Update: On Sept. 18, 2012, the Supreme Court of Ohio handed down a merit decision in this case.  Read the analysis here.

On September 7, 2011 the Supreme Court of Ohio heard oral argument in American Chemical Society v. Leadscope.  In this misappropriation of intellectual property case, a Franklin county jury awarded the defendants $26.5 million on their counterclaims of unfair competition, tortious interference, and defamation. The basis for the unfair competition claim was malicious litigation.  The judgment has now grown to over $40 million with attorney fees and interest.  For a further description of the case, see the oral argument preview post of August 31. http://www.legallyspeakingohio.com/2011/08/oral-argument-preview-malicious-litigation/

      The oral argument focused on the torts of malicious litigation and defamation. Does Ohio recognize malicious litigation?  Can it be used as the basis of an unfair competition claim?  What are the elements of the tort?  Was there sufficient evidence of malicious litigation and of defamation to go to the jury? Did ACS have legitimate grounds for bringing the suit?

     ACS contends it cannot be liable on Leadscope’s claims of malicious litigation unless ACS’s civil action against Leadscope was “objectively baseless.” At oral argument ACS, the appellant, strongly argued about the chilling effect of this verdict on the right of litigants to come into court to press their claims when there is a factual basis for them, arguing that neither the malicious litigation nor the defamation claim should have gone to the jury. It argued it was being punished just for bringing its claims to court, which it has a right to do under the state and federal constitutions.  It reiterated that even the defendants did not move for summary judgment on most of the claims, and that none of its arguments were frivolous.  Leadscope responded that the tort that was tried was unfair competition, of which there are two types—malicious litigation and disparagement designed to harm a competitor.  Both were alleged in its counterclaims, the jury was properly instructed on both, and there was one a single verdict in its favor on all claims. 

     Here’s what was on the justices’ minds:

Could ACS just have taken its fight to the patent office?

     Justice Pfeifer was very aggressive in his questioning of appellant’s counsel.  He asked why ACS didn’t take its dispute to the U.S.patent office if it really thought its ex-employees had stolen its work product.  But picking up on this point later, Justice Stratton asked whether the tort system requires someone to pick a particular remedy (or in this case, required the appellant to go to the patent office), or whether parties are free to choose whatever remedy they want, including filing a lawsuit.

The sufficiency of the evidence

     Justice Pfeifer asked for a breakdown of the jury verdict among the claims, and asked the basis for the high court to review a jury verdict that ACS had just plain lost.  He later asked whether ACS had asked for or been denied a special interrogatory to differentiate the verdict.

 What was it that was actually tried?

     Justice Lanzinger based a question on her observation that malicious litigation wasn’t put to the jury as such; rather the claims presented to the jury were defamation and unfair competition. So if malicious litigation were removed from the equation, was there sufficient evidence of the other two torts to support the verdict? 

      Justice O’Donnell also picked up on this line of questioning. He commented that the verdicts were for defamation and unfair competition, not for malicious litigation.  He noted that all the claims might be bundled together, but the actual verdicts were based on clearly recognized torts in Ohio, even assuming malicious litigation is not.

But should this case have gone to the jury?

Justice Stratton asked whether the various motions filed by ACS showed they did have an objective basis for their allegations.

 Malicious Litigation in Ohio—come on, does this tort really exist?

     Chief Justice O’Connor in particular, and Justice Stratton, were concerned that the entire authority for the existence of this tort, and the underpinning of the 10^th district decision upholding the jury’s verdict was the 1926 appellate case of Henry Gehring Co. v. McCue. (1926), 23 Ohio App. 281.   The Chief expressed her concern with the portion of the court of appeals opinion which stated that “Ohio courts considering comparable malicious litigation claims have not applied the objectively baseless standards”.  She seemed skeptical about the Gehring case, and wondered aloud why the court of appeals did not even cite Greer-Burger v. Temesi, 116 Ohio St.3d 324, 2007-Ohio-6442., (http://www.sconet.state.oh.us/rod/docs/pdf/0/2007/2007-ohio-6442.pdf)  in which syllabus law states a suit is allowed to proceed if it is not objectively basis. She asked if today’s case is moving us to a loser pays kind of situation.

     ACS continued to argue that there are other remedies to protect against baseless lawsuits– such as attorney’s fees, Rule 11 sanctions – and that the Court should not broaden the malicious litigation tort.  While ACS did not deny the existence of the malicious litigation tort in Ohio, the state of Ohio, as amicus supporting ACS, and sharing the argument time with ACS, did, arguing that there was no such tort in Ohio, and should not be. 

     This provoked the sharpest questioning of the day from Justice Pfeifer.  In questioning the Assistant Attorney General, he said, “Ohio has given some tax breaks and other incentives to this new small business. This litigation is about a big business trying to put out of business a new upstart business. I thought in Ohio we were trying to encourage new ideas and new upstart businesses. I can’t understand why the state wants to get in the middle of a fight between two businesses one large and one small—why are you here, I just don’t understand it.”  The Assistant Attorney General replied that Ohio’s concern is over whether litigants would be reluctant to utilize the courts out of fear of malicious litigation suits. 

The defamation claim

     Justice O’Donnell was particularly persistent about separating the defamation claim from the unfair competition/malicious litigation claim.  He asked the assistant attorney general whether he conceded that the defendant had a right to file a counterclaim for defamation. He later asked whether the damages awarded for defamation proximately flowed from the defamation. 

     Chief Justice O’Connor asked if ACS was being punished for defamation for remarks made by its counsel and asked whether everything that was allegedly defamatory was stated in the complaint in the case.

How it looks from the bleachers.

     Chief Justice O’Connor and Justice Stratton seemed the most receptive to ACS’s arguments; Justice Pfeifer the least.  Justices Lanzinger and O’Donnell seemed focused on the fact that the jury verdicts were for unfair competition, not malicious litigation, and for defamation.  Justices Cupp and McGee Brown asked no questions.