Liberty Synergistics, Inc. v. Microflo Ltd.
50 F. Supp. 3d 267
E.D.N.Y2014Background
- Liberty sued Microflo and related entities in California for malicious prosecution related to Microflo's underlying NY action against Liberty and others.
- The Underlying Litigation alleged fraud, RICO, and unfair trade practices in NY; it was later dismissed with prejudice via stipulation under Rule 41(a)(1)(A)(ii).
- The instant action was removed to the EDNY from California and then referred to NY for anti-SLAPP review under California law; Second Circuit later held CA anti-SLAPP applies, with NY substantive law governing the malicious prosecution claim.
- Judge Wall recommended dismissing under CA's anti-SLAPP statute; the district court adopted in part but disagreed on the favorable-termination analysis, and rejected sanctions against Liberty.
- The district court held that NY substantive law applies as the law of the case, that Liberty has a reasonable probability of proving favorable termination and other elements against the named Defendants, but for Does 1–20 the complaint was to be struck.
- Plaintiff may proceed on the merits against named Defendants, while Does 1–20 are to be stricken.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Which substantive law governs the malicious-prosecution claim | Second Circuit decision governs choice-of-law; NY law should apply. | California choice-of-law rules control; CA law should apply. | New York law is the law of the case; apply NY substantive law (CA anti-SLAPP applies only to procedural posture). |
| Whether the underlying NY action was terminated in Liberty's favor (favorable termination) | Stipulation of dismissal not a settlement; termination in Liberty's favor. | Dismissal via stipulation reflects lack of favorable termination (settlement/compromise possible). | There is a reasonable probability of favorable termination under NY law; disputed facts preclude summary dismissal of this element. |
| Whether Liberty can prove lack of probable cause and malice | Defendants lacked probable cause and acted with malice; deposition evidence supports this. | There were factual disputes suggesting probable cause; defense evidence creates genuine issues. | Factual disputes exist precluding resolution on probable cause and malice as a matter of law; triable issues remain. |
| Whether ecological alter-ego/veil-piercing liability extends to Ecotech and Malkin | Ecotech as alter ego of Microflo and Malkin can be liable; reverse veil-piercing applies. | Alter ego liability insufficient; insufficient domination and misuse shown; Doe defendants not liable. | Ecotech and Malkin may be liable under reverse veil-piercing; Does 1–20 are to be stricken from the action. |
| Whether sanctions are appropriate | Sanctions warranted for frivolous anti-SLAPP motion. | Anti-SLAPP motion lacks merit and should warrant sanctions. | Sanctions denied. |
Key Cases Cited
- Mindys Cosmetics, Inc. v. Dakar, 611 F.3d 590 (9th Cir. 2010) (anti-SLAPP statute serves quick dismissal of meritless claims)
- Batzel v. Smith, 333 F.3d 1018 (9th Cir. 2003) (anti-SLAPP framework: prima facie showing then plaintiff bears burden to show probability of success)
- Jarrow Formulas, Inc. v. LaMarche, 31 Cal.4th 728 (Cal. 2003) (anti-SLAPP applies to malicious prosecution claims under California law)
- Gasparini v. Center for Humanities, Inc., 516 U.S. (quoted) (1996) (Erie/choice-of-law principles for substantive vs. procedural rules)
- O’Brien v. Alexander, 101 F.3d 1479 (2d Cir. 1996) (probable cause standards and termination analysis in NY malicious-prosecution claims)
- Castro v. East End Plastic, Reconstructive & Hand Surgery, P.C., 850 N.Y.S.2d 483 (N.Y. App. Div. 2008) (favorable termination may be shown by abandonment under not-innocence circumstances)
- Aquilina v. O’Connor, 59 A.D.2d 454 (N.Y. App. Div. 1977) (voluntary dismissal not stemming from compromise can be favorable termination)
- Mobile Training & Education, Inc. v. Aviation Ground Schools, 28 Misc.3d 1226(A) (Sup. Ct. N.Y. Cnty. 2010) (voluntary dismissal not resulting from settlement can support malicious-prosecution claim)
- Smith-Hunter v. Harvey, 95 N.Y.2d 191 (N.Y. Ct. App. 2000) (final disposition not inconsistent with innocence may show favorable termination)