April 28, 2017

Colorado Court of Appeals: Essential Element of Abuse of Process Claim is Improper Use of Courts

The Colorado Court of Appeals issued its opinion in Active Release Techniques, LLC v. Xtomic, LLC on Thursday, February 9, 2017.

Active Release Techniques (ART) is a provider of training, seminars, and business support software for chiropractors and other health care providers. ART contracted with Xtomic to manage ART’s IT services and provide support. When one of ART’s employees started a new business, Select Seminar Services, LLC (S3), with a co-owner of Xtomic, ART petitioned for a temporary restraining order and preliminary injunction. It also initiated the current litigation, asserting claims for misappropriation of trade secrets. Xtomic responded by asserting numerous counterclaims, including a claim for abuse of process. A jury ultimately decided all claims in Xtomic’s favor.

ART appealed, arguing the trial court erred by denying its motion for a directed verdict on Xtomic’s abuse of process claim. The court of appeals noted that “a valid abuse of process claim must allege ‘(1) an ulterior purpose for the use of a judicial proceeding; (2) willful action in the use of that process which is not proper in the regular course of the proceedings, i.e., use of a legal proceeding in an improper manner; and (3) resulting damage.'” In this case, ART moved for a directed verdict on the abuse of process claim at the close of evidence on the counterclaims. Xtomic argued that ART knew from the outset that it had no legitimate claims against Xtomic and the overly aggressive manner in which it pursued its claims against Xtomic was evidence of ART’s ulterior motive to use the lawsuit as a means to harass Xtomic and run it out of business. In denying ART’s motion for directed verdict, the court relied on ART’s pretrial settlement with Xtomic, ART’s reputation for filing lawsuits to control the behavior of former 5 associates and business partners, and the nature and number of preservation letters that ART sent to numerous individuals.

The court of appeals disagreed with the trial court that the settlement could be evidence of ART’s willful misuse of judicial process, because settlement does not imply that the originally filed suit was improper. The court also disregarded the evidence of ART’s other lawsuits, finding that it was only proper to focus on the instant case. Finally, the court found that the preservation letters were not directly related to any litigation but rather were issued in response to ART’s concern that Xtomic was destroying emails.

The court of appeals denied Xtomic’s motion for appellate attorney fees, since it was not the prevailing party. The court reversed the trial court’s denial of ART’s motion for directed verdict and remanded.

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