Hall v. Smith – 2/8/2007

February 16, 2007

Arizona Court of Appeals Division Two Holds That A Defamatory Letter Sent to Parent Corporation of Party to Litigation is Protected By the Absolute Judicial Privilege.

Sandra Smith brought a wrongful termination suit against CIGNA Health Plan of Arizona, Inc. (CIGNA AZ), its Tucson Medical Director, and Mitchell Hall, its Executive Director. After nearly eight years of litigation, Smith sent a letter to Edward Hanway, the CEO of CIGNA Corporation (CIGNA), the parent company of CIGNA AZ outlining her allegations against CIGNA AZ and accusing Hall of, among other things, diverting substantial funds from the company for use in his personal business ventures. Smith suggested that she and Hanway engage in direct negotiations to resolve her claims. After learning of this letter, Hall filed a counterclaim against Smith alleging defamation. Smith ultimately settled her wrongful termination claims shortly before trial, leaving only Hall’s defamation counterclaim for trial. Following a mistrial on the defamation claim, both parties moved for summary judgment. The superior court granted summary judgment in favor of Smith, finding her letter to Hanway covered by the absolute judicial privilege, which protects a litigant and his attorney from suit arising from the publication of an otherwise defamatory matter in the context of that litigation. Hall appealed, asserting that the absolute judicial privilege does not apply to defamatory material published to non-parties in the litigation.

Division Two of the Arizona Court of Appeals affirmed, holding that under Arizona law, the absolute judicial privilege applies to communications to non-parties who have a sufficiently close or direct relationship to the proceeding. According to the court, whether a non-party has a sufficiently close or direct relationship to the proceedings to trigger the absolute judicial privilege must be determined on a case-by-case basis. CIGNA, as a separate corporate entity, was clearly not a party to the litigation. However, the court found that CIGNA was directly involved in the Smith-CIGNA AZ litigation. CIGNA selected the Arizona attorneys who represented the defendants in the litigation, and CIGNA employees/attorneys “orchestrat[ed] the defense of Smith’s lawsuit against CIGNA AZ.” Moreover, CIGNA sent several employees to investigate Hall’s alleged embezzlement of corporate funds. Finally, the court noted that the settlement agreement between Smith and CIGNA AZ included language releasing CIGNA from liability. The court found persuasive cases from other jurisdictions applying the privilege to communications with a litigant’s insurer, noting that although the nature of CIGNA’s interests differed somewhat from those of an insurer, its interests and involvement in the litigation were similarly substantial.

Judge Pelander authored the unanimous opinion joined by Presiding Judge Howard and Judge Vasquez.