Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

IN RE GLOBAL CROSSING

United States District Court, S.D. New York


March 31, 2004.

In re GLOBAL CROSSING, LTD. SECURITIES LITIGATION; ROY L. OLOFSON, Plaintiff -V- GARY WINNICK, et al. Defendants

The opinion of the court was delivered by: GERARD E. LYNCH, District Judge

OPINION AND ORDER

This case, originally brought in California state court and later removed and consolidated with the class action complaint in In re Global Crossing Ltd. Securities Litigation, arises from alleged accounting improprieties at the telecommunications firm Global Crossing, Ltd. ("GC"). Plaintiff Roy Olofson, who served during the time relevant to the complaint as Vice-President of Finance for Global Crossing Development Company ("GCDC"), a subsidiary of GC, claims he was wrongfully terminated in retribution for raising concerns about "swap" transactions allegedly Page 2 used by company management to inflate the company's stock price. Plaintiff asserts claims under California law for intentional and negligent interference with contract and intentional and negligent interference with prospective economic advantage against Gary Winnick, the Chair of GC's board, and various of its officers and directors. He further brings a claim for defamation against Winnick. Defendants move to dismiss the complaint. For the reasons discussed below, defendants' motions to dismiss plaintiffs claims for interference with contract and economic advantage will be granted, and the motion to dismiss plaintiffs defamation claim will be denied.

  BACKGROUND

  The facts as presented in the complaint, which must be taken as true for purposes of this motion, are as follows.

  Olofson served as Vice-President of Finance for GCDC from May 1998 until November 2001. In May 2000, defendant Joseph P. Perrone was hired as Senior Vice President of Finance, and was soon promoted to Executive Vice-President of Finance of GC, at which time he took over responsibility for GC's accounting and reporting requirements from Olofson. At around this time, Olofson became concerned about GC's increasing use of "swap" transactions, or transactions in which GC would sell capacity on its network to other telecommunications providers, but would "roundtrip" the proceeds by engaging in mirror-image purchases from those providers, with each booking the proceeds from the transaction as revenue.*fn1 These transactions were entered into at the end of the financial quarter, Olofson believed GC's accounting for these transactions violated Generally Accepted Accounting Principles ("GAAP") and that they had no Page 3 valid business purpose, but rather were entered into solely to create the appearance that GC's revenues met Wall Street's expectations. He was further concerned that defendant Thomas Casey, GC's Chief Executive Officer, had falsely told analysts that there had been no swap transactions in the first quarter of 2001.

  Olofson first raised these concerns with Perrone in meetings on May 31 and June 1, 2001. At the June 1 meeting, Perrone "brushed off [Olofson's] concerns," and angrily informed him that he was in danger of being laid off. Olofson contacted defendant Dan Cohrs, GC's Chief Financial Officer, after the meeting to ask whether he would be laid off; Cohrs responded that he should contact Perrone after July 6. When Olofson attempted to do so, Perrone did not return his calls. Thereafter, Olofson "was given no work and was essentially cut off from any meaningful participation in the affairs of Global Crossing Ltd. or Global Crossing Development Company." (¶ 30.) On August 6, 2001, Olofson complained to GC's Chief Ethics Officer, James Gorton. Gorton responded the next day, assuring plaintiff that GC took seriously the issues he had raised.

  Olofson alleges that the decision to fire him was initially made in July or August 2001, but was "shelved" in response to his letter of August 6. On August 15, Gorton notified him that GC had begun an investigation into the practices he had identified, and simultaneously demanded that he formally notify GCDC whether or not he would continue his employment at the company. GC did not, however, provide any assurance that it "was actually going to investigate, let alone change any of its accounting practices." (¶ 63.) Olofson then "formally notified defendants that he would not participate in and/or have any complicity in a continuation of the conduct described in the August 6, 2001 letter." (¶ 64.) He was subsequently placed on paid administrative leave, and was fired shortly thereafter, purportedly as part of a "planned reduction in force." (Id.) Page 4

  Olofson alleges that he was not only terminated but also defamed as a result of his attempts to seek an investigation: at a "town hall" meeting for GC employees on February 15, 2002, following GC's bankruptcy filing, Winnick publicly stated that "[t]he definition of an extortionist is Roy Olofson."

  GC declared bankruptcy in early 2002. Unable to sue GC, Olofson now asserts claims against individual defendants Winnick, Perrone, Cohrs, and Casey for intentional and negligent interference with contract and intentional and negligent interference with prospective economic advantage, arising from his firing by GCDC. He further asserts a defamation claim against Winnick for the statement made at the February 15, 2002, town hall meeting. Defendants move to dismiss all claims.

  DISCUSSION

 I. Standard of Review

  A. Standard for Dismissal

  On a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court must accept "as true the facts alleged in the complaint," Jackson Nat'l Life Ins. Co. v. Merrill. Lynch & Co., 32 F.3d 697, 699-700 (2d Cir. 1994), and may grant the motion only if "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Thomas v. City of New York 143 F.3d 31, 36 (2d Cir. 1998) (citations omitted); see also Bernheim v. Litt, 79 F.3d 318,321 (2d Cir. 1996) (whoa adjudicating motion to dismiss under Fed.R.Civ.P. 12(b)(6), the "issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims" (internal quotation marks and citations omitted)). When deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may Page 5 consider documents attached to the complaint as exhibits or incorporated in it by reference. Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993). All reasonable inferences are to be drawn in the plaintiffs favor, which often makes it "difficult to resolve [certain questions] as a matter of law." In re Indep. Energy Holdings PLC, 154 F. Supp.2d 741, 747 (S.D.N.Y. 2001).

 II. Economic Tort Claims

  A. Interference with Contract

  Plaintiff alleges that his termination by Winnick, Perrone, Casey, and Cohrs amounted to intentional or negligent interference with his contract for employment with GCDC. In order to state a claim for intentional interference with contract, California law requires a plaintiff to allege "(1) a valid contract between plaintiff and a third party; (2) defendant's knowledge of this contract; (3) defendant's intentional acts designed to induce a breach or disruption of the contractual relationship; (4) actual breach or disruption of the contractual relationship; and (5) resulting damage." Pacific Gas & Electric Co. v. Bear Stearns & Co., 791 P.2d 587, 589-90 (Cal. 1990). Defendants argue that claims for intentional or negligent interference with contract will not lie against a manager in the employment context because managers act as their employers' agents when terminating an employee, and therefore cannot "induce" a breach of the employment contract.*fn2 Page 6

  Defendants are correct that a cause of action for interference with contract does not exist in this context. Under California law, "corporate agents and employees acting for and on behalf of a corporation cannot be held liable for inducing a breach of the corporation's contract." Shoemaker v. Myers, 801 P.2d 1054, 1068-69 (Cal. 1990), citing Gruenberg v. Aetna Ins. Co., 510 P.2d 1032 (Cal. 1973); Wise v. Southern Pacific Co., 35 Cal.Rptr. 652 (Cal. Ct. App. 1963). This conclusion derives from the requirement that there be a valid contract between plaintiff and a third party, and the corollary rule that one party to a contract may not sue the other for inducing a breach of the contract See Shoemaker, 801 P.2d 1069. Managers and supervisors "stand in the place of the employer, because the employer — the other party to the supposed contract — cannot act except through such agents." Id. Thus, where a manager or supervisor terminates an employee, there is no third party to the contract: to the extent that there is a breach, the manager does not "induce" the breach, but rather, executes it "for and on behalf of [the] principal." Mallard v. Boring, 6 Cal.Rptr. 171, 173-74 (Cal. Ct. App. 1960).

  Olofson argues that this rule should not apply here because he worked for a separate corporate entity than defendants: Olofson was employed by GCDC, while defendants were employed by GC. In plaintiffs view, the defendants may therefore be liable for inducing a breach of the contract between himself and GCDC, because defendants, as employees of GC, were not agents of a party to that contract. In support of this argument, plaintiff relies on the doctrine of corporate estoppel, which holds that a corporation may properly be said to interfere with the contract of another related corporation, even where one is a wholly owned subsidiary of the other. See Shapoff v. Scull, 272 Cal.Rptr. 480, 486-87 (Cal. Ct. App. 1990) ("[O]ne who has attempted to benefit from the corporate form of doing business may be estopped to deny a Page 7 corporation's existence."), disapproved on other grounds by Applied Equipment Corp. v. Litton Saudi Arabia Ltd., 869 P.2d 454, 464 n.10 (Cal. 1994).

  The doctrine of corporate estoppel has little force in the present situation. As discussed above, the principle that a supervisor or manager cannot be liable for inducing breach of contract between an employee and the corporation derives from notions of agency. So long as the manager or supervisor had actual supervisory authority over the plaintiff and acted in the course of his or her employment in causing plaintiffs termination, the manager is an agent of the plaintiffs employer. Plaintiff cites no California authority indicating that corporate estoppel would trump this principle, and none of the corporate estoppel cases cited by plaintiff occurred in the employment context. See Webber v. Inland Empire Investments, 88 Cal.Rptr.2d 594 (Cal. Ct. App. 1999) (lien on real property); Shapoff v. Scull 272 Cal.Rptr. 480 (development contract). In the case most directly on point, a California appellate court recently held that a manager with supervisory authority was shielded from liability for terminating the plaintiff on a contract-interference claim, even though in that case the plaintiff and the manager-defendant worked for separate but related corporate entities. See Hill v. Columbia Tristar Television, Inc., No. B155066, 2003 WL 1958881 (Cal. Ct. App. Apr. 28, 2003). Although the court did not specifically address the corporate estoppel issue, the analysis in Hill supports the position that corporate estoppel does not trump agency principles in the employment context.

  In the present case, regardless of the fact that plaintiff nominally worked for GCDC and defendants for GC, the complaint alleges that defendants had actual supervisory authority over plaintiff. (See ¶¶ 18, 20) For example, plaintiffs offer of employment was signed by GC's co-Chairman, Lodwrick Cook (W.; Compl. Ex. D), and plaintiff reported at various times to Page 8 Winnick, Cohrs, and Perrone to discuss his job responsibilities. (Id.) Given that defendants hired him, supervised him during the course of his employment, and ultimately made the decision to terminate him, Olofson cannot seriously claim that defendants were interfering with his contract with another company in so doing. It is apparent on the face of the complaint that defendants exercised the authority of GCDC in making these decisions, and that they therefore "stood in its shoes" and acted as its agents in firing Olofson, regardless of their own employment relationship to GCDC. There was therefore no "third party" to the contract with which they could interfere, and plaintiffs interference with contract claims fail as a matter of law.*fn3

  B. Interference with Prospective Economic Advantage

  The elements of the tort of intentional interference with prospective economic advantage are (1) an economic relationship between plaintiff and a third party containing the probability of future economic benefit to the plaintiff, (2) knowledge by the defendant of the existence of the relationship, (3) intentional acts on the part of the defendant designed to disrupt the relationship, (4) actual disruption of the relationship, (5) damages to the plaintiff proximately caused by the defendant's acts. Korea Supply Co. v. Lockheed Martin Corp., 63 P.3d 937, 950-51 (Cal. 2003); Buckaloo v. Johnson, 537 P.2d 865, 872 (Cal. 1975), disapproved on other grounds by Delia Penna v. Toyota Motor Sales. U.S.A., Inc., 902 P.2d 740, 751 n.5 (Cal. 1995). to addition, a plaintiff must plead and prove "that the defendant not only knowingly interfered with the plaintiffs expectancy, but engaged in conduct that was wrongful by some legal measure other than the fact of interference itself." Delia Penna, 902 P.2d at 751. This additional element Page 9 "bring[s] a greater solicitude to those relationships that have ripened into agreements, while recognizing that relationships short of that subsist in a zone where the rewards and risks of competition are dominant." Delia Penna, 902 P.2d at 751.

  Plaintiffs claims for interference with prospective economic advantage are indistinguishable from his interference with contract claims, and therefore fail for the same reasons. As the California Supreme Court stated in Shoemaker, "plaintiffs pleading has identified no `prospective economic advantage' other than the continuation of his employment relationship. Thus . . . it is in reality identical in substance to plaintiffs claim for inducement of breach of contract." Shoemaker, 801 P.2dat 1068: see also Kacludis v. GTE Sprint Communications Corp., 806 F. Supp. 866, 872-73 (N.D. Cal. 1992) (dismissing claim for intentional interference with prospective economic advantage brought by employee against supervisor, following Shoemaker), Just as Olofson failed to identify defendants' breach of a contract between the plaintiff and a third party, so has he failed to identify their interference with a prospective economic relationship between plaintiff and a third party.

  To the extent that plaintiff attempts to argue that defendants interfered with his prospective relationships with other potential future employers ¶¶ 87, 94), his claim fails for the independent reason that he has not identified any specific economic opportunity with which defendants interfered. California courts have insisted that to establish interference with prospective economic advantage, a plaintiff must specifically allege a relationship with a particular third party that has a "probability of future economic benefit to the plaintiff." Westside Center Associates v. Safeway Stores Inc., 49 Cal.Rptr.2d 793, 803 (Cal. Ct. App. 1996) (emphasis in original). This heightened requirement distinguishes situations in which a Page 10 defendant's wrongful acts disrupt a plaintiff's reasonable expectation of entering into a specific contract from those in which the defendant's acts merely harm or reduce the plaintiff's more general opportunities. The tort thus "protects the expectation that the relationship eventually will yield the desired benefit, not necessarily the more speculative expectation that a potentially beneficial relationship will arise." Korea Supply Co., 63 P.3d at 950, quoting Westside Center Associates, 49 Cal.Rptr.2d at 804. Plaintiff here has failed to allege any particular economic relationship between himself and any potential employer with which defendants' actions has interfered. He therefore fails to state a claim for either intentional or negligent interference with prospective economic advantage.*fn4

 III. Defamation Claims

  Olofson sues Winnick for defamation based on his February 15, 2002, statement at a `town hall" meeting of 60-70 GC employees that "The definition of an extortionist is Roy Olofson." (¶ 65.) Plaintiff also states on information and belief "that defendant Winnick and others actually under his control have made similar defamatory statements to multiple third parties, and in statements made in the press," and expresses his intention to file an amended complaint "to include additional parties and additional statements" after discovery is completed. (Id.) Plaintiff asserts his claims under the California statute defining slander as "a false and unprivileged publication, orally uttered" which "[c]harges any person with crime, or with having been indicted, convicted, or punished for crime; . . . [t]ends directly to injure him in respect to his office, profession trade or business, either by imputing to him general disqualification in those Page 11 respects which the office or other occupation peculiarly requires, or by imputing something with reference to his office, profession, trade, or business that has a natural tendency to lessen its profits; . . . or . . . by natural consequence, causes actual damage." Cal. Civ. Code § 46 (West 2003). Plaintiff asserts that Winnick's statement at the town hall meeting constitutes slander per se under the statutory definition.

  Winnick argues that the statement is non-actionable, claiming protection under the First Amendment. In order for a statement to escape the reach of the First Amendment and thus to constitute actionable defamation, it must contain facts susceptible of being proven false. Nat'l Ass'n of Letter Carriers v. Austin, 418 U.S. 264, 284 (1974); Campanelli v. Regents of University of California, 51 Cal. Rptr; 2d 891, 894 (Cal. Ct. App. 1996). "Rhetorical hyperbole," "vigorous epithets," and "lusty and imaginative expressions of contempt" have all been held to be protected speech. See Milkovich v. Lorain Journal Co., 497 U.S. 1, 17 (1990); Letter Carriers, 418 U.S. at 284; Greenbelt Co-op. Pub. Ass'n v. Bresler 398 U.S. 6, 14 (1970); Ferlauto v. Hamsher, 88 Cal.Rptr.2d 843, 849 (Cal. Ct. App. 1999). Whether a statement implies a provably false factual assertion is a question of law that may be determined by the court on motion to dismiss, Morning star, Inc. v. Superior Court, 29 Cal.Rptr.2d 547, 552 (Cal. Ct. App. 1994), but where the court concludes the statement could reasonably be construed as either fact or opinion, the issue should be resolved by a jury. Ferlauto, 88 Cal.Rptr.2d at 849; Campanelli, 51 Cal.Rptr.2d at 895; Good Government Group of Seal Beach, Inc. v. Superior Court, 586 P.2d 572, 576 (1978). In making such a determination, a court must engage in a two-step inquiry based on the totality of the circumstances": Page 12

 

The words themselves must be examined to see if they have a defamatory meaning, or if the sense and meaning . . . fairly presumed to have been conveyed to those who read it have a defamatory meaning. . . . In addition to the language, the context of a statement must be examined. The court must look at the nature and full content of the communication and to the knowledge and understanding of the audience to whom the publication was directed.
Campanelli, 51 Cal.Rptr.2d at 894, citing Hofmann Co. v. E.I. Du Pont de Nemours & Co., 248 Cal.Rptr. 384, 388 (Cal. Ct. App. 1988).

  Courts have allowed defamation claims involving charges of "extortion" to survive where the statement was capable of being understood by a reasonable listener as an accusation that the plaintiff had committed a crime. See Good Government Group, 586 P.2d at 576; Edwards v. Hall, 285 Cal.Rptr. 810, 819 (Cal. Ct. App. 1991). In the present case, the words "the definition of an extortionist' could on their face be understood as an accusation that Olofson had wrongfully attempted to extort money from GC by threatening to make public false accusations of accounting improprieties. The terms cast doubt on both Olofson's truthfulness and his motivations, and thus the words themselves could be understood by the average listener to be defamatory. In addition, the allegation that Olofson was an "extortionist** would be capable of being proven false — for example, should the concerns plaintiff had raised in his whistle-blower letter prove to be true. See Milkovich, 497 U.S. at 20-21 (allegations that plaintiff had lied under oath at a hearing sufficiently factual to constitute actionable defamation).

  Winnick argues, however, that his comment falls into the category of protected "hyperbole," "vigorous epithets," or "lusty and imaginative expressions of contempt," Milkovich, 497 U.S. at 17, and that plaintiffs claim therefore fails. The statement "the definition of an Page 13 extortionist is Roy Olofson" could indeed be used figuratively as well as factually, and it is quite conceivable that under the circumstances, reasonable listeners could not have perceived it as an actual accusation of extortion. Whether this was the case, however, depends entirely upon the context in which the statement was made. The complaint does not describe in any detail the composition of the "town hall" meeting, its purpose, what else was discussed there, or the tenor of the discussions generally. It is therefore impossible to ascertain from the pleadings whether, under the circumstances, the statement in question could reasonably be perceived as an actual accusation, or whether could only have been understood as an exaggeration.

  In cases where "the language . . . is capable of two meanings, one of which is harmless and the other libelous, and it is alleged that the same was used and understood as conveying the latter meaning, a cause of action is stated, and it is the province of the jury to determine in which sense the language was used and understood by the [listener]." Arno v. Stewart., 54 Cal.Rptr. 392, 395 (Cal. Ct. App. 1966), citing Mellen v. Times-Mirror Co., 140 P. 277, 279 (1914); see also Ferlauto, 88 Cal.Rptr.2d at 849 ("If the court concludes the statement could reasonably be construed as either fact or opinion, the issue should be resolved by a jury."). The fact-based nature of the "totality of the circumstances" test makes it difficult to dispose of defamation cases at the pleading stage: indeed, many of the cases defendant cites dismissing defamation claims involving blackmail or extortion were decided on a more complete factual record, either at summary judgment or on review after a verdict. See e.g., Letter Carriers v. Austin, 418 U.S. at 284-87 (reversing jury verdict on claim arising from use of term "traitor" to describe plaintiff); Greenbelt, 398 U.S. at 14-15 (reversing jury verdict on claim arising from use of term "blackmail" to describe plaintiffs negotiating position); Underwager v. Channel 9 Australia, Page 14 69 F.3d 361, 367 (9th Cir. 1995) (dismissing at summary judgment claim arising from statement that panelist was "lying"); Mattel Inc. v. MCA Records, Inc., 28 F. Supp.2d 1120, 1161-62 (C.D. Cal. 1998) (dismissing at summary judgment claim arising from statement referring to plaintiff as "bank robber" who had committed a "crime," "heist," or "theft"). Resolution of this issue must await the development, through discovery, of a more complete factual record.

  Winnick further contends that the defamation claim must be dismissed for failure to plead "actual malice." The Supreme Court has held that where a defamation plaintiff is a public figure, s/he must prove by clear and convincing evidence that the defendant made the statement with actual knowledge or reckless disregard of its falsity. See New York Times Co. v. Sullivan, 376 U.S. 254, 279-80 (1967). A plaintiff may be a public figure by virtue of his or her position, or may "voluntarily injects himself or [be] drawn into a particular public controversy and thereby becomes a public figure for a limited range of issues." Gertz v. Robert Welch. Inc., 418 U.S. 323, 351 (1974); Mattel 28 F. Supp.2d at 1162. Under California law, however, malice need not be affirmatively pled unless it appears on the face of the complaint that some privilege is at play in the challenged publication. Locke v. Mitchell, 61 P.2d 922, 923 (Cal. 1936); Peoples v. Tautfest, 79 Cal.Rptr. 478, 481 (Cal. Ct. App. 1969).

  In this case, actual malice is a matter of proof, not pleading. There are no allegations in the complaint that Olofson had become a public figure at the time of the town hall meeting, or that his whistle-blower letter had become public knowledge. Although Winnick points to a press release issued by Olofson on February 4, the week prior to the town hall meeting, it is at best disputed whether this communication was sufficiently to place Olofson in the public eye such that he would be required to show actual malice. Should it prove after discovery that Olofson's Page 15 termination was sufficiently before the public at the time of Winnick's statement that he had in fact become a limited public figure, he will have to prove by clear and convincing evidence that Winnick made his statement with actual malice. However, because this is not apparent on the face of the complaint, it is not necessary that he allege malice at the pleading stage. See Peoples, 79 Cal.Rptr. at 481 (rejecting argument that defamation plaintiff was required to plead actual malice where the complaint did not allege that he was a public figure). The sufficiency of a complaint is to be tested by its allegations and not by what theoretically might have been alleged." Id.,

  At any rate, even if it were necessary for plaintiff to plead actual malice, the complaint alleges facts sufficient to permit an inference that Winnick had actual knowledge of the statement's falsity. That is, if the allegations in the complaint are true, Winnick would have known that his statement that Olofson was "the definition of an extortionist" was false. A plaintiff need not specifically plead actual malice so long as "it appears from the pleading that the defendant published the alleged libel with knowledge of its falsity or without an honest belief in its truth or without reasonable grounds for believing it to be true." Noonan v. Rousselot, 48 Cal.Rptr. 817, 821 (Cal. Ct. App.1966). Winnick's motion to dismiss the defamation claim will therefore be denied. Page 16

  CONCLUSION

  Defendants' motions to dismiss plaintiffs first through fourth causes of action for interference with contract and interference with prospective economic advantage are granted. Defendant Winnick's motion to dismiss plaintiffs fifth cause of action for defamation is denied.

  SO ORDERED.


Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.