Moe v. Wise
97 Wash. App. 950, 989 P.2d 1148 (1999)
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Rule of Law:
Communications between a Chapter 11 debtor and its creditors regarding the potential causes of the business's financial failure are protected by a common interest qualified privilege against defamation claims, as both parties share an overarching interest in the successful reorganization of the business.
Facts:
- Howard Moe sold his business, Little Hoquiam Boat Shop, to R.O.I., Inc. (ROI) in 1988.
- As part of the sale agreement, Moe was retained as an employee and consultant for the new company, Hoquiam Boat Shop, Inc.
- In 1990, due to poor financial health, Hoquiam Boat's parent company hired attorney Arnold Robbins to prepare and file a Chapter 11 bankruptcy petition, which he did in December 1990.
- Shortly after the bankruptcy filing, the company's CEO, Joseph Wise, sent a letter to trade creditors and hull owners (customers with boats under construction).
- The letter blamed Moe for the company's bankruptcy, alleging he had misrepresented profit margins and allowed the company to enter into below-cost manufacturing contracts.
- Although Robbins initially advised against sending the letter, he agreed to edit it after being told that the head of the parent company had ordered it to be sent.
Procedural Posture:
- Howard Moe filed a defamation suit against Joseph Wise in state trial court.
- Moe later filed an amended complaint adding attorney Arnold Robbins as a co-defendant.
- At the close of the plaintiff's case at trial, Robbins moved for dismissal.
- The trial court granted Robbins's motion for dismissal, ruling that his communications were protected by a common interest qualified privilege that had not been abused.
- The trial proceeded against the remaining defendant, Wise, and the jury returned a verdict for Moe, awarding him $1,333,000 in damages.
- Moe appealed the trial court's dismissal of his claim against Robbins to the Washington Court of Appeals, an intermediate appellate court.
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Issue:
Does the common interest qualified privilege protect allegedly defamatory statements made in a communication from a Chapter 11 debtor to its creditors explaining the reasons for the business's financial failure?
Opinions:
Majority - Seinfeld, J.
Yes. The common interest qualified privilege protects allegedly defamatory statements made in a communication from a Chapter 11 debtor to its creditors about the business's failure. A Chapter 11 debtor and its creditors share an overarching common interest in the business's survival and successful reorganization, which necessitates open and frank communication. This shared goal exists even if the parties have some conflicting individual interests. To overcome this privilege, a plaintiff must prove by clear and convincing evidence that the privilege was abused. Here, Moe failed to establish that Robbins acted with actual malice (knowledge of falsity or reckless disregard for the truth), had an improper purpose, or engaged in excessive publication. Robbins reasonably believed the communication was necessary to enlist creditor support for the reorganization, and the recipients (trade creditors and hull owners) were all creditors with a direct interest in the matter. Therefore, the privilege applies and was not abused.
Dissenting - Armstrong, A.C.J.
No. The common interest privilege should not apply as a matter of law, and a jury should decide whether it applies and if it was abused. Washington precedent has limited the privilege to situations where parties are 'allied,' but a Chapter 11 debtor and its creditors often have adversarial and conflicting interests. The letter itself pitted trade creditors against hull owners, demonstrating a lack of common interest. Because the facts were in dispute, the existence of a common interest should have been a question for the jury. Furthermore, a reasonable jury could find the privilege was abused through excessive publication, as the letter's stated purpose was to enlist trade creditors' support, yet it was sent to hull owners whom the letter blamed for the company's problems. Sending the letter to a newspaper also suggests an ulterior motive beyond protecting the common interest.
Analysis:
This decision extends the 'common interest' qualified privilege for defamation to communications within a Chapter 11 bankruptcy context. By focusing on the overarching goal of reorganization, the court provides significant protection to debtors and their counsel when explaining the causes of financial distress to creditors, even if those explanations are allegedly defamatory. This precedent prioritizes the policy of encouraging open communication necessary for a successful bankruptcy reorganization over protecting an individual's reputational interests in that specific context. It establishes a high bar for defamation plaintiffs in such cases, requiring them to prove abuse of the privilege by clear and convincing evidence.
