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Potential competitor can assert privilege in defamation action, top court affirms

A $2.6 million verdict against the owner of the Darcars automotive franchise group was properly struck down on appeal last year, the Court of Appeals held Friday.The circuit court erred in prohibiting Darcars’ owner and CEO John R. Darvish from asserting defenses to the defamation action based on qualified privilege and truth of the statements in question, the top court affirmed. Furthermore, the jury’s failure to award punitive damages to the plaintiff, a former Darvish employee and would-be competitor, foreclosed the possibility of finding that the error was harmless as a matter of law, the Court of Appeals held.“We are unable to conclude … that the jury ‘necessarily’ found actual malice on [Darvish’s] part,” Judge Glenn T. Harrell Jr. wrote for the court.The former employee, Shariar Gohari, sought to purchase a Toyota franchise from Darcar’s franchisor in 1996. As a condition of the purchase, Gohari had to pass muster with the Central Atlantic Toyota Distributors Inc. (CATD), which was responsible for examining prospective franchisees’ credentials and determining “whether or not they’re qualified to be a dealer and/or operator,” according to testimony at the trial. Gohari had authorized CATD to consult with “outside sources” about his qualifications.The CATD representatives contacted Darvish, who gave Gohari an unfavorable assessment. Gohari sued after he was unable to get CATD’s approval before his contract to purchase the Toyota dealership expired. After the court blocked Darvish’s defenses, the jury awarded Gohari $500,000 in compensatory damages for defamation and $2.12 million in compensatory damages for tortious interference with contract.Darvish appealed. The Court of Special Appeals reversed last year and remanded for a new trial. “Because CATD is a prospective franchisor and not a prospective employer, Darvish’s statements do not fall within the letter of CJ 5-423’s statutory protection,” the Court of Special Appeals acknowledged. This statute, however, did not abrogate the common law, and Darvish asserts that the circuit courtshould have found that his statements were protected by the common law. We agree.”Gohari sought review by the Court of Appeals, arguing that as a matter of social policy, it was wrong to give a qualified privilege to a potential competitor in a franchise situation.“To the contrary,” Gohari’s brief states, “a qualified privilege would only injure competition and protect individuals whose self-interest lies in defaming innocent parties.”The Court of Appeals, however, rejected the argument.“We agree that the potential competitive interest of Darvish should not be disregarded,” Harrell wrote. “This same competitive interest, however, may exist within the employer/employee relationship.”While Darvish’s competitive interest does not negate the existence of a qualified privilege, it “becomes part of the evaluation concerning whether the qualified privilege has been abused,” Harrell wrote.On remand, the jury should be instructed as to Gohari’s burden of overcoming the qualified privilege, the court held. In addition, Darvish will be allowed to prove that the statements attributed to him were true, the Court of Appeals affirmed.<table width=”100%” border=”0″ cellspacing=”0″ cellpadding=”0″

WHAT THE COURT HELD

[IMGCAP(1)]Case: Gohari v. Darvish., CA No. 25, Sept. Term 2000. Reported. Opinion by Harrell.J. Filed Feb. 23, 2001.Issue: Did the trial court err in preventing the defendant in a defamation case from asserting defenses based on a qualified privilege or the partial truth of his statements? Holding: Yes. The statements did not meet the letter of privilege statute, CJ 5-423, since they were made to a prospective franchisor rather than a prospective employer; however, the speaker had a qualified privilege under common law. On remand, petitioner has the burden of overcoming that qualified privilege, and the speaker’s economic interest is one element for the trier of fact to consider.Counsel: Paul M. Smith, Washington, for petitioner; David G. Leitch, Washington, for respondent; RecordFax: #1-0223-20 (38 pages)