Bad Faith ≠ No PC

Parrish v. Latham & Watkins, LLP, No. S228277 (Cal. Aug. 10, 2017)

In order to bring a claim of malicious prosecution, a plaintiff needs to show that the underlying claim was brought without probable cause. Under the so-called interim adverse judgment rule, if the defendant prevailed on a hearing on the merits in the underlying case, probable cause exists, even if that ruling is later contradicted by a later trial court ruling or overturned on appeal, unless it was obtained by fraud or perjury. The point of the rule is that if the case was good enough to convince someone to rule favorable on the merits, there must be some merit in the claim. Generally ruling denying a motion for summary judgment, a non-suit, or a directed verdict counts.

This case—a trade secrets case—has a bit of twist. The trial court in the underlying case denied a summary judgment motion. But after trial, it ruled that the case had been brought in “bad faith,” for the purpose of awarding defendant attorneys’ fees under the CUTSA. According to the Supreme Court, in a unanimous opinion by Justice Kruger, that doesn’t merit an exception to the application of the interim adverse judgment rule to summary judgment denials.

That’s because objective component of the bad faith analysis applies a somewhat lower standard than lack of probable cause. One can, it appears, show objective bad faith by “objective speciousness,” which does not require that any reasonable attorney would agree that the case is totally and completely without merit. But one can only prove lack of probable cause by showing just that.

So in the absence of a showing that the summary judgment denial was procured through fraud or perjury, the interim adverse judgment rule applied. As there was no such showing here, plaintiff could not establish a lack of probable cause.

Court of Appeal affirmed.