Labor & Employment Law Daily Logistics employer must face trial over claims it spread fake emails about former employee
Friday, May 8, 2020

Logistics employer must face trial over claims it spread fake emails about former employee

By Wayne D. Garris Jr., J.D.

During settlement negotiations over the employer’s breach of contract lawsuit against the former employee, it allegedly sent fake emails to his new employer.

Reversing and remanding a federal district court’s dismissal of an employee’s tort claims against his former employer, XPO, the Tenth Circuit held that the fraud and bad faith exception to Utah’s judicial proceedings privilege applied to fraudulent and bad faith conduct of parties to litigation, not just attorneys. In an unpublished decision, the court also rejected the district court’s holding that the employee, who accused his former employer of sending fabricated emails to his new employer during settlement negotiations of a separate breach of contract matter, had to raise a claim of fraud in order for the exception to apply. It was sufficient that the employee alleged facts indicating fraud or bad faith. Judge Briscoe filed a separate dissenting opinion (Peterson v. XPO Logistics, Inc., May 4, 2020, Eid, A., unpublished).

The employee worked for XPO Logistics, but left to work for a competitor. XPO filed suit alleging that the employee breached his confidentiality, non-solicitation, and non-compete agreements, that the competitor tortuously interfered with employee’s employment with XPO, and that both parties misappropriated trade secrets.

Fake emails. During the course of the litigation, XPO sent emails to the competitor that supposedly proved that the employee breached his employment contract. The employee alleged and pointed several inconsistencies in the email to support his allegation, that the emails were fabricated. Nevertheless, the competitor believed that the emails were evidence of the employee’s breach and terminated his employment.

Second lawsuit. The employee sued XPO for defamation, tortious interference, false light, injurious falsehood, and statutory identity theft. He alleged that XPO’s emails were fabricated, and that it sent the emails to the competitor to improve its settlement position in the breach of employment agreement lawsuit.

XPO moved to dismiss the employee’s complaint and the district court granted the motion. The district court found that Utah’s judicial proceedings privilege protected the emails sent during the course of settlement discussions. Although there is a fraud exception to the privilege, the court did not apply the exception because the employee failed to assert a fraud claim. The employee appealed.

Judicial proceedings privilege. In Utah, the judicial proceedings privilege protects “participants in the judicial process from liability for statements made during an official proceeding.” For the privilege to apply, the statements must be (1) “made during or in the course of a judicial proceeding”; (2) “have some reference to the subject matter of the proceeding”; and (3) be “made by someone acting in the capacity of judge, juror, witness, litigant, or counsel.” The privilege also protects participants’ conduct during a judicial proceeding.

Fraud exception. In Moss v. Parr Waddoups Brown Gee & Loveless, the Utah Supreme Court noted that the privilege did not apply “where an attorney has committed fraud or otherwise acted in bad faith.” The employee argued that the exception should apply and that the district court erred in holding that he had to raise a separate fraud claim in order for the exception to apply. In addition to agreeing with the district court, XPO argued that the exception only applied to statements or conduct by attorneys, not parties in the litigation.

Fraud. The Tenth Circuit concluded that the employee did not have to formally claim fraud or bad faith for the exception to apply. In Moss, the Utah Supreme Court did not require parties to raise specific claims of fraud or bad faith, but implied that it was enough for a complaining party to ‘plead sufficient facts’ demonstrating fraud or bad faith conduct.

XPO then argued that the employee failed to plead sufficient facts demonstrating fraud, but the court held that it did not need to examine the issue since the employee could allege facts showing fraud or bad faith conduct. Here, the dissemination of allegedly fabricated emails was enough to demonstrate bad faith, so the exception could apply.

Attorneys only. Next, the court considered XPO’s argument that the fraud and bad faith exception only applied to conduct by attorneys, not parties to the litigation. The court rejected this argument stating that because the privilege applies to all participants in litigation, it follows that the exception would also apply to all participants.

There was no state law precedent that directly addressed the issue, but the court reasoned that the Moss court would have extended to exception to non-attorneys. In Moss, the court noted that the purpose of the judicial proceedings privilege was to ‘promote the integrity of the adjudicatory proceeding and its truth finding processes.’ The court concluded that it would frustrate the privilege’s purpose to protect a fabricated document just because it was created by a party to the litigation, rather than the attorney or to allow XPO to escape alleged bad faith conduct simply because it occurred during settlement negotiations.

Therefore, the court reversed and remanded the district court’s dismissal of the employee’s claim.

Dissent. In a dissenting opinion, Judge Briscoe argued that the district court’s dismissal should have been affirmed because the employee failed to make a “strong showing” that the Utah Supreme Court would have extended the privilege to parties in litigation.

Judge Briscoe took issue with the majority’s assertion that the Moss court would have extended the exception to non-attorneys. Utah courts had previously held that to be protected by the judicial proceedings privilege, an individual must be “acting in the capacity of judge, juror, witness, litigant, or counsel.” However, the Moss court stated that an attorney that commits fraud or bad faith “no longer acts in his capacity as an attorney, and therefore falls outside of the scope of the privilege, becausehe is ‘acting in a manner foreign to his duties as an attorney.’ The majority overlooked the limited holding in Moss, and made a “leap” to the conclusion that because the privilege applied to all participants, the exception must apply to all participants as well.

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