Research on Judicial Proceedings Privilege and RICO claim

Author: LegalEase Solutions 

  1. JUDICIAL PROCEEDINGS PRIVILEGE IS NOT AN ABSOLUTE PRIVILEGE

Introduction

Our client’s employer Metropolitan Hospital, terminated our client’s employment in retaliation for her action of bringing to light various illegal/fraudulent conduct occurring at the hospital with respect to billing of patients. A lawsuit was filed against the hospital on behalf of the client which led to client’s dismissal from her job at the hospital.  Our client then filed a retaliation claim against her former employer. Throughout the litigation, the defense counsel consistently attacked the client’s character personally and submitted hundreds of false statements and misrepresentations in the pleadings, and also published these false statements in the media.

We have been asked to research the following:

  • Can a defamatory claim be sought against the defendant and his counsel, for false statements and misrepresentation made before the court and in the media and are these statements protected by Judicial Proceeding Privilege. Further research is also required into the issue of exceptions to this privilege.

The current issues call for the discussion of:

  • Federal Statute 42 USCS§ 1983  (2005)
  • Federal 6th Sixth Circuit case law.

Discussion

Defamation claims can be brought pursuant to common law and statute.  Generally speaking, an individual who defames another can be held liable in a civil action and subject to penalties. However, in the context of litigation, there exists a doctrine of judicial proceedings privilege which grants absolute immunity to parties to a litigation and their counsel for defamatory statements made before the court in the course of a judicial proceeding.

In Various Mkts. v. Chase Manhattan Bank, N.A., 908 F. Supp. 459, 465 (D. Mich. 1995), three motions for summary judgment were presented before the court, of which one was on the plaintiff’s action claiming defamation, assault, extortion, and intentional infliction of emotional distress against defendant mortgagees. While denying the defendant’s summary judgment on this count, the court discussed the defendant’s immunity from the doctrine of judicial proceedings privilege. Relying on the decision of the Michigan Supreme Court in Sanders v. Leeson Air Conditioning Corp., 362 Mich. 692, Timmis v. Bennett, 352 Mich. 355, (1958), the court held that Chase’s contention that Michigan would extend the absolute judicial proceedings privilege to a pre-lawsuit letter has no legal support whatsoever. Id at 466. The court further stated:

More importantly, merely having a shared interest in some aspect of the subject matter of the letter does not amount to the kind of interest Michigan courts look to in applying the privilege.

Id at 467.

In Timmis, supra, the Plaintiff police employee appealed the trial court (Michigan) judgment on employee’s suit for the publication of alleged false and malicious statements by attorney. Attorney had sent a letter referring to employee’s involvement in the arrest of attorney’s client and employee’s petition alleging attorney’s client to be mentally incompetent. The trial court held that the employee’s statements were entirely privileged. But the Supreme Court reversed the decision and held that

While an attorney may not be held liable for statements, even though false and malicious, made during the course of a trial, or as a part of a judicial proceeding, he may not claim absolute immunity with respect to slanderous and libelous statements otherwise published. Id at 364.

The letter on which this action was based was not a part of any case in court, or of any other judicial proceeding. The fact that such a case was in contemplation does not alter the situation in this respect.  The trial court was in error in directing a verdict on that ground. Id at 365 and 366.

Courts have generally held that privilege is available to slanderous and libelous statements, even though false, made in the course of the judicial proceeding. The privilege applies only to those statements which are material/relevant to the case.

In Adams v. Spencer, 1997 U.S. Dist. LEXIS 23781(1997), This case arises from circumstances involving a bobcat that was killed in Florida and then brought by the Plaintiff, Joseph Adams, to Ohio for the purpose of taking it to a taxidermist to be mounted. The plaintiff initiated a suit under 42 U.S.C.S. §  1983 against the defendants, who were state officials. Deciding the question of applicability of absolute immunity, the United States District Court for the Southern District of Ohio held

In determining whether absolute immunity should apply in regard to claims based upon these allegations, the crucial inquiry lies in ascertaining the type of “function” performed by Defendant Hein when he refused, after the conclusion of the judicial proceedings on the motion for forfeiture, to comply with a court order mandating that the property sought to be forfeited be returned to the Plaintiff. The inquiry is made easier by framing the question in the affirmative: assuming that Defendant Hein had complied with the order to return the bobcat carcass, would that action have been a “prosecutorial” or an “administrative” function?

Id at 31.

The Court concluded that the Defendant did not perform a prosecutorial function and so is not entitled to absolute immunity in regard to claims based upon his actions in refusing, notwithstanding the court order, to return the bobcat to the Plaintiff.

Thus, absolute immunity is available only for prosecutorial functions and not administrative functions, that is to say, only those statements made by the counsel in his prosecutorial capacity are privileged, while those made in an administrative capacity are not.

In Hartman v. Asset Acceptance Corp., 2004 U.S. Dist. LEXIS 24845, an FDCPA claim, the defendant argued that the affidavit of its agent, filed in state court, is absolutely privileged. The court discussed in length the doctrine of absolute privilege as follows

The litigation privilege, on the other hand, broadly protects all actors in the course of judicial proceedings from subsequent liability for acts and conduct related to the proceeding. “While the imposition of an absolute privilege in judicial proceedings may prevent redress of particular scurrilous and defamatory allegations that tend to harm the reputation of the person defamed, a contrary rule, in our view, would unduly stifle attorneys from zealously advancing the interests of their clients in possible violation of the Code of Professional Responsibility, and would clog court dockets with a multitude of lawsuits based upon alleged defamatory statements made in other judicial proceedings.” Surace v. Wuliger, 25 Ohio St.3d 229, 235, 25 Ohio B. 288, 495 N.E.2d 939 (1986). While the privilege historically was raised to defeat defamation suits, the modern version has broadened in most states to include all kinds of tort liability. See, e.g., Levin v. United States Fire Ins. Co., 639 So.2d 606 (Fla. 1994), cited in Beck (Florida law); and, Heavrin v. Nelson, 384 F.3d 199, 2004 Fed. App. 0312P (6th Cir., September 13, 2004)

Id at para 17.

A plethora of decisions revalidate the finding that statements made by parties and their counsel enjoy absolute immunity, even if false and malicious and defamatory claims cannot be brought against them. However, the immunity is not available to those statements made by parties and their counsel not in relation to the judicial proceeding. For the privilege to be available the libelous statements need to have some imminent relation to the judicial proceeding.

In Huff v Whelan & Assocs., 2004 U.S. Dist. LEXIS 27795, Plaintiff former employee sued defendants, her former employer and an affiliated business, asserting claims of defamation, intentional interference with a contractual relationship, and failure to reimburse the employee for company expenses paid by the employee. The alleged defamatory statements were with respect to a letter and some telephone calls. Defendants did not deny making the statements, but instead claimed the statements to be privileged. On this issue court held:

[A] party to a private litigation … is absolutely privileged to publish defamatory matter concerning another in communications preliminary to a proposed judicial proceeding, … if the matter has some relation to the proceeding. This absolute privilege protects a party regardless of its belief in the truth of the statements made or even its knowledge of the falsity/ However, because this communication was made preliminary to any judicial proceeding, the privilege will only apply when the communication has some relation to a proceeding that is contemplated in good faith and under serious consideration. Citing General Electric, 916 F.2d at 1126.

Id at Para 5, 6.

In the case on hand, all instances of defamation pointed out by our client are from the pleadings submitted by the defendants before the court. They are statements from either the Defendant’s Opposition to Motion in Limine or Defendant’s Brief for Summary Judgment or Defendant’s Brief for Costs and Sanctions Summary Judgment. Since they are statements made in the course of the judicial proceeding, they enjoy immunity under the doctrine of judicial proceedings privilege.

In deciding whether the statements made by the defendants and their counsel to the Grand Rapids Press and the Grand Rapids Business Journal are protected by the privilege doctrine or not, it has to be ascertained whether they have some functional tie to the judicial proceeding. If the statements before the media do not bear any nexus to the judicial proceeding, they are not immune and a defamatory claim can be moved against the same.

Conclusion

In the light of the decisions discussed above, our client can make out a claim for defamation against the defendants and their counsel for slanderous statements, even if false, made before the court and the media, provided she proves that the alleged statements are not in relation to the judicial proceeding.

  1. LEGAL SUSTAINABILITY OF A RICO CLAIM

INTRODUCTION

The Plaintiff was employed in the Defendant Hospital.  During the course of his employment the defendant was engaged in a number of illegal conducts relating to billing of patients, fraudulent bills, etc. The Plaintiff filed a lawsuit against the hospital and a multi-million dollar settlement resulted, of which Plaintiff received close to $1 million.  After filing suit, Plaintiff was fired by the Defendant hospital.  Plaintiff then filed a claim for retaliation against the Hospital for terminating her employment. This claim was eventually denied by the Court. The federal district court judge overseeing the case fined her $1 million dollars for bringing the claim.  She would like to pursue a RICO claim against the hospital and other parties involved in the original lawsuit (including the district court judge, the defendant’s law firm, etc.) that they violated RICO by retaliating against her resulting in her losing her job, and loss of her $1 million.

We have been asked to research the following:

  • Whether RICO allows for retaliation as a basis for relief.
  • Cases where RICO is invoked in similar factual situation

The current issues call for the discussion of:

  • Statutory provisions of RICO
  • Federal 6th Sixth Circuit case law.

DISCUSSION

The Plaintiff’s cause of action relates to the Plaintiff being terminated from her employment as a retaliatory measure for reporting the defendants’ illegal conduct. Courts in the Supreme Court of United States and 6th Circuit Courts have generally held that RICO does not allow for retaliation as a basis for relief when the Plaintiff is terminated from her employment for reporting illegal misconduct.

RICO takes aim at “racketeering activity,” which it defines as any act “chargeable” under several generically described state criminal laws,  any act “indictable” under numerous specific federal criminal provisions, including mail and wire fraud, and any “offense” involving bankruptcy or securities  fraud or drug-related activities that is “punishable” under federal law. § 1961(1). Section 1962, entitled “Prohibited  Activities,” Sedima v. Imrex Co., 473 U.S. 479 at 482.

In Beck v. Prupis, 529 U.S. 494, the Petitioner initiated a civil action under RICO 18 U.S.C.S. § § 1961-1968 (1994). Petitioner was the former president of corporation, while respondents were former directors. Respondents engaged in acts of racketeering and petitioner contacted regulators regarding the acts. Respondents then created a scheme that resulted in petitioner’s termination. The court of appeals affirmed the dismissal of petitioner’s action on the ground that petitioner’s termination, which caused petitioner’s injury, was not an act of racketeering. The court concluded petitioner could not bring suit under RICO predicated on a violation of section 1962(d) for injuries caused by his termination because it was not an act of racketeering.

The court held:

…that injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO, see n. 7, supra, is not sufficient to give rise to a cause of action under §  1964(c) for a violation of §  1962(d). As at common law, a civil conspiracy plaintiff cannot bring suit under RICO based on injury caused by any act in furtherance of a conspiracy that might have caused the plaintiff injury. Rather, consistency with the common law requires that a RICO conspiracy plaintiff allege injury from an act that is analogous to an “act of a tortious character. Id at 505.

In Kramer v Bachan, 912 F.2d 151, Court discussed the issue of the standing of a complainant to file a claim under RICO. Bachan Aerospace Corporation (“BAC”) engaged in the manufacture of machine parts for the aerospace industry and others for over twenty years. BAC had a collective bargaining agreement with the United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) covering its employees. In 1985, BAC began experiencing financial problems, and on December 31, 1985, RMM purchased all of the stock of BAC. BAC continued to suffer losses and in April 1988, BAC conveyed all of its assets to the Bank, its principal secured creditor. Kramer worked for BAC for a short period in 1980, for a few months in 1982, and from June 30, 1985 until his discharge on December 19, 1986. While employed at BAC, plaintiff was a member of UAW Local 417 and was subject to a collective bargaining agreement.On October 8, 1986, BAC disciplined and laid off plaintiff allegedly because of his inability to perform his inspection work satisfactorily. Following the filing of his November 24, 1986 grievance concerning this discharge, plaintiff was reinstated to a lower-category inspection position on a ninety-day probationary status on condition  that his work performance would be reviewed by BAC officials. On December 19, 1986, BAC terminated plaintiff, and thereafter he filed another grievance pursuant to the collective bargaining agreement. Prior to his dismissal, however, plaintiff contacted the United States Defense Department to inform them that BAC was knowingly manufacturing and shipping defective parts.

An arbitrator conducted a hearing on the grievance and issued an opinion and award finding that BAC did not have just cause to discharge Kramer and awarding plaintiff lost wages for the seven-month period in which he searched for a new job. The arbitrator, however, refused to order reinstatement because the “employer-employee relationship ha[d] been destroyed.”

On May 3, 1988, plaintiff filed an initial complaint against BAC, Douglas Bachan and Michael Bachan asserting: (1) a civil right of action under RICO; (2) violations of Michigan state law; (3) violation of Michigan’s Whistleblowers’ Protection Act; and (4) defendant BAC’s failure to comply with the arbitrator’s award. The district court held a hearing on defendants’ motions after which it granted defendants’ motions for summary judgment and dismissed plaintiff’s complaint. Judge Cohn ruled that the defendants had established: (1) that plaintiff lacked standing under RICO; (2) that plaintiff failed to plead fraud with specificity; (3) that plaintiff had not alleged an adequate pattern of racketeering activity; (4) that the corporate defendants could not be vicariously liable under RICO; (5) that plaintiff had not alleged sufficient involvement for Talon; and (6) that plaintiff could not collect damages for physical and mental injuries under RICO. Plaintiff appealed.

Plaintiff argued that he is a discharged whistle blower who had standing to sue under RICO. The Sixth Circuit Court relied on a host of decisions and discussed the right of the Plaintiff to sue under RICO.

As part of the Racketeer Influenced and Corrupt Organization Act’s extensive civil enforcement scheme, Congress included 18 U.S.C.S. §  1964(c), which allows for private suits for treble damages and attorneys’ fees to any person injured in his business or property by reason of a violation of 18 U.S.C.S. §  1962. In Sedima v. Imrex Co., 473 U.S. 479 the Supreme Court discussed the requirements for standing under § 1964(c): If the defendant engages in a pattern of racketeering activity in a manner forbidden by § 1962, and the racketeering activities injure the plaintiff in his business or property, the plaintiff has a claim under § 1964(c). The plaintiff only has standing if, and can only recover to the extent that, he has been injured in his business or property by the conduct constituting the violation. A defendant who violates section 1962 is not liable for treble damages to everyone he might have injured by other conduct, nor is the defendant liable to those who have not been injured. Id. at 495-97 (emphasis added)

Id at 154.

It is pertinent to note that the Plaintiff should demonstrate that he has been injured in his business or property for asserting a claim under RICO. As clearly held, there should be a racketeering activity involved and if such activity results in the Plaintiffs injury in his business or property, the plaintiff has a claim.

The Kramer Court relied on Warren v. Manufacturers Nat. Bank of Detroit, 759 F.2d 542, 545 wherein it was held that injury must be directly caused by the asserted RICO violations and stated:

In Warren, we considered the right of a plaintiff to bring suit under RICO for loss of employment where the corporation for which he was chairman of the board was forced into bankruptcy by the fraudulent acts of the defendant bank.  759 F.2d at 544-45. Holding that the plaintiff lacked standing under RICO, we stressed that the alleged acts of fraud were not directed toward the plaintiff as an employee, but rather toward the corporate entity. We concluded that “though plaintiff’s loss of employment might be characterized in one sense to be a consequence of defendant’s conduct, it hardly can be said to have been directly ’caused’ by the asserted conduct.” Id. at 545. The Court went on to say. “We require that plaintiff in a case of this type demonstrate that his discharge was not merely incidental to, but directly caused by a defendant’s alleged RICO violations.”

Id at 154-155.

In the case at hand the Plaintiff does not have a complaint that she was fired for refusing to participate in the illegal conduct. She claims, instead, that she was fired for reporting the scheme to the board. Under such circumstances it is not possible to have a claim under RICO. The Court in Kramer discussed a line of decisions from other Circuits to substantiate this finding[1].

alleged racketeering scheme). Moreover, the Fifth Circuit, in Cullom, has held specifically that “whistle blowers do not have standing to sue under RICO for injury caused by the loss of their job.” 859 F.2d at 1215 (citing Pujol, 829 F.2d 1201, Nodine, 819 F.2d 347, and Morast, 807 F.2d 926). The strong weight of authority, therefore, supports the district court’s holding that plaintiff does not have standing to sue under RICO.

Id at 155.

Finally the court concluded Id. at 156:

Plaintiff unfortunately has not demonstrated that his discharge was a direct result of defendants’ alleged RICO violations. The government,   not plaintiff, was the target of defendants’ scheme to ship defective military hardware. Like the plaintiffs in Morast, Nodine, Pujol and Cullom, plaintiff’s injury resulted from defendants’ decision to fire him in retaliation because he reported an allegedly fraudulent scheme to his superiors and to government officials. While such retaliatory actions by employers are certainly not to be encouraged, as evidenced by the arbitrator’s award in this case, we cannot hold in light of prior authority in this and other circuits that Kramer has standing to seek treble damages and attorneys’ fees for wrongful discharge under RICO.

To successfully defend a RICO claim in the instant case the plaintiff has to establish that his claim falls within the purview of any of the exceptional circumstances recognized by the Courts.

In our case that Plaintiff has the burden to demonstrate that his termination was a direct result of defendants RICO violations. The injury if any sustained by the Plaintiff to his business or property must be demonstrated so as to entitle his to relief under RICO. The Plaintiff was never the target of the defendants illegal misconduct. The activities of the defendant involving fraudulent billing never affected the Plaintiff. He was terminated for reporting it. Going by the dictum in Kramer and Beck the termination of the Plaintiff will not be construed as retaliation for purposes of RICO.

[1] See Hecht, 897 F.2d at 24-25 (former sales representative of Commerce Clearing House denied standing to sue where he was terminated for refusing to cooperate in concealment of fraudulent subscription scheme); Norman v. Niagara Mohawk Power Corp., 873 F.2d 634, 637 (2d Cir. 1989) (former quality assurance auditors at nuclear plant denied standing under RICO where they were harassed in retaliation for the diligent conduct of inspection duties); Burdick, 865 F.2d at 529-30 (former vice-president of American Express denied standing to sue where he was fired in retaliation for his complaints about parent Shearson’s alleged illegal activities); Cullom, 859 F.2d at 1218 (former president and CEO of bank denied standing where he was forced to resign for refusing to participate in fraudulent scheme); Pujol, 829 F.2d at 1206 (former president of Shearson Puerto Rico denied standing where he was fired and slandered for reporting and stopping the illegal schemes); Nodine, 819 F.2d at 349 (former employee of Textron denied standing to sue where he was fired for reporting illegal customs scheme to his superiors); Morast, 807 F.2d at 933 (former bank employee denied standing where he was fired for reporting illegal bank transactions)

The only exceptions to this impressive volume of authority seem to be: (1) Williams v. Hall, 683 F. Supp. 639, 642 (E.D. Ky. 1988) (discharged Ashland Oil employees permitted to sue under civil RICO conspiracy statute where they alleged that part of the conspiracy was to cover up illegalities by terminating employees refusing to participate in the schemes); and (2) Callan v. State Chemical Mfg. Co., 584 F. Supp. 619, 622 (E.D. Penn. 1984) (former sales representatives of chemical company permitted to sue under RICO where they alleged that they were dismissed for refusing to participate in an