Defamation Law: The Qualified Privilege Defense (N.D. Ill.)

webIn Tamburo v. Dworkin, 2013 WL 5408540 (N.D.Ill. 2013), an Internet libel case, the Illinois Northern District examined the nature and reach of the qualified privilege and truth defenses to defamation claims filed by a software company against a defendant that made disparaging comments about the company on web message boards.

Facts:  Defendant, a professional dog breeder, created a website that provided free canine pedigree information to the dog-breeding community.  Plaintiffs created a Data Mining Robot that “harvested” defendant’s site data, packaged it and sold it to the public.  Defendant, irate that plaintiffs took defendant’s dog data without  permission, accused plaintiffs of stealing the pedigree information.  Plaintiffs sued for defamation and tortious interference with contract and prospective economic advantage.  Defendant moved to dismiss all counts of the complaint.

Holding: Defendant’s Rule 12(b)(6) motion to dismiss is granted.  All claims dismissed.

Reasoning:

The plaintiffs alleged that defendant’s venomous posts caused plaintiffs to fall into disrepute in the business community.  An Illinois defamation plaintiff must allege (1) a false statement about the plaintiff, (2) published to a third party, (3) that causes damage to the plaintiff.  *8. 

If its defamation per se (imputing commission of crime, infection with a loathsome disease, incompetence or lack of integrity in employment, adultery or fornication), the plaintiff doesn’t have to show special damages.  Common defamation defenses include truth, that the statement is capable of an innocent construction, the statement is an opinion (not factual), and the challenged statement is “rhetorical hyperbole.” *8.

Qualified Privilege Defense

Another defamation defense is the qualified privilege defense.  This applies where a statement implicates a legitimate interest of the speaker/publisher or an interest of the recipient of the statement/publication.  A prototypical example is a false statement that involves matters of important public concern.  

To defeat a qualified privilege defense, the defamation plaintiff must show (a) the statement was false; and (b) the defendant abused the privilege by intentionally publishing the falsehood or by displaying a “reckless disregard” concerning the statement’s truth or falsity.  Reckless disregard means the defendant “entertained serious doubts” about the truth of the statement yet failed to properly investigate its truth.  *11. 

The court held that defendant’s statements that plaintiffs’ principal was unethical and deceitful, while defamatory per se, were still non-actionable statements of opinion protected by the First Amendment.  In addition, defendant’s statements that plaintiffs stole (committed “theft”) defendant’s data and was engaged in “hacking” were substantially true: plaintiffs’ web trolling Robot did swipe data from defendant’s website without permission and later sold it for a profit.  *9,

The defendant also had a legitimate interest in protecting her time investment in compiling the pedigree information and there was a public interest in protecting private information from unconsented Web harvesting.  The Court also found that plaintiffs produced no evidence that defendant abused the qualified privilege by making the theft accusations recklessly or indiscriminately publishing them to unnecessary recipients.  *10, 13.

Finally, the Court found that defendant’s statement that the plaintiffs “took” defendant’s data and was “holding it hostage” were not actionable since the former statement was reasonably susceptible to an innocent construction (defendant didn’t literally mean that plaintiff removed the information from defendant’s site) and the latter “held hostage” statement was pure rhetorical hyperbole.  *15-16.

Case Lessons: It’s hard to prove defamation.  A defamation defendant has a varied arsenal of defenses including truth, innocent construction, opinion vs. fact and rhetorical hyperbole, among others.  The qualified privilege defense will apply where a defendant can show that he has a legitimate interest in the subject matter of the statement or if the statement implicates an important public policy interest.  In Tamburo, there an undercurrent (my interpretation) of the Court viewing plaintiffs’ practices as unfair: swiping or “scraping” the fruits of defendant’s labor (information compiled over a five-year period and provided free of charge to the pubic) and then trying to profit from it.   

 

Finance Company’s Affidavit In Summary Judgment Motion Fails Business Records Test – IL ND

In NRRM, LLC v. Mepco Finance Corp., 2013 WL 4537391 (N.D.Ill. 2013), the Northern District of Illinois denied a finance company’s summary judgment motion in a breach of contract suit against an automobile  warranty provider. 

The finance company plaintiff sued the car warranty provider (warrantor) for breach of contract, claiming it failed to reimburse the plaintiff for various warranty claim losses.

The finance company moved for summary judgment on its breach of contract claim and supported its motion with its business analyst’s declaration.

Disposition: Motion for summary judgment denied.  

Reasoning:

To prove breach of contract under Illinois law, a plaintiff must show (1) the existence of a valid contract, (2) substantial performance by the plaintiff, (3) breach by the defendant and (4) resultant damages.  

The business analyst stated in his declaration that the defendant owed over $5M in reimbursement payments.  He declared he was familiar with plaintiff’s business practices and that his damage calculation was based on a review of the company’s business records.  *3-4.

Federal Rule of Evidence 803(6) – The Business Records Exception

The Court ruled that the plaintiff’s declaration and its underlying business records were inadmissible hearsay.

The business records exception to the hearsay rule- codified in FRE 803(6) –  is based on the theory that business records are generally trustworthy and their risk of fabrication low.  The party offering business records in support of its claim must lay a foundation for the records and establish their reliability. 

To establish business record foundation at summary judgment, the record’s proponent must supply an affidavit (or declaration) signed by someone qualified to introduce the record at trial (i.e. a records custodian).  

FRE 803(6) allows into evidence a  “record of an act, event, condition, opinion or diagnosis if”: (1) the record was made at or near the time by someone with knowledge (or from information transmitted by someone with knowledge); (2) the record was kept in the course of regularly conducted activity of a business, (3) making the record was a regular practice of that activity; and (4) all these conditions are shown by the testimony of a custodian or other qualified witness, or by certification that complies with FRE 902(11), (12).  (*4-5)

While the plaintiff’s analyst did parrot the the business records rule elements in his declaration, this wasn’t enough.

He didn’t establish that the records were made at or near the time of the event by someone with knowledge of the event or that making the record was the finance company’s regular practice.  

And since the declaration and business records constituted plaintiffs’ only evidence on the breach and damages elements of its contract claim, the Court denied plaintiff’s summary judgment motion.   *5-6.

Notes: It’s an understatement to say that getting key documents into evidence during a breach of contract trial is critical.  Trial success or defeat often hinges on whether a litigant successfully gets business records into evidence over a hearsay or foundation objection.  Same goes for summary judgment practice; especially in Federal court. 

 

 

 

 

NM Supreme Court Reinstates Legal Malpractice Claim After Firm Blows Statute

walterwhiteAfter another weekend of binge-watching Walter, Hank, Skyler and crew, I definitely have the Land of Enchantment on the brain.  How could I not after watching – no, strike that, after Devouring.  Like a Rabid, Foaming-At-The-Mouth Animal! Seasons 4-5 of ABQ-based Breaking Bad over an eye-searing three-day period (with little more than a sporadic water break).  An aside: do friends and family have interventions for Netflix addiction?  Just curious.  My friend wants to know (cough).   I also concede that I’m way way late to the party on this, but the stories are true: Br/Ba is an absolute TV masterpiece.  That’s why today’s featured case is geographically appealing to me.  Not only that, but its subject matter is interesting and its lessons, both cautionary and profound.

The Case and Facts:  Encinias v. Whitener Law Firm (Sept. 12, 2013)

http://www.nmcompcomm.us/nmcases/nmsc/slips/SC33,874.pdf

Plaintiff high school student was injured in 2004 when he was badly beaten by a group of students on property adjacent to the school.  Plaintiff hired defendant law firm (Firm) in 2006 to file a personal injury suit against the defendant school district for failure to protect plaintiff and to properly respond to the attack.  The Firm failed to file suit before the two-year statute of limitations ran in October 2006.  Sometime in 2008, after plaintiff made several queries concerning the case’s status, the Firm informed plaintiff that it missed the filing deadline.  Plaintiff then sued for legal malpractice.

Disposition: The Supreme Court reversed lower court rulings for the Firm and reinstated the plaintiff’s claim.

Reasoning:

Legal Malpractice Claim

Plaintiff’s legal malpractice claim asserted that because of the Firm’s failure to timely file suit, plaintiff’s claims against the school district are forever lost.  To plead legal malpractice in New Mexico, the plaintiff must show: (1) the employment of the defendant attorney; (2) the defendant attorney’s neglect of a reasonable duty; and (3) the negligence resulted in and was the proximate cause of loss to the client.  The NM Supreme Court focused on element three: loss to the plaintiff/client.

A NM legal malpractice plaintiff must prove loss by showing by a preponderance of the evidence that he or she would have won the underlying claim but for the attorney’s negligence. Richardson v. Glass, 1992-NMSC-046, ¶ 10.  The Firm argued that since the plaintiff’s suit would be defeated by sovereign immunity doctrine, plaintiff would have lost even if his complaint was timely filed.

The Supreme Court rejected this argument and found a triable fact question as to whether the school district waived sovereign immunity under New Mexico’s premises liability principles reflected in its tort claims statute.  Section 41-4-6(A);  ¶¶ 8-9.  The Court focused on an assistant principal’s affidavit testimony that the location of the fight was a known “hot zone” for fighting students.  This genuine issue of fact regarding the school’s knowledge of a dangerous condition on or near the school, meant that plaintiff could prevail in the underlying case and defeated summary judgment.  ¶ 13.

The Misrepresentation claim

Plaintiff alleged the Firm misrepresented that (a) no work had been done on the case and (b) the limitations period expired.  The Firm didn’t tell plaintiff until Spring 2008 that the statute ran, when there was evidence the Firm knew this in July 2007.  ¶ 21.  The Court rejected the lower courts finding that despite the Firm’s withholding information, plaintiff still didn’t sustain actual damages.

NM law permits intentional tort plaintiffs to recover nominal and punitive damages and plaintiff pled punitive damages against the Firm in his misrepresentation count.  Pointing out that the Firm specifically (and erroneously) assured the Plaintiff in October 2006 that the statute of limitations had not run and that the Firm was actively working the case, it was reasonable for plaintiff to rely on the Firm’s representations.

The Court held that the Firm’s failure to disclose that no work had been done damaged plaintiff’s ability to pursue his case against the school district.  Id., ¶¶22-23.  The Court noted record evidence that the Firm’s withholding case information (that it wasn’t working on the case and later, that the statute expired) from plaintiff made it difficult for plaintiff to collect supporting evidence in the underlying case.  Id.  And since a NM intentional tort claim doesn’t require actual damages, plaintiff established a material question of fact on his misrepresentation claim against the Firm.

Lessons: Practitioners should be cognizant and hyper-vigilant as to filing deadlines.  An undercurrent of the Court’s ruling is that the Firm not only failed to timely file, they repeatedly failed to keep the plaintiff informed of the case status.

The case also shows that actual damages aren’t required in New Mexico to state a colorable misrepresentation claim and that if a plaintiff pleads nominal or punitive damages, his claim can survive summary judgment.