Stepanov v. Dow Jones & Co.

• Decision Date: 29 May 2014
• Citation: 987 N.Y.S.2d 37,120 A.D.3d 28,2014 N.Y. Slip Op. 03940
• Court: New York Supreme Court — Appellate Division
• Parties: Maxim A. STEPANOV, et al., Plaintiffs–Appellants, v. DOW JONES & COMPANY, INC., Defendant–Respondent.

120 A.D.3d 28

987 N.Y.S.2d 37

2014 N.Y. Slip Op. 03940

Maxim A. STEPANOV, et al., Plaintiffs–Appellants,

v.DOW JONES & COMPANY, INC., Defendant–Respondent.

Supreme Court, Appellate Division, First Department, New York.

May 29, 2014.

Ganfer & Shore, LLP, New York (Steven Skulnik of counsel), for appellants.

Davis Wright Tremaine, LLP, New York (Laura R. Handman, Camille Calman and Jason P. Conti of counsel), for respondent.

ROLANDO T. ACOSTA, J.P., DAVID B. SAXE, KARLA MOSKOWITZ, SALLIE MANZANET–DANIELS, PAUL G. FEINMAN, JJ.

FEINMAN, J.

Nearly two decades ago, the Court of Appeals acknowledged that there existed an open question under New York law regarding which test to apply to claims of defamation by implication, but did not reach the issue and concluded that the choice must “await another day” ( Armstrong v. Simon & Schuster, 85 N.Y.2d 373, 381, 625 N.Y.S.2d 477, 649 N.E.2d 825 [1995] ). While no appellate court in this State has since addressed that particular issue, its day has finally come.

Plaintiffs, a Russian businessman and a company he founded (Midland Consult [Cyprus] Ltd.) claim that they were defamed in Bill Alpert's article Crime and Punishment in Putin's Russia, which appeared on April 18, 2011 in Barron's, a weekly newspaper published by defendant. The article described an embezzlement conspiracy involving Russian businessmen and officials.

The article reported that in 2006, the hedge fund Hermitage Capital realized a profit of about $1 billion and paid $230 million in taxes to Russia. Russian Interior Ministry police raided Hermitage's Moscow offices in June 2007, seizing its Russian subsidiaries' corporate seals and certificates. In October of that year, a “convicted killer” used the corporate seals to act in the subsidiaries' names to consent to judgments in a Russian court totaling about $1 billion. On December 23, 2007, he and his “cohorts,” masquerading as Hermitage officers, filed for a $230 million tax refund, applying the judgments against Hermitage's $1 billion in profits. On the following day, the Moscow tax bureau, headed by Olga Stepanova, approved the refund and wired the money to “brand-new accounts” at Moscow banks.

Hermitage launched a private investigation, hiring Russian lawyer Sergei Magnitsky. Credit Suisse records obtained through the investigation showed at least $20 million flowing through the bank accounts of a number of “dummy corporations” associated with small nations in the two years following the $230 million heist. Hermitage's informant, a Russian businessman who had been part of a network that paid Olga Stepanova and other officials for their roles in tax embezzlements, told Hermitage that these Credit Suisse transactions were intended as payments to Stepanova and her deputies for their assistance in the scam.

The article goes on to detail a number of transactions involving the Credit Suisse accounts. In doing so, it refers to plaintiffs in the following three paragraphs, out of the 40 comprising the entire article:

“On Jan. 23, 2008 the Credit Suisse accounts received about $3 million from a shell company called Bristoll Export, registered in New Zealand by a company-formation agency called GT Group. After earlier Barron's stories showed that GT Group sold shells that were ultimately used to launder Mexican drug-cartel money through Wachovia Bank and, separately, to commission a plane filled with anti-aircraft missiles and rocket launchers from North Korea, New Zealand police raided GT Group's offices in October of 2010.

“Nested inside the shell of Bristoll Export—like a Russian doll—was yet another shell company whose directors work at Midland Consult, a Russia-focused representative of offshore banks founded by a former Russian diplomat named Maxim A. Stepanov in Cyprus.

“The GT Group didn't respond to questions e-mailed to its headquarters on the island of Vanuatu. Midland Group's Maxim Stepanov would not identify the owners of Bristoll Export and said in an e-mail that his customers were ‘honest, decent businessmen and have no criminal conduct found by the Courts of Justice.’ ”

The article also reported that, shortly after the tax refund was approved by Olga Stepanova, her husband's Cyprus shell corporation received $10.9 million. Although the article does not expressly state the husband's identity, it identifies a number of properties owned by Vladlen Stepanov, “the Stepanovs,” and “Stepanova's family” and refers to “Olga's obligatory income declarations” showing the cumulative income “between herself and Vladlen.”

In July 2008, Hermitage's lawyer Magnitsky filed criminal complaints with Russian government agencies, accusing Olga Stepanova, police Colonel Kuznetsov, and others of being involved in the Hermitage fraud and another similar scheme. When Magnitsky testified to Russian prosecutors in October 2008, he was arrested, delivered to Kuznetsov, and imprisoned, where he was subjected to “harsh conditions” and pressured to retract his testimony and implicate himself. While in prison, the 37–year–old attorney “became gravely ill and, denied medical care, died on November 16, 2009.” This led the Russian businessman mentioned above to become Hermitage's informant and provide the Credit Suisse bank records. In January 2011, Hermitage filed a complaint with the Swiss federal Attorney General. It appears that the informant's bank records and the Swiss complaint provided the factual basis for most of the article's assertions.

In the complaint in this action, plaintiffs contended that the article was defamatory, stating that it was “false, disparaging, derogatory,and misleading to state or imply”: (1) that Midland was doing business with GT Group in 2010 when GT allegedly sold shell corporations to individuals involved in narcotics and weapons; (2) that Midland was involved with the companies used to launder drug-cartel money and ship weapons; (3) that Bristoll Export or its subsidiaries had directors who “work at Midland Consult”; and (4) that plaintiff Stepanov was a former Russian diplomat, because the article is entitled Crime and Punishment in Putin's Russia, but Stepanov served as a diplomat under Mikhail Gorbachev and Boris Yeltsin, not Vladimir Putin.

Defendant moved to dismiss the complaint, arguing that the article was not defamatory to plaintiffs because it was substantially true that plaintiffs had a connection to Bristoll Export and that the article's statements could not support a cause of action for defamation because they “were either not ‘of and concerning’ plaintiff[s] or not capable of having a defamatory meaning.” Alternatively, defendant argued that the statements were privileged under Civil Rights Law § 74 as a fair and true report of an official proceeding in Switzerland. Defendant submitted copies of the article, Hermitage's Swiss complaint, and a follow-up article by Alpert and published in Barron's that reported that the Swiss Attorney General had commenced a criminal investigation.

In opposition, plaintiffs submitted an affidavit from plaintiff Stepanov stating that he resigned from the government in 1997, before Putin became president, that Midland Consult was not involved with Bristoll Export until after the January 2008 transaction, that Midland Consult had severed ties with GT Group before GT's “first legal troubles concerning the airplane,” and that he has no connection to Olga Stepanova or Vladlen Stepanov. He asserted that these facts show plaintiffs had nothing to do with the actions described in the article and that, had the timeline been included in the article, it would have been clear that the mention of plaintiffs was extraneous to the news story. Based on this, plaintiffs argued that the article's statements were defamatory per se when viewed in context or, alternatively, defamatory by implication. Plaintiffs did not allege that any statement was explicitly inaccurate, but argued that the article did not include statements that would eliminate an inference that plaintiffs were involved with people and companies engaged in illegal activity. Plaintiffs also argued that Civil Rights Law § 74 was inapplicable.

In reply, defendant argued that publishers can only be held responsible for what is actually written, stating that nothing in the article implied that plaintiffs were responsible for any wrongdoing and asserting that its inclusion of plaintiffs in the article was a matter of editorial judgment.

The court granted defendant's motion and dismissed the complaint. It found that Civil Rights Law § 74 does not apply to the specific facts of this case, but that plaintiffs did not state a valid claim for express or implied defamation. Plaintiffs appealed this ruling, which we now affirm.

Defamation is “the making of a false statement which tends to expose the plaintiff to public contempt, ridicule, aversion or disgrace, or induce an evil opinion of him in the minds of right-thinking persons, and to deprive him of their friendly intercourse in society” ( Foster v. Churchill, 87 N.Y.2d 744, 751, 642 N.Y.S.2d 583, 665 N.E.2d 153 [1996] [internal quotation marks omitted] ). To prove a claim for defamation, a plaintiff must show: (1) a false statement that is (2) published to a third party (3) without privilege or authorization, and that (4) causes harm, unless the statement is one of the types of publicationsactionable regardless of harm ( see Dillon v. City of New York, 261 A.D.2d 34, 38, 704 N.Y.S.2d 1 [1st Dept.1999] ). Because the falsity of the statement is an element of the defamation claim, the statement's truth or substantial truth is an absolute defense ( see Konrad v. Brown, 91 A.D.3d 545, 546, 937 N.Y.S.2d 190 [1st Dept.2012],lv. denied19 N.Y.3d 804, 2012 WL 1948019 [2012] ). On a motion to dismiss a defamation claim, the court must decide whether the statements, considered in the context of the entire publication, are “reasonably susceptible of a defamatory connotation,” such that the issue is...