Supreme Court Affirms, Reverses Portions of Multi-Million Dollar Civil Judgment

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The Supreme Court of Ohio Tuesday partially affirmed and partially reversed rulings by the Tenth District Court of Appeals in a Franklin County lawsuit that resulted in an award of $26.5 million in civil damages against the American Chemical Society (ACS) in favor of Leadscope Inc, a startup software company established by three former ACS employees.

The case involved a lawsuit filed by ACS in the Franklin County Court of Common Pleas alleging that the former employees who helped start Leadscope had breached employee agreements and misappropriated ACS’s intellectual property by using proprietary information they obtained while employed at ACS to develop a new software product for Leadscope that would compete with products marketed by ACS.

Leadscope and its principals denied all of ACS’s claims, and filed counterclaims seeking damages from ACS for unfair competition, tortious interference with business relations and defamation. 

As the basis for its unfair competition counterclaim, Leadscope alleged that ACS knew that it had no valid legal basis for its intellectual property claims, and had filed its lawsuit for the purpose of impairing or eliminating Leadscope as a competitor by scaring away venture capital investors the new company needed to successfully launch its business.  

Following an eight-week jury trial, the jury returned verdicts against ACS on all of its claims against Leadscope.

The jury also returned verdicts in favor of Leadscope on its counterclaims against ACS for unfair competition and defamation.

The jury awarded Leadscope and its principals compensatory and punitive damages totaling more than $26 million.

ACS appealed. On review, the Tenth District Court of Appeals affirmed the trial court’s judgment and damage awards.

ACS sought and was granted Supreme Court review of the case, asserting in its briefs and oral argument that the Tenth District made multiple incorrect rulings in affirming the trial court’s decision.

In today’s majority opinion, authored by Chief Justice Maureen O’Connor, the court held that:

  • In order to prove a claim of unfair competition based on a business competitor’s filing of a “malicious lawsuit,” the claimant must show that the lawsuit was objectively baseless, and that the competitor filed the suit with a subjective intent to injure the claimant’s ability to be competitive.
  • In determining whether a statement is defamatory, a court must review the totality of the circumstances and read the statement in the context of the entire publication in which it appeared to determine whether a reasonable reader would interpret it as defamatory.
  • A client may be held vicariously liable for its attorney’s defamatory statements only if the client authorized or ratified those statements.

Applying those holdings to the dispute between ACS and Leadscope, the court held that the Tenth District erred when it upheld as proper a jury instruction in which the trial court did not tell jurors that in order to grant Leadscope’s unfair competition counterclaim against ACS based on a theory of malicious litigation, the jury must also make a finding that ACS’s suit against Leadscope was objectively baseless.

The court went on, however, to find that despite the improper jury instruction, the evidence produced by the parties at trial clearly showed that ACS had no reasonable basis for its claims against Leadscope.

Accordingly, the court affirmed the Tenth District’s ruling upholding the jury award against ACS for unfair competition.

The court reversed the portion of the Tenth District’s decision upholding the jury award to Leadscope based on its claims of defamation.

The justices based that ruling on a determination that, when read in context with the circumstances and the types of publications in which the alleged defamatory statements appeared, statements about Leadscope and its principals that were made in an internal ACS personnel memo and in comments by ACS’s lawyer in a newspaper article about the pending lawsuit did not constitute defamation.

Justices Paul E. Pfeifer, Evelyn Lundberg Stratton and Robert R. Cupp entered separate opinions partially concurring with and partially dissenting from different portions of the court’s majority opinion.

This article was constributed by Dennis Whalen of Court News Ohio.