Ct. 472, 30 L.Ed. 614.) The rationale is that approval by the trier of fact, after a full adversary hearing, sufficiently demonstrates that an action waslegally tenable. (Cowles, supra, at p. 358, 171 Cal.Rptr. 269.)” (Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1052.) This presumption of probable causeis often referred to as the “interim adverse judgmentrule.” Prior to 1990, the cases concerning whether the resolution ofthe underlying action precluded the malicious prosecution plaintiff from claiming absence of probable cause were in the context of underlying judgments in favorofthe malicious prosecution defendantthat were either reversed on appeal or were challenged in the malicious prosecution action. It was in that setting that it was recognizedthatif the underlying judgment was procured by fraud of a type that was notsufficient to actually vacate that judgment(i.e. it intrinsic and not extrinsic fraud), then that fraud nevertheless may besufficient to establish lack of probable cause. In Carpenter v. Sibley (1908) 153 Cal. 215, 217-18, this Court explained: Therule that only extrinsic fraud may be madethe basis of an actionto set aside a judgmentis a rule foundedin necessity. It is to the interest of the state that there should be an endtolitigation. If it were permitted that a 17 litigant could maintain an action to overthrow a judgmentupon the ground that perjured testimony had been employed against him, or upon any other ground than extrinsic fraud, litigation would have no end. Pico v. Cohn, 91 Cal. 129, 25 Pac. 970, 27 Pac. 537, 13 L. R. A. 336, 25 Am.St. Rep. 159. Butthis is very far from saying that, because the law deniesto a litigant this particular form of redress for such an injury, it denies him any redress whatsoever. Certainly, if a man has procured an unjust judgment by the knowing use of false and perjured testimony, he has perpetrated a great private wrong againsthis adversary. If that judgmentis in the form of a judgmentof criminal conviction, it would be obnoxious to every one’s sense of right and justice to say that, because the infamy had been successful to the result of a conviction, the probable causefor the prosecution wasthus conclusively established against a man who had thus been doubly wronged. Therefore, while it may be true that the fraud alleged in this complaint is not such a fraud as would support an action for the setting aside of a judgment,it is still a fraud which will support an action for a remedy for the private wrong thus committed. So wefindit laid down that the general rule nowis ‘that if the declaration or complaint shows a conviction of the plaintiff, yet ifit be averred that the conviction was procured byfraud, perjury, or subornation ofperjury, or other unfair conduct on the part ofthe defendant, the presumption ofprobable causeis effectually rebutted.’ 13 Ency. Pl. & Prac. p. 449, and note; Springv. Before, 12 B. Mon. (Ky.) 555; Ross v. Hixon, 46 Kan. 550, 26 Pac. 955, 12 L. R. A. 760, 26 Am.St. Rep. 123; Crescent Live Stock Co. v. Butchers’ Union, supra. (Italics added.) It was not until Roberts v. Sentry Life Ins. (1990) 76 Cal.App.4th 375, 384, that a California court first recognized that interim rulings that do not resolve the underlying action in its entirety may also establish probable cause. And in the contextofits discussionofthis rule, the Roberts Court did not hold that fraud or perjury were the only exceptionsto the interim adverse judgmentrule. Rather, the Court referred broadly to “materially false facts” as one, but not the only, exceptionto the rule. In particular, the Roberts Court concluded that: 18 [D]enial of defendant’s summary judgmentin an earlier case normally establishes there was probable causeto sue, thus barring a later malicious prosecution suit.[Fn] We say ‘normally’ rather than ‘conclusively’ because there may be situations where denial of summary judgmentshould not irrefutably establish probable cause. For example, if denial of summary judgment was induced by materially false facts submitted in opposition, equating denial with probable cause might be wrong. Summary judgment might have been granted but for the false evidence. (For that matter, a jury verdict also might be induced by materially false testimony, raising a good argumentthat no conclusive presumption of probable cause should arise.)” (bid, emphasis added.) - The use of the words “for example”and “materially false facts” makes clear fraud and perjury are not the exclusive exceptionsto the interim averse judgmentrule. Thisis reinforced by Cheong Yu Yee v. Cheung (2013) 220 Cal.App.4th 184, 200-01, where the Court held: Certain non-final 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. (Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 817-818, 123 Cal.Rptr.2d 19, 50 P.3d 733.) This is based on the notion that ‘[c]laims that have succeededat a hearing on the merits, even if that result is subsequently reversed bythetrial or appellate court, are not so lacking in potential merit that a reasonable attorney orlitigant would necessarily have recognized their frivolousness.’ (Id. at p. 818, 123 Cal.Rptr.2d 19, 50 P.3d 733.) Thus, for instance, the denial of a nonsuit motion and a subsequentplaintiff's jury verdict has been found sufficient to constitute probable cause, even though the trial court or appellate court later reverses that verdict. (Cowles v. Carter (1981) 115 Cal.App.3d 350, 356, 171 Cal.Rptr. 269; see Plumley v. Mockett (2008) 164 Cal.App.4th 1031, 1052 “1053, 79 Cal.Rptr.3d 822 [designer’s success before Board of Patent Appeals and Interferences established probable cause, notwithstanding the fact that designer’s victory wasreversed by appellate court].) Similarly, the denial of a defense summary judgment motion ‘normally establishes there was probable cause to sue, thus barring a later malicious prosecution suit.’ (Roberts v. Sentry Life Insurance (1999) 76 Cal.App.4th 375, 384, 90 Cal.Rptr.2d 408 (Roberts ); see also Zamos v. Stroud (2004) 32 Cal.4th 958, 973, fn. 10, 12 19 Cal.Rptr.3d 54, 87 P.3d 802 [The denial of summary judgment normally precludesthe trial court from finding that the lawsuit wasfrivolous for purposesofa malicious prosecution claim].) ’ (Cheong Yu Yee v. Cheung (2013) 220 Cal.App.4th 184, 200-01.) Thus, under Roberts - whenthe adverse interim judgmentis based on the denial of a pre-trial motion — a subsequent determinationthat the earlier denial was based on “materially false facts” is sufficient to avoid the presumption of probable cause. It is therefore not the case, as the Court ofAppeal here held, that fraud or perjury are the single and only recognized exception to the interim adverse judgmentrule. Indeed, the recognition thatfalsity is sufficient to avoid the presumption of probable cause was expressly endorsed by this Court in Zamosv. Stroud (2004) 32 Cal.4th 958, 973, fn. 10. There, the Court concludedthat the denial of summary judgmentin the underlying action did not conclusively establish probable cause under Roberts because there was a showing that the evidence which wasintroducedto create a triable issue of material fact wasfalse. Indeed in Carpenter v. Sibley, the very case where this Court recognized that extrinsic fraud was not necessary to avoid the interim judgmentrule, there is also recognition that a “private wrong”such as “unfair conduct” on thepart of the malicious prosecution defendant may be enoughto rebut the presumption of probable cause. Nevertheless,in its second published opinion here, the Court of Appealincorrectly concluded that “the Supreme Court’s decision in Wilson v. Parker, Covert & Chidester (2002) 28 Cal.4th 811, 123 Cal.Rptr.2d 19, 50 P.3d 733 (Wilson)is controlling and 20 mandates a finding of probable cause underthe interim adverse judgmentrule.” (Parrish v. Latham & Watkins (Cal. Ct. App., June 26, 2015, B244841) 2015 WL 3933988,at *6.) As now explained, the Court of Appeal was mistaken,as this Court did not consider, let alone decide, this issue in Wilson. B. Wilson Does Not Support The Court Of Appeal’s Conclusion. The issue in Wilson was whetherthe denial of an anti-SLAPP motion in the underlying action could support invoking the interim adverse ruling doctrine in the first place. | There, this Court answered that question “yes,” but that holdingis irrelevant in this instance because the court did not consider whether there was evidencein that case sufficient to fit within an exception to that doctrine. In fact, there was not even argument in Wilson that an exceptionto the interim adverse judgmentrule applied. It was in the context of explaining that the malicious prosecution plaintiff had madenoeffort in that case to establish any exception to the interim adverse ruling doctrine that the Wilson Court recited the passage on which the Court of Appeal in this case relied. That passage provides: “For the above reasons, we conclude the Kuzmich court’s denial of the defendants’ motionto strike under section 425.16 established probable cause to bring the Kuzmich action.Plaintiffs in the present malicious prosecution action havenotattempted to showthatthat ruling was obtained by fraud or perjured testimony. Probable cause therefore existed as a matter of law for initiation of 21 Kuzmich, negating a necessary element of the malicious prosecution action. As the Court of Appeal also concluded, the demurrers to that cause of action were therefore properly sustained.” (/d. at p. 30.) Thus, contrary to what the Court of Appeal held, Wilson does not hold that fraud or perjury are the only permissible exceptionsto the interim adverse judgmentrule. Further, because the issue of additional exceptions to the interim adverse judgmentrule wasnot considered in Wilson, the opinion has no bearing on the issue. “It is well settled that language containedin a judicial opinion is ‘”to be understood in the light of the facts and issue then before the court, and an opinion is not authority for a proposition not there considered. [Citation.]”’ [Citations.]” (People v. Banks (1993) 6 Cal.4th 926, 945.) “
