In essence, Lynch alleged that the city had illegally approved zoning and land-use variances and improperly awarded Paulus $1.3 million in sales-tax incentives as a "public subsidy" for the new dealership, The Ford Store Morgan Hill. He contended that those actions gave Paulus an unfair competitive edge.
Lynch couldn't protest to the California New Motor Vehicle Board because his store and the Morgan Hill site are more than 10 miles apart, said Paulus' lawyer, Sean Absher of San Francisco.
After a Superior Court judge dismissed Lynch's suit without trial, Paulus filed his own suit, accusing Lynch of malicious prosecution. He sought lost profits and other damages.
Absher told Automotive News that Paulus had sued because Lynch's initial suit had delayed the new store. "It took six to eight months to get rid of the lawsuit, Absher said, adding that such delays could "sink" a project. "For six to eight months, you can't get financing, you can't start building," he said.
But a Santa Clara County Superior Court judge dismissed Paulus' suit and ordered him to cover Lynch's defense costs under the state's anti-SLAPP law.
In its decision, the Court of Appeal described SLAPP suits, or strategic lawsuits against public participation, as meritless cases filed primarily to discourage the defendants' exercise of First Amendment rights of petition or free speech. SLAPP suits may be disposed of by a special motion to strike, known as an anti-SLAPP motion, unless the plaintiffs can establish a probability that they will prevail on the merits.
In unanimously upholding the Superior Court's ruling, the appellate court said Paulus failed to demonstrate that he would be likely to win on the merits.
Malicious prosecution claims are "viewed with disfavor due to their potential to exert an undue chilling effect on the ordinary citizen's willingness to report criminal conduct or bring a civil dispute to court," Justice Wendy Duffy wrote for the three-judge appellate panel.
Lynch's lawyer, Damien Lillis, of San Francisco, said, "The courts zealously protect a party's right to file a lawsuit in a good-faith belief something was illegal." Lillis said an award of attorney fees under the anti-SLAPP law is "a disincentive" to filing suits that infringe on First Amendment rights. Lillis said Lynch now will seek "substantial" additional attorney fees for fighting Paulus' appeal.
Absher said Paulus is considering asking for state Supreme Court review.
You may e-mail Eric Freedman at [email protected]