Otherwise defamatory statements made in connection with and relevant to a judicial proceeding are absolutely privileged against defamation claims. The so-called “judicial privilege” is broad and applies to all forms of communication during litigation. The doctrine encourages unrestricted speech in litigation which in turn promotes compromise and settlement. The United States Bankruptcy Court for the Eastern District of Virginia recently held that not only does the privilege extend to communications outside the courtroom, but that when litigation is pending, the communication need not be made to an interested party to qualify for protection.
The case is Chesapeake Trust v. Chesapeake Bay Enterprise, Inc. (In re Potomac Supply Corp.), decided December 31, 2013. The bankruptcy court had approved the debtor’s sale of its operations to an unrelated entity called Potomac Supply, LLC. Chesapeake Bay Enterprise (CBE), an entity who had also negotiated to buy the debtor’s operations, filed a motion to reconsider. Potomac Supply’s attorney sent an email to CBE’s attorney, asking for two exhibits that were missing from the reconsideration motion and making a reference to “all of the fraudulent financing proposals we received from your client…” CBE responded with a third-party complaint alleging that the email was defamatory. The third-party defendants moved to dismiss, relying on the absolute judicial privilege.
CBE offered various arguments in support of its position that judicial privilege did not apply. First, it argued that the privilege is limited to statements made in pleadings, hearings, or depositions. Additionally, it argued that the statements about “fraudulent financing proposals” were gratuitous and irrelevant to the proceedings. CBE also argued that the privilege should not apply to statements made to third parties with no interest in the judicial proceeding, and that the court lacked sufficient information to determine whether the requirements of judicial privilege had been satisfied. The court rejected all of these arguments and granted the motion to dismiss.
After finding that the third-party complaint alleged sufficient facts to enable it to rule on the applicability of the privilege, the court noted that Virginia case law does not limit the application of the judicial privilege to statements published only to interested parties. The Virginia Supreme Court’s holding in Mansfield, imposing a condition that the statement be made only to interested persons, applies only to pre-litigation communications, not statements made after a judicial proceeding has commenced. In any event, the court found that the recipients of the email–the debtor, its investment banker, the bank and the committee–were all interested parties.
The court also found that the email was sufficiently related to the litigation to warrant protection, as it referenced the motion for reconsideration. For purposes of applying the privilege, the court held, the concept of relevancy is to be liberally construed.
The fact that the statements were made in an email rather than in a deposition or pleading was irrelevant. The purpose of the privilege is to encourage unrestricted speech in litigation, so courts have extended it well beyond the actual courtroom and have applied it specifically to all forms of written correspondence made during the course of litigation.