RENDERED: MAY 27, 2022; 10:00 A.M. TO BE PUBLISHED
Commonwealth of Kentucky Court of Appeals NO. 2021-CA-0562-MR
NEW ALBANY MAIN STREET PROPERTIES, LLC D/B/A PORT OF LOUISVILLE; GREGORY P. CANTRELL; JOE TEGART; AND P. RON SILER APPELLANTS
APPEAL FROM JEFFERSON CIRCUIT COURT v. HONORABLE AUDRA J. ECKERLE, JUDGE ACTION NO. 20-CI-006650
R. WAYNE STRATTON, CPA AND JONES, NALE & MATTINGLY PLC APPELLEES
OPINION AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, CHIEF JUDGE; COMBS AND JONES, JUDGES.
JONES, JUDGE: Appellants New Albany Main Street Properties, LLC d/b/a Port
of Louisville; Gregory P. Cantrell; Joe Tegart; and P. Ron Siler (collectively
“Appellants”) appeal from the Jefferson Circuit Court’s opinion and order entered
on April 14, 2021, dismissing their claims against Appellees R. Wayne Stratton, CPA and the accounting firm, Jones, Nale & Mattingly PLC (collectively the
“Appellees”) pursuant to CR1 12.02(f). After a careful review of the record and the
law, we affirm.
I. BACKGROUND
New Albany Main Street Properties, LLC d/b/a Port of Louisville
(“Port of Louisville”) entered into a contract with Louisville and Jefferson County
Riverport Authority (“Riverport”) to lease several acres of land for the purpose of
operating a public port on the Ohio River. The parties’ relationship deteriorated
over time. In June 2019, Riverport filed a civil action against Port of Louisville in
Jefferson Circuit Court, Case No. 19-CI-003564, alleging that Port of Louisville
breached the parties’ lease agreement. Among other grounds, Riverport alleged
that Port of Louisville failed to comply with applicable federal and state tax laws
as required by the parties’ lease agreement. Ultimately, the parties agreed to stay
the circuit court action and arbitrate their dispute before John Hays pursuant to the
rules of the American Arbitration Association.
In preparation for the arbitration, Riverport retained R. Wayne
Stratton, a certified public accountant employed with the accounting firm of Jones,
Nale & Mattingly PLC, to serve as an expert witness. Specifically, Riverport
asked Stratton to review various financial documents provided by Port of
1 Kentucky Rules of Civil Procedure.
-2- Louisville and to provide his opinion as to whether Port of Louisville complied
with the applicable tax laws. Riverport tendered Stratton’s initial report to Port of
Louisville in early December 2019, and it provided a supplemental report on
December 18, 2019, the day before Stratton was scheduled to testify at the
arbitration. In his reports, Stratton opined that Port of Louisville had
underreported its revenue in excess of six million dollars over a four-year period.
Stratton’s opinion was predicated on his conclusion that hundreds of entries
appearing in the financial documents produced by Port of Louisville represented
checks received by the Port of Louisville that it failed to report as income.
Stratton’s testimony at arbitration was consistent with the opinions expressed in his
written reports.
Port of Louisville vigorously maintained that Stratton’s opinion was
based on a flawed reading of its financial documents, and that it had not
underreported its income. It explained that the entries, which Stratton classified as
receipts, were actually disbursements made by Port of Louisville to other parties to
pay for legitimate business expenses such as payroll and royalty fees. Port of
Louisville engaged its own accounting expert, Rodefer Moss, to rebut Stratton’s
opinion that Port of Louisville underreported its income. Following consideration
of Port of Louisville’s explanation and prior to the case’s being submitted to the
-3- arbitrator for a decision, Riverport voluntarily withdrew Stratton’s written opinions
and his testimony related thereto.
Ultimately, the arbitrator concluded that Port of Louisville had not
breached its lease agreement with Riverport. On or about October 8, 2020, the
Jefferson Circuit Court entered a decree confirming the arbitrator’s opinion in Port
of Louisville’s favor.2 Approximately a month later, Port of Louisville and its
members, Gregory P. Cantrell, Joe Tegart, and P. Ron Siler filed a civil complaint
against Stratton and his accounting firm in Jefferson Circuit Court. Appellants’
complaint asserted that Stratton and his accounting firm implicitly and falsely
accused Port of Louisville of tax fraud and by so doing damaged its reputation and
impugned the business integrity and ethics of its members. Appellants asserted
two causes of action against Stratton and his accounting firm: (1) defamation,
slander, libel, and business slander (hereinafter referred to collectively as
“defamation claims”); and (2) professional malfeasance. They sought to recover
both compensatory and punitive damages.
Appellees moved to dismiss both claims under CR 12.02(f), arguing
that the defamation claim was barred by the judicial statements privilege and that
Appellees owed no duty to Appellants upon which a claim of negligence or gross
2 The decree was recently affirmed by this Court. See Louisville and Jefferson County Riverport Authority v. New Albany Main Street Properties, LLC, No. 2020-CA-1426-MR, 2022 WL 496003 (Ky. App. Feb. 18, 2022).
-4- negligence could be based. In an opinion and order dated April 14, 2021, the
circuit court granted Appellees’ motion and dismissed both claims with prejudice.
This appeal followed.
II. STANDARD OF REVIEW
“A motion to dismiss for failure to state a claim upon which relief
may be granted under CR 12.02(f) ‘admits as true the material facts of the
complaint.’” Lawrence v. Bingham, Greenebaum, Doll, L.L.P., 567 S.W.3d 133,
137 (Ky. 2018) (quoting Fox v. Grayson, 317 S.W.3d 1, 7 (Ky. 2010)). “[T]he
pleadings should be liberally construed in the light most favorable to the plaintiff,
all allegations being taken as true.” Unifund CCR Partners v. Harrell, 509 S.W.3d
25, 28 (Ky. 2017) (citations omitted). “A trial court should dismiss an action for
failure to state a claim upon which relief may be granted only when ‘it appears the
pleading party would not be entitled to relief under any set of facts which could be
proved[.]’” Brown-Forman Corporation v. Miller, 528 S.W.3d 886, 889 (Ky.
2017) (quoting Pari-Mutuel Clerks’ Union of Kentucky, Local 541, SEIU, AFL-
CIO v. Kentucky Jockey Club, 551 S.W.2d 801, 803 (Ky. 1977)). “Since a motion
to dismiss for failure to state a claim upon which relief may be granted is a pure
question of law, a reviewing court owes no deference to a trial court’s
determination; instead, an appellate court reviews the issue de novo.” Fox, 317
S.W.3d at 7 (footnote omitted).
-5- III. ANALYSIS
On appeal, Appellants argue: (1) Appellees’ motion to dismiss was
premature, and they should have been able to take discovery; (2) Appellees’
defamatory statements were not made in a “judicial proceeding” and are, therefore,
not privileged; (3) paid expert witnesses are not entitled to absolute immunity
under the judicial statements privilege; and (4) Appellants asserted a valid cause of
action for professional malfeasance. We address each argument in turn.
A. The Circuit Court Was Not Required To Permit Discovery
Appellants argue that the circuit court erred when it took up
Appellees’ CR 12.02(f) motion prior to any discovery having taken place. They
explain that assessing their claims based solely on the allegations contained in their
complaint without permitting them an opportunity to take discovery placed them in
an “impossible position” since they were ethically limited to alleging facts within
their knowledge. Appellants contend that, with the benefit of discovery, they
might have been able to prove Appellees made additional defamatory statements
about them outside of the arbitration process, meaning the judicial statements
privilege would not apply. They assert that the existence of possible, additional
statements means they did not fail to state a claim for relief, and that the circuit
court should not have granted Appellees’ motion to dismiss, which was predicated
on the affirmative defense of judicial privilege.
-6- “The requisite elements for a defamation claim are: (a) a false and
defamatory statement concerning another; (b) an unprivileged publication to a third
party; (c) fault amounting at least to negligence on the part of the publisher; and (d)
either actionability of the statement irrespective of special harm or the existence of
special harm caused by the publication.” Toler v. Süd-Chemie, Inc., 458 S.W.3d
276, 281-82 (Ky. 2014) (internal quotation marks and footnotes omitted).
Particularly important to this appeal, “[i]t is the general rule that each
communication of the same defamatory matter by the same defamer, whether to a
new person or to the same person, is a separate and distinct publication, for which
a separate cause of action arises.” RESTATEMENT (SECOND) OF TORTS § 577A
cmt. a (1977) (emphasis added).
The purpose of a lawsuit is for a party to vindicate an existing claim,
not to engage in a fishing expedition to determine if additional, unpled claims
exist. While a party opposing a motion for summary judgment is required to be
given an adequate opportunity to take discovery, the same is not true when dealing
with motions to dismiss for failure to state a claim. Rather, CR 12.02(f) serves as a
vehicle through which a party can seek to “expediently terminate litigation” prior
to discovery in cases where “[the] plaintiff would not be entitled to relief under any
statement of facts which could be proved in support of the claim.” Seiller
Waterman, LLC v. RLB Properties, Ltd., 610 S.W.3d 188, 195 (Ky. 2020) (internal
-7- quotation marks and citation omitted). In fact, CR 12.02(f) requires such motions
to be brought “before pleading if a further pleading is permitted.” Requiring the
circuit court to delay ruling on CR 12.02(f) motions pending discovery would
effectively do away with such motions by converting them into summary judgment
proceedings.
Appellees timely filed their motion to dismiss asserting that, even if
the facts alleged by Appellants were true, they had failed to state a viable claim for
either defamation or professional malfeasance. The “case [as presented to the
circuit court] involve[d] an issue of pleadings, not proof.” Smith v. Isaacs, 777
S.W.2d 912, 915 (Ky. 1989). Thus, the circuit court was required to determine
only “if the facts alleged in the complaint can be proved, would the plaintiff be
entitled to relief?” James v. Wilson, 95 S.W.3d 875, 884 (Ky. App. 2002).
“Because motions to dismiss are decided as a matter of law based on
the allegations in the pleadings, discovery is not generally necessary.” City of
Taylorsville Ethics Commission v. Trageser, 604 S.W.3d 305, 312 (Ky. App.
2020). In considering a motion to dismiss, “[w]e are concerned solely with
whether the Complaint fails to state a cause of action. We are not concerned with
the appellee’s ultimate liability: whether after discovery the claimant can
withstand a Motion for Summary Judgment, or whether the evidence at trial will be
sufficient to withstand a Motion for a Directed Verdict.” Smith, 777 S.W.2d at
-8- 915. Additionally, “[a]n affirmative defense to a claim may be taken advantage of
by a motion to dismiss if . . . the defense is shown on the face of the complaint.”
Carr v. Texas Eastern Transmission Corp., 344 S.W.2d 619, 621 (Ky. 1961).
In ruling on Appellees’ CR 12.02(f) motion to dismiss, the circuit
court was required to assess Appellants’ complaint based on the allegations
contained therein; it was not required to allow discovery for the purpose of
ascertaining whether Appellants might be able to allege additional claims based on
a different set of facts than the one alleged. The only statements alleged in
Appellants’ complaint were those made as part of the arbitration. Appellees
asserted that those statements could not sustain a cause of action for defamation
because they were privileged.
Accordingly, we find no error with the circuit court’s decision to take
up the motion prior to allowing Appellants to take discovery on their claims. See
Nave v. Feinberg, 539 S.W.3d 685, 686 (Ky. App. 2017) (affirming dismissal of
claims, including defamation, against attorney because they arose from a judicial
proceeding in which the attorney was representing his client); Rogers v. Luttrell,
144 S.W.3d 841 (Ky. App. 2004) (affirming dismissal of defamation claim based
-9- solely upon a letter sent by a psychologist to a family court as part of an ongoing
custody dispute).3
B. Defamation Claim
In the context of defamation, “[p]rivileged communications . . . are of
two kinds; one being an absolute privilege, and the other only a qualified one.”
Fortney v. Guzman, 482 S.W.3d 784, 790 n.2 (Ky. App. 2015) (quoting Baker v.
Clark, 186 Ky. 816, 218 S.W. 280, 285 (1920)). If the privilege is absolute, false
defamatory words will not give rise to a cause of action even if they were
maliciously spoken. Stewart v. Williams, 309 Ky. 706, 708, 218 S.W.2d 948, 949-
50 (1949). In contrast, if the privilege is only qualified, “false and defamatory
statements will not give rise to a cause of action unless maliciously uttered.” Id. at
708, 218 S.W.2d at 950.
In granting Appellees’ motion to dismiss Appellants’ defamation
claim, the circuit court determined that the statements at issue were subject to the
judicial statements privilege, meaning that Appellants could not sustain a
3 In contrast, in Halle v. Banner Industries of N.E., Inc., 453 S.W.3d 179 (Ky. App. 2014), we affirmed the denial of a motion to dismiss based on the judicial statements privilege because in addition to the statements made during the court proceedings the complaint and amended complaint alleged the statements were “made outside of, prior to, and after the various judicial proceedings[.]” Id. at 189. Here, the only statements alleged were those made during the arbitration.
-10- defamation action based on statements alleged in their complaint.4 The judicial
statements privilege has existed in the Commonwealth for well over a century. See
Smith v. Hodges, 199 S.W.3d 185, 189-93 (Ky. App. 2005) (recounting the history
of the judicial statements privilege in Kentucky). The privilege “is rooted in public
policy ‘which looks to the free and unfettered administration of justice, though, as
an incidental result, it may, in some instances, afford . . . immunity to the evil-
disposed and malignant slanderer.’” Halle, 453 S.W.3d at 184 (quoting Schmitt v.
Mann, 291 Ky. 80, 84, 163 S.W.2d 281, 284 (1942)). While the privilege may
permit some defamatory speech to go unremedied, it is necessary so that
“witnesses in a legal proceeding [might] be able to discuss their views without fear
of a defamation lawsuit.” Curd v. Kentucky State Bd. of Licensure for Professional
Engineers and Land Surveyors, 433 S.W.3d 291, 298 (Ky. 2014) (quoting
Deatherage v. State, Examining Bd. of Psychology, 134 Wash. 2d 131, 136, 948
P.2d 828, 830 (1997)).
4 “While the [judicial statements] privilege does not outright bar an action, it renders it unsustainable if based exclusively on statements privileged under the law.” Deal v. First and Farmers National Bank, Inc., 518 S.W.3d 159, 173 (Ky. App. 2017) (citation omitted). As it relates to this appeal, however, “the privilege is only applicable to communications and has no application where it is alleged the conduct of the tortfeasor serves as the basis for the claim.” Halle, 453 S.W.3d at 185. Count I of Appellants’ complaint is based on oral and written statements that Appellees made during the arbitration. If applicable, the privilege would apply to Count I. The same is not true, however, with respect to Count II, which alleges that Appellees were negligent and grossly negligent in their review of the Port of Louisville’s financial information. Because Count II is based upon Appellees’ conduct, the judicial statements privilege would not apply. Id.
-11- In order for the judicial statements privilege to take hold, the
statement (1) must not only be made “preliminary to a proposed judicial
proceeding, or in the institution of, or during the course and as a part of a judicial
proceeding[,]” Maggard v. Kinney, 576 S.W.3d 559, 567 (Ky. 2019) (citation
omitted), but it also (2) must be “material, pertinent, and relevant,” id., to “a
proceeding that is contemplated in good faith and under serious consideration.”
Rogers, 144 S.W.3d at 844.
Appellants first argue that, based on certain language contained in the
arbitrator’s opinion, there is a question of fact as to whether Riverport’s breach of
contract against them was “contemplated in good faith,” making the circuit court’s
determination that the statements at issue are absolutely protected by the judicial
statements privilege premature at best. In making this argument, Appellants
incorrectly interpret the meaning of “contemplated in good faith” as employed by
the courts in this context. The requirement that the statement relate to a proceeding
that is “contemplated in good faith” relates to when the statement was made, not to
the motivation of the person filing the action.5 In other words, the judicial
statements privilege may cover some statements even where a lawsuit is not
5 See RESTATEMENT (SECOND) OF TORTS § 588 cmt. e (1977) (emphasis added) (“As to communications preliminary to a proposed judicial proceeding, the rule stated in this Section applies only when the communication has some relation to a proceeding that is actually contemplated in good faith and under serious consideration by the witness or a possible party to the proceeding. The bare possibility that the proceeding might be instituted is not to be used as a cloak to provide immunity for defamation when the possibility is not seriously considered.”).
-12- ultimately brought so long as a lawsuit was seriously being contemplated at the
time the statements were made. In this case, the statements were made after suit
had already been filed, meaning that it was unnecessary for the circuit court to
decide whether Riverport (a nonparty) brought the action in good faith.
Second, Appellants argue that only a qualified privilege would apply
if Stratton’s statements were not made in good faith, and that for the purposes of a
motion to dismiss the circuit court should have presumed the statements were
made in bad faith. They point out that any certified public accountant should have
been able to determine from Port of Louisville’s financial records that it had not
underreported its revenue, making Stratton’s statements to the contrary so reckless
as to rise to the level of malice. However, as explained above, judicial statements
which are pertinent and relevant to the subject under inquiry are absolutely
privileged “though it is claimed that they are false and alleged with malice.”
Maggard, 576 S.W.3d at 567 (emphasis added) (quoting Schmitt, 291 Ky. at 82,
163 S.W.2d at 283).
A key issue in the lawsuit and the arbitration was whether Port of
Louisville breached its lease with Riverport. Among other alleged breaches,
Riverport claimed that Port of Louisville was required to comply with all
applicable state and federal laws, which would necessarily include tax laws, and
that Port of Louisville failed to do so. Stratton was retained by Riverport to review
-13- Port of Louisville’s financial records and offer an opinion regarding whether Port
of Louisville complied with all federal and state tax laws. The statements
Appellants claim defamed them concern Stratton’s opinion that Port of Louisville
substantially underreported its income over a four-year period, which would be a
violation of federal and state tax laws. Accordingly, it is beyond dispute that
Stratton’s statements were related to one of Riverport’s breach of contract claims,
making his malicious intent (or lack thereof) irrelevant. Schmitt, 291 Ky. at 83,
163 S.W.2d at 283 (“We think it requires no argument to demonstrate that the
statements made in the affidavit were pertinent and material to the cause, and the
question to be determined is, were they absolutely privileged, regardless of
whether they were made maliciously or in good faith.”).
Next, Appellants argue that the circuit court erred as a matter of law
when it concluded that the absolute judicial statements privilege applies in
arbitrations. They explain that no appellate court in Kentucky has applied the
privilege to arbitrations, and they assert that doing so is inherently problematic
because there are no internal policing mechanisms, such as CR 11 sanctions, in
arbitrations. Although Appellants are correct that the specific issue of whether the
judicial statements privilege applies appears to be an issue of first impression in
Kentucky, we cannot discern why arbitrations should be treated differently than
other quasi-judicial proceedings in which the privilege has been held to apply.
-14- Over time, courts in Kentucky have expanded the privilege so that it
applies beyond our courts of justice to “all proceedings in which an officer or
tribunal exercises judicial functions[,]” including quasi-judicial proceedings.
Morgan & Pottinger, Attorneys, P.S.C. v. Botts, 348 S.W.3d 599, 602 (Ky. 2011),
overruled on other grounds by Maggard, 576 S.W.3d 559; see also Maggard, 576
S.W.3d at 567 (quoting RESTATEMENT (SECOND) OF TORTS § 587 cmt. f (1977))
(“The emphasis is on judicial (or quasi-judicial) proceedings.”). The Kentucky
Supreme Court has defined “quasi-judicial” as “[a] term applied to the action,
discretion, etc. of public administrative officers or bodies, who are required to
investigate facts, or ascertain the existence of facts, hold hearings, weigh evidence,
and draw conclusions from them, as a basis for their official action, and exercise
discretion of a judicial nature[.]” Smith v. Fletcher, 613 S.W.3d 18, 25 (Ky. 2020)
(citation omitted).6 Consistent with this definition, Kentucky’s highest Court has
applied the judicial statements privilege in an attorney discipline proceeding before
6 Examples of quasi-judicial proceedings include those before the Kentucky State Parole Board, the Kentucky Board of Medical Licensure, and the State Racing Commission. See, e.g., Belcher v. Kentucky Parole Bd., 917 S.W.2d 584, 589 (Ky. App. 1996) (concluding that parole board officials perform quasi-judicial tasks that are functionally comparable to those of judges); Sangster v. Kentucky Bd. of Medical Licensure, 454 S.W.3d 854, 862 (Ky. App. 2014) (concluding that board members performed quasi-judicial functions); Compton v. Romans, 869 S.W.2d 24, 28 (Ky. 1993) (concluding that the chairman of the State Racing Commission was exercising quasi-judicial powers).
-15- the Kentucky Bar Association, a quasi-judicial proceeding over which the
Kentucky Supreme Court has ultimate jurisdiction. See Botts, 348 S.W.3d at 602.
Arbitration is an alternative to formal judicial proceedings, which is
generally favored in Kentucky. Louisville Peterbilt, Inc. v. Cox, 132 S.W.3d 850,
854 (Ky. 2004).7 While there are differences between arbitration and traditional
judicial proceedings, it is nevertheless “an adversarial process with the
fundamental components of due process including a hearing with an opportunity to
present evidence and cross-examine witnesses, and to have representation by
counsel if desired.”8 Kentucky Shakespeare Festival, Inc. v. Dunaway, 490 S.W.3d
691, 696 (Ky. 2016). Given these similarities, our Supreme Court has classified
arbitrations as “quasi-judicial proceeding[s].” Id. at 694 n.3. Likewise,
recognizing that the role of the arbitrator is functionally equivalent to that of a
judge, this Court has extended the immunity enjoyed by judges to arbitrators.
7 Arbitration has been specifically approved by our Constitution since 1799. Fite & Warmath Constr. Co., Inc. v. MYS Corp., 559 S.W.2d 729, 734-35 (Ky. 1977); KY CONST. § 250. 8 Many of these fundamental components are included in Kentucky’s Uniform Arbitration Act. See Kentucky Revised Statutes (KRS) 417.090(2) (“parties are entitled to be heard, to present evidence material to the controversy and to cross-examine witnesses appearing at the hearing”); KRS 417.100 (providing for a party’s right to be represented by an attorney); KRS 417.110(1) (“arbitrators may issue subpoenas for the attendance of witnesses and for the production of books, records, documents and other evidence,” and arbitrators “shall have the power to administer oaths”); KRS 417.110(2) (arbitrators may permit depositions); KRS 417.120(1) (providing for arbitrator’s award to be in writing); KRS 417.160 (providing grounds to vacate an arbitrator’s award); KRS 417.170 (providing grounds to modify or correct the arbitrator’s award); KRS 417.180 (providing for court to enter a judgment on arbitrator’s award and enforcing it as any other judgment); and KRS 417.220 (describing rights to appeal).
-16- Higdon v. Construction Arbitration Associates, Ltd., 71 S.W.3d 131, 132 (Ky.
App. 2002). Extending the judicial statements privilege to arbitration is consistent
with the Kentucky Supreme Court’s classification of arbitrations as quasi-judicial
proceedings and a logical extension of Higdon. Accordingly, we hold that
arbitrations are quasi-judicial proceedings to which the judicial statements
privilege applies.9
Riverport’s action was litigated in Jefferson Circuit Court prior to the
parties’ agreement to arbitrate. During this period of litigation, Stratton was
identified by Riverport as an expert witness it intended to call to testify at trial.
Stratton’s reports and testimony subsequently took place under the Commercial
Arbitration Rules of the American Arbitration Association. As part of this
arbitration, the parties, through their counsel, exchanged documents, submitted
9 Our holding that the judicial statements privilege applies in private arbitrations is consistent with the vast majority of our sister jurisdictions. See Yeung v. Maric, 232 P.3d 1281, 1283 (Ariz. Ct. App. 2010); Bushell v. Caterpillar, Inc., 683 N.E.2d 1286, 1289 (Ill. App. Ct. 1997); Moore v. Conliffe, 871 P.2d 204, 213 (Cal. 1994); Preston v. O’Rourke, 811 A.2d 753, 763 (Conn. App. Ct. 2002); Sturdivant v. Seaboard Serv. Syst., Ltd., 459 A.2d 1058, 1059-60 (D.C. 1983); Kahala Royal Corp. v. Goodsill Anderson Quinn & Stifel, 151 P.3d 732, 753-54 (Haw. 2007); Kidwell v. General Motors Corp., 975 So.2d 503, 505 (Fla. Dist. Ct. App. 2007); American LifeCare, Inc. v. Wood, 826 So.2d 646, 650 (La. Ct. App. 2002); Odyniec v. Schneider, 588 A.2d 786, 792-93 (Md. 1991); Kloch v. Ratcliffe, 375 N.W.2d 916, 919 (Neb. 1985); Western Mass. Blasting Corp. v. Metropolitan and Cas. Ins. Co., 783 A.2d 398, 403 (R.I. 2001); Henderson v. Wellmann, 43 S.W.3d 591, 600 (Tex. App. 2001); Corbin v. Washington Fire & Marine Ins. Co., 278 F. Supp. 393 (D. S.C. 1968), aff’d, 398 F.2d 543 (4th Cir. 1968); Katz v. Odin, Feldman & Pittleman, P.C., 332 F. Supp. 2d 909, 919 (E.D. Va. 2004); Rolon v. Henneman, 517 F.3d 140, 145 (2d Cir. 2008); Martinez v. Hellmich Law Group, P.C., 681 F. App’x 323, 326-27 (5th Cir. 2017). See also RESTATEMENT (SECOND) OF TORTS § 588 cmt. d (1977) (“Judicial proceedings include all proceedings in which an officer or tribunal exercises judicial functions, as to which see § 585, Comments c and f. As indicated there, an arbitration proceeding may be included.”).
-17- prehearing briefs, and took part in a five-day hearing presided over by the
arbitrator, at which time the parties’ counsel submitted testimony and documentary
evidence subject to objection and cross-examination. Following the hearing, the
parties submitted additional briefs. Throughout the process, the arbitrator engaged
in judicial functions and ultimately issued his rulings in a nine-page opinion, which
was affirmed by the circuit court and then this Court. The arbitration in this case
bears all the hallmarks of a quasi-judicial proceeding; accordingly, we find no error
with the circuit court’s conclusion that the judicial statements privilege applied
notwithstanding the fact that the statements at issue were provided during
arbitration.
C. Expert Witnesses and Judicial Statements Privilege
Appellants argue that, even if the circuit court was correct in its
conclusion than the judicial statements privilege applies in arbitrations generally, it
erred in applying the privilege in this case because the statements at issue came
from a paid expert. Appellants contend paid experts should be held to a higher
standard than ordinary lay witnesses. However, Appellants do not cite any
Kentucky law to support this argument. Instead, they refer this Court to cases from
other jurisdictions involving negligence claims asserted against expert witnesses by
the party who hired them. Those, of course, are not the facts here.
-18- Having surveyed the law, we can see no reason to treat the testimony
of expert witnesses any differently than the testimony of lay witnesses when it
comes to the judicial statements privilege. In Kentucky, the motives of the speaker
are irrelevant as it relates to the applicability of an absolute privilege. Schmitt, 291
Ky. at 82, 163 S.W.2d at 283. When applicable, the judicial statements privilege
even extends to statements made in bad faith or with malice. Id. If the privilege
can apply to statements made maliciously or in bad faith, it should also apply to
statements by expert witnesses regardless of intent.
This issue was previously addressed by the Sixth Circuit in General
Electric Company v. Sargent & Lundy, 916 F.2d 1119 (6th Cir. 1990). In General
Electric, the Sixth Circuit applied the privilege to bar claims for injurious
falsehood that were based upon statements made by Sargent & Lundy, an
engineering firm, and intended to cover up its own liability. In rejecting the same
argument made by Appellants here, the Sixth Circuit, applying Kentucky law,
stated:
General Electric and the district court cite no authority for the proposition that the absolute privilege applies only to so-called “independent” consultants. General Electric nevertheless argues that the privilege should not apply since Sargent & Lundy was “engaged in a scheme to cover up its own liability and to shift the responsibility onto innocent parties.”
General Electric and the district court, however, misperceive the effect of an absolute privilege. The
-19- Restatement, as well as Kentucky courts, recognizes that a court may not inquire into the motives of the speaker. . . . The absolute privilege, unlike a qualified privilege, renders the speaker’s motives and intent irrelevant in light of the public policy favoring freedom to speak freely and without fear of civil suit and financial hazard. The application of the privilege therefore cannot turn on whether Sargent & Lundy had an “interest in any eventual litigation,” as the district court concluded.
Id. at 1128-29 (citations omitted).
Other courts that have addressed this issue have also concluded that
the judicial statements privilege applies to expert testimony.10 For example, in
MacGregor v. Rutberg, 478 F.3d 790 (7th Cir. 2007), the Seventh Circuit
acknowledged the differences between lay witnesses and expert witnesses and
explained why it was necessary for experts to be covered by this absolute privilege:
Now it is true that the privilege is especially designed for the protection and encouragement of disinterested lay witnesses. Since they have no stake in the case and cannot be paid more than a nominal fee for testifying, they would be highly reluctant to testify if the
10 See, e.g., Mattco Forge, Inc. v. Arthur Young & Co., 5 Cal. App. 4th 392, 405 (Cal. Ct. App. 1992) (stating that the privilege protects adverse witnesses from suit by opposing parties); Darragh v. Superior Court In and For County of Maricopa, 900 P.2d 1215, 1217 (Ariz. Ct. App. 1995) (concluding that expert’s appraisals and testimony were absolutely privileged); Aequitron Medical, Inc. v. Dyro, 999 F. Supp. 294, 298-99 (E.D.N.Y. 1998) (recognizing that retained experts act as an agent for the attorney who hired them and granting summary judgment dismissing defamation claims against retained experts because the statements at issue were absolutely privileged); Blackwell v. Davis, 874 S.W.2d 950, 951 (Tex. App. 1994) (recognizing that the privilege applies to the opinions of expert witnesses in judicial proceedings); Churchill v. WFA Econometrics Corp., 655 N.W.2d 505, 509 (Wis. Ct. App. 2002) (dismissing defamation action based upon absolutely privileged statements contained in an expert’s letter advising a litigant’s attorney on a matter in dispute); ITT Telecom Products Corp. v. Dooley, 214 Cal. App. 3d 307, 317 (Cal. Ct. App. 1989) (extending application of the privilege to consulting expert witness).
-20- threat of a defamation suit hung over their heads. It would be cruel to force them by testifying to assume that risk. Expert witnesses, in contrast, could be paid to assume the risk. Nevertheless they are not excepted from the privilege . . . and that is sensible. Litigation is costly enough without judges’ making it more so by throwing open the door to defamation suits against expert witnesses. That would not only tend to turn one case into two or more cases (depending on the number of expert witnesses), but also drive-up expert witnesses’ fees; expert witnesses would demand as part of their fee for testifying compensation for assuming the risk of being sued because of what they testified to.
Id. at 792 (citations omitted).
We agree with the Seventh Circuit’s reasoning. Any benefit of
excepting expert witnesses from the judicial statements privilege would be far
outweighed by the additional burdens it would place on those expert witnesses, the
parties themselves, and the court system generally.
This does not mean, however, that expert witnesses are free to testify
without consequences. While the judicial statements privilege serves as a shield in
civil defamation cases, as in the present case, it does not offer protection in other
contexts. For example, in Curd, 433 S.W.3d 291, a licensed land surveyor sought
review of his license suspension based on a finding by the regulating agency that
his expert testimony in a prior judicial proceeding was dishonest and misleading.
Relying on the judicial statements privilege, the surveyor argued that since the
statements at issue were made in a judicial proceeding, they could not serve as a
-21- basis for a disciplinary action. Although the Supreme Court recognized that the
judicial statements privilege was necessary to allow witnesses to “discuss their
views without fear of a defamation lawsuit[,]” it rejected an extension of the
privilege to immunize testifying experts from administrative discipline. Id. at 298.
Many expert witnesses such as medical doctors, dentists, lawyers,
appraisers, surveyors, real estate agents, counselors, and public accountants, like
Stratton, must be licensed to practice their trades. While Appellants may not be
able to receive money damages in the context of an administrative disciplinary
action, their objectives in pursuing truth and holding Stratton accountable for his
alleged malfeasance may be addressed through other processes notwithstanding the
fact that the judicial statements privilege bars this civil defamation claim.
D. Professional Malfeasance Claim
Appellants’ final claim against Appellees is one seeking damages for
professional malfeasance. A professional malfeasance or malpractice claim is a
tort-based claim that sounds in negligence. “The elements of a negligence claim
are (1) a legally-cognizable duty, (2) a breach of that duty, (3) causation linking the
breach to an injury, and (4) damages.” Patton v. Bickford, 529 S.W.3d 717, 729
(Ky. 2016). While the other three elements are factual questions, the element of
“[d]uty presents a question of law[.]” Id.
-22- Here, the circuit court’s dismissal of Appellants’ professional
malfeasance claim was predicated on its conclusion that Stratton and his
accounting firm, experts retained by Riverport, a party adverse to Port of
Louisville, did not owe Port of Louisville a duty of professional care. Appellants
argue that the circuit court erred in this regard and assert that, as a testifying expert,
Stratton owed them a duty of care, which he breached by rendering indefensible
testimony that was not supported by sound accounting methods.
In Kentucky, to establish a claim for professional negligence, the
plaintiff must establish the existence of a contractual relationship between himself
and the professional. Alternatively, the plaintiff may establish that he has a
reasonable expectation that the professional is working for his benefit. Pete v.
Anderson, 413 S.W.3d 291, 296 (Ky. 2013). The professional owes a duty of care
to those parties “who are intended to benefit from his or her services[.]” Id. at 297.
We cannot conclude that the Port of Louisville could reasonably expect that it
would benefit from Stratton’s services as an expert witness.
The Kentucky Supreme Court’s opinion in Seiller, 610 S.W.3d 188, is
illustrative in this regard. That case involved a legal malpractice claim asserted by
a party against opposing counsel in a lawsuit. In Seiller, RLB Properties, Ltd.
(“RLB”) filed an action against the law firm of Seiller Waterman, LLC and three
of its attorneys (collectively the “Firm”) based upon their allegedly wrongful acts
-23- undertaken on behalf of the firm’s clients. Specifically, RLB challenged the filing
of an invalid lien against commercial property it owned and asserted, among other
claims, a negligence claim against the Firm. The trial court dismissed the
negligence claim, and this Court affirmed. The Supreme Court granted
discretionary review to address whether the trial court and this Court erred by
concluding that a litigant may not assert a negligence claim against the attorney
who represented that litigant’s former adversary. The Kentucky Supreme Court
affirmed the dismissal, concluding that “[a]s a matter of law, a party such as RLB
is not entitled to assert a negligence claim against the legal counsel who
represented an opposing party in prior litigation, because no duty flows from that
counsel to their client’s adversary.” Id. at 201. The Court reasoned that
“[n]eedless to say, an adverse party in a lawsuit is not the intended beneficiary of
the work an attorney performs on behalf of his or her own client.” Id. The Court
further recognized that “allow[ing] a party to bring a negligence action against the
adverse attorney would have a chilling effect on the number of meritorious claims
filed and this cannot be tolerated under our system.” Id. (quoting Hill v. Willmott,
561 S.W.2d 331, 335 (Ky. App. 1978)).
We can appreciate no reason why the holding in Seiller should not be
extended to cover expert witnesses, who are most often selected by and work at the
direction of counsel. Nothing in the record in this case indicates that Appellants
-24- contracted with, retained, or were otherwise intended to benefit from Stratton’s
work as an expert witness. To the contrary, Appellants were apprised of precisely
the opposite. Stratton was identified as having been retained on behalf of the Port
of Louisville’s adversary, Riverport, and Stratton provided expert opinions that
were used against Appellants in the arbitration.
Having no basis to claim that they retained Stratton or were intended
to benefit from his work, Appellants rely upon the “universal duty owed by all to
all” to argue that Appellees owed them a duty. This universal duty was first
expressed in Grayson Fraternal Order of Eagles, Aerie No. 3738, Inc. v. Claywell,
736 S.W.2d 328, 330 (Ky. 1987), abrogated on other grounds by DeStock No. 14,
Inc. v. Logsdon, 993 S.W.2d 952 (Ky. 1999), and is not as boundless as the name
implies. T&M Jewelry, Inc. v. Hicks ex rel. Hicks, 189 S.W.3d 526, 531 (Ky.
2006). “Grayson is cited often by parties advocating a theory of liability or a cause
of action where none previously existed and legal authority is otherwise lacking.”
Jenkins v. Best, 250 S.W.3d 680, 689 (Ky. App. 2007) (quoting James, 95 S.W.3d
at 891). “In other words, parties turn to Grayson’s sweeping statement of
‘universal duty’ where the facts of their case do not support a duty based on
recognized legal relationships.” Id. That is precisely what Appellants advocate
here. However, as explained above, our case law on professional negligence
claims is clear that no duty exists in the absence of a contractual relationship
-25- between the parties or a reasonable expectation that the professional will benefit
the complaining party. Appellants cannot establish either one.
Like the majority of our sister courts, we hold that an expert witness
in a judicial or quasi-judicial proceeding owes no duty of care to the adverse
party.11 Since Appellees owed no duty of care to Appellants, the circuit court did
not err in dismissing Appellants’ professional malfeasance claim as a matter of
law.
IV. CONCLUSION
For the foregoing reasons, we affirm the Jefferson Circuit Court’s
opinion and order dismissing Appellants’ complaint.
CLAYTON, CHIEF JUDGE, CONCURS.
COMBS, JUDGE, CONCURS AND FILES SEPARATE OPINION.
11 See, e.g., Block v. Sacramento Clinical Labs, Inc., 131 Cal. App. 3d 386, 393-94 (Cal. Ct. App. 1982) (affirming summary judgment dismissing criminal defendant’s professional negligence claims against prosecution’s expert); Maiden v. Rozwood, 597 N.W.2d 817, 830 (Mich. 1999) (concluding that medical examiner who testified for the state as an expert witness owed no duty to the adverse party); Lewis v. Swenson, 617 P.2d 69, 74 (Ariz. Ct. App. 1980) (stating that appellees, including an expert witness, owed a duty to the court, and breach of that duty would not give rise to a cause of action in tort by the adverse party); Feild v. Graffagnino, 514 F. Supp. 2d 1036, 1046 (W.D. Tenn. 2007) (“Expert witnesses do not owe any duty to an adverse party; instead, they owe a duty to the Court to testify truthfully and honestly.”); Kahn v. Burman, 673 F. Supp. 210, 214 (E.D. Mich. 1987) (granting motion to dismiss negligence claim against expert witness because expert witness owed no legal duty to adverse litigant); Williams v. National Medical Services, Inc., 400 F.3d 1102, 1104 (8th Cir. 2005) (affirming dismissal of negligence claims against expert witnesses on ground that the experts owed the plaintiff no duty of care); Murphy v. A.A. Mathews, 841 S.W.2d 671, 682 n.11 (Mo. 1992) (en banc) (concluding that, while witness immunity did not apply to bar negligence claims by parties against their retained experts, the holding “would not subject adverse expert witnesses to malpractice liability because . . . the expert owes no professional duty to the adversary.”).
-26- COMBS, JUDGE, CONCURRING: It is disconcerting to have to admit that some
wrongs exist -- indeed, manage to flourish -- without a remedy to redress
them. Such a realization undermines our fundamental conviction that “right” will
prevail, a concept that we as a society have cultivated from the days of King
Arthur and Camelot, a theme that weaves its way all the way through children’s
literature to our legal jurisprudence.
However, in the case before us, we are compelled to acknowledge that
we may have to tolerate the patently unsavory and unjust prospect of affording
“immunity to the evil-disposed and malignant slanderer.” Halle, 453 S.W.3d at
184.
We must be cognizant of the fact that we are extending the judicial
statements privilege to the quasi-judicial forum of arbitration -- and properly so --
as thoroughly analyzed in the majority Opinion. But in so ruling in this case of
first impression in Kentucky, we are inescapably expanding the opportunity for the
potential mischief that arguably defamatory testimony may elude accountability or
be susceptible of legal remedy. Relying on Schmitt, 291 Ky. at 82, 163 S.W.2d at
283, we announce in this Opinion: “When applicable, the judicial statements
privilege even extends to statements made in bad faith or with malice.” Incredible!
But this is a legal reality that once again highlights the disillusionment of having to
-27- acknowledge the occasional chasm between the letter of the law and the spirit of
justice.
There can be no doubt that Truth has become an endangered species
in our public discourse in virtually every forum in which we debate matters of
public policy. Indeed, in this Opinion, we have upheld the judicial statements
privilege on that very ground of necessity, reciting that the privilege is “rooted in
public policy . . . .” Halle, 453 S.W.3d at 184.
The merits of this claim of defamation will not be reached in this case,
and I claim no insight as to the viability of the underlying claims asserted in the
complaint. As was amply and ably set forth in the majority Opinion, we are
following the law as we must in adhering to Supreme Court precedent. SCR12
1.030(8)(a). The only remedies currently available to a putative victim of
defamation in a judicial or quasi-judicial forum are essentially administrative in
nature -- such as accountability to professional boards of licensure, oversight, and
discipline.
However, the Supreme Court ultimately could fashion a judicial
remedy to bolster candor to the tribunal to include candor within the tribunal under
pain of contempt if indeed true defamation or malicious testimony can be
demonstrated. That eventuality is wholly speculative in nature and is beyond our
12 Kentucky Supreme Court Rules.
-28- purview. But it clearly is an affront to the belief that “right” will prevail for
mendacity to claim sanctuary in the halls of justice.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEES:
Kenneth A. Bohnert Mark S. Fenzel F. Chris Gorman Augustus S. Herbert Edward F. Busch Louisville, Kentucky Louisville, Kentucky
ORAL ARGUMENT FOR ORAL ARGUMENT FOR APPELLANTS: APPELLEES:
Edward F. Busch Augustus S. Herbert Louisville, Kentucky Louisville, Kentucky
-29-