S.T.P. ENTERPRISES, INC. AND DAVID SIMON v. KENTUCKY FINANCIAL GROUP, INC. AND ERNIE A. SAMPSON
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RENDERED: MAY 31, 2002; 2:00 p.m.
NOT TO BE PUBLISHED
C ommonwealth O f K entucky
C ourt O f A ppeals
NO.
2001-CA-000695-MR
S.T.P. ENTERPRISES, INC.
AND DAVID SIMON
APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT
HONORABLE THOMAS McDONALD, JUDGE
ACTION NO. 97-CI-005157
v.
KENTUCKY FINANCIAL GROUP, INC.
AND ERNIE A. SAMPSON
APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE:
BUCKINGHAM, McANULTY, AND TACKETT, JUDGES.
BUCKINGHAM, JUDGE:
S.T.P. Enterprises, Inc. (STP) and David
Simon appeal from an order of the Jefferson Circuit Court
granting summary judgment to Ernie A. Sampson and Kentucky
Financial Group, Inc., in a defamation lawsuit.
The appellants
contend that the trial court erroneously determined the allegedly
defamatory statements were qualifiedly privileged.
We affirm.
STP is an insurance brokerage company headquartered in
Illinois.
The company is engaged in the business of marketing
and selling financial planning services to persons and businesses
located in the central region of the United States.
It is also a
licensed broker for Lincoln Benefits Life Insurance Company.
David Simon is the president of STP.
In marketing its various products and services, STP
utilizes independent agents.
Among the independent agents used
by STP are Harry Mandelbaum and Thomas P. Cardosi, neither of
whom are residents of Kentucky.
Mandelbaum became a licensed
agent for STP in May 1997 and became licensed to sell insurance
in Kentucky on July 14, 1997.
It appears that Cardosi was never
a licensed agent for STP and had never been licensed to sell
insurance in Kentucky.
Among STP’s products is an insurance program referred
to by STP as the “Arbitrage Life Payment System.”
STP describes
this product as “a unique life insurance and financial planning
device utilizing an arbitrage system to finance the purchase of
large amounts of life insurance at relatively little out-ofpocket expense to the owner of the policy.”
In the spring of 1997, Mandelbaum identified Spati
Industries of Ludlow, Kentucky, and its chairman and chief
executive officer, Robert Berberich, as potential clients and
approached Berberich regarding the arbitrage insurance program.
Cardosi thereafter presented Berberich with a proposal of the
program.
In conjunction with the presentation of the program,
Berberich and Cardosi engaged in a telephone conference call with
Simon, which was tape recorded.
Berberich was also presented
written materials explaining the program, including charts
illustrating it.
Based upon documents used in the sales
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presentation, it appears that the presentation occurred in mid to
late April 1997.
Following the sales presentation, Berberich contacted
Ernie A. Sampson of Kentucky Financial Group, Inc., and asked him
to review the arbitrage insurance program.
Sampson is a
Certified Life Underwriter, Chartered Financial Planner,
Certified Financial Planner, and Accredited Estate Planner.
Sampson reviewed the proposal, performed various investigations,
and, in a letter to Berberich dated August 5, 1997, reported his
observations, opinions, and suggestions regarding the plan to
Berberich.
The letter was highly critical of the STP arbitrage
program and the personnel involved in presenting it.
On September 9, 1997, Simon and STP filed a civil
complaint in the Jefferson Circuit Court against Sampson and
Kentucky Financial Group.
The complaint alleged that Sampson’s
August 5, 1997 letter contained fourteen false and misleading
statements which libeled Simon and STP.
On March 2, 2000, the
appellees filed a motion for summary judgment.
The motion
alleged that the appellees were entitled to judgment because the
statements in the August 5, 1997 letter were protected by two
privileges: (1) the absolute privilege for pure opinion, and (2)
the qualified privilege for statement by and to parties with
corresponding interests, or having some duty pertaining to the
communication.
On March 5, 2001, the circuit court entered an order
granting summary judgment to the appellees.
The court determined
that Sampson’s letter to Berberich was protected by the qualified
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privilege protecting “[c]ommunications made bona fide on subject
matter in which the person communicating has an interest or with
respect to which he has a duty, if made to a person having a
corresponding interest or duty. . . .”
See Rich v. Kentucky
Country Day, Inc., Ky. App., 793 S.W.2d 832, 838 (1990), citing
53 C.J.S. Libel and Slander, Sec. 9(b).
This appeal followed.
The appellants contend that the circuit court
erroneously granted summary judgment.
In order to qualify for
summary judgment, the movant must “show that there is no genuine
issue as to any material fact and that the moving party is
entitled to a judgment as a matter of law."
CR1 56.03. “The
record must be viewed in a light most favorable to the party
opposing the motion for summary judgment and all doubts are to be
resolved in his favor.”
Steelvest, Inc. v. Scansteel Service
Center, Inc., Ky., 807 S.W.2d 476, 480 (1991).
On appeal, the
standard of review of a summary judgment is whether the trial
court correctly found that there was no genuine issue as to any
material fact and that the moving party was entitled to judgment
as a matter of law. Scifres v. Kraft, Ky. App., 916 S.W.2d 779,
781 (1996).
The foundation for this lawsuit is Sampson’s August 5,
1997 letter to Berberich.
Following is the text of the letter in
its entirety:2
At your request I have reviewed the Arbitrage
Life Payment System which is being promoted
by STP Enterprises, Inc. of Chicago,
1
Kentucky Rules of Civil Procedure.
2
The fourteen alleged defamatory statements are numbered and underlined.
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Illinois. I have met with Thomas P. Cardosi
on two occasions who is trying to sell the
arrangements and I have met once with Harry
Mandelbaum who is involved as the designated
“agent of record”.
First, I want you to know I contacted the
Kentucky Department of Insurance in order to
determine whether either of these individuals
were properly licensed to present to you the
Lincoln Benefit Life proposals which
accompanied their presentation. The concern
was created because Mr. Cardosi represented
himself by use of a business card of an
insurance company that was declared insolvent
over three years ago.
The Department of Insurance indicates that
[1]neither man is licensed in the state of
Kentucky to do business with Lincoln Benefit.
I would suspect that [2]neither has sold this
product to any other citizens in the State of
Kentucky. [3]Harry Mandelbaum may be
operating in the state of Kentucky illegally.
[4]He does not possess a valid non-resident
Kentucky license. [5]Therefore, any activity
by Mr. Mandelbaum that requires an insurance
license is strictly prohibited in Kentucky.
Because of this I would counsel you to obtain
from both men copies of their proof of errors
and omission/professional liability
insurance. This will protect you to some
degree should, at a later time, you need to
file a claim against their liability
insurance.
It also might be a good idea to obtain
similar information about STP Enterprises,
Inc., the promoter of this arrangement. In
addition to John Cannon who spoke to us on
the conference call you may wish to find out
who the other principals of the firm are and
determine whether they are properly licensed
to conduct business in the state of Kentucky.
As to their proposal itself, I would suggest
you obtain accurate illustrations directly
from the insurance company which specifically
reflects what they are proposing. [6]The
illustrations which you were provided do not
accurately reflect what has been proposed.
Specifically, you should ask them to provide
an illustration which shows the entire sum of
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money, i.e., the $373,830.00 premium being
paid into the insurance policy and the
subsequent withdrawals occurring. The
illustrations which they provided did not
reflect the impact of withdrawal.
You should also request that the illustration
be run for a Kentucky resident rather than an
Illinois resident. If you should ultimately
decide to apply for the coverage on your son
or other members of the family, you should
request that illustrations be provided based
on the final underwriting classification
which the insurance company approves. [7]The
illustrations are now based on Preferred
rates which provide the most optimistic
possible scenario and will drastically change
should they be approved on a less favorable
basis.
You might recall that we spoke to your CPA on
July 22nd 1997 via a conference call. He
advised you to be “very cautions [sic]”. I
concur with him. I do not believe this
transaction is in your best interest. [8]It
has too many things that could go wrong and
cost you substantial money in the future.
You might recall that all parties agreed to
have the “sales presentation” taped. [9]The
men involved implied things which I believe
are not accurate and may be prohibited by law
to say. They may be, in my opinion, making a
fraudulent presentation to you.
[10]I have shared this information with the
Fraud unit of the Kentucky Department of
Insurance and they indicated that they may
have violated the law. They plan to pursue
this matter with them.
In regards to the “arbitrage concept”, I
believe there is some degree to [sic] risk
for you as it relates to the entire
arrangement and the various legal documents
which will require your signature. In
addition, I believe the arrangements proposed
ignore the estate planning objectives which
need to be addressed. [11]There’s a lot of
smoke and mirrors . . . but no real meat to
their recommendations.
[12]The legal documents basically give up
your rights to seek legal remedies should
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there be problems with the arrangement or
adverse tax consequences for you, etc.
[13]The documents disclose negative income
tax implication[s] which I raised and do not
entirely support the “statements” made by the
promoters of the arrangements.
The proposals obtained from the promoters
included a sample policy which clearly had
surrender penalties . . . the promoters
stated the policy surrender penalties do not
exist . . . The legal documents reference a
“pay back” period of 12 years which require
you to pay back a sum equal to a years’
premium . . . this matches a 12 year
surrender penalty.
The “arbitrage” arrangement operates under a
45 basis point spread . . . It may be
difficult to support the policy expenses and
mortality charges under this small amount of
a spread. Without a company illustration,
which they said they could not provide, it is
suspect that the policy does not support the
loan interest payments and ultimately “blows
up” the policy.
The bottom line . . . I do not recommend you
do this. It exposes you to potential
problems in the future you may not wish to
deal with. [14]The promoters may have
operated illegally according to the
Department of Insurance. I don’t believe it
solves your family estate and financial
planning needs.
The entire program is designed to get you to
“buy” life insurance with little out of
pocket costs . . . However, there is a cost
associated with it that may be very
significant in the future.
Four elements are necessary to establish a defamation
action: (1) defamatory language; (2) about the plaintiff; (3)
which is published; and (4) which causes injury to reputation.
Columbia Sussex Corp., Inc. v. Hay, Ky. App., 627 S.W.2d 270, 273
(1981).
Whether the words are defamatory is to be determined
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from the statement as a whole.
Yancey v. Hamilton, Ky., 786
S.W.2d 854, 857 (1989).
Published words are actionable per se if they directly
tend to the prejudice or injury of anyone in his profession,
trade or business.
(1964);
Tucker v. Kilgore, Ky., 388 S.W.2d 112, 114
Baker v. Clark, 186 Ky. 816, 218 S.W. 280, 283 (1920);
Hill v. Evans, Ky., 258 S.W.2d 917, 918 (1953).
The August 5,
1997 letter contains statements which would directly tend to
injure the appellants in their trade or business.
However, there can be no recovery for defamation if the
publisher of the defamatory statements enjoys a qualified
privilege.
One such qualified privilege is a communication made
in answer to an inquiry and in reasonable protection of the
publisher’s own interest.
For a defendant to succeed under this
privilege, the following four requirements must be met:
1. The communication must have been made by
the defendant in good faith, without malice,
not voluntarily, but in answer to an inquiry,
and in the reasonable protection of his own
interest or performance of a duty to society.
2. The defendant must honestly believe the
communication to be true.
3. There must have been reasonable or
probable grounds known to him for the
suspicion.
4. The communication, if made in answer to an
inquiry, must not go further than to truly
state the facts upon which the suspicion was
grounded, and to satisfy the inquirer that
there were reasons for the suspicion.
See
Sharp v. Bowlar, 103 Ky. 282, 45 S.W. 90, 91 (1898);
v. Felty, 164 Ky. 355, 175 S.W. 643, 644 (1915);
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Felty
Baskett v.
Crossfield, 190 Ky. 751, 228 S.W. 673, 675 (1920); Miller v.
Howe, 245 Ky. 568, 53 S.W.2d 938, 939 (1932); and Tucker v.
Kilgore, 388 S.W.2d at 114.3
Once the privilege has been placed at issue, the burden
falls upon the plaintiff to defeat the defense by showing either
that the privilege does not apply under the circumstances or that
it has been abused. Columbia Sussex Corp., 627 S.W.2d at 276.
The question of whether appellee's statements were qualifiedly
privileged is one of law.
Id.
However, whether there has been
an abuse of that privilege is a question of fact unless the
evidence points to only one reasonable conclusion. Id.
It is uncontested that Berberich contacted Sampson and
solicited his advice regarding the merits of the arbitrage
insurance program, that the letter was written in answer to the
inquiry, and that Sampson made the communication in protection of
his interest of providing professional financial advice to his
client regarding the insurance plan.
Hence, the preliminary
elements of the privilege are satisfied.
STP and Simon argue that Sampson failed to meet at
least the first and fourth requirements necessary to establish a
qualified privilege.
Concerning the first requirement, it is
undisputed that Sampson’s letter was in response to an inquiry
3
See also The Restatement (Second) of the Law of Torts § 596, pg. 274, (1977)(An
occasion makes a publication conditionally privileged if the circumstances lead any one of
several persons having a common interest in a particular subject matter correctly or reasonably to
believe that there is information that another sharing the common interest is entitled to know)
and Rich v. Kentucky Country Day, Inc., Ky. App., 793 S.W.2d 832, 838 (1990)
(Communications made bona fide on subject matter in which the person communicating has an
interest or with respect to which he has a duty, if made to a person having a corresponding
interest or duty, are qualifiedly privileged).
-9-
from Berberich and was in reasonable protection of his own
interests.
STP and Simon acknowledge this fact, but they allege
that there was a fact issue regarding whether the communication
was made with malice.
The trial court held that “there is
nothing to indicate that the statements of the Defendant
contained in the August 5, 1997 letter were maliciously made.”
If it is proven that a communication was malicious, the
qualified privilege is destroyed.
Shah v. American Synthetic
Rubber Corp., Ky., 655 S.W.2d 489, 492-93 (1983).
We agree with
the trial court that there was no indication that the statements
in Sampson’s letter were made maliciously.
There was no evidence
of ill will, intent to harm, knowledge of falsity, or reckless
disregard for the truth.
Further, STP and Simon have not pointed
to evidence which would indicate that Sampson made the statements
for the purpose of procuring Berberich’s business.
In short, we
agree with the trial court that there was no genuine issue of
material fact concerning malice.
The second requirement in order to establish the
qualified privilege is that the defendant must honestly believe
the communication to be true.
Miller, 53 S.W.2d at 939.
There
is no indication that Sampson believed the statements in his
letter to be false.
We conclude that there was no fact issue in
this regard.
The third requirement is that there must have been
reasonable or probable grounds known to him for the suspicion.
We believe it is clear that Sampson had reasonable or probable
grounds for suspecting that STP may have been engaged in a
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fraudulent action.
These grounds included the fact that Cardosi
represented himself with the business card of an insolvent
company; that, as of the date of Sampson’s inquiry to the
Department of Insurance, neither Cardosi nor Mandelbaum were
licensed in Kentucky to do business with Lincoln Benefit
Insurance; and that, as of the date of Sampson’s inquiry to the
Department of Insurance, Mandelbaum did not possess a valid nonresident license and that any activity without such license was
prohibited in Kentucky.
Again, we find no fact issue in this
regard.
The fourth requirement for the existence of a qualified
privilege is that the communication, if made in answer to an
inquiry, must not go further than to truly state the facts upon
which the suspicion was grounded, and to satisfy the inquirer
that there were reasons for the suspicion.
Sampson stated in his
letter that he did not recommend Berberich enter into the
arbitrage arrangement, and he further stated that he suspected
that the appellants may have been operating illegally.
Concerning the arbitrage arrangement, Sampson set forth
his concerns in detail and with specificity.
For example, he
stated that the concept ignored estate planning objectives which
needed to be addressed.
Further, he noted that the legal
documents basically gave up Berberich’s rights to seek legal
remedies should there be problems with the arrangement or should
there be adverse tax consequences.
Sampson also expressed
concern regarding surrender penalties and the 45 basis-point
spread.
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As for Sampson’s suspicions that the appellants may
have been operating illegally or fraudulently, Sampson referenced
the fact that Cardosi represented himself with a business card of
an insolvent company, the fact that the Department of Insurance
indicated that neither Cardosi nor Mendelbaum was licensed in
Kentucky to do business with Lincoln Benefit, and the fact that
Mandelbaum did not possess a valid non-resident Kentucky license.
The appellants assert that Mandelbaum became licensed in Kentucky
on or about July 14, 1997, a date which was prior to Sampson’s
letter to Berberich.
Thus, the appellants assert that the
information concerning Mandelbaum was blatantly false.
However,
although Mandelbaum was licensed in Kentucky on July 14, 1997,
this event occurred after Berberich received the arbitrage system
proposal and after Berberich first sought advice from Sampson.
Furthermore, Sampson did not make unsupported statements
concerning the licensing of Cardosi and Mandelbaum, but he relied
on the information given to him by the Department of Insurance.
Mandelbaum did not become licensed in Kentucky until the middle
of July, approximately three weeks before Sampson’s letter to
Berberich.
In short, we conclude that there were no genuine issues
of material fact and that Sampson clearly met the requirements
necessary to establish a qualified privilege concerning his
communication to Berberich.
Furthermore, we conclude that there
were no genuine issues of material fact and that Sampson did not
abuse the privilege.
The trial court correctly found that there
were no genuine issues as to any material fact and that Sampson
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and Kentucky Financial Group were entitled to judgment as a
matter of law.
The judgment of the Jefferson Circuit Court is
affirmed.
TACKETT, JUDGE, CONCURS.
McANULTY, JUDGE, DISSENTS.
BRIEF FOR APPELLANTS:
BRIEF FOR APPELLEE:
John J. McLaughlin
Stephanie L. Morgan-White
Goldberg & Simpson, P.S.C.
Louisville, Kentucky
Kenneth A. Bohnert
I. G. Spencer, Jr.
Scott A. Johnson
Conliffe, Sandmann & Sullivan,
PLLC
Louisville, Kentucky
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