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Supreme Court vacates important COA ruling in defamation case

David Donovan//March 20, 2018

Supreme Court vacates important COA ruling in defamation case

David Donovan//March 20, 2018

The North Carolina Supreme Court has vacated a December 2016 Court of Appeals decision which had said that an investment company had valid claims for libel and slander per se after a local business owner issued a press release calling it a “predator” that tried to execute a “hostile takeover” of his company. It vacated the ruling in a one-page order issued March 2.

As reported by Lawyers Weekly last June while the ruling was on appeal, Chapel Hill businessman Jim Heavner sought to sell his company University Directories in 2013. Eli Global, which is based in Durham, got permission to conduct due diligence on the company but declined to make an offer. Instead, its manager, Greg Lindberg, created UDX, a new entity which then purchased some bank loans that had been extended to Heavner and his companies.

UDX swiftly exercised its new rights to provide notice of default and demand payment. University Directories could not pay off the loans and sought Chapter 11 bankruptcy protection. Heavner’s press release stated that the company had done so in order to “ward off a hostile takeover” and that “it is an extraordinary situation when potential business partners turn out to be predators.” He later told a newspaper that “what we thought were going to be honorable purchasers of a good company turned out to be predatory in ways none of us could have imagined.”

Lindberg and Eli Global sued Heavner, alleging claims for defamation, libel, slander, and unfair and deceptive trade practices, but a Durham County judge dismissed the suit for failure to state a claim. The Court of Appeals unanimously reversed those rulings, saying that the statements impugned the plaintiffs in their special trade and occupation and thus were actionable for libel. The Supreme Court then took the unusual step of granting Heavner’s petition for discretionary review.

The defamation case was ultimately dismissed with prejudice as part of a global settlement of the parties’ disputes, rendering the case moot. Heavner then asked the Supreme Court to vacate the Court of Appeals’ decision, which would mean that the ruling would no longer be a valid precedent that could be cited in future cases. Eli Global argued that such a vacatur would be unwarranted because doing so would change a material term in a settlement agreement that the parties had already accepted.

Heavner argued that notwithstanding the settlement, the Supreme Court’s clear and repeated directive is that “the better practice” is to vacate a Court of Appeals decision when a case before the Supreme Court becomes moot. He contended that when parties agree to dismiss a matter, the presumption is that this necessarily includes vacating any underlying appeals court opinion, and if Eli Global wanted to diverge from this presumption, the settlement should have explicitly stated that.

The Supreme Court granted the motion to vacate the ruling without comment. By doing so, it wiped out what potentially could have been a precedent-setting decision. Neither side cited in its briefs before the appeals court any case law holding that terms like “predator” and “hostile takeover” can form the basis for a defamation suit, and a First Amendment attorney who spoke with Lawyers Weekly about the case while it was on appeal said she was unaware of any such precedents.

Hampton Dellinger of Boies Schiller Flexner, one of Heavner’s attorneys, said that the decision was important both for the law of defamation and free speech in North Carolina, and as general matter in terms of what happens to lower court rulings when a matter becomes moot or is otherwise dismissed while pending before the Supreme Court.

“How the Supreme Court handled this case shows the Justices’ commitment to robust public discourse,” Dellinger said in a written statement. “They took a case they didn’t have to and ultimately erased an anti-free speech decision handed down by the Court of Appeals. Even without a broad ruling, the Supreme Court’s actions send an important message to lower courts about the need to carefully scrutinize claims of defamation.”

Matt Leerberg, Bob Edmunds and Kip Nelson of Smith Moore Leatherwood in Raleigh represented Lindberg and Eli Global.

“The parties involved were able to come to an amicable resolution of their differences,” Leerberg said in a written statement. “Part of that resolution involved the dismissal of the appeal that was pending before the Supreme Court. The parties had a difference of opinion as to the technical issue of how to effectuate that dismissal.

“The Supreme Court ultimately decided to just wipe the slate clean, including vacating the Court of Appeals opinion. Importantly, the Supreme Court never decided the underlying substantive issues presented in the appeal. The established law in North Carolina has not changed, and still protects businesses and individuals from defamation and unfair and deceptive practices.” [Eli Global’s suit against Heavner included claims for unfair and deceptive practices.]

Follow David Donovan on Twitter @NCLWDonovan

 

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