Now, when a plaintiff drops such a case once such evidence is found,
can the defendant counter-sue the plaintiff for malicious prosecution,
on the argument that the plaintiff knew that the defendants claims
were based on the truth and was thus suing "maliciously"?
Presumably by "counter-sue", you were not intending to refer to a cross-complaint, as that would've needed to be filed before or with an Answer in the original Defamation lawsuit.
But, ostensibly, you want to know if the Defendant, after having essentially "won" against the Plaintiff, who had sued them for Defamation but had ultimately dropped the lawsuit presumably as a result of being unable to prove otherwise that the allegedly libelous statements were in fact false, can pursue some sort of legal remedy for all the trouble, time, and money it costed the Defendant to defend themselves, more or less, because the Defendant believes the Plaintiff...
"must have known that the evidence existed and was just hoping it
would not be found, or perhaps knew that it might be found, but wanted
to harass the defendant legally anyway to force them to incur legal
costs as a punishment for criticizing the plaintiff."
The Short Answer
Generally speaking, since the Plaintiff dropped the case and no ruling was technically made in favor of the defendant nor the plaintiff, then the more appropriate tort you're looking for is to sue for an Abuse of Process (not Malicious Prosecution per se, because the Defendant did not ultimately get prosecuted for a crime--depending on the jurisdiction, a judgement against the defendant may even be a requirement to even begin considering a cause of action for Malicious Prosecution).
Technicalities aside, while the Defendant ultimately has that option, there are a number of important considerations that should be taken into account before starting off on yet another lawsuit against the party they just finished defending themselves against. So while, the defendant can file a lawsuit for Abuse of Process against the former Plaintiff, this is where we end up having to explain the long answer...
The Long Answer
In an attempt to keep it brief, the former Defendant has to keep in mind that if they pursue an abuse of process lawsuit against that former plaintiff, they would need to prove by a preponderance of evidence that the plaintiff was not only fully aware of the purported evidence existing that would ultimately make his case fall on its face, but also that the plaintiff had an ulterior motive when filing their lawsuit against the defendant.
The more obvious issue here is that the Plaintiff ultimately dropped the case when that evidence was brought into discovery. In short, it can be easily perceived that he realized he had no chance of winning and dropped the lawsuit which makes it difficult to prove that the plaintiff had an ulterior motive set on looking to "punish" the defendant. Perhaps if the Plaintiff continued to drag the case out, propound overly oppressive discovery or in some way attempted to further draw out the lawsuit amidst an inevitable loss, ultimately forcing both parties to incur more attorney fees and/or legal costs, then there might be a slightly better chance of being able to prove the plaintiff had an ulterior motive all along. Needless to say, it's somewhat of an uphill battle.
To be precise, the elements for an abuse of process include:
- The existence of an ulterior motive or improper use of process, such as improper harassment
- An improper act in the use of the process that undermines legal proceedings
- (and in some jurisdictions) Harm to a litigant
So depending on the jurisdiction, the defendant would have to make a case proving at least two of those elements were present. At this point it's worth pointing out that even if the damaging statements were true, if the truth did somehow damage the former plaintiff's business or reputation, then it wouldn't be too difficult for that same plaintiff, acting as a defendant, to argue that he was motivated by a sincere concern for his reputation when he initially filed the lawsuit but proceeded to drop the suit once it had been revealed to him that he had no legal right to bring the suit.
Aside from that, assuming attorneys were involved in the original litigation, if the former Plaintiff's counsel had any prior knowledge of their client's alleged ulterior motive, they would've had an ethical and moral obligation to either advise their client against pursuing such action or would have otherwise been obligated to terminate their client relationship. That being said, I won't speak on how the courts generally view abuse of process cases or malicious prosecution cases for that matter, but the general idea is that they can be challenging in their own right because you'd have to go after both the former plaintiff and his counsel (if applicable).
While I can totally empathize with the Defendant's grievance and position, and trust me, I make no exaggeration when I say I absolutely understand as I'm presently dealing with a much more tenacious and vivacious litigant in two separate lawsuits, but it really comes down to that defendant asking themselves, is it worth it? Granted, you may be able to add some other grievances to the case aside from just abuse of process, such as intentional infliction of emotional distress or what have you, but it's not going to be an easy case to win and it could be dragged out for over a year. Sometimes it's worth just walking away so that you can more quickly get that person out of your life. But, as always, seek the advice of a licensed attorney and really consider what you hope to get out of it. Sure, the Plaintiff may have dragged that defendant into something that ultimately led to nothing, but at least for now, there's the option of letting it end there.