Commercial Division Blog

Posted: February 8, 2016 / Categories Commercial, Defamation

Judicial Proceeding Immunity Is Not Absolute

On January 27, 2016, Justice Kornreich of the New York County Commercial Division issued a decision in Thomas v. G2 FMV, LLC, 2016 NY Slip Op. 30143(U), denying a motion to dismiss based on judicial proceeding immunity.

The action arose from another pending litigation in which defendant G2 sued the plaintiff Thomas for a declaratory judgment that he had breached his employment agreement by resigning without "Good Cause." The complaint also recited a long list of improper conduct by Thomas, including incompetence, leaking confidential information, and diverting payroll taxes to pay other company expenses, which exposed the employer to action by the IRS. Thomas counterclaimed for breach of contract and indemnification of attorney fees. Before any discovery took place, the sole cause of action against Thomas was withdrawn, allegedly "to avoid the expense of complying with electronic discovery and depositions," and G2 conceded that Thomas had resigned for Good Cause.

In the present action, Thomas countersued G2 and several of its officers, alleging that emails in his possession showed that G2 knew that statements in the prior declaratory judgment complaint were false, and were made maliciously at the direction of the individual defendants in order to make Thomas, in essence, a "fall guy" for others' misconduct. He also alleged that the defendants caused the allegations in the complaint to be publicized in industry publications. The defendants moved to dismiss his claims.

On the cause of action for defamation, Justice Kornreich rejected the defendants' assertion of the judicial proceeding immunity, stating that:

The absolute privilege accorded statements made in the course of a judicial proceeding may be lost if the privilege is abused . . . . The test is whether the statements are material and pertinent to the proceeding, or whether they are so needlessly inflammatory that malice can be inferred . . . . The test for pertinence is whether the statements are so outrageously out of context that one would conclude that they were motivated only by a desire to defame. Whether the statements are pertinent is a question of law for the court.

. . .

Whether the statements in the UA Complaint were false is a question of fact that must be resolved in the plaintiff’s favor at this juncture. Falsity of some of the UA Complaint’s central and most defamatory allegations can be inferred from the email correspondence . . . .

The judicial privilege defense does not require dismissal because the trier of fact could conclude that the UA Complaint was a sham maliciously filed solely to defame Thomas. G2's sole motivation to defame could be inferred from the fact that within four months, G2 discontinued the action and conceded liability [on some of Thomas’s counterclaims] before any discovery took place. Malicious intent also could be inferred from [one of the individual defendants’] statement about burying Thomas . . . .

Furthermore, with regard to the pertinence standard, the sole cause of action in the UA complaint was a declaratory judgment that Thomas did not resign with Good Reason . . . . Nevertheless, the UA Complaint alleged that G2 had Cause to terminate Thomas's employment and outlined grounds for Cause that impugned Thomas' integrity and professionalism. The UA Complaint did not seek a declaration that G2 . . . had Cause to terminate Thomas' employment . . . .

(Internal quotations and citations omitted) (emphasis added).

Justice Kornreich also held that the defamation action could proceed against some of the individual defendants on the grounds that it could be inferred that as officers of the corporate employer G2 they "made the decision to file the UA Complaint to intimidate Thomas . . . ."

Finally, Justice Kornreich refused to dismiss the defamation claim under the fair reporting privilege: "If the UA Complaint was a sham, publication of it would not be 'fair.' Instead, a sham complaint would be a false statement given to a news organization for the purpose of publication."

This decision shows that the litigation privilege against defamation is not absolute, and can be lost if the plaintiff knowingly lies in its complaint or other pleadings. However, the reliance on G2's quick termination of the action creates—however unavoidably—an incentive for similarly-situated plaintiffs to press their (malicious) claims in order to avoid a suit for defamation or malicious prosecution.