Konikoff v. The Prudential Ins. Co.

Decision Date01 August 1999
Docket NumberDocket No. 99-9185
Citation234 F.3d 92
Parties(2nd Cir. 2000) PAULA A. KONIKOFF, Plaintiff-Appellant, v THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, Defendant-Appellee
CourtU.S. Court of Appeals — Second Circuit

Appeal from a judgment of the United States District Court for the Southern District of New York (Michael H. Dolinger, Magistrate Judge) granting the defendant's motion for summary judgment in the plaintiff's suit for defamation. We affirm, holding that the plaintiff failed to raise a genuine issue of material fact with respect to the defendant's liability and that the defendant was entitled to judgment as a matter of law.

SACK, Circuit Judge:

[Copyrighted Material Omitted] CHARLES D. SCHMERLER, Golenbock, Eiseman, Assor & Bell, New York, NY (Adam C. Silverstein, of counsel) for Plaintiff-Appellant.

JONATHAN J. LERNER, Skadden, Arps, Slate, Meagher & Flom LLP, New York, NY (Angela G. Garcia, of counsel) for Defendant-Appellee.

Before: JACOBS, LEVAL, and SACK, Circuit Judges.

The plaintiff, Paula Konikoff, a real estate appraiser, brought a lawsuit in the United States District Court for the Southern District of New York against the Prudential Insurance Company of America ("Prudential"). Prudential is the manager of two real-estate funds, PRISA and PRISA II (the "Funds"), for which Konikoff had provided appraisal services. Konikoff asserts in a single cause of action that Prudential injured her by disseminating to shareholders and the public at large a report about the Funds' valuation practices prepared by independent counsel, and a transcript of answers by counsel to questions about the report, both of which defamed her. The district court (Michael H. Dolinger, Magistrate Judge1) granted summary judgment in favor of Prudential. See Konikoff v. Prudential Ins. Co. of Am., No. 94 Civ. 6863 (MBM) (MHD), 1999 WL 688460, 1999 U.S. Dist. (S.D.N.Y. Sept. 1, 1999).

The magistrate judge held that the communications at issue were protected by New York's common-law self-interest and common-interest privileges, neither of which was lost through the "actual malice" or common-law malice of Prudential. In the absence of New York law establishing that the common-law privileges attach to such broad public dissemination of defamatory statements, we decline to rest our holding on those grounds. We affirm, instead, because Prudential did not act with fault sufficient to permit liability under the standard promulgated by the New York Court of Appeals in Chapadeau v. Utica Observer-Dispatch, Inc., 38 N.Y.2d 196, 199, 341 N.E.2d 569, 571, 379 N.Y.S.2d 61, 64 (1975). As a matter of law, Prudential's dissemination of the defamatory material under the circumstances presented was not "grossly irresponsible."

BACKGROUND
Facts

Because summary judgment was granted against Konikoff, we consider the evidence in the light most favorable to her. See Van Zant v. KLM Royal Dutch Airlines, 80 F.3d 708, 710 (2d Cir. 1996). From 1989 through 1993, Konikoff worked as a real estate appraiser for the firm of KPMG Peat Marwick. Prudential retained her as the outside appraiser of the office building located at 130 John Street in New York City. The building was part of the portfolio of PRISA II, a real estate investment vehicle for pension funds administered by Prudential.

In 1993, Mark Jorgensen, the portfolio manager for PRISA and PRISA II, told Prudential executives that he believed Prudential portfolio managers had deliberately been causing appraisers to overvalue properties held by the Funds in order to inflate the Funds' performance statistics. Prudential retained the law firm of Howrey & Simon to investigate Jorgensen's claims. The firm found them to be unsubstantiated.

Jorgensen was then reassigned. In response, he filed suit against Prudential alleging that he had been retaliated against as a "whistle blower." The lawsuit was widely publicized, as were Jorgensen's allegations that Funds buildings, including 130 John Street, had been fraudulently over-appraised.

Prudential, alarmed by an unrelated investigation of its securities units, hired a law firm and an accounting firm to perform independent investigations of the Funds' valuation practices. The law firm, Sonnenschein Nath & Rosenthal ("Sonnenschein"), was retained to defend the Jorgensen suit and to "ascertain all of the facts concerning Prudential's management and operation of the valuation process of PRISA and PRISA II from 1987 . . . through 1993." The accounting firm, Kenneth Leventhal and Company, performed a valuation of PRISA and PRISA II properties. Sonnenschein found no evidence of a scheme to overvalue the PRISA and PRISA II portfolios. Leventhal determined, however, that twenty-six of the 143 appraisals it reviewed were unreasonable. It concluded that Konikoff's appraisal of 130 John Street for the fourth quarter of 1989 was reasonable, but that two later appraisals of the building performed by Konikoff, in 1990 and 1991, were unreasonable.

Concerned about the allegations in the Jorgensen suit, institutional investors threatened to withdraw from PRISA and PRISA II and various government agencies considered investigations. In an attempt to respond, Prudential made the Sonnenschein report available to them. The report was also sent to, inter alia, prospective investors, independent appraisers, and members of the media including The New York Times, The Wall Street Journal, The Star-Ledger (Newark, N.J.), and Pensions and Investments.

The Sonnenschein report concluded:

The evidence as a whole does not support a claim that the overvaluations which Leventhal ascribes to various property appraisals during this period were the result of undue influence upon appraisers or of improper appraiser bias. We found no evidence that any appraiser was threatened with removal if he or she failed to report a particular value or failed to move a value in a particular direction. We found no evidence that any appraiser was given special inducement to report a value favored by management.

The substantial body of evidence amassed here, possibly excepting the disputed 130 John Street incident (a PRISA II property), does not support a conclusion that independent appraisers were compromised or coerced by Prudential into reporting biased or false property values. The evidence we found does not support a finding that Prudential engaged in any scheme to report knowingly false and overstated property values.

The five independent appraisers interviewed -- including those accounting for a substantial majority of the overvaluations claimed by Leventhal -- unequivocally denied any undue pressure or influence upon them.

(emphasis added)

Konikoff claims that this language (the "Report Statement") defamed her by "possibly excepting the disputed 130 John Street incident" from its conclusion as to the absence of wrongdoing. Doing so, she argues, suggested to the reader that as the appraiser of 130 John Street, she may in fact have been compromised or coerced by Prudential into reporting a biased or false property value.

The Sonnenschein report was first distributed at an April 28, 1994 meeting of PRISA and PRISA II investors held by Prudential. A few weeks later, Prudential held a second meeting at which investors were given the opportunity to ask questions of Reid Ashinoff, the Sonnenschein partner in charge of preparing the report. Prudential prepared a transcript of the questions and answers and distributed it to investors. According to the transcript, the following exchange occurred at the meeting:

Q. In its report, Sonnenschein appeared critical of certain appraisers. Does Sonnenschein recommend that Prudential take any further action with respect to certain appraisers?

A. No. No hard evidence suggests that the appraisers did not formulate their own conclusions or that the appraisers would not stick to their value conclusions. There is more than one way to view the evidence regarding the different appraisers. Consider 130 John Street by way of example. Peter Korpacz was replaced as the appraiser for 130 John Street because of differences between his and Prudential's approaches to that property's valuation. Mr. Korpacz, however, still appraises other PRISA properties and, thus, suffered no retribution on the part of Prudential with respect to his appraisal of 130 John Street. When Paula Konikoff of KPMG Peat Marwick replaced Mr. Korpacz as the outside appraiser for 130 John Street, she came up with an appraised value under disputed factual circumstances from which one could argue circumstantially that the value conclusion was not reached independently. All direct evidence, however, indicated that Ms. Konikoff's value conclusion was reached independently. We understand that reasonable minds will differ as to what conclusions should be drawn. Note also that two of the appraisers discussed in Sonnenschein's report - Paula Konikoff and Donald Duncan - no longer perform PRISA or PRISA II appraisals as a result of decisions made before the reports relating to the Jorgensen allegations were issued.

(emphasis added).

Konikoff argues that this statement (with the Report Statement, collectively the "Statements") is defamatory because 1) it falsely asserts that circumstantial evidence indicated that her appraisal was not reached independently; and 2) it implies that Konikoff was fired by Prudential in connection with questions as to her appraisals when in reality she no longer performed appraisals for the Funds because she had left KPMG Peat Marwick to form her own firm.

Procedural History

Konikoff filed her complaint in the United States District Court for the Southern District of New York in September 1994. Prudential quickly moved to dismiss pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief could be granted. The district court (Michael B. Mukasey, Judge) denied the motion...

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