Smith v. Hodges, No. 2005-CA-000057-MR.

• Decision Date: 23 November 2005
• Docket Number: No. 2005-CA-000057-MR.
• Citation: 199 S.W.3d 185
• Parties: Drew W. SMITH, Appellant, v. Carol Ann HODGES, Appellee.
• Court: Kentucky Court of Appeals

Page 185

199 S.W.3d 185

Drew W. SMITH, Appellant, v. Carol Ann HODGES, Appellee.

No. 2005-CA-000057-MR.

Court of Appeals of Kentucky.

November 23, 2005.

Discretionary Review Denied by Supreme Court August 17, 2006.

David W. Hemminger, Louisville, KY, for Appellant.

David B. Mour, Louisville, KY, for Appellee.

Before GUIDUGLI and MINTON, Judges; ROSENBLUM, Senior Judge.¹

OPINION

GUIDUGLI, Judge.

This case involves the application of the absolute privilege afforded to defamatory statements made by a witness in the course of a judicial proceeding. Having determined that Kentucky still follows the American Rule and that the statements at issue were relevant and pertinent to the subject of inquiry, we affirm.

On March 29, 2004, Drew W. Smith, the President and CEO of Bob Smith Chevrolet, Inc., filed suit against the company's former finance manager, Carol Ann Hodges, seeking damages for slander based upon statements she made in a deposition taken in a federal lawsuit. Customer Christopher Neil Smith had filed suit against Smith Chevrolet in the U.S. District Court for the Western District of Kentucky, alleging a negligent and willful violation of the federal Fair Credit Reporting Act² (hereinafter "FCRA") as well as a violation of his privacy when Smith Chevrolet accessed his credit report during a dispute between the parties.³ In the course of that lawsuit, Hodges gave a deposition on March 27, 2003, during which she testified on direct examination about the lax policies the dealership followed regarding access to credit reports. After testifying that she would have remembered if Smith had asked her to run the credit report, counsel for the plaintiff began questioning Hodges about the reason she left her employment at Smith Chevrolet:

Q. You said you started working at Bob Smith Chevrolet in January of 2001, and you left in September of 2001?

A. Uh-huh (witness answering affirmatively), yes, sir.

Q. Why did you leave your employment with Bob Smith Chevrolet?

A. O.K. At Bob Smith, it's a very hostile environment.

When I first started there, I had heard good things about Bob Smith Chevrolet and their projection towards the future, and that's what I was interested in. But after I started working there and I became aware of the situation and the hostility on a day-to-day basis, I couldn't take it anymore. That's why I left.

Q. And describe what you mean by the hostility?

A. When Drew would call in—and that's if he wasn't in the office. He would call in every morning. He would call right at start time. He would have them put him through to the finance office, and he would talk to me, and he would yell at me about things I'd done the day before. And, then, he would say, put me through to service, and you'd put him through to service, and he would yell at them for a while. And, then, he would say, put me through to Linda, and they would put him through to Linda, and he would—I mean, it's continuous.

Q. Who is Linda?

A. Linda Wright, in the office. She's the controller.

But he went from person to person to person, and no one ever had a decent phone conversation with him. We were always yelled at.

Q. How would you describe Drew Smith's mannerisms and treatment of you during that period of time?

A. Aggressive, hostile, abrasive.

Q. And you said you finally left in September of 2001?

A. Yes, sir.

Q. Did you give notice when you left?

A. No, I walked. I just walk[ed] out and left.

Q. Any particular incident that prompted you to walk out and leave?

A. No. It was just being yelled at on a day-to-day basis.

The last time he yelled at me, I just couldn't take it anymore.

I mean, you take it home. You've got all that tension. You take it home, you take it out on your family.

Q. And were there other employees that shared your feelings about Mr. Smith's—

A. Yes.

Q. —treatment of employees?

A. Yes, sir.

Q. And was this a topic that was discussed among the employees?

A. Yes, sir.

Q. Was there any information or knowledge that came to you regarding why Drew Smith was so abusive, as you've described, towards employees?

A. Yes. Drew could have really good moods and everything was going great and business was going great—and it didn't matter if business was doing really good as to whether he yelled at you or not. He would be in a really good mood, and, then, all of a sudden (indicating), he would slam down to that bad mood, and everybody knew when it was coming and you let everybody know on the phone line, your call is coming. Because it's common knowledge around the dealership that he has a real bad cocaine problem.

Q. O.K.

A. And when he yells at you, you know you have been yelled at.

Q. Why do you say that?

A. He's an artist at it. He is.

Q. Would you have described him as a bully?

A. Yes.

Mr. Hemminger: Object to this entire line of questioning as completely irrelevant.

The witness: He is a bully. He likes to badger at you. Tell you you're incompetent.

By Mr. Mour:

Q. Did he tell you that?

A. When I quit, the day I quit, I went back the next day to pick up my things, he made Linda Wright call him to let him know that I was in the building. And, then, on the phone—and I've already quit—he's telling me how stupid I am and how dumb I am to leave his company.⁴

Hodges filed a motion for summary judgment, arguing that her statements were absolutely privileged as they were made while she was giving testimony in a judicial action, citing McClarty v. Bickel⁵ and its progeny. Smith responded with the argument that the statements were not absolutely privileged because the testimony at issue was not material, pertinent or relevant to the subject under inquiry, citing Schmitt v. Mann⁶ and General Electric Co. v. Sargent & Lundy.⁷ The circuit court entered a Memorandum and Order on December 8, 2004, containing the following Conclusions:

[Hodges] makes a motion for summary judgment, contending that there remain no genuine issues of material fact and she is entitled to judgment as a matter of law, as [Smith's] claim of slander must be dismissed because [Hodges'] statements, which were made during a judicial proceeding, are privileged. [Hodges] relies upon Reed v. Isaacs, Ky. 62 S.W.3d 398 (2000); and McClarty v. Bickel, 155 Ky. 254, 159 S.W. 783 (1913), in making her arguments.

[Smith] responds that [Hodges'] statement, although made during a deposition or "judicial proceeding," is not absolutely privileged, as the statement was not "material, pertinent, and relevant to the subject under inquiry," citing, Schmitt v. Mann, 291 Ky. 80, 163 S.W.2d 281 (1942); that [Hodges'] statement concerning [Smith's] alleged cocaine use was completely irrelevant to any of the issues at hand in the Smith case; and that [Hodges'] motion for summary judgment should be denied. [Smith] also relies, pertinently, upon General Electric Co. v. Sargent & Lundy, 916 F.2d 1119 (6th Cir.1990).

[Hodges] has filed a reply, and [Smith] a sur-reply, which this Court has reviewed and provided due consideration.

"The prevailing rule and the one recognized in this jurisdiction is that statements in pleadings filed in judicial proceedings are absolutely privileged when material, pertinent, and relevant to the subject under inquiry, though it is claimed that they are false and alleged with malice." Schmitt, 163 S.W.2d at 283 (citations omitted). "On the other hand, statements which are not pertinent and material are only qualifiedly privileged, and immunity from the legal consequences of their being libelous depends on their being made in good faith." Id. (citation omitted).

Review of the said deposition testimony reveals that [Hodges] was responding directly to the question of attorney David Mour when she testified that, "it's common knowledge around the dealership that he [Smith] has a real bad cocaine problem." It appears that [Hodges'] statement was material, pertinent, and relevant to the subject of Mr. Mour's inquiry (the reason [Smith] was abusive towards employees). As such, it appears that [Hodges'] testimony is absolutely privileged. Although the general subject matter of the federal lawsuit dealt with whether Bob Smith Chevrolet had violated the Federal Fair Credit Reporting Act, such does not render [Hodges'] statement immaterial, impertinent or irrelevant; nor does it make her statement subject to a qualified privilege.

The circuit court then granted Hodges' motion for summary judgment and dismissed Smith's claims against her. This appeal followed.

On appeal, Smith continues to argue that under the American Rule, an absolute privilege for defamatory statements made during the course of a judicial proceeding only applies when the statements are pertinent and relevant to the subject under inquiry. If the statements are not pertinent or relevant, then the privilege becomes qualified, and would apply only if the statements were not malicious or willful. The crux of Smith's argument is that Hodges' statement about his cocaine use was not pertinent or relevant to whether Smith Chevrolet violated the FCRA. In determining that the privilege should apply because Hodges' statement was made in response to a direct question, as opposed to the subject matter of the case, Smith argues that the circuit court misapplied the law.

On the other hand, Hodges asserts that the questions and her responses went to Smith's conduct and state of mind, and that Smith failed to establish that her testimony did not have any relation to the federal lawsuit. In fact, Hodges argues that her statement was related to the subject of the lawsuit. Furthermore, she urges this Court to recognize that the courts in this Commonwealth have been moving towards the adoption of the English Rule, which provides that statements made in a judicial proceeding are absolutely privileged, regardless of their pertinence or relevance to the subject matter of the inquiry.

Our standard of review is well-settled in an appeal from the entry of a summary judgment:

The...