RAIN v. ROLLS-ROYCE CORP. (November 18, 2010)

Among many other things, Rolls-Royce manufactures helicopter engines. A network of authorized repair and overhaul facilities supports that product line. Paramount International, owned by David Rain, competes with Rolls-Royce in the business of selling helicopter engine parts to those facilities. In 2006, Paramount and Rolls-Royce agreed to a non-disparagement clause as part of a lawsuit settlement. It simply stated: "None of the Parties will disparage the other." Rain brought suit in 2007, alleging a breach of the non-disparagement clause. He alleged two independent breaches: a) Rolls-Royce filed a RICO claim against a third party in which it alleged that Paramount and Rain were co-conspirators, and b) Rolls-Royce personnel asked him to leave a customer appreciation event held for its authorized network members, even though he was a guest of one of those members. Judge Lawrence (S.D. Ind.) granted summary judgment to Rolls-Royce, concluding that an Indiana absolute litigation privilege immunized it on the first claim and that the company's conduct with respect to the second claim did not amount to disparagement. Rain and Paramount appeal.

In their opinion, Seventh Circuit Judges Bauer, Flaum, and Hamilton affirmed. The Court first addressed the claims relating to the RICO allegations. Indiana does have an absolute litigation privilege and construes it liberally. It protects all "relevant" statements in the proceedings. Here, the Court concluded that the statements were relevant, given the pleading requirements for a RICO claim. Indiana courts, however, have only applied the privilege in tort liability, not contract liability, cases. With no Indiana authority, the Court looked elsewhere and adopted the rule applied in several other jurisdictions -- that the privilege does apply to contract claims, at least where its use is consistent with the purpose of the privilege. Here, the application of the privilege is consistent with the fair administration of justice and open expression by participants in a judicial proceeding. The Court further concluded that certification of the question was not warranted and affirmed the district court's application of the privilege. With respect to the claim based upon the company's conduct at the customer reception, the Court agreed that an Indiana court would look to a common dictionary definition of disparage -- that is, to dishonor, to unjustly discredit, to detract from one's reputation. The tougher question was whether the term referred to one's commercial reputation only or, as plaintiffs argued, to one's personal reputation. Relying on decisions from other jurisdictions, the Restatement, and the circumstances in which the clause appeared (the settlement of a commercial dispute), the Court concluded that the term should be applied to one's commercial reputation only. Since there was no evidence that Paramount or Rain suffered an injury in that sense, the Court affirmed.