Rubin v. Sterling Enterprises, Inc.

• Citation: 674 A.2d 782,164 Vt. 582
• Decision Date: 05 January 1996
• Docket Number: No. 94-480,94-480
• Parties: Matthew RUBIN, et al. v. STERLING ENTERPRISES, INC., et al.
• Court: United States State Supreme Court of Vermont

Page 782

674 A.2d 782

164 Vt. 582

Matthew RUBIN, et al. v. STERLING ENTERPRISES, INC., et al.

No. 94-480.

Supreme Court of Vermont.

Jan. 5, 1996.

Motion for Reargument Denied Feb. 1, 1996.

On Appeal from Washington Superior Court, Alan W. Cheever, J.

Richard I. Rubin of Rubin, Kidney, Myer & DeWolfe, Barre, for plaintiffs-appellees.

William A. Hunter, Cavendish, for defendants-appellants.

Before ALLEN, C.J., and GIBSON, DOOLEY, MORSE and JOHNSON, JJ.

GIBSON, Justice.

Defendants Sterling Enterprises, Inc. and Floryan Lohutko appeal from both a jury verdict awarding plaintiffs damages for defamation and a judgment in plaintiffs' favor following a bench trial. We affirm.

On February 17, 1986, the parties entered a lease agreement under which plaintiffs rented land for the purpose of constructing and operating a hydroelectric facility. In November 1991, defendants demanded an additional $40,791 in rent and reimbursements because plaintiffs had failed to: (1) clean up rock and other construction debris at the site that would cost defendants $10,791 to remove; (2) preserve a turbine, with an estimated value of $10,000, which plaintiffs had removed from an abandoned powerhouse during construction; and (3) pay defendants 50% of additional revenues, amounting to $10,000 per year, from alleged increased operations at the facility in 1988 and 1989. When plaintiffs did not pay, defendants sent a notice of default to the Marble Bank, which held a mortgage on the project worth almost $1,000,000.

Plaintiffs thereupon commenced a libel action, alleging that defendants' defamatory default notice caused the bank to raise the interest rate on plaintiffs' loan. Defendants counterclaimed for the $40,791 allegedly owed by plaintiffs, and for an additional $10,000 in revenues from alleged increased operations in 1990.

Plaintiffs' defamation claims, together with defendants' counterclaims for the cleanup costs, the lost turbine, and the 1988 and 1989 surplus revenues, were tried to a jury in Washington Superior Court. The jury rendered a verdict in favor of plaintiffs for $46,000 and awarded nothing on defendants' counterclaims. Defendants' counterclaim for the 1990 surplus revenues was thereafter tried to the court, which issued findings of fact and conclusions of law, and entered judgment for plaintiffs. The court denied defendants' motions for judgment notwithstanding the jury's verdict and for reconsideration of the court's judgment with respect to the 1990 revenues. The court granted plaintiffs' motion to amend the judgment to include prejudgment interest in the amount of $1,633.

I.

With respect to the jury trial, defendants claim that the court erred in denying their motions for directed verdict and for judgment notwithstanding the verdict. Motions for judgment notwithstanding the verdict raise substantially the same questions as motions for directed verdict and are treated alike. Center v. Mad River Corp., 151 Vt. 408, 411, 561 A.2d 90, 93 (1989). Both motions require a consideration of the evidence in the light most favorable to the prevailing party, excluding the effect of any modifying evidence. Crump v. P & C Food Markets, Inc., 154 Vt. 284, 292, 576 A.2d 441, 446 (1990). The motions should be denied if the record contains any evidence that fairly and reasonably supports the verdict. Id.

A.

Defendants first contend that the lease authorized them to report any default to the Marble Bank, and that such a communication was a business privilege that could not support plaintiffs' defamation action as a matter of law. We disagree. We have acknowledged a defendant's right to raise a "conditional privilege for the protection of its legitimate business interests." Id. at 293, 576 A.2d at 446; see Lent v. Huntoon, 143 Vt. 539, 548-49, 470 A.2d 1162, 1169 (1983). Once the defendant proves the existence of the privilege, however, the plaintiff may overcome the protection of the privilege by providing clear and convincing evidence of malice. Crump, 154 Vt. at 293, 576 A.2d at 447. A plaintiff may demonstrate malice by showing that the defendant engaged in conduct manifesting personal ill will or reckless or wanton disregard of the plaintiff's rights, or conduct carried out under circumstances evidencing insult or oppression. Id. The court may also "infer malice upon a showing that the defendant knew the statement was false or acted with reckless disregard of its truth." Lent, 143 Vt. at 549, 470 A.2d at 1169.

Defendants cite section 17 of the lease agreement in support of their claim to a business-interest privilege. That section allows the lessor to declare a default if the lessee "fail[s] in any of the agreements of [the] lease," and requires the lessor to provide the lessee and all lienholders with written notice of the alleged default. The trial court properly instructed the jury that defendants had a conditional privilege when it sent the default notice to the bank and that, to award any damages, the jury must first find that plaintiffs had overcome the privilege by showing at least an inference of malice.

Viewed in the light most favorable to plaintiffs, the evidence at trial supports at least an inference of malice in each of defendants' statements to the Marble Bank. Defendants first stated that plaintiffs had failed to preserve a preexisting turbine, valued at $10,000, on the powerhouse site. The evidence indicated, however, that the turbine had no value, even as scrap, well before plaintiffs' tenancy commenced. The turbine, manufactured in the 1920s, had been severely corroded from having been half-submerged in water for over thirty years, and had been stripped of all usable or valuable parts. The evidence also showed that plaintiffs carefully attempted to remove the turbine from the powerhouse, but that the turbine disintegrated upon being disturbed. Plaintiffs promptly informed Lohutko of the turbine's loss, and Lohutko assented to the burial of the fragments on the property.

Defendants also stated that plaintiffs were in default of the lease after refusing to clean up boulders and other construction debris, with resulting damages estimated at $10,791. It was undisputed at trial that the 1986 lease was silent concerning plaintiffs' obligation to clean up construction debris. At trial, the evidence showed that Lohutko had observed the debris in 1986 and had asked plaintiffs to preserve it for his future reuse or resale.

Finally, defendants stated that plaintiffs had failed to remit additional rent resulting from increased operating revenues. Section 3(b) of the lease requires the lessee to pay the lessor fifty percent of the available cash flow resulting from "expansion of maximum productivity beyond the capacity of the project as originally constructed pursuant to Exhibit 'B.' " According to defendants, the project "head," that is, the distance between the headwater and the tailwater, increased from 19.6 feet to 20.9 feet during plaintiffs' tenancy, and the plant's turbine capacity increased from a proposed level of 350 kw to 400 kw, creating additional revenues that should have been shared under section 3(b). Viewed in the light most favorable to plaintiffs, however, the evidence showed that Lohutko's original license application to the Federal Energy Regulatory Commission (FERC) indicated a project head of 19.6 feet, and that Lohutko testified that nothing had been done to the physical structure of the dam to increase the size of the head. The evidence also showed that the project was built on a single Ossberger turbine, which has a capacity of 350 kw at the induction generator. Lohutko's FERC application stated, however, that the original capacity of the project was 400 kw. Testimony at trial confirmed that one turbine operating at 350 kw could produce 400 kw of plant capacity as measured at the utility interconnect point.

The evidence, therefore, fairly and reasonably tended to show that defendants knew that each of their statements to the Marble Bank was false or that they acted with reckless disregard of the truth, thereby supporting an inference of malice sufficient to overcome defendants' conditional business privilege. Crump, 154 Vt. at 293, 576 A.2d at 447.

Defendants argue, however, that the jury could not have found clear and convincing evidence of malice, because the jury declined to award punitive damages, which require a finding of malice by a preponderance of the evidence. We disagree. Punitive damages may be awarded, in the jury's discretion, upon a finding of actual malice rather than implied or constructive malice. Lent, 143 Vt. at 550 n. 3, 470 A.2d at 1170 n. 3. The jury's decision not to award punitive damages is not determinative of an absence of any inference of malice.

Defendants also claim, for the first time on appeal, that their communication to the Marble Bank should have been entitled to an absolute privilege. This claim was not raised before the trial court and is thus not preserved for our review. Dunning v. Meaney, 161 Vt. 287, 292, 640 A.2d 3, 6 (1993).

B....