United States: Defamation And The Common Interest Privilege In The Construction Industry

Last Updated: September 7 2015
Article by David A. Kluft

Construction projects often involve a complex array of contractors, subcontractors, banks, bonding agents, architects, engineers and so on. With that many parties depending on each other to complete a project, negative statements about the quality and integrity of other peoples' work often arise. Such statements, if false, may give rise to defamation claims. However, even a false statement may be protected from liability by a "common interest" privilege. Two recent Massachusetts cases address what kinds of statements qualify for common interest privilege protection in matters related to the construction industry.

Defamation and Qualified Privileges

The law of defamation tends to vary from state to state. In Massachusetts, defamation is defined as the publication of a statement of fact (i.e., not opinion) concerning the plaintiff that is both false and capable of damaging the plaintiff's reputation. The statement must be published with the requisite fault — anywhere from negligence to willful lying, depending on the circumstances — and it must cause actual harm or be the type of statement presumed to cause harm.

A statement that satisfies these elements may nevertheless enjoy the protection of a "qualified" or "conditional" privilege, such as the common interest (or "shared interest") privilege. This privilege applies when the publisher and recipient of a statement share a common interest in the subject, and the statement is reasonably calculated to further that interest. The common interest privilege is most often invoked in the employment context, where an employer has a conditional privilege to disclose potentially defamatory matter about an employee's job performance to those who share an interest in that performance, such as the employee's manager, and in some cases customers or co-workers. The privilege may also arise in the context of a legal duty, such as a school principal's duty to share with parents information that may affect the welfare of their child. In Massachusetts, the privilege is considered an affirmative defense, but some jurisdictions describe it as an additional element (i.e., the element that the statement is "unprivileged").

The common interest privilege can be "abused" and thereby forfeited in certain circumstances. In Massachusetts, a conditional privilege is abused if it is (1) published with constitutional or "actual" malice, i.e., knowledge of its falsity or reckless disregard as to its truth; (2) published with common law malice, i.e., ill will or in bad faith; or (3) recklessly over-published to too many people, or to those who had no need to know the information.

Defining the Common Interest Privilege in the Construction Industry

Two recent Massachusetts Appeals Court decisions provide useful guidance about where to draw the line when applying the common interest privilege in the construction industry.

The first case, Downey v. Chutehall Construction Co., 86 Mass. App. Ct. 660 (2014), is a fairly typical application of the privilege. In that case, a homeowner hired the plaintiff, a roofing contractor, to install a roof. The homeowner later hired the defendant (another roofing professional) to investigate the cause of a leak in that roof. The defendant's report to the homeowner stated that the roof was "substandard" and had been installed by the plaintiff over soaking wet fiberboard insulation. The Appeals Court held that the report was protected by the common interest privilege. The defendant shared a common interest with the homeowner in evaluating the source of the leak so repairs could be made, and the statements in question advanced that interest. Moreover, there was no evidence that the privilege was abused through common law malice (there was no evidence of ill will), excessive publication (the statement was made only to the homeowners) or constitutional malice (the investigation was professional and not reckless).

But the privilege did not apply in Sturm Corp. v. Gilbane Building Company, 87 Mass. App. Ct. 1138 (2015). In that case, the defendant, a construction management company, became dissatisfied with the work of the plaintiff, a crane inspection company, and removed the plaintiff from an approved list of crane inspectors. Even though the defendant was now no longer working with the plaintiff, the defendant nevertheless told other construction companies that the plaintiff's work was "no good," "shoddy" and "not up to par." The Court held that the defendant's statements were not protected by a qualified privilege. Unlike the parties in Downey v. Chutehall, here the defendant was no longer working on any project that would be affected by the plaintiff's allegedly shoddy work, so it had no interest in common with the recipients of the message. The Court rejected the defendant's argument that construction companies shared a common interest in "crane safety;" a general industry-wide concern about safety was too unspecific to enjoy a qualified privilege where it did not arise from a mutual interest in the safety of a particular building site.

Other Common Interests Protected by the Privilege

Other types of statements that may be protected by the common interest privilege include:

Statements by architects to owners. Architects are generally treated as having a professional duty to the project owner and thus a common interest in the project. Therefore, their statements to owners about the performance of contractors are often protected by the common interest privilege. In Sato Construction Co. v. 17&24 Corp., 2010 N.Y. Misc. LEXIS 4437 (N.Y. Sup. Ct. Sept. 7, 2010), the Court held that an architect's statement to a building owner that there was "sufficient cause" to terminate a window installation subcontractor was conditionally privileged. In Meinhard v. Creasy, 2008 Cal. App. Unpub. LEXIS 648 (Cal. App. 3d Dist. Jan. 25, 2008), an architect's report to a homeowner criticizing a contractor's work quality, professionalism and billing practices was "obviously protected" by the common interest privilege. And in E. Construction v. Earl R. Flansburg & Assoc., 1 Mass. L. Rep. 250 (Mass. Super. Ct. 1993), an architectural firm was asked to investigate the bidders on a school construction project, and reported that one bidder had an "abominable" record, barely qualified for the job, and that most of its large projects ended up in litigation. The Court held that report was conditionally privileged (and disregarded the plaintiff's curious objection that the report, even if accurate, was unnecessarily thorough).

Statements by contractors about other contractors. Generally, a contractor working on a project has a qualified privilege to discuss the project with the owner and other entities with a common business interest in the project. In Briggs v. Newton, 984 P. 2d 1113 (Alaska 1999), a new contractor told the owner that the previous contractor's work was of low quality and that he had purposely underbid the job. The Court held that these statements were privileged because they contained information necessary for the accomplishment of a joint business interest, i.e., financing and completing the unfinished project. Similarly, in Lull v. Wick Construction, 614 P. 2d 321 (Alaska 1980), the general contractor charged with building the Juneau courthouse enjoyed a conditional privilege to tell the project's bank and bonding agent that a fireproofing subcontractor was in default for non-performance.

Communications among state agencies. Communication between government entities about public construction projects will often be privileged. In Irwin-Yaeger v. Wash. State Community College, 2015 Wash. App. LEXIS 1139 (Wash. Ct. App. June 2, 2015), staff members in charge of a reviewing bids on a building project at a state college communicated their prior bad experiences with a plumbing subcontractor to the state agency charged with overseeing public construction projects. The Court held that, even if the college and the state agency should be considered separate entities, they clearly shared a common interest in the project in question.

Unprotected Statements and Abuse

When deciding that a statement is not protected by the privilege, courts often blur the line between a statement that was never privileged in the first place, and a statement that was privileged but has lost protection because the privilege was abused. In either case, the end result is the absence of protection. The following circumstances may give rise to the non-application, or abuse, of the common interest privilege:

Alerting the Media. Perhaps the most self-evident form of abuse of the common interest privilege is when an otherwise privileged statement makes its way to the press, thus becoming over-published. In Johnson Controls v. Heery Intl, Inc., 2000 U.S. Dist. LEXIS 9608 (N.D. Tex. July 7, 2000), a consultant's report to a school committee that a contractor had not done the required work was privileged, but the leak of the same report to the Dallas Morning News was a possible abuse that precluded summary judgment. In Brown v. Kelly Broadcasting Co., 48 Cal. 3d 711 (Cal. 1989), the defendant took a different approach and argued that the public at large (and by extension the media) shared a common interest with respect to all public construction projects, but the Court rejected this broad interpretation.

Telling the Neighbors. Just because two parties both would like to see a project finished, that doesn't mean they share a truly common interest. In Levine v. Steve Scharn Custom Homes, Inc., 448 S.W.3d 637 (Tex. App. Houston 1st Dist. 2014), a dispute between a developer and contractor caused the project to sit idle, and neighbors complained about the eyesore. In response to these complaints, the developer explained that the contractor was a "crook" and encouraged the neighbors to spread the word. The Court held that there was no common interest between the developer and the neighbors. The neighbors, who were not in the market for a contractor, had no legitimate interest in the quality of the contractor's work. Sure, in one sense the neighbors and the developer were both interested in completion of the project, but these statements did not advance that interest.

Ulterior Motives. Evidence of an ulterior motive may cause a party to lose protection of the common interest privilege. In some cases, it is because an ulterior motive is evidence of bad faith and thus abuse by common law malice. For example, in Douglas Electric Corp. v. Grace, 70 Ohio App. 3d 7 (Ohio Ct. App. 1990), an electrical contractor warned a construction company about an alleged kickback scheme involving its employee and another electrical contractor. The Court held that, even if a qualified privilege applied, there was evidence of its abuse, to wit, that the defendant's real motive was not to advance a common interest, but to pressure the plaintiff to pay a disputed invoice relating to another project. In other cases, an ulterior motive simply helps to demonstrate that the interests involved are not mutual. In Teare v. United Assoc. of Journeymen & Apprentices, 98 So. 2d 79 (Fla. 1957), a union met with building owners and disparaged the non-union plumber the owners had hired. The Court held that the statements were not privileged because there was no mutuality of interest between the union reps and the owners. The Court rejected the union's argument that both had a mutual interest in "plumbing." Rather, the union's interest was to promote the union, an interest that the owners did not share.

Reckless investigations. Even in situations usually protected by the common interest privilege, evidence that the statements in question were based on a faulty investigation may show that the defendant was reckless with respect to the truth, and thus abused the privilege. In Twelker v. Shannon & Wilson, 564 P. 2d 1131 (Wash. 1977), a landslide damaged a building only two months after its completion, and the building's insurer retained a soil engineer to investigate. The engineer's report allegedly included false statements about the plaintiff (another soil engineer who worked on the original construction). The Court held that there was sufficient evidence of actual malice to survive summary judgment, including certain inaccuracies on the face of the engineer's report and also an expert opinion that the engineer's limited investigation was not sufficient to form a professional opinion about the plaintiff's work.

Statements About Competitors. By far the most inconsistent application of the common interest privilege is with respect to statements by contractors about their competitors during a bidding process. Such situations often give rise to the suspicion of an ulterior motive. One example is 360 Construction v. Atsalis Bros. Painting Co., 915 F. Supp. 2d 883 (E.D. Mich. 2012), in which the plaintiff won the contract to paint and clean the Mackinac Bridge, causing the losing bidder allegedly to initiate a smear campaign falsely linking the plaintiff to unrelated criminal matters. The Court held that the common interest privilege did not apply, in part because there was evidence of an ulterior motive: advancement of the defendant's business interests. Moreover, the Court opined that "the blanket extension of the qualified privilege to any communication between a contractor and a public agency would encourage ceaseless rounds of accusation and counter-accusation between competitors." However, it should be noted that the court in English Boiler & Tube v. W.C. Rouse & Son, Inc., 1999 U.S. App. LEXIS 2725 (4th Cir. 1999), adopted a different approach for public projects. The defendant, an unsuccessful bidder for a boiler installation subcontract at a state university, sent several letters to the school documenting the successful bidder's poor work on other projects. The Court held that the defendant had a qualified privilege to make these statements because the defendant and school (and by extension, the public at large) shared a common interest in accountability for government expenditures. In a somewhat defensive footnote, the Court denied that it was establishing a privilege for "every statement made about a potential government contractor by a competitor," but didn't go out of its way to explain where it was drawing the line.

Takeaway Points

So, if there are circumstances in which you are making a negative or potentially defamatory statement about another participant on a building project, whether you are protected by the common interest privilege will depend on your jurisdiction and on the answers to the following questions:

  • What is the common interest? Make sure you are able to articulate a specific common interest in the project that you share with the person to whom you make the statement. It is not enough that the speaker or the recipient of the information is tangentially related to the project (e.g., a neighbor or a local union). Rather, the parties to the statement should be working towards a mutual goal, and ideally will be bound by a common law or contractual duty to share information (e.g., an architect's duty to a building owner, or a contractor's duty to the bond issuer). A general industry-wide interest in safety or integrity likely will not be protected. Moreover, statements to the press or to the public at large rarely fall within the privilege.
  • Does the statement advance the interest? Even if there is a common interest, the statement must actually advance that interest. A statement advances a common interest if the recipient of the statement can act on the information to further that interest. If an architect tells an owner that a contractor is about to use substandard materials, that statement probably advances their common interest and can be acted upon to prevent a problem. On the other hand, gratuitous disparagement of a party who is not working on the project in question will not usually advance any common interest.
  • Have I done my homework? Even if your statement clearly falls under the common interest privilege, that is not a license to defame. The best practice is to make sure that statements about the quality of another's work are based on specific articulable facts. If you are only making a guess based on the available information and/or your professional judgment, say so and be specific about what information is missing. Otherwise, a court is more likely to find that your investigation was reckless, thus satisfying the test for "actual malice" abuse.
  • Is this about a competitor? Take special precautions whenever a statement concerns one of your competitors. In those cases, there is a significant danger that the plaintiff will argue that you competitive interest constitutes an ulterior motive. Before throwing caution to the wind and jumping in head first, consult with a legal professional about the risks and governing law in your jurisdiction.

To view Foley Hoag's Trademark and Copyright Law Blog please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
12 Oct 2018, Other, Boston, United States

The New England Electricity Restructuring Roundtable has been meeting bimonthly since 1995 to discuss current topics related to important changes in the electric power industry in Massachusetts and throughout New England.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions