Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Cal. App.: Malicious prosecution charge fails against distributor that made unsuccessful wrongful termination claims, (Apr 18, 2014)

By Edward L. Puzzo, J.D.

A golf equipment distributor that brought unsuccessful distributorship termination and trademark claims against the manufacturer was not liable for malicious prosecution in making those claims, the California Court of Appeal in Los Angeles has ruled (Roger Cleveland Golf Company, Inc. v. Krane & Smith, APC, April 15, 2014, Aldrich, R.).

Underlying case. Sportsmark Trading was the sole distributor of Roger Cleveland Golf (RCG) products in certain countries in Southeast Asia, under a distributorship agreement started in 1996 and extended through 2006. RCG notified Sportsmark that it would not renew or extend the agreement beyond 2006. Soon thereafter, Sportsmark filed a complaint against RCG, challenging the termination of the distributorship agreement due to an alleged oral distributorship agreement and seeking rights to the “Cleveland Golf” trademark in the Southeast Asia market. The trial court granted RCG a preliminary injunction against Sportsmark’s trademark efforts, ruling that, regardless of whether or not the distributorship agreement was terminated properly, Sportsmark as a distributor, could not appropriate RCG’s trademark. On the eve of the scheduled trial date, Sportsmark’s attorney disclaimed any interest in the “Cleveland Golf” trademark. The case, including the challenge to termination of the distributorship agreement, was later non-suited.

Malicious prosecution. In 2011, RCG filed a lawsuit against Sportsmark and its attorneys, alleging that the aforementioned claims were maliciously filed and prosecuted because “ no reasonable party…or attorney would have…believed that Sportsmark possessed a legally tenable claim against Cleveland Golf with respect to either (1) the ownership of its registered marks or (2) the clearly stated expiration date of the written distributorship agreement.” RCG further alleged that Sportsmark’s attorney had admitted that there was no basis for the underlying lawsuit. In response, Sportsmark moved to strike the malicious prosecution complaint as time barred under a one-year limitations period. The trial court agreed and awarded attorneys fees. Both parties appealed.

The appellate court explained that the issue was whether RCG could establish all three elements of malicious prosecution liability: favorable termination on the merits, lack of probable cause, and malice.

Lack of probable cause. RCG’s malicious prosecution complaint alleged that Sportsmark and its attorneys knew that its allegation of a two-year oral distributorship agreement was legally unenforceable under the statute of frauds. RCG also alleged that the trademark claim was legally untenable because a product distributor could not acquire a protectable use in the trademark by virtue of the trademark owner’s permission for it to distribute its trademarked products. The court agreed that RCG had established the “lack of probable cause” element.

Malice. The malice element focused on Sportsmark’s subjective intent in initiating the action, the court continued. As evidence of malice, RCG referred to statements of Sportsmark’s attorney who, after being told by an RCG attorney that the claims were frivolous, stated “That may be true, but all I have to do is get a case to the jury.” Sportsmark’s attorney also asked why RCG was not offering money to settle the case.

The court stated that the attorney statements in question were typical of comments attorneys make to one another during the course of litigation. The comments were also distinguishable from cases where an attorney insisted on a specific payment in exchange for dismissing the case, irrespective of the facts. The court concluded that no inference of malice—actual ill will, an ulterior motive or the initiation of the proceeding for an improper purpose—could be drawn form Sportsmark’s attorney’s statement nor any other statements made by Sportsmark. Thus, the appellate court ruled, RCG did not meet the minimal burden to present a sufficient prima facie showing of malice to sustain a favorable judgment on the malicious prosecution complaint.

The case is No. B237424 consolidated with B239375.

Attorneys: Lisa Perrochet (Horvitz & Levy) and Anthony L. Cannon (Cannon & Nelms) for Roger Cleveland Golf Company, Inc. Michael C. Denison (Towle Denison Smith & Maniscalco) for Krane & Smith, APC.

Companies: Roger Cleveland Golf Company, Inc; Krane & Smith, APC

Cases: FranchisingDistribution CaliforniaNews