Scheel v. Harris

STEPHANIE SCHEEL and MRW HOLDINGS, INC., Plaintiffs,

v.STEVE HARRIS and GREGG BROOKS, Defendants.

Civil Action No. 3: 11-17-DCR

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF KENTUCKY CENTRAL DIVISION (at Frankfort)

Dated: August 28, 2012

MEMORANDUM OPINION AND ORDER

This matter is pending for consideration of several motions. [See Record Nos. 107, 108, 111, 114.] Plaintiffs Stephanie Scheel and MRW Holdings, Inc. ("MRW") assert that they are entitled to partial summary judgment regarding Defendant Steve Harris's liability on the underlying defamation claims they have asserted against him. Additionally, they request a determination that they are entitled to a jury instruction on punitive damages at trial. Conversely, Defendants Harris and Gregg Brooks seek summary judgment on the defamation and conspiracy claims asserted against them.

For the reasons explained below, the Court will deny the plaintiffs' motions for partial summary judgment. However, the Court will grant Brooks's motion. Harris's motion will also be granted with regard to the plaintiffs' conspiracy claim.

I. Background

This case arises from an ethics complaint that Harris filed with the American Institute of Professional Association Group Insurance Administrators ("AIPAGIA") regarding MRW and Scheel. The AIPAGIA "serves as a resource for best practices in the group association industry." [Record No. 123, p. 8] It is a self-governed organization, with a "membership/ethics chair who is tasked with overseeing any ethical issues raised within the organization." [Id.] Harris and MRW are members of the AIPAGIA. Brooks, who is also in the business of providing group insurance, is not a member of the association.

MRW is a Virginia-based insurance broker "focusing on group association insurance plans." [Id., p. 3] It was founded in 1982 by Michael R. Ward ("Mr. Ward"), Stephanie Scheel's father. [Id.] Scheel worked for MRW from 1999 to 2011. Additionally, she "held a number of roles at MRW and acceded to Vice President in 2005." [Record No. 107-1, p. 3] And from 2000 to 2010, Scheel attended AIPAGIA meetings on MRW's behalf.

Beginning in 1997, Mr. Ward, Harris, and Brooks formed several partnerships "selling insurance products wherein the three men would share commissions generated from the products." [Record No. 108-1, p. 4] In the "late 1990s," Mr. Ward, Brooks, and Harris "entered into an informal partnership whereby they agreed to evenly share commissions from any insurance business they were able to generate in the Washington, D.C. area." [Id., pp. 3-4] In 2001, they obtained an account selling health insurance to the Democratic National Committee ("DNC"). Pursuant to the agreement, MRW was "broker of record" on the account, while Mr. Ward, Brooks, and Harris shared "equally in the commissions from the account." [Id., p. 4] Thethree also entered into an agreement with Brad Marshall, Chief Financial Officer for the DNC, whereby Marshall would be paid a consulting fee of $1,000 per month. In exchange, Marshall agreed to "use his contacts to generate business." [Id.] They "decided to use the monthly DNC commission to pay Marshall his $1,000 consulting fee, and to also pay Ms. Scheel $1,000 per month to service the DNC account." [Id.] The DNC account was lucrative. By 2008 the commissions were roughly $120,000 per year. [Id.]

In August 2004, Mr. Ward joined with Brooks and Harris in another venture: Worldwide Benefit Services, LLC ("WBS"). WBS "sold insurance products known as the Travel Assistance program and ID Theft Assist program." [Record No. 114-1, p. 2] The original partners were Harris and Brooks, who each held a twenty-five percent interest, and MRW, which held a 50% interest. [Record No. 123, p. 6] In October 2005, Chris Ward — Mr. Ward's son — became a member "by acquiring one-half of MRW's 50% interest in WBS."¹ [Id.]

Mr. Ward passed away in 2008, and his wife, Peggy Ward ("Mrs. Ward"), took over as President of MRW. However, due to questions of succession, a dispute arose "over the terms of the WBS Operating Agreement providing for compensation and the role of MRW in WBS." [Record No. 114-1, p. 2] During this time, the relationship between Scheel, Harris, and Brooks began to deteriorate. In May 2009, Scheel sent an update on the DNC account to Harris, Brooks, and Mrs. Ward. Harris responded to Sheel by directing that she "please stop all communicationwith me. In light of the current situation with MRW and WBS I want no communication, just send me my check!" [Record No. 123-7, p. 13]

During this period, the parties also became concerned about the propriety of the fee agreement with Marshall. The insurance industry prohibits "a non-licensed individual [from] receiving a commission, or kick back, for referring an account." [Record No. 123, p. 5 n.13] After Mr. Ward's death, "MRW's accountants suggested that Ms. Scheel locate the consulting fee agreement so as to ameliorate any concerns regarding the payments to Marshall." [Id.] MRW discontinued the payments after the consulting fee agreement was not produced. [Record No. 107-11, pp. 16-17] On January 15, 2010, Harris and Brooks resigned from the DNC account.

After Harris and Brooks withdrew from the DNC account, "Harris asked Brooks to summarize the account and his dealings with Stephanie." [Record No. 111-1, p. 4] Brooks did so in an e-mail dated March 22, 2010, which Harris attached to the ethics complaint that he filed on March 29, 2010. [Record No. 107-8, pp. 4-23] Harris lodged the complaint against MRW and Scheel to "ask that their membership be terminated" on the grounds that they "have acted unprofessionally, illegally, stolen monies from partners, . . . and [committed] numerous acts that could hurt the reputation and integrity of AIPAGIA." [Id., p. 4] The statements made in the ethics complaint form the basis for the plaintiffs' defamation claims.

Scheel and MRW filed their original complaint in Virginia state court on December 22, 2010. [Record No. 3, p. 1] They asserted claims for defamation and civil conspiracy against Harris and Brooks. Harris removed the action to the United States District Court for the WesternDistrict of Virginia on March 2, 2011, and filed a motion for improper venue and lack of personal jurisdiction. [Id.] On March 23, 2011, while this motion was still pending in Virginia, the plaintiffs filed a second, essentially identical, complaint in the Eastern District of Kentucky. [Id.; see Record No. 1] Harris's motion to dismiss was granted by the Western District of Virginia on June 28, 2011. [Record No. 27, p. 2] Following a period of discovery, the parties filed various motions for summary judgment which are now ripe for review. [Record Nos. 107, 108, 111, 114]

II. Standard of Review

Summary judgment is appropriate when a party demonstrates that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Chao v. Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002). A dispute over a material fact is not "genuine" unless a reasonable jury could return a verdict for the nonmoving party. That is, the determination must be "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986); see Harrison v. Ash, 539 F.3d 510, 516 (6th Cir. 2008).

A party moving for summary judgment bears the burden of showing conclusively that no genuine issue of material fact exists. CenTra, Inc. v. Estrin, 538 F.3d 402, 412 (6th Cir. 2008). In deciding whether to grant summary judgment, the Court views all the facts and inferences drawn from the evidence in the light most favorable to the nonmoving party. Matsushita Elec.Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). Additionally, the nonmoving party must do more than cast some "metaphysical doubt" on the material facts. Chao v. Hall Holding Co., 285 F.3d 415, 424 (6th Cir. 2002) (citing Matsushita, 475 U.S. at 586). Instead, he or she must present "significant probative evidence" of a genuine dispute in order to defeat the motion for summary judgment. Id.

III. Legal Analysis

A federal court, sitting in diversity, must apply "the law, including the choice of law rules, of the forum state." Westfield Ins. Co. v. Tech Dry, Inc., 336 F.3d 503, 506 (6th Cir. 2003). Kentucky's choice of law principles dictate that, for actions sounding in tort, "'significant contacts' . . . permit the application of Kentucky law." Saleba v. Schrand, 300 S.W.3d 177, 181 (Ky. 2009) (quoting Foster v. Leggett, 484 S.W.2d 827, 829 (Ky. 1972)). Here, there are significant contacts with Kentucky because the plaintiffs' claims stem from an "ethics complaint . . . prepared by a Kentucky resident in Kentucky." [Record No. 107-1, p. 16 n.86] As a result, the Court will apply Kentucky law to the plaintiffs' defamation and conspiracy claims.

A. Scheel's and MRW's Motions for Summary Judgment

Scheel and MRW assert that are entitled to partial summary judgment regarding their defamation claims against Harris. The plaintiffs contend that they have each established a prima facie case of defamation. Harris does not seriously dispute this point. He argues, however, that his statements are not actionable because they are "true, substantially true or merely opinion." [Record No. 130, p. 12] Alternatively, he maintains that the ethics complaint which forms thebasis for this action was privileged as a "matter of common interest between Harris and AIPAGIA." [Id., p. 15] The plaintiffs also maintain that they are entitled to a punitive damages instruction at trial regarding their defamation claims against this defendant.

1. Elements of Defamation

To make out a claim for defamation, a plaintiff must establish the following four elements: (i) defamatory language; (ii) about ...