Krouse v. Bower

Decision Date23 March 2001
Docket NumberNo. 990660.,990660.
Citation20 P.3d 895,2001 UT 28
CourtUtah Supreme Court
PartiesLouis J. KROUSE, Russel L. Olsen, and Clare Jackson, Plaintiffs and Appellants, v. Christopher J. BOWER; Mary Lynne Perry; D. Randall Trueblood; D. Randall Trueblood, P.C., a Utah professional corporation; Eric P. Lee; Eric P. Lee, P.C., a Utah professional corporation; and Dart, Adamson, Donovan & Hanson, Defendants and Appellees.

Mary Anne Q. Wood, David J. Crapo, and Eric T. Johnson, Salt Lake City, for plaintiffs.

David B. Watkiss, Gordon L. Roberts, and James T. Blanch, Salt Lake City, for defendants.

WILKINS, Justice:

¶ 1 We are asked to decide whether a demand letter written by counsel for defendants that threatened legal action and allegedly defamed plaintiffs is subject to the judicial proceeding privilege. We are also presented with whether the letter threatening suit lost its alleged privilege because it was excessively published, having been sent to counsel for the owners' association, with copies also being distributed to each member of the owners' association. The trial court granted defendants' motion to dismiss, concluding that the letter was privileged. We affirm.

STANDARD OF REVIEW

¶ 2 When determining whether a trial court properly granted a motion to dismiss, we accept the factual allegations in the complaint as true and consider them, and all reasonable inferences to be drawn from them, in the light most favorable to the non-moving party. See, e.g., St. Benedict's Dev. Co. v. St. Benedict's Hosp., 811 P.2d 194, 196 (Utah 1991). We recite the facts accordingly. Because the propriety of a motion to dismiss is a question of law, we review for correctness, giving no deference to the decision of the trial court. Id.

FACTUAL BACKGROUND

¶ 3 The Stein Eriksen Lodge is operated by an owners' association on behalf of fifty-four condominium unit owners. It consists of residential condominiums, common facilities and areas, and approximately one acre of land on which the owners' association considered whether to develop an additional number of condominiums, "Phase III." The owners' association voted in favor of additional development to the lodge and approved plans for Phase III. Christopher Bower and Mary Lynne Perry, both condominium owners, opposed Phase III. In addition to voting against the additional development, they retained D. Randall Trueblood, Eric P. Lee, and the law firm of Dart, Adamson, Donovan & Hanson. Trueblood sent a demand letter to counsel for the owners' association, McKay Marsden, threatening suit in federal court to enjoin construction of Phase III. Although it was addressed to Marsden, the letter indicates that courtesy copies were to be given to "Chris and Marilyn Bower" and the "Stein Eriksen Lodge Homeowners." After Bower and Perry received a copy of the letter, they distributed copies of it, along with another letter they drafted themselves, to the members of the owners' association. ¶ 4 Plaintiffs allege that they were defamed by Trueblood's letter. Plaintiffs are associated with the owners' association. Louis Krouse is the president of the owners' association board of trustees, Russel Olsen is an associate general manager of the association, and Clare Jackson is a realtor who facilitates the sale of the condominiums. Trueblood's letter followed a conversation Trueblood had with counsel for the owners' association "regarding certain concerns with the proposed Phase III development." In general, the letter pointed out concerns of Bower and Perry, essentially encouraged the owners to reconsider approval of Phase III, and threatened suit to enjoin construction of the project. Plaintiffs specifically allege that two paragraphs in the letter written by Trueblood — paragraphs suggesting that if Phase III were permitted to proceed as planned, plaintiffs would likely violate fiduciary duties and would have committed fraud — were defamatory.

¶ 5 After Bower and Perry filed suit in federal court requesting that construction of Phase III be enjoined, plaintiffs filed a complaint alleging defamation. Defendants filed a motion to dismiss, and the trial court granted the motion, concluding that the statements in the letter were absolutely privileged under the judicial proceeding privilege. Accordingly, the district court dismissed plaintiffs' complaint with prejudice. Plaintiffs appeal.

ANALYSIS

¶ 6 Plaintiffs claim that the statements in the demand letter were not privileged because they were not made in the course of a legal proceeding, nor did they refer to a legal proceeding, because a lawsuit had not yet been filed when the letter was published. Plaintiffs also contend that the letter was excessively published. They argue that because the letter was distributed to the members of the association, the letter's purpose was not to seek settlement, but a veiled attempt to persuade the owners to vote against Phase III, and therefore the letter was published to more persons than was required to effectuate its purpose.

¶ 7 Defendants counter, arguing that the trial court correctly determined that the "classic pre-litigation demand letter" at issue satisfies the three prongs of the judicial proceeding privilege. Defendants also contend that the demand letter was not excessively published because the condominium owners to whom the letter was distributed had a direct interest in the threatened litigation.

¶ 8 The general rule is that judges, jurors, witnesses, litigants, and counsel involved in a judicial proceeding have an absolute privilege against suits alleging defamation. See, e.g., Allen v. Ortez, 802 P.2d 1307, 1311 (Utah 1990); see also W. Page Keeton et al., Prosser and Keeton on Torts § 114, 816-17 (5th ed.1984). This court has developed a three-part test for determining whether a statement falls within this judicial proceeding privilege. "To establish the judicial proceeding privilege, the statements must be (1) `made during or in the course of a judicial proceeding'; (2) `have some reference to the subject matter of the proceeding'; and (3) be `made by someone acting in the capacity of judge, juror, witness, litigant, or counsel.'" DeBry v. Godbe, 1999 UT 111, ¶ 11, 992 P.2d 979 (quoting Price v. Armour, 949 P.2d 1251, 1256 (Utah 1997)); see also Ortez, 802 P.2d at 1312-13 (setting forth the three-part judicial proceeding privilege test for the first time in our jurisprudence). In the instant case, the content of the demand letter and the circumstances surrounding its publication satisfy the judicial proceeding privilege test.

¶ 9 First, the demand letter was written by Trueblood and distributed in the course of a judicial proceeding. This first element, whether a statement is "made during or in the course of a judicial proceeding," is interpreted broadly. See, e.g., DeBry, 1999 UT 111 at ¶ 14, 992 P.2d 979; Ortez, 802 P.2d at 1312 n. 9. As a result, we have indicated that a statement may qualify as made during or in the course of a judicial proceeding if the communication is preliminary to a proposed judicial proceeding. DeBry, 1999 UT 111 at ¶¶ 12 14, 992 P.2d 979. Indeed, we have previously declared that "`[t]he publication of defamatory matter by an attorney is protected not only when made in the institution of proceeding or in the conduct of litigation before a judicial tribunal, but in conferences and in communications preliminary thereto.'" Id. at ¶ 12 (quoting Beezley v. Hansen, 4 Utah 2d 64, 66, 286 P.2d 1057, 1058 (1955) (quoting Restatement of the Law of Torts § 586 cmt. a (1938))); see also, Price, 949 P.2d at 1256 (same). In the last line of the demand letter in this case, Trueblood suggested that he and his clients wished to avoid litigation, but that a judicial proceeding was an imminent possibility. Trueblood stated that if their concerns were not resolved, they would "have no choice but to file suit to enjoin the development."

¶ 10 The judicial proceeding privilege extends to statements made prior to the filing of a lawsuit because it is intended to encourage reasonable efforts to resolve disputes prior to the filing of a complaint. "The policy behind [the] privilege is to encourage full and candid participation in judicial proceedings by shielding the participant from potential liability for defamation." Price, 949 P.2d at 1256. Because the purpose of the privilege is to promote the resolution of disputes, it should be interpreted to encourage this end. It therefore follows that the privilege must also encourage candid, forthright settlement communications that take place prior to the filing of suit. Knight v. Patterson, 20 Utah 2d 242, 244-45, 436 P.2d 801, 803 (1968) (stating that when disputes have progressed to the point where attorneys are involved, it is desirable to find some basis for agreement and settlement, and in order to serve the objective of settlement, it is essential that parties and counsel feel free to discuss frankly and candidly their respective positions and contentions). Moreover, the "privilege is premised on the assumption that the integrity of the judicial system requires that there be free and open expression by all participants and that this will only occur if they are not inhibited by the risk of subsequent defamation suits." Ortez, 802 P.2d at 1311, quoted in Price, 949 P.2d at 1256; see also DeBry, 1999 UT 111 at ¶ 14, 992 P.2d 979 (stating that if statements made outside the actual trial proceedings were not entitled to the privilege, the policy supporting the privilege would be undermined). On account of this need for free and open expression in order to resolve disputes both before and after a complaint has been filed, the privilege is broad enough to include communications made prior to the formal filing of a complaint. Accordingly, even though the demand letter written by Trueblood was published prior to the formal initiation of a judicial proceeding, the filing of a complaint, it still qualifies as "made during or in the course of...

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