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May 13, 1975

Matthew J. LAWLOR, Plaintiff

MacMahon, District Judge.

The opinion of the court was delivered by: MACMAHON

MacMAHON, District Judge.

Plaintiff Matthew J. Lawlor, former vice-president of employee relations at Gulf & Western Industries, Inc. ("G & W"), brings this diversity action for libel alleging three claims for relief. The parties waived a jury and the case was tried to the court.

 The first claim, brought against defendants David N. Judelson and G & W, alleges that Judelson, in his capacity as president of G & W, during a meeting held April 26, 1973, "in the presence of plaintiff and other persons," uttered the following false and defamatory statements of and concerning plaintiff: ". . . You went crazy this last year -- you have been grossly guilty of conflict of interest," and [you] and that McDermott set up the Mark Group, opened a bank account and hoped to get away with a great deal of money. . . ." Upon the trial, plaintiff was allowed to amend his complaint to allege that during the meeting Judelson also made other statements, set forth in the margin, *fn1" which are alleged to be false and defamatory.

 The second claim, brought against defendants G & W and Martin S. Davis, alleges that Davis, in the course of his employment as senior vice-president of G & W, falsely stated to defendant Cynthia A. Billings, president and editor of The Gallagher Presidents' Report, Inc. ("Report"), or to one of its employees, that "plaintiff had extracted fees from GULF for placement of executives with GULF" and that as a result of Davis's statement "BILLINGS caused REPORT to publish the said statement by DAVIS in its May 22, 1973 edition of 'The Gallagher Presidents' Report.'"

 The third claim, brought against Davis, Billings and Report, alleges that Davis maliciously intended that his statements to Billings be published in Report and that on May 22, 1973 defendant Billings maliciously caused Report to publish the following matter of and concerning plaintiff:

"'CHARLIE WONDERFUL' BLUHDORN CRACKS DOWN ON EXECUTIVES. Gulf Western Industries chairman forced to oust Matthew Lawlor two weeks ago after discovery of questionable practices by Lawlor as v-p employee relations. Lawlor in charge of G W personnel department. Reportedly set up dummy corporation Mark Group. Opened bank account for dummy corporation. Channeled unsolicited job resumes to Mark Group. Extracted fees for placement of executives with G W. Charlie eliminates title. Turns over Lawlor's duties to director of personnel David Foreman." (Emphasis supplied.)

 Plaintiff claims that, as a consequence of the alleged defamation, he was forced to resign from G & W, has been unable to obtain other employment, has been damaged in his reputation and credit, and has suffered pain and mental anguish, all to his damage, in the amount of $2,000,000 on each claim.

 Defendants G & W, Judelson and Davis deny the substance of each of the allegations and allege affirmative defenses of failure to state a claim, truth, fair comment, good faith and qualified privilege based upon both interest and duty, and counterclaim for relief in the form of a judgment directing plaintiff to account for, and pay over to G & W, all of the proceeds he received from his unauthorized exploitation of special knowledge, resources and information belonging to G & W which had been entrusted to him. Alternatively, these defendants seek damages arising out of plaintiff's breach of his fiduciary duties as a corporate officer.

 Defendants Report and Billings generally deny the allegations of the third claim, but admit the publication of the alleged defamatory article and assert the affirmative defenses of failure to state a claim, truth and privilege under the First Amendment.


 Since jurisdiction is based on diversity, we must apply the choice of law rules of New York, the forum state. *fn2" The applicable New York rule requires a "governmental interests analysis" which looks to "the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties has the greatest concern with the specific issue raised in the litigation." *fn3"

 The specific issues raised here involve alleged slanderous and libelous statements made in New York. The individual defendants were all employed and present in New York City when the statements were made, and each of the corporate defendants has a principal place of business in New York. All parties agree that New York law applies. We will, therefore, apply New York law since New York appears to have the most significant contacts with the issues and the parties and the greatest interest in having its law apply. *fn4"

 We turn now to consideration of the first claim.


 The testimony upon the trial established that plaintiff, as G & W's vice-president of employee relations, was entrusted with the resumes and applications for employment submitted by persons seeking positions with G & W.

 In early 1973, G & W hired a private investigator, Jeremiah McAward, to investigate internal "leaks" of confidential information and breaches of security at G & W. The investigation, including a search of plaintiff's desk and file cabinets, revealed that plaintiff and certain of his subordinates had apparently set up their own executive recruiting firm, known as the "Mark Group;" appropriated resumes and applications submitted to G & W; sought to place such applicants with outside companies on a commission basis; opened a bank account in Stamford, Connecticut, near plaintiff's home; and had a mailing address and telephone answering service in Stamford.

 McAward reported this information to Judelson, and on April 26, 1973, Judelson, Davis, Bob Jones (G & W's counsel) and McAward met in Judelson's New York office. After discussing McAward's report, a tape recorder was set up and plaintiff was called into the meeting for an explanation. Transcripts of the recordings were received in evidence, and there is no dispute that the statements spoken at that meeting were those alleged by plaintiff. The essential issue, therefore, on this first claim is whether the statements were defamatory.

 Under New York law, injury to reputation is the gist of an action for defamation. Any published communication, spoken or written, of and concerning the plaintiff, without lawful justification or privilege, which accuses him of a crime *fn5" or tends to expose him to public contempt, scorn, obloquy, ridicule, shame, or disgrace, or to induce an evil opinion of him in the minds of right-thinking persons, or to injure him in his profession, occupation or trade, is defamatory. *fn6"

 Essentially, Judelson accused plaintiff of engaging in conflicting self-interest by establishing and operating an outside executive employment agency known as the "Mark Group," misappropriating resumes sent to G & W by executives seeking employment, giving them to the Mark Group, placing the executives with outside companies for commissions, and wrongfully using time, manpower and material belonging to G & W for the benefit of the Mark Group. These statements unquestionably injured Lawlor's reputation, exposed him to shame and disgrace, and injured him in his profession and occupation, and were, therefore, defamatory if false.

 Plaintiff admits that he formed and operated the Mark Group, substantially as stated by Judelson, but contends that the statements were, nevertheless, false because Judelson knew that the Mark Group was formed and its activities conducted solely for the benefit of G & W, that any profits made by the Mark Group were segregated and always belonged to G & W, and that Judelson gave him permission to embark on that venture on an experimental basis.

 According to plaintiff's testimony, the idea originated from the fact that G & W is a large conglomerate corporation engaged in many diversified industries, employing hundreds of executives, and needing a reliable source for recruiting new talent. Lawlor, therefore, aware that there was undoubtedly considerable executive talent within the organization, approached Judelson with the idea of forming an in-house search company for recruiting and placing executives within G & W. Such a plan, Lawlor thought, would not only save the fees paid by G & W to outside search firms but also generate profits for G & W from fees charged for placing executives with outside corporations.

 According to Lawlor, Judelson told him that if the company were successful, it would become a separate profit center for G & W. Although his testimony is unclear on the point, Lawlor implied that Judelson approved the plan of establishing such a company on an experimental basis. Lawlor, therefore, set up an executive employment agency, opened a bank account and gave the company an address and telephone listing, all under the name of the Mark Group, in Stamford, Connecticut, because he thought the placement business of the company would be more successful if it were not identified with G & W and because he did not want a company identified with G & W unless and until it became successful.

 Except for admitting that he discussed the subject of an in-house search program with Lawlor, Judelson's testimony is in direct conflict with Lawlor's. Judelson testified that he expressly forbade Lawlor to form any organization for the purpose of placing executives applying for positions with G & W with any other corporation for fees. Referring to the alleged slanderous statements, he testified that he was simply confronting Lawlor with the fact that he had disobeyed instructions and calling on him for an explanation.

 The transcript of the April 26 meeting is informative. It reveals that Judelson asserted, without denial, contradiction or even a defense by Lawlor, that when Lawlor had approached Judelson in 1972 about forming a G & W enterprise for placing executive applicants with outside corporations for fees, Judelson had indeed rejected the idea.

 In light of Judelson's unimpeached trial testimony, corroborated by the transcript of the April 26, 1973 meeting, we conclude that Judelson rejected the idea of setting up an executive placement agency, whether as a G & W company or otherwise, and forbade Lawlor to engage in such placement activities for fees and ordered him to confine his activities to organizing resumes of all executives in G & W subsidiaries to facilitate filling internal vacancies when they occurred.

 On cross-examination, plaintiff admitted that Judelson had ordered him to terminate the employment of Richard Boester, G & W's director of personnel, serving under plaintiff. Plaintiff, nevertheless, offered the presidency of the Mark Group to Boester and suggested that he invest his termination pay from G & W in the Mark Group. Lawlor also admitted offering David Biondi, a G & W tax lawyer slated for termination, a job as general counsel to the Mark Group. The undisputed facts show that plaintiff established a bank account in Stamford, Connecticut, under the name of the Mark Group, although the policy of G & W required that the accounts of any subsidiary company of G & W be conducted by the vice-president in charge of banking affairs. Plaintiff also established a mailing address and answering service for the Mark Group in Stamford, Connecticut.

 An examination of the testimony of Lawlor and Biondi, as well as an organizational chart prepared by Lawlor, shows that the Mark Group was to be part of a system called "MJL Enterprises." Plaintiff admitted that MJL Enterprises was an extension of himself, Matthew J. Lawlor, and that he took $14,870 worth of deductions under its name on his 1973 personal income tax return. Plaintiff also admitted that he did not discuss the Mark Group project with any of his superiors during the period of its operations.

 In addition, McAward's investigation revealed that plaintiff was using his time, that of G & W's employees, and G & W's facilities and materials for the work of the Mark Group.

 These facts compel the conclusion that Lawlor was operating the Mark Group as a private business venture of his own, in no way connected with G & W, and that he did not have the intention of making the Mark Group a G ...

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