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"
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.
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
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.)
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
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.
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
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
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
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
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
"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
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
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
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
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":
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
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
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,
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.
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
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."
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.
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.