Opinion
No. 98 Civ. 1569 (RCC).
December 8, 2000.
Opinion and Order
Plaintiff Rochelle Sepenuk ("Sepenuk"), trading as Gallery 63 Antiques, seeks to recover lost profits and punitive damages from defendants Joseph and Annette Marshall ("the Marshalls"), rival art gallery owners. Sepenuk alleges that the Marshalls deterred a potential customer from purchasing certain valuable antiques from her gallery. In her Complaint, Sepenuk brings claims for tortious interference with prospective economic advantage, defamation, unfair competition and conspiracy. Defendants move, pursuant to Federal Rule of Civil Procedure 56, for summary judgment on all causes of action. Sepenuk opposes the motion and has moved for sanctions against defendants and their counsel. For the reasons set forth below, defendants' motion is denied in part and granted in part, and plaintiffs motion for sanctions is denied.
I. BACKGROUND
Both Sepenuk and the Marshalls are dealers of 19th century French antiques. Although competitors, both parties were in frequent contact over the years through the course of their business. In the 1980s, Sepenuk purchased two items from the Marshalls relevant to the instant dispute: (1) a 19th century Italian onyx, bronze and marble sculpture of an Egyptian woman made by Caradossi, purchased in or about 1980 for $23,000 ("Cleopatra sculpture") and (2) a roll top 19th century French Bureauplat desk made by J.E. Zweiner, purchased in or about 1988 for $76,000 ("Zweiner desk").
In August 1997, Frank Hudson ("Hudson"), a past client of both Sepenuk and the Marshalls, expressed an interest in acquiring the Cleopatra sculpture, the Zweiner desk, and two porphyry urns from Sepenuk. Sepenuk offered a combined purchase price of $660,000 for the items. Before consummating the transaction, however, Hudson spoke by telephone to the Marshalls with respect to the proposed purchase.
That telephone conversation is at the crux of the dispute. According to Sepenuk, Annette Marshall told Hudson that the Cleopatra sculpture once had been sold by the Marshalls to the entertainer Kenny Rogers, who turned the sculpture over to Sotheby's for auction. While in Sotheby's care, the sculpture fell off a truck and broke into pieces, which were reacquired by the Marshalls and resold to Sepenuk. Annette Marshall claimed that the sculpture had "more glue than marble" and she advised that Hudson "would be a fool to buy it." Joseph Marshall repeated the story and stated that Hudson would not be able to resell the Cleopatra sculpture due to the past breakage. He estimated the value of the Zweiner desk and the pair of urns at well below Sepenuk's asking price and added that Sepenuk was "looking for suckers." Hudson recorded these conversations with the Marshalls, without their consent.
Plaintiff contends that the Marshalls' remarks were false and designed to discourage Hudson from conducting business with her. Sepenuk claims that the sculpture was not damaged by Sotheby's. Plaintiffs expert Robert Bowman, former head of Sotheby's in London, examined the sculpture and declared that there is no evidence of damage. Plaintiff also points to the fact that, when the Marshalls sold the Cleopatra to Sepenuk, the piece was valued at $30,000 for insurance purposes. Sepenuk and Hudson further testified that the Marshalls spoke highly of the sculpture at times both prior and subsequent to Hudson's proposal to purchase it. Indeed, Sepenuk taped conversations in January 1998, without the Marshalls' consent, in which the Marshalls reiterated that the sculpture was in excellent condition.
The Marshalls claim that Hudson, a customer as well as a friend, sought their professional opinion on important artwork. The Marshalls maintain that the Cleopatra sculpture was indeed broken in the past and that they personally observed glue lines on the piece. Defendants argue that, even if the statements imputed to them are accurate, summary judgment nonetheless is warranted as a matter of law.
II. DISCUSSION
Summary judgment is appropriate only where no genuine issues of material fact remain for trial, and the moving party is entitled to judgment as a matter of law. See Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 2509, 91 L.Ed.2d 202 (1986). The moving party carries the initial burden of demonstrating the absence of the requisite disputed material facts. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The Court must assess the record in the light most favorable to the nonmovant and draw all reasonable inferences in its favor. See Matsushita Elec. Indus. Co. Ltd. V. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986); American Cas. Co. v. Nordic Leasing. Inc., 42 F.3d 725, 728 (2d Cir. 1994). If the moving party meets its burden, then the non-movant must set forth specific facts showing that there is a genuine issue for trial. See Anderson, 477 U.S. at 250.
A. DEFAMATION
The parties concur that New York law is applicable here. Under New York law, the plaintiff must establish four elements in order to prevail on a defamation claim: (1) a false and defamatory statement of fact; (2) regarding the plaintiff; (3) published to a third party by the defendant; and (4) resulting injury to the plaintiff. Weldy v. Piedmont Airlines. Inc., 985 F.2d 57, 61 (2d Cir. 1993). Defendants proffer a number of arguments against the viability of this cause of action.
Statements which disparage the plaintiffs office, profession or trade are defamatory per se, meaning that the plaintiff need not show special damages. See Celle v. Filipino Reporter Enterprises Inc., 209 F.3d 163. 179 (2d Cir. 2000).
First, defendants claim that the alleged statements are expressions of opinion protected by United States Constitution. Although both the federal Constitution and the New York State Constitution provide certain protections for free speech, it is generally recognized that the State Constitution is broader. See Immuno A.G. v. Moor-Jankowski, 77 N.Y.2d 235, 247-48, 566 N.Y.S.2d 906, 912-13, 567 N.E.2d 1270, 1276-77, cert. denied, 500 U.S. 954 (1991); See also Celle, 209 F.3d at 178; Jewell v. NYP Holdings. Inc., 23 F. Supp.2d 348, 375 (S.D.N.Y. 1998). Therefore, the Court need only inquire whether the Marshalls' statements qualify as opinion sheltered by the State Constitution. See Jewell, 23 F. Supp.2d at 376 ("[A]n analysis under the New York State Constitution disposes of the need to analyze a statement under the United States Constitution.").
Under state constitutional law, opinion is distinguished from actual fact if (1) the language lacks a readily understood meaning, (2) it is incapable of being proven false, and (3) the specific text or the social context signals to the reader that the statement is opinion rather than fact. See Protic v. Dengler, 46 F. Supp.2d 277, 281 (S.D.N.Y. 1999) (citing Gross v. New York Times Co., 82 N.Y.2d 146, 603 N.Y.S.2d 813, 623 N.E.2d 1163 (1993)). Here, many of the communications in question purport to be statements of fact about the history of the Cleopatra sculpture, as well as Sepenuk's business practice. As such, they are capable of being proven false and may be understood by the reasonable listener as statements of facts. See Gross, 82 N.Y.2d at 154, 603 N.Y.S.2d at 818, 623 N.E.2d at 1168 (charges that plaintiff engaged in cover-ups and other wrongful conduct were actionable, even when "couched in the language of hypothesis or conclusion"). Therefore, the Marshalls may not avail themselves of the federal Constitution or the New York State Constitution.
Relying primarily upon McNally v. Yaranall, 764 F. Supp. 838 (S.D.N Y 1991), defendants next argue that their statements regarding the antiques were made on a matter of public concern, thus requiring an additional showing that they acted with "gross irresponsibility." Even if the antiques were of sufficient import to qualify as a matter of public concern, the Marshalls' statements allegedly were directed not only to the quality of the art, but also to Sepenuk's reputation. Defendants do not argue that Sepenuk's reputation is a matter of public concern. Indeed, in McNally, the court distinguished statements focused on the art at issue from statements targeted at the plaintiffs "character and performance," and held the latter to be actionable. McNally, 764 F. Supp. at 850. Moreover, Sepenuk has put forth evidence which could support a finding that the Marshalls' statements even with respect to the quality of art were knowingly false, thus evincing gross irresponsibility. See Chapadeau v. Utica Observer-Dispatch, 38 N.Y.2d 196, 199, 341 N.E.2d 569, 571, 379 N.Y.S.2d 61, 64 (1975) (gross irresponsibility is lack of "due consideration for the standards of information gathering and dissemination ordinarily followed by responsible parties").
Defendants also claim that their remarks are shielded by a qualified privilege based upon common interest. "Good faith communications of a party having an interest in the subject, or a moral or societal duty to speak, are protected by a qualified privilege if made to a party having a corresponding duty or interest." Boyd v. Nationwide Mut. Ins. Co., 208 F.3d 406, 409-10 (2d Cir. 2000) (citations omitted). It is undisputed that Hudson from time to time sought the advice and guidance of the Marshalls with respect to Hudson's art collection. In order to invoke the privilege, "the parties need only have such a relation to each other as would support a reasonable ground for supposing an innocent motive for imparting the information." Anas v. Brown, 269 A.D.2d 761, 702 N.Y.S.2d 732, 734 (4th Dep't 2000).
However, a plaintiff may overcome the privilege by demonstrating that the defendant's statement was false, and made knowingly or with a reckless disregard as to its truth. Boyd, 208 F.3d at 410. The evidence submitted by Sepenuk, if credited by the jury, raises doubts about the Marshall's good faith. Sepenuk submits that the Marshalls, both before and after the incident with Hudson, made favorable comments about the sculpture offered for sale by plaintiff, thus tending to show they spoke falsely to Hudson. In addition, the general tenor of the Marshalls' remarks could be construed as spiteful or ill-willed. The record evinces general issues of material facts, and inferences to be drawn therefrom, which are within the province of the jury.
In her papers, Sepenuk sets forth a number of other comments allegedly made by the Marshalls concerning Sepenuk's reputation; namely, that Sepenuk was thrown out of the Manhattan Antique Center for unethical business practices; that she conducted an adulterous affair with a customer; that she overcharges; that she uses profanity regularly; and that she fraudulently switches pieces so that the customer pays for an original but receives only a replica. Although the record is unclear, a number of those comments may have been uttered subsequent to the August 1997 events, and perhaps even after the filing of the Complaint. Although the Court does not rely upon these comments for purposes of the instant disposition, the Court notes that the parties may wish to submit pre-trial evidentiary motions on this issue.
Finally, defendants claim that their account of the ownership, history and condition of the Cleopatra sculpture is true and unchallenged. Plaintiff, however, has challenged the extent of prior damage, if any, to the sculpture, and contests the accuracy of the Marshalls' statements to Hudson. Consequently, material facts are in dispute, and defendants' motion for summary judgment on the defamation claim must be denied.
B. TORTIOUS INTERFERENCE WITH PROSPECTIVE ECONOMIC ADVANTAGE
In order to make out a claim for tortious interference with prospective economic advantage, Sepenuk must show (1) business relations with a third party; (2) defendants' interference with those business relations; (3) defendants acted with the sole purpose of harming the plaintiff or used dishonest, unfair or improper means; and (4) injury to the relationship.See Purgess v. Sharrock, 33 F.3d 134, 142 (2d Cir. 1994); Economic Opportunity Comm. of Nassau Cty. v. County of Nassau, 106 F. Supp.2d 433, 443 (E.D.N.Y. 2000). Defendants contend that Sepenuk cannot meet the third prong of the standard. As defendants correctly point out, the Complaint alleges that the Marshalls defamed Sepenuk in order to advance their own business interests. Thus, Sepenuk cannot demonstrate that defendants acted with the "sole purpose" of causing harm. See PPX Enters., Inc. v. Autofidelity Enters., Inc., 818 F.2d 266, 269 (2d Cir. 1987) ("If the defendant's interference is intended, at least in part, to advance its own competing interests, the claim will fail unless the means employed include criminal or fraudulent conduct.") (citations omitted);see also Murray v. Sysco Corp., 710 N.Y.S.2d 179, 181 (3d Dep't 2000).
Thus, Sepenuk must show that the Marshalls used wrongful means. In PPX Enterprises, the Second Circuit in dicta limited those means to criminal or fraudulent conduct. This interpretation since has been recognized as unduly narrow and not in accordance with New York law. See Hannex Corp. v. GMI, Inc., 140 F.3d 194, 206 n. 9 (2d Cir. 1998) (noting that the PPX Enterprises limitation is no longer binding on the court, inasmuch as the New York Court of Appeals more recently reiterated a broader standard inNBT Bancorp Inc. v. Fleet/Norstar Fin. Group, Inc., 87 N.Y.2d 614, 621, 664 N.E.2d 492, 496, 641 N.Y.S.2d 581, 585 (1996)); See also Ivy Mar Co., Inc. v. C.R. Seasons Ltd., No. 95-CV-0508, 1998 WL 704112, at *16 (E.D.N Y Oct. 7, 1998) (recognizing abrogation and holding that dishonesty and unfair means are also sufficient).
In any event, Sepenuk likely can satisfy even the more stringent standard. Under New York law, fraud is generally defined as the gain of an advantage to another's detriment by deceitful or unfair means. See 60 N.Y. Jur.2d Fraud § 1 (1987 Supp. 1999). Here, Sepenuk has proffered evidence from which a juror could conclude that the Marshalls lied about Sepenuk, and the condition of the antiques in question, in order to divert business from Sepenuk. Thus, defendants' motion to dismiss plaintiffs tortious interference claim is denied.
C. UNFAIR COMPETITION UNDER THE LANHAM ACT
In the Complaint, Sepenuk alleges that the Marshalls engaged in unfair competition in violation of 15 U.S.C. § 1125(a)(1)(A) (the Lanham Act, § 43(a)(1)(A)). See Complaint ¶ 43. The defendants move for summary judgment on this claim, arguing that plaintiffs allegations do not fall within the scope of the Lanham Act because the "alleged conduct does not in any way concern the protection of trademarks or trademarked goods in the stream of commerce." See Memorandum of Law in Support of Defendant's Motion for Summary Judgment at 15. Summary judgment is appropriate on this cause of action, but for reasons that are slightly different than those put forth by the defense.
The crux of the dispute goes to whether the defendants made false representations as to the nature and quality of Sepenuk's goods and services. Although defendants contend that such allegations are outside of the scope of the Lanham Act because they do not involve trademarks, Congress specifically amended the Act in 1989 to include commercial defamation claims. See National Artist Management Co. v. Weaving, 769 F. Supp. 1224, 1229 (S.D.N.Y. 1991). Nonetheless, plaintiffs claim must fail because it is outside the scope of the Lanham Act subsection pleaded in the complaint.
The relevant portions of the Lanham Act provide as follows:
False designation or origin, false descriptions, and dilution forbidden
(a) Civil Action
(1) Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which —
(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another's person's goods, services, or commercial activities,
shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.15 U.S.C. § 1125(a)(1).
Thus, there are two distinct claims addressed by the Act. See e.g., Health Care Compare Corp. v. United Payors United Providers. Inc., No. 96 Civ. 2518, 1998 WL 122900, at *2 (N.D. Ill. Mar. 13, 1998) ("The Lanham Act provides two distinct causes of action to prevent customer confusion regarding product's source: false designation of origin or source, known as "product infringement" claims, and false description or presentation known as "false advertising" claims."). In the Complaint, plaintiff states that she is proceeding under 15 U.S.C. § 1125 (a)(1)(A). That section, encompassing product infringement claims, is simply inapplicable here. See Nadel v. Play-by-Play Toys Novelties. Inc., 208 F.3d 368, 383 (2d Cir. 2000) ("Section 43(a)(1)(A) of the Lanham Act ordinarily addresses confusion caused by a defendant's trademark and is not so broad as to encompass alleged statements to others regarding the intellectual origin of [the product].").
The second subsection, 15 U.S.C. § 1125(a)(1)(B), which prohibits misleading commercial advertising and promotion, is arguably relevant to the instant dispute. However, as plaintiff included a cause of action only under the first subsection, the defendants' motion for summary judgement must be granted.
Indeed, the case most heavily cited by the plaintiff, National Artist Management Co. v. Weaving, 769 F. Supp. 1224 (S.D.N.Y. 1991), explicitly states that unfair competition claims similar to the one alleged by plaintiff are governed by Section 43(a)(2) of the Lanham Act, which was codified as § 1125(a)(1)(B) after the 1992 amendments. See 15 U.S.C. § 1125, Historical and Statutory Notes — 1992 Amendments ("Pub.L. 102-542, § 3(c) . . . redesignated former pars. (1) and (2) as subpars. "(A)" and "(B)" respectively[.]").
D. CONSPIRACY
It is textbook law that New York does not recognize an independent tort of conspiracy. See Sado v. Ellis, 882 F. Supp. 1401, 1408 (S.D.N Y 1995). If an underlying, actionable tort is established, however, plaintiff may plead the existence of a conspiracy in order to demonstrate that each defendant's conduct was part of a common scheme. See AM Cosmetics Inc. v. Solomon, 67 F. Supp.2d 312, 322 (S.D.N.Y. 1999); Litras v. Litras, 254 A.D.2d 395, 681 N.Y.S.2d 545, 546 (2d Dep't 1998). In this way, the defendants may be held jointly and severally liable for any compensatory and punitive damages awarded for the underlying torts, although damages may not be awarded on the conspiracy count itself.Litras, 681 N.Y.S.2d at 547.
Here, defendants face trial on causes of action for defamation and tortious interference. The jury may find that each defendant is independently liable on separate claims, but could nonetheless subject the defendants to joint and several liability based upon conspiracy. Thus, defendants' motion to dismiss the conspiracy count is denied. The evidence sufficiently supports Sepenuk's contention that the defendants acted in concert to damage her reputation and business, and therefore the issue of conspiracy must go to the jury.
E. PLAINTIFF'S MOTION FOR SANCTIONS
Sepenuk contends that the defendants' summary judgment motion is a frivolous, harassing and delaying tactic, and demands sanctions against defendants and their counsel pursuant to Rule 11 of the Federal Rules of Civil Procedure ("Rule 11") and Section 1927 of Title 28, United States Code ("Section 1927"). Rule 11 sanctions are judged under an objective reasonableness standard and are appropriate only when it is patently clear that a pleading has no chance of success. See Ted Lapidus. S.A. v. Vann, 112 F.3d 91, 96 n. 6 (2d Cir. 1997); Int'l Telepassport Corp. v. USFI. Inc., 89 F.3d 82, 86 (2d Cir. 1996). Although this Court denied defendants' summary judgment motion with respect to three of the four counts of the Complaint, it cannot be said that the defendants' arguments were wholly without merit or that they had no chance of success. See Securities Indus. Ass'n v. Clarke, 898 F.2d 318, 321 (2d Cir. 1990) ("A distinction must be drawn between a position which is merely losing, and one which is both losing and sanctionable.").
Because Rule 11 sanctions are not warranted here, plaintiffs argument for sanctions pursuant to Section 1927 must also fail. The Second Circuit has made clear that Section 1927 requires a stronger showing than Rule 11, as any award "must be accompanied by a finding of bad faith."MacDraw. Inc. v. CIT Group Equip. Fin. Inc., 73 F.3d 1253, 1261 (2d Cir. 1996). Although plaintiff maintains that defendants filed this motion to run up costs and postpone the trial, the Court cannot state with certainty that the defendants' motive was such. In any event, the Court will set a trial date forthwith in order to avoid any further delay.
III. CONCLUSION
For the foregoing reasons, defendants' motion for summary judgment is denied as to plaintiffs claims of defamation, tortious interference with prospective economic advantage and conspiracy, and granted as to plaintiffs Lanham Act claim. Plaintiffs motion for sanctions is denied.
The dismissal of the federal claim does not deprive the Court of subject matter jurisdiction over this action as diversity exists between the parties and the amount-in-controversy exceeds $75,000 See 28 U.S.C. § 1332(a)(1) (cited in Complaint ¶ 3).