Gulati v. Zuckerman

• Decision Date: 25 October 1989
• Docket Number: Civ. A. No. 89-4618.
• Citation: 723 F. Supp. 353
• Parties: Jack D. GULATI and Fidelity Technologies Corporation v. Lawrence H. ZUCKERMAN; Viatek, Inc., a Pennsylvania Corporation; Gregory S. Baumann; Harry J. Diamond; and Barry D. Yeakel.
• Court: U.S. District Court — Eastern District of Pennsylvania

723 F. Supp. 353

Jack D. GULATI and Fidelity Technologies Corporation v. Lawrence H. ZUCKERMAN; Viatek, Inc., a Pennsylvania Corporation; Gregory S. Baumann; Harry J. Diamond; and Barry D. Yeakel.

Civ. A. No. 89-4618.

United States District Court, E.D. Pennsylvania.

October 25, 1989.

James B. Martin, Stevens & Johnson, Allentown, Pa., for plaintiffs.

Steven A. Bergstein, Frank, Frank, Penn & Bergstein, Allentown, Pa., for defendants.

MEMORANDUM

CAHN, District Judge.

The plaintiffs in this defamation action are Jack Gulati, a citizen of Pennsylvania, and Fidelity Technologies Corporation (FTC), a Pennsylvania corporation of which Gulati is president. The defendants are Viatek, Inc., a Pennsylvania corporation; Lawrence H. Zuckerman, Viatek's president; Gregory S. Baumann and Harry J. Diamond, employees of Viatek; and Barry P. Yeakel, a former employee of Viatek. The individual defendants are all citizens of Pennsylvania.

This action was originally filed in the Court of Common Pleas of Lehigh County. The case was removed to federal court, by motion of the defendants, under 28 U.S.C. § 1442(a)(1), which permits removal of a suit brought against

any officer of the United States or any agency thereof, or person acting under him, for any act under color of such office ...

The defendants have filed a motion to dismiss or, in the alternative, a motion for summary judgment, together with supporting affidavits. Since I will rely in part upon materials outside the pleadings in rendering my decision on the defendants' motion, I will treat the motion as one for summary judgment.

According to the allegations in the plaintiffs' complaint and to the unchallenged averments in the affidavits submitted by the defendants, the relevant facts of the case are as follows. Plaintiff Gulati was the president of Viatek, Inc., until November 9, 1987. The plaintiffs' defamation claim rests, in the main, upon two incidents which followed Gulati's termination as an employee of the defendant corporation.

In a letter dated May 26, 1988, defendant Zuckerman, the current President of Viatek, wrote to the Office of Regional Counsel of the United States Small Business Administration requesting, under the Freedom of Information Act, copies of Gulati's applications to Small Business Administration assistance programs. In the letter, Zuckerman stated that the Board of Directors of Viatek "strongly suspected Mr. Gulati of having conducted his job in an unethical and corrupt manner—committing illegal acts, including perjury— ..." Complaint, Exhibit A. He also expressed suspicion that Gulati had violated his employment contract and nondisclosure agreement with Viatek. Id. Zuckerman's letter to the Small Business Administration forms the basis of the first count of the Complaint.

Counts Two through Five of the Complaint rest on statements made by the defendants to investigative agencies of the Department of Defense.¹ Viatek, a defense contractor, holds a facility security clearance, which qualifies it for access to certain classified information. As a cleared contractor, Viatek is subject to the requirements of the Defense Industrial Security Program (DISP). The company's compliance with security requirements is monitored by the Defense Investigative Services (DIS), which conducts security inspections of contractor personnel and facilities.

On December 4, 1987, in the course of a scheduled inspection of Viatek, the DIS learned that Gulati had been dismissed from his position. At the time of the inspection, there was some discussion of whether it would be appropriate for Viatek to file an "adverse information report," under paragraph 6(b)(1) of the Department of Defense's Industrial Security Manual for Safeguarding Classified Information, regarding Gulati. This paragraph directs contractors to submit reports "of any information coming to their attention concerning any of their employees who have been cleared or who are in the process of being cleared for access to classified information, which indicate that such access or determination may not be clearly consistent with the national interest." Department of Defense, Industrial Security Manual for Safeguarding Classified Information ¶ 6(b)(1) (1989).² This reporting requirement, which is not obviated by the discharge of an employee, is quite broad. Footnote 13 to paragraph 6(b)(1) states that:

As a general rule, any information that reflects adversely on the integrity or character of the employee, which suggests that his or her ability to safeguard classified information may be impaired, should be reported to DISCO Defense Industrial Security Clearance Office ... The following are some examples of the types of information ... which should be reported to DISCO: criminal activities; bizarre or notoriously disgraceful conduct; treatment for mental or emotional disorders; excessive use of intoxicants; use of illegal, controlled substances ...; and excessive indebtedness or recurring financial difficulties. These examples are not all inclusive, but are intended only to serve as a sample of the types of information which should be reported. Only information which has been confirmed by the contractor as fact need be reported ... If there is doubt whether information should be reported, furnish the information to DISCO for evaluation.

Viatek indicated that it would decide whether to file such a report after completing an internal investigation of Gulati's suspected misconduct. On March 23, 1988, the DIS learned that FTC, a corporation headed by Gulati, had applied for a facility security clearance. An agent of the DIS contacted defendant Zuckerman to ask whether he intended to submit the adverse information report. After discussion of the allegations against Gulati, it was determined that submission of the report would be appropriate. The report was filed at DISCO on March 31, 1988. The report, as summarized by the plaintiffs, accused Gulati of illegal and unethical business practices, violation of his employment contract and nondisclosure agreement, theft of Viatek trade secrets and Viatek property, misrepresentation of Viatek as a minority owned business, misrepresentation of his son as an engineer for the purpose of meeting government contract requirements and obtaining consulting fees, perjury, and other assorted misdeeds. Complaint at 5-7.

The following month, the Personnel Investigations Center (PIC) began an investigation of Gulati.³ On June 1, 1988, the DIS industrial security field office chief and a DIS special agent visited Viatek and interviewed a number of Viatek personnel, including defendants Zuckerman, Baumann, Diamond, and Yeakel. The four defendants made statements similar to those which appear in the adverse information report.

The defendants press their motion for summary judgment on three grounds. First, they argue, a defense contractor is entitled to partake of federal official immunity when it cooperates with the government in a security investigation. Second, they argue that they are entitled to immunity under state law. Third, they argue that the plaintiffs have failed to exhaust their administrative remedies.

Federal officials are absolutely immune from state-law tort liability for conduct which is discretionary in nature and which falls within the scope of their employment. Westfall v. Erwin, 484 U.S. 292, 108 S.Ct. 580, 98 L.Ed.2d 619 (1988); Owens v. United States, 822 F.2d 408, 410 (3d Cir.1987); Araujo v. Welch, 742 F.2d 802 (3d Cir.1984). According to the Supreme Court:

The purpose of such official immunity is not to protect an erring official, but to insulate the decisionmaking process from the harassment of prospective litigation. The provision of immunity rests on the view that the threat of liability will make federal officials unduly timid in carrying out their official duties, and that effective Government will be promoted if officials are freed of the costs of vexatious and often frivolous damages suits.

Westfall, 108 S.Ct. at 583. Official immunity from defamation suits is a time-honored form of the privilege. See, e.g., Barr v. Matteo, 360 U.S. 564, 79 S.Ct. 1335, 3 L.Ed.2d 1434 (1959); Spalding v. Vilas, 161 U.S. 483, 16 S.Ct. 631, 40 L.Ed. 780 (1896); Keiser v. Hartman, 339 F.2d 597 (3d Cir.1964). This immunity is not defeated by a plaintiff's allegations of malice. As the Supreme Court has observed:

The claim of an unworthy purpose does not destroy the privilege ... The privilege would be of little value if federal officials could be subjected to the cost and inconvenience and distractions of a trial upon a conclusion of a pleader, or to the hazard of a judgment against them based upon a jury's speculation as to motives.

Barr, 360 U.S. at 575, 79 S.Ct. at 1341, (quoting Tenney v. Brandhove, 341 U.S. 367, 377, 71 S.Ct. 783, 788-89, 95 L.Ed. 1019 (1951)) (plurality opinion).

The defendants in this case are not federal officers. However, private persons are sometimes entitled to the same immunity which they would receive if they were federal officials. This court is aware that such immunity should be granted to private actors only under very special circumstances. As in any decision setting the limits of absolute official immunity, a court extending that immunity to the private sector must bear in mind its negative aspect. As the Supreme Court has stated:

Official immunity comes at a great cost. An injured party with an otherwise meritorious tort claim is denied compensation simply because he had the misfortune to be injured by a federal official. Moreover, absolute immunity contravenes the basic tenet that individuals be held accountable for their wrongful conduct.

Westfall, 108 S.Ct. at 583. Thus, this court must heed the Supreme Court's admonition "to consider whether the contribution to effective Government in particular contexts outweighs the potential harm to individual citizens." Id. at 585.

Moreover, the potential harm of granting...