Commercial Division Blog

Posted: March 13, 2017 / Categories Commercial, Defamation, Malicious Prosecution

Allegations of Malicious Prosecution and Defamation Based on Allegations in Complaint Upheld

On February 28, 2017, the First Department issued a decision in Thomas v. G2 FMV, LLC, 2017 NY Slip Op. 01511, upholding claims for malicious prosecution and defamation based on allegations in a complaint, explaining:

Plaintiff alleges that, for improper purposes, defendants brought an action for a declaration that he resigned from G2 Investment Group, LLC without "Good Reason" under G2 FMV, LLC's operating agreement.

The complaint states a cause of action for malicious prosecution. It pleads the absence of probable cause by alleging that no person of ordinary care and prudence would believe that plaintiff was not entitled to resign under the terms of the operating agreement. It pleads malice by alleging that defendants brought the declaratory judgment action for the purpose of silencing plaintiff as a whistle blower, causing damage to his reputation, and wrongfully denying him fair market value for his shares in G2 FMV. It pleads "special injury" by alleging with particularity that plaintiff had a consulting arrangement with Forbes Private Capital Group, LLC, and was terminated as a direct result of the allegations in the complaint in the declaratory judgment action.

The complaint states a cause of action for defamation. Because the declaratory judgment action was "a sham action," defendants are not entitled to the protection of the absolute judicial privilege. Defendants' allegations that they had "Cause" under the operating agreement to terminate plaintiff, but decided not to do so, have no bearing on the issue of "Good Reason." Nor, contrary to defendants' contention, did plaintiff consent to publication of the defamatory statements by opposing defendants' motion to seal the complaint in the declaratory judgment action. . . . .

The complaint states causes of action for malicious prosecution and defamation as against the individual defendants who served as corporate officers by alleging that those defendants participated in the commission of the torts.

(Internal quotations and citations omitted).