Fair Report Privilege Bars Defamation Claim Against Law Firm

On February 16, 2018, Justice Kornreich of the New York County Commercial Division issued a decision in Shawe v. Kramer Levin Naftalis & Frankel LLP, 2018 NY Slip Op. 30277(U), dismissing a defamation claim relating to a lawsuit, explaining:

. . . New York Civil Rights Law Section 74 prohibits a civil action alleging injury from the publication of a fair and true report of any judicial proceeding. A publication is considered fair and true within the meaning of Section 74 if its substance is substantially accurate. Section 74 applies to any person whose statements fall within the ambit of the privilege, and its protection is routinely extended to statements by attorneys regarding their own cases.

The statements regarding Shawe's spoliation of evidence are substantially accurate reports of the Court of Chancery's factual findings. Chancellor Bouchard found that Shawe intentionally destroyed approximately 41,000 files from his laptop--more than 1,000 of which proved unrecoverable-with the intended purpose of making information unavailable for the required forensic discovery in direct contravention of a court order. Based on this finding, the Chancellor determined that Shawe was a "spoliator" and sanctioned him accordingly.

Shawe argues that nowhere in either the Post-Trial or Sanctions Decisions was it stated that he had engaged in "massive spoliation" of evidence "in droves." Rather, he contends, the Chancellor merely found that he had attempted to delete a number of files on his laptop computer, but that those files were in fact not actually deleted. This is a mischaracterization of Chancellor Bouchard's actual findings. In fact, as just discussed, the Chancellor found that Shawe had actually deleted tens of thousands of files from his computer, roughly 1,000 of which proved unrecoverable; that his intention in doing so was to make those files unavailable for discovery; that he would have succeeded but for his laptop's automatic backup system and the intervention of his computer expert; and that this fortuitous lack of success does not negate his illicit intent. Such conduct can fairly be characterized as "massive" spoliation of evidence "in droves," even if Chancellor Bouchard did not describe it in those terms. Further, insofar as Shawe suggests that he was not found to have spoliated evidence at all because most of the files he deleted were ultimately recovered, he ignores the Chancellor's holding, affirmed on appeal, that being an ineffective spoliator does not negate the intention to spoliate.

Kaufman's statement in the first interview that "[Shawe] was holding Elting hostage basically" is likewise a substantially accurate description of Elting's position in the underlying litigation, which the Court of Chancery ultimately endorsed. As summarized by Chancellor Bouchard, Elting's position was that absent the forced sale of TransPerfect, she will be left with the Hobson's choice of remaining locked with Shawe in corporate hell or cashing out her stake for a fraction of its true value affording Shawe a windfall. The Chancellor agreed, concluding that Shawe's actions have cast a pall on the prospect that a third party would pay a fair price for Elting's shares, and that to afford no relief in this circumstance would be unjust. Shawe's insistence that, contrary to the Chancellor's conclusion, he was not holding Elting hostage' at all is of no consequence. Shawe also argues that, if opinion, the statement implies a basis in undisclosed defamatory facts. However, Shawe's conclusory assertion is belied by Kaufman's immediate reference to the relevant portion of the Post-Trial Decision on which his comment was based.

Similarly, Kaufman's nearly identical statements in the first and second interviews that "no rational person would ever want to partner with Shawe" and that "no rational person would want to partner with Shawe" are protected by the fair reporting privilege. Both statements echo, almost exactly, the language used by Chancellor Bouchard in the Post-Trial Decision.

Though Shawe acknowledges the relevant language in the Post-Trial Decision, he claims that these statements, too, falsely imply the existence of undisclosed facts. Shawe argues that the Chancellor's comment that "[no] rational person would want to ... partner with [him]" was quoted out of context, creating the false impression that Kaufman's statements concerning the (un)likelihood that others would be willing to finance his future bid on the company were based on the undisclosed fact that the Chancery Court had disqualified him from bidding. The court disagrees. 11 In his opinion, which had been read by the interviewers, the Chancellor rhetorically asked: "[w]hat rational person would want to ... partner with someone [Shawe] willing to 'cause constant pain' and 'go the distance' to get his way?" The Chancellor clearly considered Shawe an objectively unattractive business partner based on his demonstrated history of misconduct. That is precisely the meaning ascribed to the Chancellor's quoted language by the two statements at issue.

Moreover, Kaufman stated explicitly and repeatedly-including once immediately preceding the first of these two statements-that the Chancellor had not disqualified Shawe from bidding on the company. And even were it accepted that the language taken from the Post-Trial Decision was quoted out of its original context, and ought not, therefore, be considered under the rubric of Section 74, Kaufman's use of that language to support his predictions regarding Shawe's inability to obtain financing would still be privileged as expressions of inactionable opinion.

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

Civil litigation can involve claims that cause real reputational harm, but not every statement can be the subject of a defamation claim. Contact Schlam Stone & Dolan partner John Lundin at jlundin@schlamstone.com if you or a client have questions about whether statements about you or your business can be the basis for a claim for defamation.