Court Opinion

ID: 2971397
Source: CourtListenerOpinion
Date Created: 2015-09-22 16:34:30.408741+00
Date Added: 2024-06-11T15:00:53.517410
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                Pursuant to Sixth Circuit Rule 206                         2       Heavrin v. Nelson, et al.                            No. 03-5892
        ELECTRONIC CITATION: 2004 FED App. 0312P (6th Cir.)
                    File Name: 04a0312p.06                                 Chicago, Illinois, for Appellees. ON BRIEF: James A.
                                                                           Earhart, Louisville, Kentucky, for Appellant. Timothy S.
                                                                           Harris, Alexander Terras, PIPER RUDNICK LLP, Chicago,
UNITED STATES COURT OF APPEALS                                             Illinois, Edward H. Stopher, BOEHL, STOPHER &
                                                                           GRAVES, Louisville, Kentucky, for Appellees.
                  FOR THE SIXTH CIRCUIT
                    _________________                                                               _________________

 DONALD HEAV RIN ,               X                                                                      OPINION
         Plaintiff-Appellant,     -                                                                 _________________
                                  -
                                  -  No. 03-5892                              DAVID A. NELSON, Circuit Judge. This is an appeal
           v.                     -                                        from the dismissal of a complaint for failure to state a claim
                                   >                                       upon which relief can be granted. The complaint purported
                                  ,                                        to assert state-law causes of action for fraud, perjury, and
 DAVID NELSON , et al.,           -
        Defendants-Appellees. -                                            outrage based on the defendants’ having filed allegedly false
                                                                           proofs of claim in a bankruptcy proceeding and having given
                                 N                                         allegedly false testimony in a criminal trial. Because
       Appeal from the United States District Court                        statements contained in legal pleadings and testimony given
   for the Western District of Kentucky at Louisville.                     in legal proceedings are privileged under Kentucky law, and
  No. 01-00537—Charles R. Simpson III, District Judge.                     because we are not persuaded that the privilege is inapplicable
                                                                           in the circumstances presented here, we shall affirm the order
                     Argued: August 3, 2004                                of dismissal.

            Decided and Filed: September 13, 2004                                                                I

  Before: NELSON and COOK, Circuit Judges; ROSEN,                            The plaintiff, Donald Heavrin, was legal counsel to Triple
                  District Judge.*                                         S Restaurants and its principals, Robert Harrod and Michael
                                                                           Macatee, in a commercial loan transaction.1 The lender was
                       _________________                                   Boeing Capital Corporation. For collateral, Triple S assigned
                                                                           to Boeing “key man” insurance policies on the lives of
                            COUNSEL
ARGUED: James A. Earhart, Louisville, Kentucky, for                            1
Appellant. Timothy S. Harris, PIPER RUDNICK LLP,                                  The facts summarized here are drawn primarily from Mr. Heavrin’s
                                                                           complaint, the allegations of which must be taken as true for purposes of
                                                                           this app eal. See Memphis Area Local, American Postal Workers Union
                                                                           v. Memp his, 361 F.3d 89 8, 901 (6 th Cir. 2004). We have supplemented
    *
                                                                           the allegations of the com plaint with add itional background facts set forth
     The Honorable Gerald E. Rosen, United States District Judge for the   in the decisio n in a related case, Un ited States v. H eavrin, 144 F. Supp.2d
Eastern District of Michigan, sitting by designation.                      769, 773 -75 (W .D. Ky. 2001).

                                   1
No. 03-5892                    Heavrin v. Nelson, et al.     3    4    Heavrin v. Nelson, et al.                  No. 03-5892

Messrs. Harrod and Macatee. The Harrod policy was later           Mr. Heavrin’s trial that the $250,000 was not paid in
transferred, subject to Boeing’s interest, to the Robert Harrod   settlement of a lender liability claim. The trial ended in a
Irrevocable Trust. Mr. Heavrin (who was Mr. Harrod’s step-        judgment of acquittal. See United States v. Heavrin, 144 F.
son as well as his attorney) and Heavrin’s step-sister were co-   Supp.2d 769, 784 (W.D. Ky. 2001).
trustees and co-beneficiaries of the trust. The transfer to the
trust occurred in June of 1994.                                     After the criminal charges against him were dismissed, Mr.
                                                                  Heavrin sued Boeing, Mr. Nelson, and Mr. Anderson in a
  By that time, the relationship between Triple S and Boeing      Kentucky court. Boeing removed the case to federal district
had become rocky. Boeing asserted claims of default, and          court on diversity grounds. Heavrin subsequently filed a
Triple S, Mr. Harrod, and Mr. Macatee asserted claims of          second amended complaint, adding as defendants several
lender liability.                                                 corporate entities affiliated with Boeing.
  On September 2, 1994, Mr. Harrod died. Mr. Heavrin then           The second amended complaint set forth three substantive
negotiated a settlement of Mr. Harrod’s claim against Boeing,     counts: fraud, perjury, and outrage. The fraud count was
under which $250,000 of the proceeds of the Harrod life           subtitled “False and Misleading Proofs of Claim” and was
insurance policy would be paid to the Harrod Trust. The rest      based on exactly that – Boeing’s filing of false proofs of
of the proceeds — $1.75 million — was to be paid to               claim in the Triple S bankruptcy. The perjury count was
Boeing. Defendants David Nelson and Daniel Anderson, who          based on Mr. Nelson’s false testimony in Mr. Heavrin’s
were employees of Boeing, participated in the negotiation of      criminal trial. The claim of outrage was based on the same
this settlement.                                                  conduct complained of in the previous counts.
  On September 30, 1994, Triple S filed for bankruptcy.              On motion by the defendants, the district court dismissed
Boeing submitted a proof of claim that did not reflect a          the complaint for failure to state a claim. As to the fraud
reduction of the indebtedness in the amount of Harrod’s life      count, the court held that a federal statute prohibiting the
insurance. Boeing later filed an amended proof that reduced       filing of false bankruptcy claims, 18 U.S.C. § 152(4), does
the claim by $1.75 million.                                       not create a private right of action, and that Mr. Heavrin did
                                                                  not plead common-law fraud with the requisite degree of
   After a failed attempt to collect $2 million in insurance      particularity. The court held further that the absolute
proceeds from Boeing, the trustee in bankruptcy filed an          privilege afforded to testimony in a judicial proceeding
adversary proceeding to recover the $250,000 paid to the          precluded a civil action based on perjury. Finally, the court
Harrod Trust. Named as defendants in the adversary                held that the wrongdoing alleged in the complaint did not rise
proceeding were the trust itself, Mr. Heavrin, and Heavrin’s      to the level of outrageous conduct under Kentucky law.
step-sister. In the course of the adversary proceeding, one or
more representatives of Boeing denied that the $250,000 had          Mr. Heavrin moved for reconsideration and for leave to file
been paid in settlement of a lender liability claim.              a third amended complaint. After those motions were denied,
                                                                  Mr. Heavrin filed this timely appeal.
   Mr. Heavrin was prosecuted criminally on charges of
transferring, concealing, and laundering money that should
have been part of the bankruptcy estate. Nelson testified at
No. 03-5892                           Heavrin v. Nelson, et al.            5    6        Heavrin v. Nelson, et al.                          No. 03-5892

                                     II                                           The fraud count rests explicitly and exclusively on the false
                                                                                proofs of claim. As we have seen, the count is subtitled
  It has long been the law in Kentucky, as in “practically all                  “False and Misleading Proofs of Claim.” In keeping with that
jurisdictions,” that “the testimony of a witness given in the                   subtitle, the pleading describes the alleged fraud as “[t]he
course of a judicial proceeding is privileged and will not                      actions of defendants . . . in filing the false and misleading
support a cause of action against him.” McClarty v. Bickel,                     proof of claims” and asserts that Mr. Heavrin was injured
159 S.W. 783, 784 (Ky. 1913); cf. Bryant v. Kentucky, 490                       “[a]s a result of the false and fraudulent Proof of Claim.” No
F.2d 1273, 1274 (6th Cir. 1974). Likewise, “statements in                       other false representations are specifically alleged.3 If Mr.
pleadings filed in judicial proceedings are absolutely                          Heavrin intended to allege a broader fraudulent scheme, of
privileged when material, pertinent, and relevant to the                        which the proofs of claim were mere evidence, he did not do
subject under inquiry.” Schmitt v. Mann, 163 S.W.2d 281,                        so with the particularity required by Rule 9(b), Fed. R. Civ.
283 (Ky. 1942).                                                                 P. See Minger v. Green, 239 F.3d 793, 800 (6th Cir. 2001)
                                                                                (holding that Rule 9(b) applies to diversity actions in federal
  The proofs of claim filed by Boeing in the Triple S                           court).
bankruptcy and the testimony given by Mr. Nelson in Mr.
Heavrin’s criminal trial were plainly material to those                            The perjury count, of course, is based solely on testimony
proceedings. It follows, we believe, that “[n]o civil action                    in a legal proceeding. And the outrage count is predicated on
will lie” against Boeing on the basis of those proofs of claim                  the same facts as the fraud and perjury counts. We see no
or that testimony. McClarty, 159 S.W. at 784.2                                  basis for concluding that any of these claims arises from
                                                                                conduct that is not protected by the judicial-proceeding
  Mr. Heavrin advances two arguments for not applying the                       privilege.
judicial-proceeding privilege in the case at bar.
                                                                                  Mr. Heavrin’s second argument is that notwithstanding the
   First, Mr. Heavrin contends that his claims are not based on                 judicial-proceeding privilege, Kentucky Revised Statute
Boeing’s false proofs of claim or on Mr. Nelson’s false                         446.070 allows civil recovery for the conduct complained of
testimony, but rather on a “fraudulent course of conduct” of                    here. K.R.S. 446.070 provides that
which the proofs of claim and Nelson’s testimony are merely
evidence. This contention cannot be squared with the text of                        “[a] person injured by the violation of any statute may
Mr. Heavrin’s complaint.                                                            recover from the offender such damages as he sustained

    2                                                                                3
       The judicial-proceeding privilege is most often invoked as a defense           The general allegations of the complaint, which are incorporated by
to claims of defamation, but its applicatio n is not limited to that context.   reference into the fraud count, include an allegation that “[t]hroughout the
Mc Clarty and Bryant involved claims of malicious prosecution. See              Adversary Proceedings . . . the defendants, and each of them, consistently
Mc Clarty, 159 S.W . at 784 ; Bryant, 490 F.2d at 1274. Courts in other         denied a lender liability claim had existed.” The complaint does not
jurisdictions have applied the privilege in actions alleging intentional        specify the setting in which (or the audienc e to whom ) these
infliction of emotional distress, see Kachig v. Boothe, 99 Cal. Rptr. 393,      representations were mad e, although the next pa ragraph refers to
403 (Cal. C t. App. 1971), and slander of title, see Wendy ’s of So uth         “deposition testimony” that was “similar” to M r. Nelson’s testim ony in
Jersey, Inc. v. Blanchard Management Corp., 406 A.2d 1337, 1340 (N.J.           the crimina l trial. Dep osition testimony, no less than statements contained
Super. Ct. Ch. Div. 1979).                                                      in proofs of claim, is protected by the judicial-proceeding privilege.
No. 03-5892                           Heavrin v. Nelson, et al.           7    8     Heavrin v. Nelson, et al.               No. 03-5892

  by reason of the violation, although a penalty or                            446.070. Having found no case in which the statute was held
  forfeiture is imposed for such violation.”                                   to trump the privilege, however, we are unwilling to reject
                                                                               what is implicit in the cited decisions.
As interpreted by Kentucky’s highest court, K.R.S. 446.070
“creates a private right of action for the violation of any                        AFFIRMED.
statute,” provided that “the plaintiff belongs to the class
intended to be protected by the statute.” State Farm Mutual
Automobile Insurance Co. v. Reeder, 763 S.W.2d 116, 118
(Ky. 1988); cf. Baker v. White, 65 S.W.2d 1022, 1023-24 (Ky.
1933) (interpreting Kentucky Statute 466, the predecessor of
K.R.S. 446.070), and Hackney v. Fordson Coal Co.,
19 S.W.2d 989, 990 (Ky. 1929) (same). Mr. Heavrin
maintains that the conduct alleged in his complaint violates
Chapter 523 of the Kentucky Penal Code, the chapter
prohibiting perjury and related offenses, and that he is within
the class of persons protected thereby.
  To accept Mr. Heavrin’s argument that K.R.S. 446.070
authorizes civil recovery in the circumstances presented here,
we would have to conclude that the statute abrogates the
judicial-proceeding privilege. But Kentucky courts have
consistently recognized the privilege notwithstanding K.R.S.
446.070. Kentucky Statute 466, an almost identical forebear
of K.R.S. 446.070,4 is a “very old” statute; it was cited by the
highest court of Kentucky as early as 1900. Reeder, 763
S.W.2d at 118. Yet, as we have seen, the judicial-proceeding
privilege has remained vital in Kentucky. See Schmitt, 163
S.W.2d at 283, and McClarty, 159 S.W. at 784, as well as
Reed v. Isaacs, 62 S.W.3d 398, 399 (Ky. Ct. App. 2000) (no
civil action for lying to grand jury), and Lawson v. Hensley,
712 S.W.2d 369, 370 (Ky. Ct. App. 1986) (no civil action for
perjury). It is true that these decisions do not expressly hold
that the judicial-proceeding privilege survives K.R.S.

    4
      K.S. 466 provided that “[a] person injured by the violation of any
statute may recover from the offender such damage as he may sustain by
reason of the violation, although a penalty or forfeiture for such violation
be thereby im posed.”