New York law has long recognized that attorneys who make defamatory statements in connection with an existing litigation enjoy an absolute privilege against claims for libel and slander. Whether such a privilege extends to statements regarding prospective litigation, however, has been a matter of dispute, and different departments of the Appellate Division, Supreme Court, have reached conflicting conclusions, some finding an absolute privilege and others only a qualified privilege.
The New York State Court of Appeals has now resolved this inter-department conflict. In Front, Inc., v. Philip Khalil, No. 19, 2015 WL 750965 (N.Y. Feb. 24, 2015), the court answered the “open question” concerning what, if any, privilege attaches to pre-litigation attorney statements. The court ruled that communications made in anticipation of litigation are subject to a qualified privilege and thus protected against claims for defamation only as long as the statements are made in good faith.
The case involved an employee (Khalil) who orally resigned from an architectural and engineering design firm (Front). Khalil informed Front that he intended to go work for a competitor (EOC). Before Khalil could formally resign, however, Front discovered that Khalil had downloaded proprietary information (apparently to use it for EOC’s benefit), had worked on numerous side projects for Front’s competitors and had even shifted assignments away from Front to EOC. Front then terminated Khalil’s employment before any formal resignation.
Front’s lawyers then sent a letter to Khalil and EOC, demanding that Khalil “cease and desist from using Front’s confidential and proprietary information, return the proprietary information he had taken, and refrain from contacting Front’s clients.” When Khalil and EOC ignored these demands, Front sued Khalil and EOC for misappropriation of trade secrets, civil conspiracy and common-law unfair competition. Khalil then filed a third-party complaint against Front and its counsel for libel per se based on the statements in the demand letter.
This scenario arises hundreds of times each day as attorneys throughout New York send pre-litigation demand letters, yet the legal protection for such statements has remained murky. It is settled that attorneys have an absolute privilege for statements made by them in court or otherwise in the context of litigation. But what about out-of-court communications outside of or in advance of litigation? The Appellate Division’s First Department had held that such statements were absolutely privileged; the Third Department said the privilege was only a qualified one; and Second Department decisions were inconsistent. In the Khalil case, which was heard in New York County, the court followed First Department precedent and dismissed the libel claim; on appeal, the First Department affirmed on the basis of its earlier precedent and found the statement to be absolutely privileged because the communication pertained to the litigation Front initiated.
The Court of Appeals affirmed the dismissal, but not on the basis of the First Department’s reasoning.
Judge Sheila Abdus-Salaam, writing on behalf of the court, said that applying an absolute privilege in the pre-litigation context would be “problematic” and “unnecessary.” The court concluded that application of a qualified privilege to attorney statements will sufficiently safeguard communications if there is a good faith basis to anticipate litigation and the statements are “pertinent” to the anticipated litigation.
The decision shows substantial concern for the recipients of attorney demands and about potentially over-reaching statements that attorneys may make in demand letters before litigation begins. It found that statements made by attorneys will not be privileged if they are intended to “bully, harass, or intimidate their client’s adversaries.” Moreover, an attorney or its client may lose the privilege if the anticipated litigation is “baseless,” “wholly unmeritorious” or “unsupported in law and fact.”
The court ultimately found that attorneys should be given some latitude to speak freely in pre-litigation statements because such statements often facilitate negotiations, avoid the time and expense of judicial intervention and ultimately deter litigation. The court warned, however, that attorneys should “exercise caution” when contacting a prospective, unrepresented party who may be intimidated, and therefore unable to respond to the attorney’s communications. In Khalil’s case, the court concluded, the attorney was entitled to a qualified privilege and dismissal of the libel claim on the basis of qualified privilege because the attorney and his client had “a good-faith basis to anticipate litigation and the statements in the letters were pertinent to that anticipated litigation.”
The decision is a warning signal to litigators in New York, particularly those who frequently send pre-litigation demands to individual defendants. Libel claims are readily dismissed where an absolute privilege to make defamatory statements applies; however, qualified privileges against defamation liability sometimes present questions of fact about the speaker’s good faith and whether the words she used, and the audience she addressed, are pertinent to the subject matter. As a result, such privilege defenses may not be resolved until the summary judgment stage or trial. Khalil adds a new layer of concern: an attorney may now risk personal liability for pre-trial communications after the end of litigation if the claims in the case are ultimately ruled to be frivolous or meritless. At a minimum, attorneys should consider exercising additional caution in phrasing demand letters and in communicating claims, pre-litigation, particularly to persons who are not the intended defendants or plaintiffs in a case.