Heavrin v. Nelson

• Court: Court of Appeals for the Sixth Circuit
• Decided: September 13, 2004
• Docket: 03-5892
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Heavrin v. Nelson, et al. No. 03-5892 ELECTRONIC CITATION: 2004 FED App. 0312P (6th Cir.) File Name: 04a0312p.06 Chicago, Illinois, for Appellees. ON BRIEF: James A. Earhart, Louisville, Kentucky, for Appellant. Timothy S. Harris, Alexander Terras, PIPER RUDNICK LLP, Chicago, UNITED STATES COURT OF APPEALS Illinois, Edward H. Stopher, BOEHL, STOPHER & GRAVES, Louisville, Kentucky, for Appellees. FOR THE SIXTH CIRCUIT _________________ _________________

DONALD HEAV RIN , X OPINION Plaintiff-Appellant, - _________________ - - No. 03-5892 DAVID A. NELSON, Circuit Judge. This is an appeal v. - from the dismissal of a complaint for failure to state a claim > upon which relief can be granted. The complaint purported , to assert state-law causes of action for fraud, perjury, and DAVID NELSON , et al., - Defendants-Appellees. - outrage based on the defendants’ having filed allegedly false proofs of claim in a bankruptcy proceeding and having given N allegedly false testimony in a criminal trial. Because Appeal from the United States District Court statements contained in legal pleadings and testimony given for the Western District of Kentucky at Louisville. in legal proceedings are privileged under Kentucky law, and No. 01-00537—Charles R. Simpson III, District Judge. because we are not persuaded that the privilege is inapplicable in the circumstances presented here, we shall affirm the order Argued: August 3, 2004 of dismissal.

Decided and Filed: September 13, 2004 I

Before: NELSON and COOK, Circuit Judges; ROSEN, The plaintiff, Donald Heavrin, was legal counsel to Triple District Judge.* S Restaurants and its principals, Robert Harrod and Michael Macatee, in a commercial loan transaction.1 The lender was _________________ Boeing Capital Corporation. For collateral, Triple S assigned to Boeing “key man” insurance policies on the lives of COUNSEL ARGUED: James A. Earhart, Louisville, Kentucky, for 1 Appellant. Timothy S. Harris, PIPER RUDNICK LLP, The facts summarized here are drawn primarily from Mr. Heavrin’s complaint, the allegations of which must be taken as true for purposes of this app eal. See Memphis Area Local, American Postal Workers Union v. Memp his, 361 F.3d 89 8, 901 (6 th Cir. 2004). We have supplemented * the allegations of the com plaint with add itional background facts set forth The Honorable Gerald E. Rosen, United States District Judge for the in the decisio n in a related case, Un ited States v. H eavrin, 144 F. Supp.2d Eastern District of Michigan, sitting by designation. 769, 773 -75 (W .D. Ky. 2001).

1 No. 03-5892 Heavrin v. Nelson, et al. 3 4 Heavrin v. Nelson, et al. No. 03-5892

Messrs. Harrod and Macatee. The Harrod policy was later Mr. Heavrin’s trial that the $250,000 was not paid in transferred, subject to Boeing’s interest, to the Robert Harrod settlement of a lender liability claim. The trial ended in a Irrevocable Trust. Mr. Heavrin (who was Mr. Harrod’s step- judgment of acquittal. See United States v. Heavrin, 144 F. son as well as his attorney) and Heavrin’s step-sister were co- Supp.2d 769, 784 (W.D. Ky. 2001). trustees and co-beneficiaries of the trust. The transfer to the trust occurred in June of 1994. After the criminal charges against him were dismissed, Mr. Heavrin sued Boeing, Mr. Nelson, and Mr. Anderson in a By that time, the relationship between Triple S and Boeing Kentucky court. Boeing removed the case to federal district had become rocky. Boeing asserted claims of default, and court on diversity grounds. Heavrin subsequently filed a Triple S, Mr. Harrod, and Mr. Macatee asserted claims of second amended complaint, adding as defendants several lender liability. corporate entities affiliated with Boeing. On September 2, 1994, Mr. Harrod died. Mr. Heavrin then The second amended complaint set forth three substantive negotiated a settlement of Mr. Harrod’s claim against Boeing, counts: fraud, perjury, and outrage. The fraud count was under which $250,000 of the proceeds of the Harrod life subtitled “False and Misleading Proofs of Claim” and was insurance policy would be paid to the Harrod Trust. The rest based on exactly that – Boeing’s filing of false proofs of of the proceeds — $1.75 million — was to be paid to claim in the Triple S bankruptcy. The perjury count was Boeing. Defendants David Nelson and Daniel Anderson, who based on Mr. Nelson’s false testimony in Mr. Heavrin’s were employees of Boeing, participated in the negotiation of criminal trial. The claim of outrage was based on the same this settlement. conduct complained of in the previous counts. On September 30, 1994, Triple S filed for bankruptcy. On motion by the defendants, the district court dismissed Boeing submitted a proof of claim that did not reflect a the complaint for failure to state a claim. As to the fraud reduction of the indebtedness in the amount of Harrod’s life count, the court held that a federal statute prohibiting the insurance. Boeing later filed an amended proof that reduced filing of false bankruptcy claims, 18 U.S.C. § 152(4), does the claim by $1.75 million. not create a private right of action, and that Mr. Heavrin did not plead common-law fraud with the requisite degree of After a failed attempt to collect $2 million in insurance particularity. The court held further that the absolute proceeds from Boeing, the trustee in bankruptcy filed an privilege afforded to testimony in a judicial proceeding adversary proceeding to recover the $250,000 paid to the precluded a civil action based on perjury. Finally, the court Harrod Trust. Named as defendants in the adversary held that the wrongdoing alleged in the complaint did not rise proceeding were the trust itself, Mr. Heavrin, and Heavrin’s to the level of outrageous conduct under Kentucky law. step-sister. In the course of the adversary proceeding, one or more representatives of Boeing denied that the $250,000 had Mr. Heavrin moved for reconsideration and for leave to file been paid in settlement of a lender liability claim. a third amended complaint. After those motions were denied, Mr. Heavrin filed this timely appeal. Mr. Heavrin was prosecuted criminally on charges of transferring, concealing, and laundering money that should have been part of the bankruptcy estate. Nelson testified at No. 03-5892 Heavrin v. Nelson, et al. 5 6 Heavrin v. Nelson, et al. No. 03-5892

II The fraud count rests explicitly and exclusively on the false proofs of claim. As we have seen, the count is subtitled It has long been the law in Kentucky, as in “practically all “False and Misleading Proofs of Claim.” In keeping with that jurisdictions,” that “the testimony of a witness given in the subtitle, the pleading describes the alleged fraud as “[t]he course of a judicial proceeding is privileged and will not actions of defendants . . . in filing the false and misleading support a cause of action against him.” McClarty v. Bickel, proof of claims” and asserts that Mr. Heavrin was injured 159 S.W. 783, 784 (Ky. 1913); cf. Bryant v. Kentucky, 490 “[a]s a result of the false and fraudulent Proof of Claim.” No F.2d 1273, 1274 (6th Cir. 1974). Likewise, “statements in other false representations are specifically alleged.3 If Mr. pleadings filed in judicial proceedings are absolutely Heavrin intended to allege a broader fraudulent scheme, of privileged when material, pertinent, and relevant to the which the proofs of claim were mere evidence, he did not do subject under inquiry.” Schmitt v. Mann, 163 S.W.2d 281, so with the particularity required by Rule 9(b), Fed. R. Civ. 283 (Ky. 1942). P. See Minger v. Green, 239 F.3d 793, 800 (6th Cir. 2001) (holding that Rule 9(b) applies to diversity actions in federal The proofs of claim filed by Boeing in the Triple S court). bankruptcy and the testimony given by Mr. Nelson in Mr. Heavrin’s criminal trial were plainly material to those The perjury count, of course, is based solely on testimony proceedings. It follows, we believe, that “[n]o civil action in a legal proceeding. And the outrage count is predicated on will lie” against Boeing on the basis of those proofs of claim the same facts as the fraud and perjury counts. We see no or that testimony. McClarty, 159 S.W. at 784.2 basis for concluding that any of these claims arises from conduct that is not protected by the judicial-proceeding Mr. Heavrin advances two arguments for not applying the privilege. judicial-proceeding privilege in the case at bar. Mr. Heavrin’s second argument is that notwithstanding the First, Mr. Heavrin contends that his claims are not based on judicial-proceeding privilege, Kentucky Revised Statute Boeing’s false proofs of claim or on Mr. Nelson’s false 446.070 allows civil recovery for the conduct complained of testimony, but rather on a “fraudulent course of conduct” of here. K.R.S. 446.070 provides that which the proofs of claim and Nelson’s testimony are merely evidence. This contention cannot be squared with the text of “[a] person injured by the violation of any statute may Mr. Heavrin’s complaint. recover from the offender such damages as he sustained

2 3 The judicial-proceeding privilege is most often invoked as a defense The general allegations of the complaint, which are incorporated by to claims of defamation, but its applicatio n is not limited to that context. reference into the fraud count, include an allegation that “[t]hroughout the Mc Clarty and Bryant involved claims of malicious prosecution. See Adversary Proceedings . . . the defendants, and each of them, consistently Mc Clarty, 159 S.W . at 784 ; Bryant, 490 F.2d at 1274. Courts in other denied a lender liability claim had existed.” The complaint does not jurisdictions have applied the privilege in actions alleging intentional specify the setting in which (or the audienc e to whom ) these infliction of emotional distress, see Kachig v. Boothe, 99 Cal. Rptr. 393, representations were mad e, although the next pa ragraph refers to 403 (Cal. C t. App. 1971), and slander of title, see Wendy ’s of So uth “deposition testimony” that was “similar” to M r. Nelson’s testim ony in Jersey, Inc. v. Blanchard Management Corp., 406 A.2d 1337, 1340 (N.J. the crimina l trial. Dep osition testimony, no less than statements contained Super. Ct. Ch. Div. 1979). in proofs of claim, is protected by the judicial-proceeding privilege. No. 03-5892 Heavrin v. Nelson, et al. 7 8 Heavrin v. Nelson, et al. No. 03-5892

by reason of the violation, although a penalty or 446.070. Having found no case in which the statute was held forfeiture is imposed for such violation.” to trump the privilege, however, we are unwilling to reject what is implicit in the cited decisions. As interpreted by Kentucky’s highest court, K.R.S. 446.070 “creates a private right of action for the violation of any AFFIRMED. statute,” provided that “the plaintiff belongs to the class intended to be protected by the statute.” State Farm Mutual Automobile Insurance Co. v. Reeder, 763 S.W.2d 116, 118 (Ky. 1988); cf. Baker v. White, 65 S.W.2d 1022, 1023-24 (Ky. 1933) (interpreting Kentucky Statute 466, the predecessor of K.R.S. 446.070), and Hackney v. Fordson Coal Co., 19 S.W.2d 989, 990 (Ky. 1929) (same). Mr. Heavrin maintains that the conduct alleged in his complaint violates Chapter 523 of the Kentucky Penal Code, the chapter prohibiting perjury and related offenses, and that he is within the class of persons protected thereby. To accept Mr. Heavrin’s argument that K.R.S. 446.070 authorizes civil recovery in the circumstances presented here, we would have to conclude that the statute abrogates the judicial-proceeding privilege. But Kentucky courts have consistently recognized the privilege notwithstanding K.R.S. 446.070. Kentucky Statute 466, an almost identical forebear of K.R.S. 446.070,4 is a “very old” statute; it was cited by the highest court of Kentucky as early as 1900. Reeder, 763 S.W.2d at 118. Yet, as we have seen, the judicial-proceeding privilege has remained vital in Kentucky. See Schmitt, 163 S.W.2d at 283, and McClarty, 159 S.W. at 784, as well as Reed v. Isaacs, 62 S.W.3d 398, 399 (Ky. Ct. App. 2000) (no civil action for lying to grand jury), and Lawson v. Hensley, 712 S.W.2d 369, 370 (Ky. Ct. App. 1986) (no civil action for perjury). It is true that these decisions do not expressly hold that the judicial-proceeding privilege survives K.R.S.

4 K.S. 466 provided that “[a] person injured by the violation of any statute may recover from the offender such damage as he may sustain by reason of the violation, although a penalty or forfeiture for such violation be thereby im posed.”