Converters Equipment Corp. v. Condes Corp.

• Decision Date: 18 October 1977
• Docket Number: No. 75-594,75-594
• Citation: 80 Wis.2d 257,258 N.W.2d 712
• Parties: CONVERTERS EQUIPMENT CORPORATION, Norman R. O'Hara and Arthur H. Kidd, Plaintiffs-Respondents, v. CONDES CORPORATION, Defendant-Appellant.
• Court: Wisconsin Supreme Court

Page 712

258 N.W.2d 712

80 Wis.2d 257

CONVERTERS EQUIPMENT CORPORATION, Norman R. O'Hara and Arthur H. Kidd, Plaintiffs-Respondents, v. CONDES CORPORATION, Defendant-Appellant.

No. 75-594.

Supreme Court of Wisconsin.

Submitted on Briefs Sept. 6, 1977.

Decided Oct. 18, 1977.

Plaintiffs-respondents are Converters Equipment Corporation, a Wisconsin corporation which has been in the business of manufacturing paper product converting machinery since 1974; Norman R. O'Hara, its president; and Arthur H. Kidd, its vice-president and design engineer. Defendant-appellant, Condes Corporation, is a Wisconsin corporation, also in the business of manufacturing paper product converting machinery.

Before plaintiffs O'Hara and Kidd organized Converters, Kidd was the chief design engineer of Condes. As a condition of his employment with Condes, Kidd executed a "confidentiality" agreement. This agreement provided that all improvements and designs that Kidd developed as an employee of Condes were the exclusive property of Condes and that Kidd agreed not to disclose to third parties without Condes' consent trade secrets and other confidential information belonging to Condes which Kidd acquired as an employee. Kidd left the employ of Condes in 1974.

On February 11, 1975, Condes commenced an action in the circuit court for Milwaukee county against Kidd, O'Hara and Converters for breach of the confidentiality agreement. In turn, on August 7, 1975, Converters, Kidd and O'Hara brought this action for libel in the circuit court for Milwaukee county against Condes.

The complaint in the libel action, the one here on appeal, alleges that Condes published two letters to the plaintiffs' customers accusing Kidd of disclosing secret information belonging to Condes and accusing Converters of selling machinery manufactured with Condes' secret information. The two letters were sent by Attorney E. H. Snyder, as the attorney for Condes in the action for breach of contract, stating that Converters, O'Hara and Kidd ". . . appear to be offering for sale items which may contain and include infringements upon and violations of the patents, designs, modifications and processes which . . . are the secret property of Condes," and requesting the recipients of the letter to ". . . refrain from participating in or encouraging Mr. Kidd from further violations of his agreement with Condes."

The complaint of the plaintiffs in this libel action alleges that the statements contained in the letters of the attorney for Condes are "false and defamatory" and were made "maliciously and with intent to injure the plaintiffs both in their business and reputation." Condes demurred to the complaint on the ground that it failed to state facts sufficient to constitute a cause of action. The trial court overruled the demurrer, and Condes takes this appeal.

E. H. Snyder, Milwaukee, on the briefs for appellant.

Michael E. McMorrow and Honeck, Mantyh & Arndt, Milwaukee, on the brief for respondents.

ROBERT W. HANSEN, Justice.

As to the trial court's overruling of the defendant's demurrer, several issues are raised on appeal. Each such issue will be put in question form and responded to.

ARE THE TWO LETTERS CAPABLE OF A DEFAMATORY MEANING?

In an action for libel, on demurrer, if both malice and falsity are alleged, both malice and falsity must be considered facts which are presumed to be true for the purposes of the demurrer. ¹ Here the plaintiffs have alleged both malice and falsity, and at the demurrer stage both malice and falsity must be accepted as facts. It follows that the demurrer was properly overruled unless, as a matter of law, the statements complained of are incapable under the circumstances pleaded of being defamatory. ²

Under the law of this state, a communication is defamatory if it tends so to harm the reputation of another as to lower him in the estimation of the community or deter third persons from associating or dealing with him. ³ If the statements complained of are capable of a nondefamatory meaning as well as a defamatory meaning, then a jury question is presented. ⁴ Only if the communication cannot reasonably be considered defamatory or be so understood can the demurrer be sustained. ⁵

As the trial court here held, words spoken of an individual or a corporation which charge dishonorable, unethical or unprofessional conduct in a trade, business or profession are capable of a defamatory meaning. ⁶ The charge of patent infringement has been held to be libelous per se. ⁷ A statement is also defamatory if, in its natural and ordinary sense, it imputes to the person charged commission of a criminal act. ⁸ In this state, the theft of trade secrets is a criminal offense. ⁹ We agree with the trial court that the charge contained in the two letters, that Kidd had misappropriated confidential information and misappropriated trade secrets, presented a jury question as to whether they were defamatory or nondefamatory. It is true that the letters contained words such as "apparently" and "appear to be." This changes nothing. The authorities agree that communications are not made nondefamatory as a matter of law merely because they are phrased as opinions, suspicions or beliefs. ¹⁰ As this court has held: "One may be libeled by implication and innuendo quite as easily as by direct affirmation." ¹¹

ARE THE LETTERS CONDITIONALLY PRIVILEGED AS A MATTER OF LAW?

If, as the trial court held and we have agreed, the two letters are capable of a defamatory meaning, Condes next contends that the letters involved are conditionally privileged as a matter of law. The contention is that a manufacturer is or ought to be conditionally privileged to notify the customers of a competitor that the competitor's products are being made with stolen trade secrets or that they infringe on valid patent rights. Our court has held that a person who has an interest in a particular subject is conditionally privileged to communicate in good faith with a person having a corresponding interest or duty in relation to the particular subject matter. ¹² The Restatement of Torts states that an occasion is conditionally privileged if the communication "affects a sufficiently important interest of the publisher" and "the recipient's knowledge of the defamatory matter will be of service in the lawful protection of the interest." ¹³ In the area of conditional privileges, the Restatement of Torts has been approved of and adopted by this court. ¹⁴ However a conditional privilege is subject to the limitation that persons making the statements have reasonable grounds for believing the truth of the statements made and that the statements made are reasonably calculated to accomplish the privileged purpose. ¹⁵ It follows that, on demurrer since malice is alleged, the defense of conditionally privileged purpose reasonably carried out is not available. ¹⁶

ARE THE LETTERS ABSOLUTELY PRIVILEGED AS A MATTER OF LAW?

Having held that the letters are capable of a defamatory meaning and that the defense of conditional privilege is unavailable on demurrer, our attention goes to Condes' contention that the letters are absolutely privileged as a matter of law because they were written by an attorney of record in a pending lawsuit and published preliminary to and during the course of such lawsuit. Wisconsin adheres to the so-called "American rule" of absolute judicial immunity from liability for libel or slander. ¹⁷ This rule requires that for such privilege to attach the statements made must (1) be "relevant to the matter being considered" in the judicial proceedings, and (2) be made "in a procedural context which is recognized as affording absolute privilege." ¹⁸ Since both of the letters and the lawsuits relate to the disclosure of trade secrets and infringement of patent rights, the test of relevancy is met. The dispositive question is whether the two letters are published in a procedural context that brings them within the absolute privilege rule.

In a variety of situations this court has found absolutely privileged statements made by parties, witnesses and counsel during the course of judicial or quasi-judicial proceedings. ¹⁹ Similarly, this court has held to be absolutely privileged statements made during investigatory proceedings preliminary to the commencement of a criminal prosecution. ²⁰ However in every case in which this court has found a statement made preliminary to or during the course of judicial or quasi-judicial proceedings to be absolutely privileged, both the maker of the statement and the recipient were involved in and closely connected with the proceedings. ²¹ Moreover, in each such prior finding of absolute privilege, the publication was made as part of the judicial or quasi-judicial proceeding involved. ²² It should be clear and, if not, here made clear, that such a nexus between the publication and the proceeding must exist for the "procedural context" requirement of the absolutely privileged rule to be met. Cases elsewhere support this holding that for the absolute privilege to attach the statement at issue must have been published on an occasion or in a context with is an integral part of the judicial or quasi-judicial proceeding involved. ²³ In the case before us, since none of the recipients of the letters are connected with the lawsuits and since neither of the two letters were written as an integral part of the judicial proceedings, we agree with the trial court that the proper procedural context requirement of the absolute privilege rule is not here met.

IS THE TRIAL COURT ORDER AS TO DISCOVERY APPEALABLE?

In addition to challenging the trial court's order overruling its demurrer, on this appeal Condes challenges the trial court's decision to overrule Condes' motion to limit or quash discovery proceedings and the trial court's direction to plaintiffs concerning the failure of one R. G. Martin, Sr., to appear at his scheduled deposition. Under the law in this state,...