The opinion of the court was delivered by: TRAGER
Among other issues, this case raises an interesting and somewhat novel defamation question. In an age of increasingly efficient information collection, the case highlights the conflict between the justifiable goal of more efficient government and a person's interest in his reputation, that "plant of tender growth, [whose] bloom, once lost, is not easily restored." Karlin v. Culkin, 248 N.Y. 465, 478, 162 N.E. 487 (N.Y. 1928) (Cardozo, C.J.). Specifically, the case presents the question whether, under New York State law, the traditional rule that consent to publication bars a defamation claim should be applied where to bid on government contracts a person must place defamatory material into New York City's computerized procurement system. I conclude that the New York Court of Appeals would hold that an action for defamation should lie where a plaintiff has no realistic alternative but to submit the defamatory material.
Plaintiffs are three corporations (Van-Go, Sterling Coach, and Celebrity Transit), all in the business of providing bus or van transportation, and Paul and Isaac Dachs, their two principals. Van-Go had a two year contract with the Board of Education ("BOE" or "Board") from September 1988 that had repeatedly been extended through June 30, 1996, providing transportation for severely disabled pupils in vans with a driver and two escorts. This contract required Van-Go's drivers to carry the pupils from their residences. See Compl. PP 14-15.
The events leading to this lawsuit apparently resulted from a labor dispute. In 1993, Van-Go was not organized by Local 1181-1061, Amalgamated Transit Union, AFL-CIO ("Local 1181"), the primary union representing bus drivers for the BOE; instead, it paid lower wages and was organized by District 6 International Union of Industrial, Service, Transport and Health Employees ("District 6"), whose contract expired on March 31, 1994. See Compl. P 25. In October or November 1993 paid organizers from Local 1181 began organizing Van-Go employees. See Compl. P 26. At the same time, District 6 filed a still-unresolved unfair labor practices complaint against Van-Go, blocking any change in union representation. See Compl. P 27.
In late January or early February 1994, the BOE's Executive Director of Operational Support Services Kevin Gill placed Van-Go's contract out for re-bid "in anticipation of the successful organization of Van-Go by Local 1181 and what seems to be an inevitable job action as a result." Defs.' Ex. D, undated Ltr. from Kevin Gill ("Gill Ltr."). The letter states: "The President of Van-Go has informed us that he will not be able to pay the wages typically demanded by Local 1181 under the current terms of his Board contract." Id.
The contract between Van-Go and the BOE also required that Van-Go's employees be approved pursuant to a background check, mental fitness report, drug test, and training course. Plaintiffs assert that this process often took six months to a year. See Compl. P 17. The contract between Van-Go and the BOE included a clause stating: "The Contractor must have sufficient, qualified and approved personnel to enable the Contractor to dispatch substitute escorts promptly if, when and where necessary to ensure continuous, uninterrupted and punctual service in each and every instance." Defs.' Ex. A "Extension and Second Amendment of Contract," § (D) at 10. Plaintiffs allege that it was the BOE's "uniform practice and policy to approve conditionally new employees . . . ." Compl. P 18. Plaintiffs state that the BOE has no policy limiting the number of conditional employee approvals, see Compl. P 21, and had previously "certified conditionally drivers in excess of the number needed for regular service . . . ." Compl. P 23.
Van-Go learned that Local 1181 planned to initiate a strike against it around April 4, 1994; it notified the BOE by letter dated March 16, 1994. See Compl. PP 29-30. The BOE certified potential replacement workers as it had in the past. See Compl. PP 32-33. Plaintiffs allege that Local 1181 called off the strike because the BOE had conditionally certified replacement workers. See Compl. P 35.
The complaint further alleges that Gill discussed Van-Go's attempts to obtain replacement workers with representatives of Local 1181. See Compl. P 37. Gill, on behalf of the BOE, informed Van-Go by letter dated April 7, 1994, that it would not conditionally approve employees "'to act as strike breakers . . . .'" Compl. P 38. Plaintiffs contend that Gill's act was a deviation from its long-standing practice of conditional certification, and that as a result, Van-Go was unable to obtain replacement employees. See Compl. PP 38-42. Gill's action was appealable to the Chancellor, who acts through a Board of Review, which has the power to review Gill's decision as well as contractor qualifications. See Defs.'s Mot., Aff. of Richard Langford, Deputy Dir. of Contractual and Regulatory Affairs dated Sept. 15, 1995 PP 9-13, 21-23. Van-Go did appeal to the Board of Review, but no hearing was ever held. See Compl. P 45.
Subsequently, Celebrity and Sterling, the sister companies of Van-Go, submitted proposals for the Van-Go contract. Sterling was the apparent low bidder for contract number 7200, and Celebrity was the apparent low bidder for contract number 7291. See Defs.' Ex. E, Ltr. from Gill to Paul Dachs dated July 27, 1994. In both cases, the BOE, acting through Gill, requested "written assurance and a plan" that would describe how the companies would fulfill their contracts given Van-Go's labor problems. Compl. PP 55-58, Defs's Ex. E. At the time the bids were submitted, Sterling had no employees. See Defs.' Ex. H, Test. of Paul Dachs at Board of Review Hr'g November 9, 1994, at 5. Plaintiffs assert that this request was an additional requirement not in the bid materials, not ordinary practice, and that other contractors were not subjected to this requirement. See Compl. P 57. By letter dated August 4, 1994, Celebrity and Sterling provided a plan to Gill proposing that replacement workers be used in the event of a strike. See Compl. P 59.
On August 23, 1994, the BOE informed Celebrity and Sterling that it was awarding the contracts to other contractors because their refusal to perform without conditional certification of workers constituted a "qualification [conditional submission] of the bid." Compl. P 60; Defs.' Ex. F, Ltr. from Richard W. Scarpa, Acting Director of Purchasing to Paul Dachs dated August 23, 1994 ("Scarpa Ltr."). This letter also stated that the BOE had received allegations of criminal activity, specifically, "the possibility of criminal activity constituting the offer of gratuities to government officials," which provided another ground for refusal to award the bid. Scarpa Ltr. Plaintiffs allege that this statement was false, and made with knowledge of its falsity, or with reckless disregard for its accuracy. See Compl. P 62.
Plaintiffs appealed to the Board of Review on August 29, 1994. See Compl. P 64. On October 14, 1994, plaintiffs requested that the BOE produce the names of the persons who were the sources of the allegations concerning gratuities. The BOE refused to provide these names, but also stated that no testimony concerning gratuities would be permitted at the hearing. See Compl. PP 64-66; Defs.' Ex. G. No testimony regarding the allegations was presented at the hearing; plaintiffs allege this lack of testimony was due to defendants' knowledge that the accusations were false. The Board of Review, finding that Sterling and Celebrity submitted "qualified" bids, denied the appeal on November 23, 1994, and issued a formal decision on April 26, 1995. See Compl. PP 67-69; Defs.' Ex. H.
Plaintiffs further allege that the BOE's acts were taken on behalf of Local 1181; that the false allegations regarding gratuities have been entered into the City's procurement system, resulting in their reappearance for every City bid; that the Department of Transportation delayed in awarding a contract to Celebrity because of the allegations; and that the plaintiffs have had no opportunity to refute the allegations of gratuities. See Compl. PP 70-73.
Plaintiffs brought suit in this court on June 30, 1995. Their complaint alleged five causes of action. Two counts were brought under 42 U.S.C. § 1983, alleging violations of federal labor law and due process.
Plaintiffs also pled several state law claims: breach of contract, breach of duty of good faith and fair dealing, and defamation. Plaintiffs seek damages, a declaratory judgment and a permanent injunction.
Because both parties submitted materials beyond the complaint the remaining part of the motion was converted into one for summary judgment. Upon notice to the parties of the conversion, and additional oral argument, this remaining portion of the motion was granted in part and denied in part on February 6, 1997. This opinion explains the reasons for that decision.
Count V of the complaint alleges that two defamatory statements were made. The complaint first alleges that
Richard W. Scarpa, on his own behalf and on behalf of Mr. Gill, the Board and the City, published one or more false statements disparaging the quality of the services provided by [plaintiffs] and impugning the integrity of [plaintiffs]. These statements include, but are not limited to, a letter dated August 23, 1994, making false allegations of "possible . . . criminal activity constituting the offer of gratuities to government officials." Upon information and belief, these statements were published to Board employees and others, and were entered into the City's computerized procurement system.
Compl. P 107. This allegation is based on the Scarpa letter, which states in pertinent part:
Your letter clearly indicates neither Sterling Coach nor Celebrity is prepared to perform in the event of award unless the Office of Pupil Transportation changes its policy with regard to conditional certification of school bus drivers. As this requirement constitutes a qualification of the bid, we are rejecting both submissions in accordance with paragraph 7 of each bid document entitled, "RESPONSIVE BIDS."
While this constitutes sufficient cause for rejection alone, we are also in receipt of allegations from former employees of Van-Go Transport which call into question the prior performance and integrity of the principals of Sterling Coach and Celebrity and indicate the possibility of criminal activity constituting the offer of gratuities to government officials. Therefore a second cause for rejection of the submissions of those two companies is based on those allegations and in accordance with paragraph 14 of each bid entitled, "ABILITY TO PERFORM."
The second defamatory statement ("second claim") is alleged to be contained in the Gill letter, which the complaint refers to as follows:
The Board, the City and Mr. Gill further defamed plaintiffs in an undated letter signed by Mr. Gill, sent in or about late January or early February 1994 to many or all of Van-Go's competing contractors. In that letter, Mr. Gill stated that it was "inevitable" that Division 1181 would strike Van-Go, and that the job action would result in "disruption of service." For this reason, the letter said, the Board was putting all of Van-Go's Contract work out for re-bid to other contractors.
Compl. P 109. The letter stated:
The school bus company currently providing this service is in the second year of a three year extension and provides excellent service to the children. Normally, we would have no reason to bid this work. However, there is a strong possibility that the company currently providing the service, Van-Go Transportation, will be organized by Local 1181 of the Amalgamated Transit Union. The wages paid under Local 1181 collective bargaining agreements with the other school bus companies under contract to the Board of Education are higher than those currently being paid by Van-Go and there is every reason to believe that, in the event the organization is successful, the same will be required of Van-Go. The President of Van-Go has informed us that he will not be able to pay the wages typically demanded by Local 1181 under the ...