Hoover v. Van Stone

• Decision Date: 19 May 1982
• Docket Number: Civ. A. No. 80-102.
• Citation: 540 F. Supp. 1118
• Parties: Fred W. HOOVER, Plaintiff, v. Robert VAN STONE and First Jersey Securities, Inc., Defendants.
• Court: U.S. District Court — District of Delaware

540 F. Supp. 1118

Fred W. HOOVER, Plaintiff, v. Robert VAN STONE and First Jersey Securities, Inc., Defendants.

Civ. A. No. 80-102.

United States District Court, D. Delaware.

May 19, 1982.

C. Walter Mortenson and E. Alan Uebler of Mortenson & Uebler, P. A., Wilmington, Del., for plaintiff.

Edward M. McNally of Morris, James, Hitchens & Williams, Wilmington, Del., and Clarkson S. Fisher, Jr., of Robinson, Wayne, Greenberg, Levin, Riccio & LaSala, Newark, N. J., of counsel, for defendants.

MEMORANDUM OPINION

LATCHUM, Chief Judge.

In this case, the Court is called upon to consider the scope of the absolute privilege accorded to statements made during the course of judicial proceedings. Plaintiff, Fred W. Hoover, has filed suit against the brokerage firm of First Jersey Securities, Inc. ("First Jersey"), and one of its agents, Robert Van Stone, for alleged violations of the federal securities laws. Defendants have filed a counterclaim charging plaintiff with defamation, tortious interference with contractual relationships, abuse of process, and barratry, arising from plaintiff's disclosure to certain of defendants' customers of the existence of this suit, and, in some instances, the details underlying the complaint. Presently before the Court is plaintiff's motion for summary judgment on the counterclaim on the ground that these contacts with defendants' customers represented communications with potential witnesses which are absolutely privileged.¹ For the reasons discussed in this opinion, the Court concludes that the summary judgment motion must be granted.

I. FACTS

The undisputed facts may be summarized as follows:² The complaint alleges that from July 1, 1978 to January 1, 1979, the defendants persuaded Hoover to purchase shares in three financially troubled corporations, NAC, Inc., Pubco Corporation and Data Access Systems, Inc., by making false and misleading statements of material fact. (Docket Item "D.I." 1.) Since the time of purchase, these shares have drastically declined in value, contrary to Van Stone's projected performance estimates for the stock, upon which Hoover purportedly relied. In addition, Hoover claims to have sold certain of his holdings in several profitable corporations in order to purchase stock in the three corporations recommended by Van Stone, to his obvious detriment. (Id.)

During the course of discovery, plaintiff sought through interrogatories the identification of all persons for whom Van Stone had effected similar stock purchases in the three named corporations over a seven month period, from June 1, 1978 to January 1, 1979. (D.I. 8.) Defendants objected to this discovery (D.I. 13), and plaintiff duly filed a motion to compel. (D.I. 15.) The Court ordered defendants to respond to the challenged interrogatories, finding that the narrow request was relevant to the subject matter of the suit and could lead to admissible evidence. (D.I. 22.)

Within a month of this order, defendants notified Hoover that it would be impossible to identify specifically those customers of Van Stone's who purchased shares in the three corporations during the relevant period. (D.I. 29.) Instead, defendants supplied plaintiff with a list of 220 names representing all customers serviced by Van Stone during the seven months and offered to allow plaintiff to inspect business records in First Jersey's offices for the purpose of culling out whatever other specific information was needed. (Id.) Following receipt of this information, plaintiff's attorneys sent the following form letter to each of the 220 persons on the customer list:

Re.: Fred W. Hoover, Plaintiff v Robert Van Stone and First Jersey Securities, Inc., Defendants Civil Action No. 80-102 United States District Court For the District of Delaware

This firm represents Fred W. Hoover in the captioned civil action. During proceedings in this case, the defendants have indicated to us that you were a customer of First Jersey Securities serviced by Robert Van Stone while he was employed by First Jersey.

If you purchased shares of stock of any of Pubco Corporation, NAC, Inc., or Data Access Systems, Inc., through Mr. Van Stone, in the time period June 1, 1978 to January 1, 1979, we would appreciate being advised of such purchase(s). We request that you check the appropriate line(s) below to indicate such purchases and return this letter to us in the enclosed, self-addressed, postage prepaid envelope. The copy of this letter which is also enclosed is for your files.

Thank you. Yours truly E. Alan Uebler EAU/mwu Enclosures _______ Pubco Corporation _______ NAC, Inc _______ Data Access Systems, Inc. Data given by: __________

(D.I. 71.)

In addition, Hoover himself contacted seven individuals on the customer list with whom he was personally acquainted and described to them the allegations of the complaint. (D.I. 42 at 282-302; D.I. 87.) Hoover further stated to these individuals that he felt he had been "misled" by First Jersey and Van Stone, asked the customers if "they had any experience that was similar to his," (D.I. 42 at 285), and generally inquired about their transactions with Van Stone.

Upon discovering that these contacts had been made, defendants sought leave to file a counterclaim charging plaintiff with defamation, tortious interference with contractual relationships, abuse of process, and barratry. (D.I. 56.) The motion to file the counterclaim was granted by the United States Magistrate over Hoover's strenuous objection. (D.I. 76.) Hoover has now moved for summary dismissal of the counterclaim under Rule 56, on the ground that the communications with defendants' customers were statements made during the course of a judicial proceeding, designed to elicit relevant evidence, and as such are absolutely privileged. (D.I. 94.)³

II. JUDICIAL PROCEEDINGS PRIVILEGE

Because defendants' permissive counterclaim is predicated on diversity of citizenship jurisdiction, the Court must follow Delaware conflict of laws rules in determining what substantive law to apply. Under these rules, the substantive rights of the parties to a tort action are governed by the law of the place in which the tort occurred. Read v. Baker, 430 F.Supp. 472, 476 (D.Del.1977). In this case, the alleged publication of defamatory material giving rise to the various counts of the counterclaim occurred in Delaware; therefore, the application of the absolute privilege must be measured by Delaware substantive law.

The Courts of this state have recognized the general principle that otherwise defamatory statements made by judges, parties, witnesses and attorneys, during the course of judicial proceedings, are absolutely privileged, and may not give rise to a cognizable legal claim. See Short v. News Journal Company, 212 A.2d 718, 719 (Del. Super.1965); McLaughlin v. Copeland, 455 F.Supp. 749, 751 (D.Del.1978), aff'd without opinion, 595 F.2d 1213 (3d Cir. 1979); Read v. Penn Central Company, C.A. No. 79-207 (D.Del. Jan. 28, 1982) (unpublished); Tatro v. Esham, 335 A.2d 623, 626 (Del.Super. 1975). This principle is subject to only one limitation. Besides being made in the course of a judicial proceeding, the privileged statements must be relevant or pertinent to the case. This requirement of relevancy, however, has been liberally construed. Strict legal relevance need not be demonstrated; instead the allegedly defamatory statements must have only some connection to the subject matter of the pending action. See 50 Am.Jr.2d, Libel and Slander § 237; Annot. 23 A.L.R.3d 1172, 1176 (1969), and cases cited therein.

The purpose served by the absolute privilege is to facilitate the flow of communication between persons involved in judicial proceedings and, thus, to aid in the complete and full disclosure of facts necessary to a fair adjudication. See Sriberg v. Raymond, 544 F.2d 15, 16 (1st Cir. 1976). To accomplish this goal, the privilege protects judges, parties, attorneys, witnesses and other persons connected with litigation from the apprehension of defamation suits, thus permitting them to speak and write freely, without undue restraint. See Devlin v. Greiner, 147 N.J.Super. 446, 371 A.2d 380 (1977); Fenning v. S. G. Holding Corp., 47 N.J.Super. 110, 135 A.2d 346 (N.J.Super. 1957). Moreover, the protection afforded by the privilege is absolute; so long as the statement is pertinent to, and made in the course of, a judicial proceeding, even a showing of malice will not divest the statement of its immune status. Middlesex Concrete Products v. Carteret Ind. Ass'n, 68 N.J.Super. 85, 172 A.2d 22, 25 (Div.1961); Restatement (Second) of Torts, Ch. 25, Topic 2, Title B at 243.

At the outset, the Court must address the first prerequisite for claiming the absolute privilege—whether the allegedly defamatory statements in this case were made during the course of a judicial proceeding, and thus arose in a privileged context. If the occasion on which the statements were made is privileged, the Court must then determine whether the contents of the statements were pertinent to this action. See Asay v. Hallmark Cards, Inc., 594 F.2d 692, 698 (8th Cir. 1979).

Defendants argue that the oral statements made by Hoover to the seven individuals on the customer list and the representations contained in the letter written by Hoover's attorneys were not made during the course of a judicial proceeding and, therefore, cannot fall within the ambit of the absolute privilege. Defendants essentially contend that unless the allegedly defamatory statements are made in open court or in a document filed with the court, in which judicial discipline may be brought to bear on calumnious conduct, the absolute privilege may not be invoked. Plaintiff predictably disputes the narrow compass given to the absolute privilege by the defendants, arguing that disclosure of the allegations of the complaint to potential witnesses during pre-trial discovery is appropriately covered by the privilege.

The...