Gregory's, Inc. v. Haan
545 N.W.2d 488, 1996 S.D. 35, 1996 SD 35 (1996)
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Rule of Law:
The filing of a materialman's lien is not a judicial proceeding and is therefore not subject to an absolute privilege against a slander of title claim; however, it is protected by a conditional privilege that can only be overcome by a showing that the filer knew the lien was false or acted with reckless disregard for its truth or falsity.
Facts:
- Charles Haan, a home builder, had an oral agreement with Northland Building Center for the supply of construction materials.
- The parties disputed the payment terms; Haan contended that payment was not due until after the homes were sold and he received a 30-day notice, and that Northland had agreed not to file liens without such notice.
- In January 1993, Haan sold two homes containing Northland's materials but did not use the proceeds to pay his outstanding account with Northland.
- In February 1993, Northland filed materialman's liens against the two properties Haan had sold.
- Northland later filed additional liens, including one on a vacant, unimproved lot owned by Haan and another on Haan's personal home, where Northland had not supplied any labor or materials for over two years.
- As a result of these lien filings, Haan alleged his lenders canceled his credit line and he suffered other financial damages.
Procedural Posture:
- Northland Building Center sued Charles Haan in the circuit trial court to enforce its materialman's liens and collect on his accounts.
- Haan filed a counterclaim against Northland, alleging breach of contract and slander of title.
- The trial court granted Northland's motion for summary judgment on Haan's breach of contract claim.
- The trial court granted Northland's motion to dismiss Haan's slander of title claim, ruling that the filings were absolutely privileged communications.
- Haan appealed the trial court's summary judgment and dismissal to the Supreme Court of South Dakota.
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Issue:
Does the filing of a materialman's lien constitute a 'communication in a judicial proceeding' that is absolutely privileged under SDCL 20-11-5(2), thereby barring a slander of title claim?
Opinions:
Majority - Konenkamp, Justice
No, the filing of a materialman's lien is not a 'communication in a judicial proceeding' and is therefore not absolutely privileged. The court affirmed the summary judgment on Haan's breach of contract claim, holding that the alleged oral agreement to provide 30-day notice before payment was due constituted an 'extension of credit' which is unenforceable under the statute of frauds (SDCL 53-8-2) unless it is in writing. However, the court reversed the dismissal of Haan's slander of title claim. The court reasoned that while a common law cause of action for disparagement of title exists for filing a false lien, the absolute privilege for communications in a judicial proceeding (SDCL 20-11-5(2)) does not apply. The filing of a lien is not a judicial proceeding itself, as it does not necessarily lead to a lawsuit. Instead, the filing is protected by a conditional privilege. To overcome this privilege, Haan must show that Northland published a falsehood with malice, meaning Northland knew the lien was false or acted with reckless disregard for its truth or falsity. The trial court erred by applying an absolute privilege instead of a conditional one, so the case was remanded for further proceedings on the slander of title claim.
Analysis:
This decision clarifies the scope of privilege applicable to the filing of materialman's liens in South Dakota, distinguishing it from communications made within a formal judicial proceeding. By rejecting an absolute privilege in favor of a conditional one, the court strikes a balance between protecting suppliers who file liens in good faith and providing recourse for property owners harmed by malicious or recklessly filed liens. The ruling establishes a significant hurdle for slander of title plaintiffs, who cannot prevail by showing mere negligence but must prove the lien filer acted with knowledge of the lien's falsity or with reckless disregard for the truth. This standard protects legitimate creditors from litigation over technical errors while deterring the use of liens as a tool for harassment.
