Patriot Grp., LLC. v. Edmands

• Decision Date: 13 November 2019
• Docket Number: No. 17-P-1397,17-P-1397
• Citation: 96 Mass.App.Ct. 478,136 N.E.3d 386
• Parties: The PATRIOT GROUP, LLC. v. Bruce W. EDMANDS & another.
• Court: Appeals Court of Massachusetts

96 Mass.App.Ct. 478

136 N.E.3d 386

The PATRIOT GROUP, LLC.

v.Bruce W. EDMANDS & another.¹

No. 17-P-1397

Appeals Court of Massachusetts, Middlesex..

Argued September 17, 2018

Decided November 13, 2019

Jack I. Siegal, Boston, for plaintiff.

Michael J. Stone (Steven DiCairano, Boston, also present) for the defendants.

Present: Blake, Wendlandt, & McDonough, JJ.

McDONOUGH, J.

In this case, we address a Superior Court judgment dismissing an otherwise well-pleaded complaint for defamation against an attorney and his law firm by applying the so-called absolute "litigation privilege." Concluding that the litigation privilege -- which is essentially a complete defense to defamation claims -- has no application to the plaintiff's complaint, we reverse the judgment and remand the matter for further proceedings consistent with this opinion.

Standard of review. We review the allowance of a motion to dismiss pursuant to Mass. R. Civ. P. 12 (b) (6), 365 Mass. 754 (1974), accepting the allegations in the complaint as true and drawing all reasonable inferences in the nonmoving party's favor. See Iannacchino v. Ford Motor Co., 451 Mass. 623, 625 n.7, 888 N.E.2d 879 (2008) ; Baker v. Wilmer Cutler Pickering Hale & Dorr, LLP, 91 Mass. App. Ct. 835, 842, 81 N.E.3d 782 (2017). "What is required at the pleading stage are factual ‘allegations plausibly suggesting (not merely consistent with)’ an entitlement to relief." Iannacchino, supra at 636, 888 N.E.2d 879, quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1966, 167 L.Ed.2d 929 (2007). "Factual allegations must be enough to raise a right to relief above the speculative level." Twombly, supra at 1965.

Background. 1. Patriot's defamation complaint. We summarize the facts alleged in the complaint, again accepting them as true for the purpose of our review. See Harrington v. Costello, 467 Mass. 720, 724, 7 N.E.3d 449 (2014). In 2011, the plaintiff, The Patriot Group, LLC (Patriot), obtained a judgment in excess of $20 million against Steven C. Fustolo,² following litigation arising out of a development project dispute. After Patriot was unsuccessful in collecting its judgment, Patriot (along with two other creditors) initiated involuntary bankruptcy proceedings against Fustolo. As we explain below, one key to our holding is that Attorney David M. Nickless, and not the defendants Attorney Bruce W. Edmands or his law firm, Edmands & Williams, LLC, (collectively, Edmands), ³ represented Fustolo in the bankruptcy proceeding. Thereafter, Edmands, purportedly acting as Fustolo's attorney, sent a letter dated May 9, 2014, on his firm's letterhead (May 9 letter) to Patriot's counsel, Michael J. Fencer, (and three others) that included a number of false statements of fact about Patriot. Principally, the May 9 letter stated that Patriot had committed tax fraud, and that Fustolo had filed two whistleblower claims for award based on Patriot's tax fraud, one with the Internal Revenue Service (IRS) and a second with the Securities and Exchange Commission (SEC).^{4 ,5} The May 9 letter further stated that Fustolo "anticipate[d] the possibility of filing additional claims" against Patriot under other Federal and State whistleblower statutes, and that Fustolo would "pursue all available remedies in response to any continuing or further acts of retaliation and harassment." In addition, the May 9 letter falsely asserted that Fustolo had "previously informed a Patriot representative of his intention to notify the [IRS] of Patriot's alleged tax fraud," that Patriot had filed the involuntary bankruptcy petition against Fustolo "to harass and intimidate [Fustolo] and destroy his reputation," and that Patriot and its principal, John Howe, had driven Fustolo into bankruptcy proceedings specifically in retaliation for threatening to "blow the whistle to the IRS and SEC" on Patriot's tax fraud.

Edmands and Fustolo were deposed in the latter's bankruptcy proceeding.⁶ Fustolo could not recall a single salient detail supporting the May 9 letter, including any bases for the accusation that Patriot had committed tax fraud. When queried further about the May 9 letter, Fustolo generally invoked his Fifth Amendment right against self-incrimination. Edmands testified that he reviewed, edited, and sent the May 9 letter drafted by Fustolo, and that he sent it out to intimidate Patriot and Howe, whom Edmands perceived as "'bullies' toward his long-time client, Fustolo."⁷ Edmands further testified that without "inform[ing] himself" about the details of the applicable IRS code and whistleblower award statutes, he nevertheless was "willing to send the letter because of the time constraints," and because "[i]t might throw [Patriot's counsel in Fustolo's bankruptcy case] off his game."

No one -- including Edmands and Fustolo -- has proffered any evidence to substantiate Edmands's accusation that Patriot committed tax fraud. Although Edmands knew that many allegations in the May 9 letter lacked any factual basis, he knowingly and willfully assisted Fustolo's dissemination of false allegations against Patriot by sending the letter to Patriot's counsel and three others in the hope of influencing the bankruptcy proceedings in Fustolo's favor.

Thereafter, Fustolo republished the false statements regarding Patriot contained in the May 9 letter through widely disseminated Internet postings. To that end, Fustolo hired a specialist in posting online content, Dylan Potter, to post "blog" websites falsely claiming that Patriot committed tax and securities fraud. At Fustolo's request, Potter created a blog website entitled whistleblowersinternationalblog.blogspot.com (WBI blog) using BlogSpot (an Internet service owned by Google, Inc.). Fustolo then sent Potter draft articles for the WBI blog, which "in large part[ ] mirrored" the false tax fraud allegations in the May 9 letter. One such posted article referenced a "letter" from Fustolo's "attorney" (inferentially, Edmands, whose letter was not otherwise publicly available). Fustolo sent Potter other articles that Potter then posted on the WBI blog, repeating the tax fraud falsehoods about Patriot originating in the May 9 letter. When questioned by Potter as to the veracity of the content being posted, Fustolo stated, "My attorney thinks [that Patriot is] on weak ground about the underlying claim that the articles are false as they are not."

Patriot has not committed any tax or securities fraud and no regulatory agency has investigated or contacted Patriot regarding such allegations. Patriot has never retaliated against, nor has ever been accused of retaliating against, a purported whistleblower.⁸

2. Superior Court proceedings. On April 10, 2017, Patriot filed its complaint for damages against Edmands -- summarized above -- asserting claims that Edmands had defamed Patriot with malice (count I), aided and abetted Fustolo's defamation (count II), and conspired with Fustolo to defame Patriot (count III). Claiming principally that Patriot's defamation complaint was barred by the absolute litigation privilege, and that the complaint failed to allege sufficient facts to support Patriot's claim that Edmands had aided and abetted or conspired with Fustolo to defame Patriot, Edmands moved under Mass. R. Civ. P. 12 (b) (6) to dismiss Patriot's complaint.⁹

Following a hearing, a judge dismissed Patriot's complaint, essentially relying on our decision in Fisher v. Lint, 69 Mass. App. Ct. 360, 868 N.E.2d 161 (2007). The judge reasoned that because Fustolo's purported IRS and SEC whistleblower claims had to be submitted under the penalties of perjury, and because Fustolo could be represented by counsel before the agencies, those proceedings were "sufficiently judicial or quasi judicial in nature" so as to trigger the litigation privilege. Id. at 366, 868 N.E.2d 161. The judge stated:

"The safeguards applicable to filing whistleblower claims with both the IRS and the [SEC] support the conclusion that the litigation privilege applies to the May 9th Letter. First, filing notices with both the IRS and the [SEC] require a declaration under the penalty of perjury that the submitted information is true. 17 C.F.R. § 240.21F-9 ( [SEC] ); 26 C.F.R § 301.7623-1(c)(3) (IRS). Courts have deemed this threat of prosecution for perjury to be significant when considering whether a proceeding's safeguards ‘serve to reduce the need for tort actions to control injurious statements or testimony.’ Fisher, [supra ] at 369 ; see id. (holding that ‘the threat of perjury ... serve[s] to enhance the reliability of the evidence to be assessed by impartial decision-makers’). Second, whistleblowers to both entities may be represented by counsel, another relevant factor in the analysis. 15 U.S.C. § 78u-6(1)-(2) ( [SEC] ); 26 U.S.C. § 7623(b)(6)(B) (IRS) ; see Fisher, [supra ] (‘including the right to counsel’ among factors that ‘serve to reduce the need for tort actions to control injurious statements or testimony’)."

Applying the litigation privilege, the judge then dismissed the defamation count, and as to the remaining counts of aiding and abetting, and conspiracy, dismissed those counts "to the extent that they arise out of the May 9th Letter."¹⁰ So limiting his review of the remaining two counts, the judge ruled that although Patriot's complaint sufficiently alleged that Edmands had knowledge of Fustolo's defamatory posts, Patriot did not sufficiently allege that Edmands provided Fustolo with "substantial assistance" necessary to sustain its counts for aiding and abetting or conspiracy. On this point, the judge determined that Patriot did not allege facts "plausibly suggest[ing] that [Edmands] did any more than provide Fustolo with ‘legal advice’ with respect to the Internet postings."

Discussion. 1. Litigation privilege. The litigation privilege, which concerns nonevidentiary areas, basically is a defense to suit. See Mass. G. Evid. Art. V(h)(1) (2019). Where it applies, "[w]ritten or oral communications made by a...