In an unpublished opinion issued late last month, the Sixth Circuit considered an appeal from a lengthy series of complicated lawsuits over the dissolution of a consumer research firm, ultimately reversing a $1.25 million jury verdict for abuse of process. Soured business relations between the parties to the suit—Penn, LLC and Prosper Business Development Corp.—eventually led to ten years of elaborate state and federal lawsuits and a delineation of the bounds of abuse of process.
The problems started soon after Penn and Prosper formed BIGresearch, a consumer research firm, in 2000. Prosper’s buyback of BIGresearch shares sold to outside investors allowed it to take control and freeze out Penn. After Penn sought arbitration and won back its seat on the board, Prosper dissolved BIGresearch. Nonetheless, the arbitrator ordered BIGresearch to pay Penn nearly $1.5 million for the freeze out. Prosper countered with a suit seeking modification of the award. After repeated, failed settlement negotiations—during which Penn warned Propser’s attorneys that it would add them to a new federal lawsuit—an Ohio state court modified the arbitration award to just over $777,000. Penn promptly sued Prosper and Prosper’s attorneys in federal court on a variety of claims. The defendants counterclaimed for breach of fiduciary duty and abuse of process. The district court granted judgment as a matter of law on a number of both parties’ claims, but the abuse of process claim proceeded to trial and the jury returned a verdict to the tune of $1.25 million.
Reviewing the district court’s denial of Penn’s renewed motion for judgment as a matter of law, the Sixth Circuit held that Prosper presented insufficient evidence from which a reasonable jury could have deduced abuse of process. Noting that the key underpinning of an abuse of process claim is the perversion of a legitimate lawsuit for an “ulterior purpose,” the Sixth Circuit set the standard for this at “coercion to obtain a collateral advantage . . . such as . . . the payment of money, by the use of the process as a threat or a club.”
Further noting that a lawsuit filed with the intention of bringing about settlement generally is not an abuse of process, the court reasoned that because Penn never asked a court to reach beyond its authority and because it had probable cause to file suit, it did not pervert the lawsuit or justice system. In sum, because Penn “asserted viable claims, requested appropriate relief, then offered to release all related claims in exchange for a portion of its requested damages,” no ulterior motive was present. Finally, the court dismissed Prosper’s second argument for the abuse of process claim—that Penn instituted the lawsuit to disqualify Prosper’s attorneys—because Penn never actually sought to disqualify Prosper’s counsel in the federal suit.
Although the Sixth Circuit did not significantly alter the standard for abuse of process in this case or create a new touchstone for the claim, it is worth noting that clear evidence is necessary to support a state-law abuse of process claim, and that they are certainly not taken lightly, particularly when they can bring seven-figure damages with them.