author: ROBERT L. CARTER, District Judge.

text:
    George Gregary KORKALA, Plaintiff, v. W.W. NORTON & COMPANY, Publisher, Starling Lawrence, in his capacity as Editor, and Patrick Brogan and Albert Zarca, individually, and in their capacity as Authors, Defendants.
    No. 84 Civ. 6142 (RLC).
    United States District Court, S.D. New York.
    Aug. 13, 1985.

      George Gregary Korkala, pro se.
    Botein, Hays & Sklar, New York City, for defendants; Richard Cashman, Nancy F. Brodie, New York City, of counsel.
   OPINION

ROBERT L. CARTER, District Judge.

Plaintiff George Gregary Korkala brought this libel action pro se against the publisher, editor, and authors of Deadly Business, a non-fiction book concerning the international arms trade. Specifically, Korkala claims to have been injured in his reputation and livelihood by chapter 19, pages 346-353 of the book. The case is before the court on defendant’s motion for summary judgment.

FACTS

Deadly Business introduces Korkala, along with ex-CIA agent Frank Terpil, as “New York gunrunners” (p. 346), and describes the two men as having attempted to sell 10,000 machine guns and other weapons to two undercover police officers posing as Latin American revolutionaries. The book details a November 15, 1979 meeting between Korkala and the “revolutionaries,” at which Korkala is described as saying that he could provide the “revolutionaries” with a great variety of guns, silencers, laser sights, grenades, explosives of all sorts, and even surface-to-air missiles. At a second meeting, on November 16, Terpil allegedly joined Korkala and the “revolutionaries,” and “the four men got down to business” (p. 347).

According to the book, Terpil arranged for the “revolutionaries” to inspect a store of automatic weapons (which actually belonged to another, legitimate arms dealer in Great Britain), and, after the inspection, the “revolutionaries” paid Terpil a $56,000 deposit. Two nights later, the book reports, Korkala, Terpil and the “revolutionaries” met at a New York hotel. There was a knock at the door; the police “rushed in, guns drawn. Terpil pulled out a revolver but did not use it. Terpil, Korkala, and a third partner, [sic] were arrested” (p. 351).

The book also describes a raid by New Jersey police on the headquarters of the Amstech Corporation in Nutley, New Jersey. Amstech, the book explains, “was George Korkala’s export company, though it is probable that the real owner was Frank Terpil” (p. 352). There, the book reports, the police discovered “an arsenal ... consisting of briefcase bombs, letter bombs, dozens of firearms, grenades, a ballpoint pen designed to fire poison darts, liquid explosives, a rifle with a night telescope suitable for assassinations, poisons, and a lighter and pen that could be assembled to form a pistol” (id.).

The book states that Korkala and Terpil spent “a few days” in jail, and then were released on bail “over the vehement protests of the police” after posting $15,000 bond each (p. 352). The two were due to stand trial in September, 1980, the book reports, “but a few days earlier, just as the prosecutors had feared, they fled the country. They were tried in absentia in June, 1981, and Terpil was sentenced to the maximum penalty of seventeen and a half to fifty-three years in jail. Terpil has not been seen since, but Korkala was arrested in Spain in 1982 and extradited” (p. 353).

In an April 22, 1984 letter to the book’s editor, Korkala specifies the parts of Deadly Business that he considers libelous. He complains that he and Terpil learned of the two “revolutionaries” through a lawyer, and not by word on the street, as alleged in the book; that the guns sold to the “revolutionaries” were French MAT-49s and not British stens; that Amstech is owned entirely by Korkala and not at all by Terpil; that none of the items listed as having been found at the raid on Amstech were actually found; that Terpil was not armed when arrested; that the arrest was in the morning rather than the evening; that the police raids were not “simultaneous” as alleged; and that Terpil was arrested a seeond time at a “restricted exhibit for the Secret Service” and not at a “trade fair for the security industry,” as the book puts it.

In his answer to defendants’ interrogatories, Korkala drops some of these claims and adds a few more. He complains that the book has the date of his meeting with Terpil and the “revolutionaries” wrong; that the list of items seized at Amstech is inaccurate; that Korkala, not Terpil, owns Amstech; that Korkala spent two weeks, not “a few days,” in jail before release on bail; that bail was $100,000, not $15,000; that he did not flee, but rather departed, the country; and that the description of his • December 22, 1979 arrest is inaccurate. DISCUSSION

The defendants urge the court to grant summary judgment or to dismiss on six independent grounds — the statements complained of are substantially true, they are fair reports of judicial proceedings, collateral estoppel bars plaintiff’s claim, plaintiff may not assert a claim on behalf of Amstech, plaintiff is libel-proof, and the suit is “frivolous and malicious” under 28 U.S.C.

§ 1915.

Most of Korkala’s complaints may be disposed of without even reaching defendants’ arguments. Under the common law, for a communication to be libelous, it must not only be false but also damaging. “A communication is defamatory if it tends so to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.” Restatement (Second) of Torts § 559. See also W. Prosser, The Law of Torts, § 111 at 739 (4th ed. 1971). This is the law, in particular, in New York, e.g., Morrison v. National Broadcasting Co., 19 N.Y.2d 453, 458, 280 N.Y.S.2d 641, 644, 227 N.E.2d 572 (1967), and in New Jersey, e.g., Maressa v. New Jersey Monthly, 89 N.J. 176, 445 A.2d 376 (1982), the two states whose law could govern this action.

With two possible exceptions, the statements specified by Korkala, even if false, simply do not harm his reputation. A reader would have no better impression of Korkala even if his version of the truth were substituted for the author’s. Especially in light of the main allegations made about Korkala in Deadly Business, it simply does not matter if he were arrested at a different time of day, or if the guns he tried to sell were British and not French, or if his bail were $100,000 and not $15,000. Korkala has failed to state a claim; assuming arguendo that the complained of statements are inaccurate, they are not damaging, and therefore they are not actionable.

This conclusion is particularly apt in the instant case, where Korkala has admitted the truth of the main charges made by Deadly Business —that he is a gunrunner; that he was arrested with Frank Terpil for illegally selling weapons to persons believed to be Latin American revolutionaries; that he was not in the United States for his trial; and that he was tried and convicted in absentia. Korkala has admitted each of these allegations in his response to defendants’ Request for Admissions. See Admissions 1-9. Moreover, on June 8, 1984, Korkala pleaded guilty in New York State Supreme Court, New York County, to four counts of indictment growing out of the events described in Deadly Business. Specifically, Korkala admitted that between November 15, 1979, and December 22, 1979, he knowingly offered for sale 10,000 machine guns, knowingly possessed a firearm silencer, attempted to possess an explosive substance, and criminally possessed a loaded firearm. See Transcript at 8-9.

Under the common law in general, and the law of New York and New Jersey in particular, truth is an absolute defense to a claim of libel, and it is not necessary that every detail be accurate. See, e.g., Restatement (Second) of Torts § 581A comment f (at 237) (“[s]light inaccuracies of expression are immaterial provided that the defamatory charge is true in substance”). The question is “whether the libel as published would have a different effect on the mind of the reader from that which the pleaded truth would have produced.” Fleckenstein v. Friedman, 266 N.Y. 19, 23, 193 N.E. 537 (1934). See also Hermann v. Newark Morning Ledger Co., 138 A.2d 61, 67 (N.J.Super.Ct., App.Div.1958) (“[t]he rule is that a false statement in the publication which is immaterial to, or does not go to the gist or sting of the libel does not render an otherwise true statement defamatory”). Here, the substance — the “gist” or “sting” — of Deadly Business is admitted by Korkala to be true, and his only complaints are about peripheral and immaterial matters. These complaints cannot sustain a libel suit.

Two of the complained of statements, however, may be considered damaging and not inconsequential. First, the book asserts that Korkala fled the country before his trial. This clearly is harmful to reputation, and Korkala claims it is false. Korkala admits, however, that he failed to appear in court for his trial date, but rather left the country and forfeited bail (Admissions 5-7). In light of this admission, plaintiff’s claim that the statement is false is simply facetious. Plaintiff may not consider his admission an admission of flight from prosecution. The court does.

Second, Korkala claims that his ability to earn a livelihood has been damaged by the false assertion that Amstech is probably owned by Terpil and not by Korkala. The court is not entirely satisfied that this statement can be considered damaging. The book links Amsteeh with an illegal gunrunning scheme; one would expect Korkala to be pleased to have ownership of the allegedly illicit corporation — and responsibility for its activities — imputed to another, and would not consider such imputation damaging.

But even assuming the statement is damaging (and false), it is not actionable. That is because the reference to Amsteeh as “George Korkala’s export company, though it is probable that the real owner is Frank Terpil” is an expression of opinion, and expressions of opinion are constitutionally protected. Gertz v. Robert Welch, Inc., 418 U.S. 323, 339-40, 94 S.Ct. 2997, 3006-07, 41 L.Ed.2d 789 (1974); Mr. Chow of New York v. Ste. Jour Azur S.A., 759 F.2d 219, 223 (2d Cir.1985).

The determination of whether a specific statement is one of fact or one of opinion is a question of law for the court. Davis v. Ross, 754 F.2d 80, 85 (2d Cir.1985). The inquiry must be made from the perspective of an “ordinary reader,” Buckley v. Littell, 539 F.2d 882, 894 (2d Cir.1976), cert. denied, 429 U.S. 1062, 97 S.Ct. 786, 50 L.Ed.2d 777 (1977). Beyond that, in this circuit, there is no precise test to apply, Mr. Chow of New York v. Ste. Jour Azur S.A., supra, 759 F.2d at 225-26, though Second Circuit case law does provide some guidance. Id.

One important consideration is to “look at the language itself to determine if it is used in a precise, literal manner or in a loose, figurative or hyperbolic sense.” Id. at 226, citing Cianci v. New Times Publishing Co., 639 F.2d 54, 64 (2d Cir.1980) and Buckley v. Littell, supra, 539 F.2d at 893-94. In this case, the authors did not declare literally and unconditionally that Amsteeh is owned by Terpil and not by Korkala. On the contrary, the authors acknowledged that Amsteeh is “George Korkala’s company,” but they added their suspicion that “it is probable that the real owner is Frank Terpil.” The ordinary reader would not understand the phrase “real owner” in this context to mean the person whose name literally appears on the company’s official documents, but rather— in a looser sense — the person who is really the power behind Amsteeh, the person who is really in control. The authors were expressing their opinion, based on the nature of the relationship between Korkala and Terpil described in chapter 19, that Terpil probably held the reins at Amsteeh. Such a statement of opinion is constitutionally privileged. See Wynberg v. National Enquirer, Inc., 564 F.Supp. 924, 926 (C.D.Cal.1982) (statement, “I suspect the real total [of money plaintiff improperly obtained from Elizabeth Taylor] was even more” than the amount made public held to be “an expression of [the author’s] feeling which is not defamatory”).

In light of the foregoing, it is not necessary for the court to reach defendants’ other arguments. The motion for summary judgment is granted.

IT IS SO ORDERED.

      . Actually, a close reading of chapter 19 reveals that only the Great Britain raid, and not the New Jersey one, is alleged to have been simultaneous with the arrest.

      . Plaintiff is a New Jersey resident, currently incarcerated in New York. Defendants’ place of business is in New York. The court need not decide which state’s law governs the case because both states’ laws are in accord on all relevant points.

      . Spain extradited Korkala in 1982 on condition that he would receive a new trial in the United States. Korkala pleaded guilty at this new trial.


source: Caselaw Access Project

author: BARRINGTON D. PARKER, District Judge.

license: Public Domain

text:
    Edward P. JOHNSON, Sr., et al., Plaintiffs, v. E.C. ERNST, INC., et al., Defendants.
    Civ. A. No. 83-3398.
    United States District Court, District of Columbia.
    Aug. 15, 1985.

      Patricia N. Blair, Linda B. Blair, Ginsberg, Feldman and Briss, Washington, D.C., for plaintiffs.
    Frank C. Razzano, Joseph Ferraro, Shea & Gould, Washington, D.C., Martin I. Shelton, Shea & Gould, New York City, for defendant E.C. Ernst, Inc.
    Charles S. Fax, Porter, Wright, Morris & Arthur, Washington, D.C., for the Philadelphia Bourse.
   MEMORANDUM ORDER DENYING SUMMARY JUDGMENT

BARRINGTON D. PARKER, District Judge.

This matter is before the Court on plaintiffs’ motion for summary judgment. Plaintiffs, Edward P. Johnson, Sr. and Edward P. Johnson, Jr., are shareholders of defendant E.C. Ernst, Inc. (“Ernst”). They are suing Ernst, its board of directors and The Philadelphia Bourse, Inc. (“Bourse”). The Bourse is a majority ■ shareholder of Ernst.

The plaintiffs bring their complaint under the Securities and Exchange Act of 1934 (“the Act”). They allege that Ernst, its directors and the Bourse, as aiders and abettors of those defendants, violated Section 14(a) of the Act and Securities and Exchange Commission (“SEC”) Rule 14a-9, promulgated thereunder. They charge the defendants with issuing a Proxy Statement and Solicitation (“Proxy Statement”) to Ernst shareholders containing materially false and misleading statements. The plaintiffs, as Ernst shareholders, seek a declaratory judgment and an injunction preventing the defendants from implementing the proxy proposals until the allegedly false and misleading statements are corrected through a resolicitation of the proxy.

The matter has been fully briefed by the parties. Because there are essential material facts in dispute, the Court concludes that summary judgment is inappropriate and the plaintiffs’ motion should be denied. The reasons for that conclusion are set out in the discussion which follows.

I.

BACKGROUND

This action arises out of a Proxy Statement and Solicitation mailed to Ernst’s shareholders on October 11, 1983 and supplemented November 9, 1983. The Proxy Statement notified those shareholders of a special meeting to be held on November 22, 1983 and solicited their votes on a proposal to amend Ernst’s Articles of Incorporation to authorize additional shares of common stock at decreased par value and to approve the so-called Bourse Agreement providing for the issuance of newly authorized common stock to Bourse. If the proposal was adopted, the equity interests of the present shareholders would be markedly decreased and Bourse’s equity interests in Ernst would be substantial.

Ernst is an electrical construction and contracting firm. The plaintiffs were officers of Ernst until removed from their positions in 1978. On December 1, 1978, Ernst filed a petition for Chapter XI bankruptcy with the Bankruptcy Court in the Southern District of New York. Since that date, it has been operating as a debtor-in-possession. Ernst is currently attempting to obtain that Court’s approval of a Plan of Arrangement (“the Plan”) which would allow it to emerge from bankruptcy.

One continuing financial problem for Ernst had been the refusal of its surety, the Travelers Indemnity Co. (“Travelers”), to provide performance and payment bonds for Ernst. That refusal had the adverse effect of preventing Ernst from obtaining new contracts. As a result, in 1979, Ernst and Travelers entered into an agreement whereby, among other things, Travelers agreed to issue surety bonds for new contracts and to guarantee a line of credit, secured by an interest in all of Ernst’s assets. Ernst also granted Travelers an option (“the Option”) to purchase all of its authorized but unissued stock at a specified price level. In 1981, a Plan of Arrangement was approved by Ernst’s creditors subject to approval by the Bankruptcy Court.

The Plan required financing and the Bourse became its source of financing. Travelers was necessarily involved in the discussions because it was both Ernst’s surety and also a significant creditor. In August, 1983, Bourse, Ernst and Travelers entered into several agreements relative to the financing of the Plan. In one agreement Travelers assigned the Option and $832,112.40 in indebtedness to the Bourse in exchange for Bourse’s indemnification of Ernst’s surety bonds. Another agreement related to the issuance of bonds after emergence from bankruptcy and the settlement of Ernst’s post-petition indebtedness to Travelers.

A third agreement was made between Ernst and the Bourse (“the Bourse Agreement”). Under the agreement, Bourse would purchase 32 million shares of newly authorized common stock with a par value of $.01 for $1 million and 15,000 shares of cumulative, convertible preferred stock for $1.5 million. Bourse also agreed to arrange a $3 million line of credit for Ernst. In order to effectuate the Bourse Agreement, Ernst shareholders were required to approve an amendment of the Articles of Incorporation to authorize the issuance of up to 100 million shares of common stock and to decrease the par value of the stock from $.40 per share to $.01 per share. The Proxy Statement sought shareholder approval of the amendment to the Articles of Incorporation and of the Bourse Agreement.

On October 4, 1983, the Bourse exercised the option to purchase all of the authorized and the unissued common stock of Ernst. The Option was exercised at the par value of stock, $.40 per share by Ernst agreeing to cancel the $832,112.40 in debt assigned to Bourse by Travelers. Prior to the exercise of the Option, plaintiffs owned approximately 20 percent of the outstanding stock of Ernst. After the exercise of the Option, Bourse owned approximately 52 percent of' Ernst’s stock and the plaintiffs’ equity was correspondingly reduced to less than 10 percent. If the Bourse Agreement is implemented, Bourse will own approximately 93 percent of the outstanding shares of Ernst stock and plaintiffs will own approximately two percent of Ernst shares.

Since the Amendment to the Articles and the Bourse Agreement were approved in the special shareholders’ meeting, the Plan needs only to be confirmed by the Bankruptcy Court. A confirmation hearing was scheduled for July 10, 1985. However, a favorable disposition of the pending motion for summary judgment in the instant case would invalidate the Proxy Statement, which is the partial basis for the financing of the Plan. The Bankruptcy Court proceedings have been postponed pending a ruling on the plaintiffs’ motion for summary judgment.

II.

ANALYSIS

Plaintiffs contend that the Proxy Statement violated SEC Rule 14a-9. The Rule provides that:

No solicitation subject to this regulation shall be made by means of any proxy statement, form of proxy, notice of meeting or other communication, written
resulting from the proxy. Such notice was given on June 28, 1985. or oral, containing any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact, or which omits to state any material fact necessary in order to make the statements therein not false or misleading or necessary to correct any statement in any earlier communication with respect to the solicitation of a proxy for the same meeting or subject matter which has become false or misleading.

17 C.F.R. § 240.14a-9(a). “The purpose of § 14(a) is to prevent management or others from obtaining authorization for corporate action by means of deceptive or inadequate disclosure in proxy solicitation.” J.I. Case Co. v. Borak, 377 U.S. 426, 431, 84 S.Ct. 1555, 1559, 12 L.Ed.2d 423 (1964) (finding a private right of action under § 14(a)).

In considering the plaintiffs’ motion for summary judgment, the Court is called upon to determine whether particular statements or omissions in the Ernst Proxy Statement are false or misleading and material as claimed by the plaintiffs. The Supreme Court addressed the issue of materiality in the context of § 14(a) in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). In speaking for the Court, Justice Marshall determined that a statement is material if it substantially affects the total amount of information given to the shareholder.

An omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote. This standard is fully consistent with Mills general description of materiality as a requirement that ‘the defect have a significant propensity to affect the voting process.’ It does not require proof of a substantial likelihood that disclosure of the omitted fact would have caused the reasonable investor to change his vote. What the standard does contemplate is a showing of a substantial likelihood that, under all the circumstances, the omitted fact would have assumed actual significance in the deliberations of the reasonable shareholder. Put another way, there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.

Id. at 449, 96 S.Ct. at 2132 (emphasis in original).

The Northway opinion pointed out that the standard for determining materiality involves analyzing facts and making a sensitive judgment; thus it is extremely difficult to resolve that question on a summary judgment motion.

The issue of materiality may be characterized as a mixed question of law and fact, involving as it does the application of a legal standard to a particular set of facts. In considering whether summary judgment on the issue, is appropriate, we must bear in mind that the underlying objective facts, which' will often be free from dispute, are merely the starting point for the ultimate determination of materiality. The determination requires delicate assessments of the inferences .a; ‘reasonable shareholder’ would drajy. from a given set of facts and the significance of those inferences to him, and these assessments are peculiarly ones for the trier of fact. Only if the established omissions are ‘so obviously important to an investor, that reasonable minds cannot differ on the question of materiality’ is the ultimate issue of materiality appropriately resolved ‘as a matter of law’ by summary judgment.

Id. at 450, 96 S.Ct. at 2132 (quoting Johns Hopkins University v. Hutton, 422 F.2d 1124, 1129 (4th Cir.1970)). Thus, plaintiffs bear a very heavy burden of demonstrating materiality in terms of a motion for summary judgment. Mills v. Esmark, Inc., 544 F.Supp. 1275, 1293 n. 36 (N.D.Ill.1982) (“the issue of materiality ... is ordinarily inappropriate for summary judgment”). The question of materiality is one that usually should be determined by the trier of fact. See, e.g., S.E.C. v. Falstaff Brewing Corp., 629 F.2d 62, 76 (D.C.Cir.1980), cert. denied sub nom. Kalmonovitz v. .S.E.C., 449 U.S. 1012, 101 S.Ct. 569, 66 L.Ed.2d 471 (1980); Swanson v. Wabash, Inc., 577 F.Supp. 1308, 1313 & n. 4 (N.D.Ill.1983). Utilizing the Northway standard, an examination of the alleged misstatements or omissions is in order.

1. Bourse’s Ownership of 52 Percent of Ernst Stock

Plaintiffs contend that the Proxy Statement contained false and misleading statements regarding Bourse’s exercise of the Option and the subsequent ownership of 52 percent of Ernst stock. They claim ' that the Option was not properly exercised. Thus, they contend that the statement to the contrary, Proxy Statement at 13, that “[Bourse] now holds approximately 52 percent of the Company’s Common Stock,” was false and misleading. Plaintiffs contend that the alleged improper exercise of the Option, which was not disclosed, is further exacerbated in the Proxy Statement by the assertion that as the controlling shareholder, Bourse intended to vote its shares in favor of the Bourse Agreement. Proxy Statement at 33.

The plaintiffs argue that the unambiguous language of the Option was violated when it was exercised. The relevant language is that the Option may be exercised “at a price per share of common stock equal to the then prevailing market price per share on the date of the exercise or the par value thereof, whichever is greater.” Plaintiffs’ motion for summary judgment at Exhibit A. It is uncontroverted that the price paid for the shares purchased under the Option was $.40 per share, the par value of the stock. However, the Plaintiffs contend that the prevailing market price on that date was at least $.10 per share higher than par value. They have demonstrated that on October 4, 1983, when the Option was exercised, Ernst shares were quoted on the Over-the-Counter Market at lk bid and 7/s asked.

Defendants advance several arguments which may affect the materiality of the statement, preventing a resolution of this matter on summary judgment: that within the context of the agreement, the Option was exercised at the proper price because the market price per share on the day of the transaction was not relevant to what a willing buyer would pay for a controlling block of Ernst stock; that it was not the intent of the framers of the agreement to be bound by the strict language of the agreement; and that the term “prevailing market price per share” could be equated with the concept of “fair market value per share.” Dep. of Joseph Griffin, Chairman of Ernst, at 42. They also contend that “fair market value” should be controlling as to whether the Option was exercised at the correct price because “an asking price is never indicative of the value of the stock, nor is a bid, for that matter.” Griffin dep. at 53. In sum, the defendants urge that the exercise of the Option should be evaluated on the basis of the actual transaction — a sale of a controlling block of stock in a company in which, relatively, there were few market transactions of its stock.

On its face, “prevailing market price per share” is not a difficult concept to grasp.

The [prevailing] market price of Health-Chem Common, of course, was a matter of public knowledge that anyone could acquire by reading a newspaper with an Amex listing. Defendants were entitled to assume that reasonable shareholders would know the prevailing price of their stock.

Goldberger v. Baker, 442 F.Supp. 659, 667 (S.D.N.Y.1977). See also Clagett v. Hutchison, 583 F.2d 1259, 1261 (4th Cir.1978). Thus, it appears that from the face of the Option language, Bourse was required to pay for each share of stock it purchased the greater of the par value or the market price of a share of stock on that day. It failed to do so.

Defendants contend that there is, in fact, a wide range of opinion as to the meaning of the term “prevailing market price” both in the finance community and among the formulators of the agreement. Griffin dep. at 42; Fishbein dep. at 76. As a result, they contend that in evaluating the transaction they utilized a standard, fair market value, which most accurately represented the true intentions of the parties. The question then becomes whether the difference between the two standards is a material misstatement or omission.

It appears to this Court that the question of materiality is not one that can be decided as a matter of law on summary judgment. Initially, defendants did disclose, through the Bear, Stearns & Co. (“Bear, Stearns”) opinion letter, see infra at 162-63, the term “fair market value” as the basis for its evaluation. Given the parties’ understanding of the language of the Option and the circumstances surrounding its exercise — the purchase of all of the outstanding shares of stock — the Court cannot determine as a matter of law, that the statement regarding the exercise of the Option and the omission regarding the two standards were material. Cf. Pavlidis v. New England Patriots Football Club, Inc., 737 F.2d 1227, 1235 (1st Cir.1984) (“remand to the district court to consider whether the issuance price of the voting shares was material and should have been disclosed in the proxy statement”); Allyn Corp. v. Hartford Nat’l Corp., ¶ 98,646 Fed.Secur.L.Rptr. (CCH) (D.Conn.1982) (court making findings of fact and conclusions of law regarding materiality).

Moreover, even if the Option was not properly exercised, the Court is not convinced that Bourse would no longer own the stock it “purchased” under the Option. The Court would have no hesitancy in concluding that if Bourse did not own the stock, it would be a material misstatement to represent that it, as a controlling shareholder, would vote in favor of a particular proposal. See Gould v. America-Hawaiian S.S. Co., 535 F.2d 761, 771-73 (3rd Cir.1976); Wetter v. Caesars World, Inc., 541 F.Supp. 68, 72 (D.N.J.1982). The District of Columbia Code does not provide any clear guidance as to whether, absent a payment of full consideration, a party does own stock. See D.C.Code §§ 29-313; 29-316; 29-317; 29-322; 29-327 (1981). However, this circuit in a case dealing with the illegal sale of treasury shares in exchange for promissory notes held that

The sale of stock at issue here was illegal. The illegality does not make the sale void from the outset, but merely makes it voidable. The defect in the sale would have been cured had the $990,000 purchase price been paid in full.

Public Investment Ltd. v. Bandeirante Corp., 740 F.2d 1222, 1234 (D.C.Cir.1984). Thus, the question of whether the failure to pay prevailing market price is material is not appropriately resolved on summary judgment because the sale of stock under the Option apparently would not be void for failure to pay full consideration.

2. The Bear, Stearns Opinion Letter

In the Proxy Statement, there was a presentation and discussion of the opinion of Bear, Stearns relative to the exercise of the Option.

Prior to the issuance to the Bourse of shares of Common Stock upon the exercise of the Option, the Company sought the opinion of the investment banking firm of Bear, Stearns & Co. In the view of Bear, Stearns & Co. expressed in its letter dated September 30, 1983 there is an extremely limited over-the-counter market for shares of the Company’s Common Stock, quotations reflected in that market cannot be taken as representative of bid or asked prices for more than a small number of shares in each instance and, therefore, such prices would not be indicative of what a willing buyer would pay at this time for the number of shares proposed to be purchased pursuant to the Option in a single transaction. Accordingly, the Company requested Bear, Stearns & Co.’s opinion as to whether the fair market value of the 2,080,281 shares proposed to be purchased by the Bourse under the terms of the Option was less than or greater than their aggregate par value of $832,112.40. In the opinion of Bear, Stearns & Co., the fair market value of such shares was less than their aggregate par value of $832,112.40.

Proxy Statement at 13., Plaintiffs contend that the Bear, Stearns letter involves three material misstatements or omissions: its failure to disclose that it never considered either “prevailing market price,” its failure to disclose the role of Ernst management in the formulation of the opinion, and an alleged misstatement regarding the market for Ernst stock.

The deposition testimony of a Bear, Stearns official clearly revealed that the company did not evaluate the Option on the basis of “prevailing market price per share,” but instead utilized “fair market value.” Fishbein dep. at 76. However, the opinion, as presented in the Proxy Statement also specifically states that Bear, Stearns rendered its opinion on the basis of “fair market value.” Mr. Fishbein, in his deposition, indicated that Bear, Stearns was somewhat “uncomfortable” with the language in the Option itself. Fishbein dep. at 34. Therefore, when it formulated its opinion, Bear, Stearns was explicit with regard to the basis for its conclusion. However, what may be material in terms of altering the total mix of information to the shareholders, is the omission of an explanation identifying the difference, if any, between the Option language and the opinion language. Although Bear, Stearns set forth the “fair market value” standard in its opinion, it may be material that the letter did not juxtapose the two terms and did not explain that the opinion was not based on the language used in the Option. It would be difficult to make such a determination in ruling on a summary judgment motion.

Further, there is no basis on which to award summary judgment regarding the failure to disclose the role of Ernst management in formulating the opinion letter. The deposition testimony indicates that Bear, Stearns reached its own independent decision regarding the language of the opinion. Fishbein dep. at 34. In fact, Bear, Stearns still endorses the conclusion expressed in its letter. Id. at 78.

Whether the Proxy Statement, through the Opinion letter, misrepresented the level of trading of Ernst stock cannot be resolved on summary judgment. There is a factual dispute as to the relevant time period to be considered in determining the number of shares bought and sold. Moreover, the context of the opinion letter is in contention as defendants argue that one cannot compare the amount of stock purchased through the Option with the range of the amount of shares traded on a daily basis.

3. Commitments to Ernst Officers

Plaintiffs contend that the Proxy Statement omitted material facts regarding various commitments to officers of Ernst. The first commitment was that Joseph Griffin, Chairman of the Board of Ernst, was promised by Howard Butcher III, President and Director of Bourse, that he would remain as Chairman for as long as he lived. It appears that there was some sort of informal arrangement to that effect. Griffin dep. at 37. The Proxy Statement firmly indicates that neither Ernst “nor any of its directors or officers has any agreements or understandings with the Bourse or any of its directors or officers.” Proxy Statement at 26 (emphasis added). Whether the failure to mention an “understanding” that was not formalized is a material omission cannot be resolved as a matter of law.

A second claimed omission is an intention to provide senior Ernst officers with some of the stock obtained in the Bourse Agreement. However, that “plan” is not a firm agreement. Butcher dep. at 15-16. Defendants need not have disclosed tentative plans in the Proxy Statement. Missouri Portland Cement Co. v. H.K. Porter, Co., Inc., 535 F.2d 388, 398 (8th Cir.1976); Warner Communications, Inc. v. Murdoch, 581 F.Supp. 1482, 1491 (D.Del.1984).

In any event, the question of whether or not there were such commitments, formal or otherwise, their scope and their effect— if any at all, cannot be resolved on the present record now before the Court. Additional testimony is needed to clarify the matter.

4. Miscellaneous Failures to Disclose

Plaintiffs assert that the Proxy Statement misrepresented the terms of the Option by implying, through the terms of the Bear, Stearns opinion, that it could be exercised for the total block of stock, rather than that it could be exercised to purchase only a smaller block of stock. Failure to state what could have been purchased under the Option, rather than what actually was purchased, is not material as a matter of law as long as the Option provided that all of the stock could have been purchased. To the extent that the Bear, Stearns opinion reflected an evaluation of the transaction based on a larger block of stock, the opinion may be relevant to the question of whether the failure to disclose the actual Option language in conjunction with the opinion is material. Standing alone, the language in the Proxy Statement concerning the transfer of the entire block of shares is not a basis for granting summary judgment in favor of the plaintiffs.

Plaintiffs contend that the Proxy Statement is misleading because it states that the Bourse agreement was the “result of arm’s length negotiations.” Proxy Statement at 20. They contend this is untrue because there is a close personal relationship between Ernst’s Chairman Griffin and Bourse’s Butcher. Plaintiffs have failed to demonstrate either that the friendship between those individuals caused the negotiations between Bourse and Ernst to be at anything but arm’s length or that there was an obligation to disclose the friendship in the Proxy Statement.

The final alleged material omission is the failure to disclose both that Bourse would benefit as an unsecured creditor under the Plan of Arrangement and that it caused the Plan to be approved. Defendants assert that Bourse, as an unsecured creditor, could only cast one vote in favor of the Plan of Arrangement regardless of the amount of unsecured debt it had acquired. As such, it alone could not have caused the Plan to be approved. Defendants also assert that the Proxy Statement reveals Bourse’s status as an unsecured creditor and the amount which all unsecured creditors would recover under the Plan. Thus, any omission, at this point, cannot be deemed material.

In sum and on basis of the above, the Court determines that there are disputed material facts and that otherwise the state of record does not warrant entry of summary judgment. Accordingly, it is this 15th day of August, 1985,

ORDERED

That plaintiffs’ motion for partial summary judgment is denied.

      . This Court previously denied plaintiffs’ application for a temporary restraining order to enjoin the November 22, 1983 meeting, but required that the plaintiffs be given a 10-day notice prior to the implementation of any plan

      . On that date, there were 4 million shares authorized and 1,919,719 shares outstanding. Thus, Bourse purchased 2,080,281 shares of stock.

      . Rule 14a-9 was promulgated pursuant to § 14(a) of the Securities and Exchange Act of 1934. 15 U.S.C. § 78n(a). That section states:
      It shall be unlawful for any person, by the use of the mails or by any means or instrumentality of interstate commerce or of any facility of a national securities exchange or otherwise, in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors, to solicit or to permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 78/ of this title.

      . The Supreme Court in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970), determined that a showing of materiality is sufficient to demonstrate a violation of § 14(a) without requiring a plaintiff to demonstrate that shareholders actually relied on the misstatements in the proxy when voting. The causal connection need not be demonstrated where the plaintiff demonstrates that "the proxy solicitation itself ... was an essential link in the accomplishment of the transaction." Id. at 385, 90 S.Ct. at 622. Since the Ernst Proxy Statement is undisputably linked to the action which resulted from the special shareholders’ meeting, there is no question that the causation requirement is satisfied.
      Moreover, a shareholder need not prove that he or she relied on the misleading statements in order to have standing to assert a cause of action under § 14(a). Cowin v. Bresler, 741 F.2d 410, 426-27 (D.C.Cir.1984).

      . The Proxy Statement is Exhibit A to defendant’s opposition to the motion for summary judgment.

      . In exchange for the stock, and upon exercise of the Option, Bourse cancelled $832,112.40 in indebtedness assigned from Travelers. 2,080,-281 shares were purchased under the Option, which is equivalent to $.40 per share.

      . The Court considers this information as more than a speculative legal theory which need riot be disclosed. Ash v. LFE Corp., 525 F.2d 215, 220 (3rd Cir.1975).


author: SWEET, District Judge.

text:
    Robert C. GUCCIONE and Penthouse International, Ltd., Plaintiffs, v. Larry C. FLYNT, Hustler Magazine, Inc. and Flynt Distributing Company, Inc., Defendants.
    No. 83 Civ. 8020 (RWS)
    United States District Court, S.D. New York.
    Aug. 16, 1985.

      Grutman, Miller, Greenspoon & Hendler, New York City, for plaintiffs; Jeffrey H. Daichman, Leonard A. Rodes, New York City, of counsel.
    Anderson Russell Kill & Olick, P.C., New York City, for defendant Flynt Distributing Co., Inc.; Avraham C. Moskowitz, Duncan N. Darrow, New York City, of counsel.
    Cooper Epstein & Hurewitz, Beverly Hills, Cal., for defendant Hustler Magazine, Inc.; Alan L. Isaacman, David 0. Carson, Beverly Hills, Cal., and Feldman & Feldman by Stephen E. Feldman, New York City, of counsel.
    David L. Kahn, Los Angeles, Cal. for defendant Larry C. Flynt; Lipsitz, Green, Fahring, Roll, Schuller & James, New York City, of counsel.
   OPINION

SWEET, District Judge.

Defendants Larry C. Flynt (“Flynt”), Hustler Magazine, Inc. (“Hustler”) and Flynt Distributing Company, Inc. (“FDC”) have moved once again for summary judgment under Fed.R.Civ.P. 56(b) dismissing the libel claims of plaintiff Robert C. Guccione (“Guccione”). Flynt has also moved to dismiss under Fed.R.Civ.P. 12(b) for lack of personal jurisdiction. For the reasons discussed below, the motions are denied.

This libel action has been the subject of the prior opinions of the court of April 27 and June 1, 1984 and February 1, 1985, familiarity with which is assumed. The complaint arises out of an article entitled “What a Ham” published in the November 1983 issue of Hustler about Guccione (the “Article”), the text of which is reprinted in the court’s opinion of June 1, 1984. At issue is the phrase “[cjonsidering that he is married and also has a livein girlfriend, Kathy Keeton____” Guccione maintains that he was divorced before the Article was published and that consequently the statement is false and libelous, since it accuses him of the crime of adultery.

, The defendants now move for summary judgment on grounds presented to the court before, namely that Guccione has failed to create a triable factual issue on the question of actual malice and that the statement does not constitute libel because it is substantially true. In addition, Flynt once again moves to dismiss for lack of personal jurisdiction.

The June 1, 1984 opinion, concluded that despite the lack of direct evidence as to the state of Hustler’s knowledge concerning Guccione’s marital status at the time of the publication of the Article, “sufficient facts ... have been adduced to create a triable factual issue on the question of malice.” The facts which created a triable issue as to malice consisted of evidence of longstanding animosity between the parties, prior examples of derogatory comments about Guccione in Hustler, and evidence presented in earlier litigation between the parties to the effect that Guccione was divorced from his former wife.

Now that discovery has been completed, the defendants assert that Guccione has not been able to present any evidence which raises a genuine issue of fact which would entitle them to place the case before a jury, and that as a matter of law he will be unable to meet his burden of proving by clear and convincing evidence that the Article was published with actual malice. In response, Guccione contends that the discovery that has taken place during the past year has not altered the facts in any manner that would affect the prior conclusion.

Although the intervening discovery has still failed to produce any direct evidence of actual malice, the circumstantial evidence discussed above is sufficient to create a triable issue for the jury as to the existence of actual malice. In Yiamouyiannis v. Consumers U. of United States, 619 F.2d 932 (2d Cir.1980), the Second Circuit set out the standards to be applied by trial courts in evaluating a motion for summary judgment on the “actual malice” issue:

In a case where the defendant has moved for summary judgment on the issue of actual malice and the plaintiff claims that there remain material factual disputes, the court decides the materiality of the disputed facts by accepting the plaintiff’s version and analyzing the actual malice standard. The standard requires a clear and convincing showing, which may be by circumstantial evidence, of defendant’s actual state of mind — either subjective awareness of probable falsity or actual intent to publish falsely. Therefore, a judge in denying a defendant’s summary judgment motion must conclude that, based on the evidence asserted in the plaintiff’s affidavits, “a reasonable jury could find malice with convincing clarity.” Nader v. de Toledano, [408 A.2d 31, 49 (D.C.1979) ] (emphasis in original).

619 F.2d at 940. See also Herbert v. Lando, 596 F.Supp. 1178, 1188 (S.D.N.Y.1984). In the case at hand, the circumstantial evidence submitted by Guccione as to the testimony in the earlier trial about the divorce, the state of relations existing between the parties, and the degree of investigation undertaken by the defendants, merit submission to the jury of the issue of whether or not the Article was published with actual malice. Although each of these factors might not be sufficient in itself to establish the existence of actual malice, see, e.g., Hotchner v. Castillo-Puche, 551 F.2d 910, 914 (2d Cir.1977) (evidence of animosity does not by itself prove actual malice); St. Amant v. Thompson, 390 U.S. 727, 733, 88 S.Ct. 1323, 1326, 20 L.Ed.2d 262 (1968) (“Failure to investigate does not in itself establish bad faith.”) and the degree to which evidence of ill will is at all relevant to the issue of actual malice remains unclear, see, e.g., Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 52 n. 18, 91 S.Ct. 1811, 1824 n. 18, 29 L.Ed.2d 296 (1971), taken together the proffer is enough to require denial of the motion for summary judgment without prejudice to a contrary determination after the evidence has been adduced.

The defendants also contend that they are entitled to summary judgment on the grounds that the Article is substantially true, an argument that was specifically rejected in the June 1, 1984 opinion. They have failed to present any evidence which would justify altering this prior conclusion. As to the argument that the Article is constitutionally protected opinion because it was an editorial commentary, the mere fact that the statement in issue was made in the context of an editorial does not shield the author from liability. See Cianci v. New Times Publishing Co., 639 F.2d 54, 61 (2d Cir.1980). The statement is one of fact, not of opinion, despite its inclusion in an article laden with the author’s opinion.

FDC has moved for summary judgment on the grounds that Guccione has failed to present evidence that it had knowledge of the Article prior to its publication and that it acted with actual malice in distributing the Article. In support, FDC has presented uncontested affidavits from FDC officials denying any knowledge of the Article and has presented evidence of its business practices that it claims shows that it would be impossible for a national distributor to have prepublication knowledge of what is contained in the periodicals it distributes. Guccione contends, however, that the knowledge of various FDC officials and the usual business practices of distributors is irrelevant in this case because Flynt himself had prepublication awareness of and involvement in the Article and Flynt is a high level employee of FDC.

Although FDC and Flynt claim that Flynt was not an officer or director of FDC in November 1983, Guccione claims that Flynt was president of FDC at the time the Article was written and there is at the very least an issue of fact as to his position with FDC at the time the issue was published. In support, Guccione relies on a letter allegedly signed by Flynt as president of FDC in July of 1983, a Dun & Bradstreet report on FDC as of July 13, 1983 which identifies Flynt as the chief executive, an FDC financial statement which suggested that Flynt was a high level employee of FDC after September 1983, and a letter on FDC’s stationery dated January 15, 1984 which allegedly is signed by Flynt as president of FDC, as well as a reference to Flynt as FDC’s president on the Magazine and Bookseller’s National Distributors Directors.

FDC has presented affidavits and evidence which contest the accuracy of all of Guccione’s evidence, and also contends that the evidence presented by Guccione is unauthenticated and inadmissible hearsay. While the admissibility at trial of most of Guccione’s evidence as to Flynt’s role in FDC at the relevant time remains uncertain, the letters allegedly signed by Flynt represent a proffer of non-hearsay evidence sufficient to present an issue of fact as to Flynt’s connection with FDC at the relevant time.

Finally, Flynt has once again moved to dismiss the complaint as to him for lack of personal jurisdiction. The April 27, 1984 opinion held that “[o]n the basis of the record before it, the court cannot determine whether Flynt transacts business as an individual in New York.” The motion was denied to permit discovery on the nature of his contacts with New York. Flynt has now renewed the motion and presented evidence of his lack of involvement with New York. In response, Guccione does not address the specific issue of whether personal jurisdiction exists but instead contends that Flynt has waived his right to raise this defense.

Guccione first attempted to serve Flynt on November 13, 1983. In a motion dated December 13, 1983, Flynt moved to dismiss the summons and complaint on the grounds that the service of process was insufficient. On December 19,1983 service on Flynt was again attempted. In a motion dated January 16, 1984 Flynt contested the validity of that service and also claimed for the first time that in any event there was no basis for personal jurisdiction. The parties specifically agreed to treat the motions separately. Following the submission of both motions but before an opinion was delivered, Flynt conceded in a stipulation and order dated February 15, 1984 that the second attempted service was valid, but continued to contest the November 23,1983 service. In the opinion dated April 27,1984 I declined to consider his objections to the first attempted service because he had conceded the validity of the subsequent service of process, and “in the absence of any statute of limitations issue, or any other significance to the date of service itself” denied the motions to dismiss for improper service.

Rule 12 of the Federal Rules of Civil Procedure provides in pertinent part:

(g) Consolidation of Defenses in Motion. A party who makes a motion under this rule may join with it any other motions herein provided for and then available to him. If a party makes a motion under this rule but omits therefrom any defense or objection then available to him which this rule permits to be raised by motion, he shall not thereafter make a motion based on the defense or objection so omitted, except a motion as provided in subdivision (h) (2) hereof on any of the grounds there stated.
(h) Waiver or Preservation of certain Defenses.
(1) A defense of lack of jurisdiction over the person, improper venue, insufficiency of process, or insufficiency of service of process is waived (A) if omitted from a motion in the circumstances described in subdivision (g), or (B) if it is neither made by motion under this rule nor included in a responsive pleading or an amendment thereof permitted by Rule 15(a) to be made as a matter of course.
(2) A defense of failure to state a claim upon which relief can be granted, a defense of failure to join a party indispensable under Rule 19, and an objection of failure to state a legal defense to a claim may be made in any pleading permitted or ordered under rule 7(a), or by motion for judgment on the pleadings, or at the trial on the merits. (Emphasis added).

In the instant case, Flynt initially moved to dismiss the summons and complaint only on the grounds that the service of process which was attempted on November 23,1983 was insufficient. By asserting only insufficiency of service of process, Flynt waived his right to assert the defense of lack of personal jurisdiction in any subsequent motion or answer. If the service of process which was attempted on November 23, 1983 is found to be valid and thus the actual commencement of this case, Flynt has waived the right to assert the defense of lack of personal jurisdiction, and his current assertion that this court lacks personal jurisdiction will fail.

Rule 4(e) of the Federal Rules of Civil Procedure provides that service upon a party who is not an inhabitant of or found within the state may be accomplished in the manner prescribed by the statutes of the forum state. Thus, proper service upon Flynt may be accomplished pursuant to CPLR 308(2) which provides in crucial part that service upon a nonresident individual shall be made:

2. ... by delivering the summons within the state to a person of suitable age and discretion at the actual place of business, dwelling place or usual place of abode of the person to be served and by mailing the summons to the person to be served at his last known residence ...

According to an affidavit submitted by Hub Broyles (“Broyles”), the process server for Guccione, he appeared at Flynt’s place of business in Suite 3880, 2029 Century Park East, Los Angeles, California on November 23, 1983 and asked the receptionist if it was the offices of Larry Flynt, Hustler Magazine, Inc. and Flynt Distributing Company, Inc. Upon being told that it was, he informed her that he had information he could only impart to a person in authority. After the receptionist placed a telephone call, a woman came out and after questioning him informed him that she would refer him to Flynt’s private secretary, Monica Mitchell (“Mitchell”) and stated that Mitchell was generally in charge of the office. Broyles states that he then served three copies of the summons and complaint on Mitchell. In addition, Guccione has submitted a receipt for certified mail addressed to Flynt at 364 St. Clouds, Bel Air, California, signed and dated December 2, 1983.

Mitchell submitted an affidavit in which she asserts that on November 23, 1983 she was employed by Star Temporary Personnel in Los Angeles, California and was working at an organization called Americans for a Free Press (“AFP”) in a suite of offices located in Century Park East. According to Mitchell she was notified by the receptionist that a man was waiting in the reception area who claimed to have information concerning a public service campaign in which AFP was involved. She asserts that she was not employed by FDC nor did she have any responsibility to function as an assistant to Flynt. Flynt has also submitted an affidavit from Neil Adelman (“Adelman”), the Assistant General Counsel of FDC, who states that he was advised by the individuals who work at Flynt’s residence in Bel Air, California that a copy of the summons and complaint was not received at his residence.

Based on the information submitted, I conclude that service of process was properly effected on Flynt under CPLR 308(2). Although Mitchell asserts that she was not employed by Flynt, she does not contest the assertion that the papers were actually served at Flynt’s regular place of business. At the time service was performed, she was over the age of eighteen. The fact that she was not actually employed by Flynt does not necessarily render her a person of unsuitable discretion. The term “discretion” denotes “the capacity and maturity to act wisely and prudently”, City of New York v. Chemical Bank, 122 Misc.2d 104, 470 N.Y.S.2d 280, 286 (Sup.Ct.1983), and a determination of suitability must be made on a case-by-case basis. In the present case, despite Mitchell’s apparent lack of a formal relationship with Flynt, she was a person of suitable age and discretion and service was proper. Even if Mitchell came to the reception area believing that Broyles was there to see her on AFP business, there is no evidence that Broyles himself attempted to mislead her.

Flynt has not directly challenged Broyles assertion that he was specifically directed to Mitchell as someone connected with Flynt and in a position of authority by the receptionist and an unidentified woman. In addition, based on the information submitted, it appears that Broyles would have complied with the requirements of the statute if he had simply left the summons and complaint with the receptionist. Mitchell’s presence in Flynt’s office reception area on November 23, 1983 and her employment by an organization apparently using Flynt’s offices, when coupled with the uncontested fact that Broyles was specifically directed to Mitchell as a person in charge of Flynt’s affairs, is sufficient to support the conclusion that she was an individual capable of proceeding in an appropriate manner. As to the mailing requirement of CPLR 308(2), the presumption of receipt of properly mailed materials renders ineffective Flynt’s attorney’s denial of receipt. See Engel v. Lichterman, 95 A.D.2d 536, 467 N.Y.S.2d 642 (2d Dept.1983). Flynt’s motion is denied with leave to renew at trial upon the presentation of additional factual information pertinent to the above conclusions.

Because the November 23, 1983 service of process was proper, Flynt waived the right to raise the defense of lack of personal jurisdiction when he raised only the defense that service of process was defective in his initial motion to dismiss. Therefore, Flynt’s current assertion that this court lacks personal jurisdiction fails.

For the reasons discussed above, the motion for summary judgment and to dismiss for lack of jurisdiction are denied. The case will proceed to trial on August 26, 1985.

IT IS SO ORDERED.

      . Despite language to the contrary in the June 1, 1984 opinion, notice by FDC of prior lawsuits between Flynt and Guccione, standing alone, would not constitute clear and convincing evidence of actual malice on the part of FDC. See Lerman v. Flynt Distributing Co., Inc., 745 F.2d 123, 140 (2d Cir.1984), cert. denied, — U.S. -, 105 S.Ct. 2114, 85 L.Ed.2d 479 (1985).


author: BECHTLE, District Judge.

text:
    Rashad ELBESHBESHY v. The FRANKLIN INSTITUTE.
    Civ. A. No. 85-0496.
    United States District Court, E.D. Pennsylvania.
    Aug. 19, 1985.
    Sheldon Tabb, Philadelphia, Pa., for plaintiff.
    Kenneth D. Klienman, Warren M. Lad-don, Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

BECHTLE, District Judge.

Presently before the court is the motion for partial summary judgment of defendant The Franklin Institute. For the reasons stated herein, defendant’s motion will be denied.

Plaintiff was employed by defendant in its nuclear structural mechanics unit from January 8, 1984 to April 17, 1984. Plaintiff's job description involved a technical aspect of drafting proposals after plaintiff reviewed the plans for nuclear power plants submitted by architects and engineers to the Nuclear Regulatory Commission, and a marketing aspect of submitting the proposals to the Nuclear Regulatory Commission. Plaintiff drafted two proposals, one concerning “overcooling transient” and one concerning “hydrogen blanketing.” Plaintiffs proposals were reviewed by plaintiff’s supervisor, Dr. Vu Con (“Dr. Con”) and by Dr. Con’s supervisor, Dr. Salvatore Carfagno (“Dr. Carfagno”). Dr. Con believed that the proposals contained substantive shortcomings. Plaintiff did not agree with Dr. Con’s assessment. Dr. Carfagno did not express an opinion with respect to the substantive quality of plaintiff’s work, but he did decide that the working relationship between Dr. Con and plaintiff was not pleasant.

On April 17, 1984, defendant terminated plaintiff’s employment. The reason given for the termination in plaintiff’s employment record was plaintiff’s “lack of cooperation.”

Summary judgment is appropriate where “there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). See Perks v. Firestone Tire & Rubber Co., 611 F.2d 1363 (3d Cir.1979). All reasonable inferences from the summary judgment materials must be drawn and all issues of credibility must be determined in favor of the party resisting summary judgment. Boresen v. Rohm & Haas, Inc., 526 F.Supp. 1230, 1232 (E.D.Pa.1981). When deciding whether to grant summary judgment in part, the court must ascertain and specify “what material facts exist without substantial controversy and what material facts are actually and in good faith controverted.” Fed.R.Civ.P. 56(c).

Defendant argues first that its statement was not defamatory. A defamatory statement is one which tends “to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.” Thomas M. Merton Center v. Rockwell International Corp., 497 Pa. 460, 442 A.2d 213 (1981), cert. denied, 457 U.S. 1134, 102 S.Ct. 2961, 73 L.Ed.2d 1351 (1982), citing Restatement (Second) of Torts § 559 (1977). See Marcone v. Penthouse Intern. Magazine for Men, 754 F.2d 1072 (3d Cir.1985).

In the circumstances of the instant case, at this stage of the proceedings, the court believes that the assertion in plaintiff’s employment record that plaintiff was terminated for “lack of cooperation” could be defamatory. It is not unreasonable that the assertion, standing alone, might lead members of the community and third persons to reasonably believe that plaintiff’s nature was irremediably insubordinate, obnoxious, and antagonistic. Such a conclusion is especially likely where plaintiff was terminated after only three and a half months of employment. Additionally, the assertion that plaintiff was terminated because plaintiff lacked cooperation is quite different from an assertion that plaintiff was terminated due to a personality conflict between plaintiff and Dr. Con, or because he was not qualified to perform the work for which he was employed. It is one thing to say that plaintiff could not fit into the organization of the defendant, but it is very different to say that plaintiff cannot get along with management and disrupts the harmony of the workplace. Persons who are said to be disruptive, insubordinate, obnoxious, and antagonistic are persons with whom third persons tend not to want to deal or associate and whom members of the community tend to hold in low esteem.

Second, defendant argues that the statement that the reason behind plaintiff’s termination was “lack of cooperation” was not published. Publication occurs, however, when the defamer communicates the statement to one other person, even if that one other person is . the defamer’s agent. Restatement .(Second) of Torts § 577, comment c (1977). Since plaintiff presented evidence that the statement was communicated to Dr. Con, Dr. Carfagno, and members of defendant’s personnel department, the publication element may be satisfied here.

Third, defendant argues that plaintiffs claim for defamation is barred by defendant’s qualified privilege to evaluate the job performance of its employees. Plaintiff, however, presented some evidence that plaintiff was terminated for reasons of professional jealousy. Accordingly, the court holds that a genuine issue as to a material fact exists here as to whether defendant acted with malice or abused its privilege.

Finally, defendant asserts that punitive damages may not be awarded under Pennsylvania law in a wrongful discharge case. In support of its argument, defendant cites cases which hold that punitive damages could not be awarded in Pennsylvania for breach of contract. The court believes that the cases cited by defendant are inapposite in the present case which involves a claim for wrongful discharge. A claim for wrongful discharge sounds in tort as well as in contract. See Geary v. United States Steel Corporation, 456 Pa. 171, 319 A.2d 174 (Pa.1974). Although the parties cite no Pennsylvania cases on point, the court notes that courts generally allow recovery of punitive damages for wrongful discharge where the employer acted with malice. See Cancellier v. Federated Department Stores, 672 F.2d 1312 (9th Cir.), cert. denied, 459 U.S. 859, 103 S.Ct. 131, 74 L.Ed.2d 113 (1981). Accordingly, the court is not convinced, at this time, that the Pennsylvania Supreme Court would not, in the right circumstances, allow recovery of punitive damages for wrongful discharge.

In conclusion, the court will deny defendant’s motion for partial summary judgment.

An appropriate Order will be entered.


text:
    Sylvia OSHIVER v. UNITED STATES of America and Albert Oshiver.
    Civ. A. No. 84-1667.
    United States District Court, E.D. Pennsylvania.
    Aug. 19, 1985.
    Michael S. Bomstein, Philadelphia, Pa., for plaintiff.
    Virginia Powel, Asst. U.S. Atty., Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

BECHTLE, District Judge.

Presently before the court is plaintiff’s application for a writ of mandamus and defendant United States of America’s motion to dismiss. For the reasons stated herein, plaintiff’s application will be denied and defendant’s motion to dismiss will be granted.

PACTS

On November 11, 1945, Albert Oshiver (“Oshiver”) and plaintiff were married. They established their marital domicile in Philadelphia, Pennsylvania, where they had their first and only child on February 22, 1952.

Oshiver abandoned his wife and child in 1955. No divorce was ever procured, but Oshiver was obligated to pay child support.

Between January 25, 1942 and October 21, 1967, Oshiver was employed in a military or civilian capacity with the federal government. Presumably throughout the period of employment Oshiver contributed a percentage of his basic pay to the Civil Service Retirement and Disability Fund (“Fund”). On October 21, 1967, Oshiver became separated from employment with the government. The parties do not specify the reasons for the separation.

Oshiver disappeared in 1968 and has not been seen or heard from by plaintiff, his relatives, or his friends.

Oshiver became eligible to receive Civil Service Retirement Benefits (“benefits”) on April 3, 1982, the date of his sixty-second birthday.

Shortly thereafter, seeking to collect child support arrearages, plaintiff filed suit against Oshiver in the Court of Common Pleas of Philadelphia County and procured a judgment against Oshiver for $46,989.64 with interest from May 19, 1982.

Plaintiff then commenced garnishment proceedings against the Social Security Administration (the “SSA”) and the Civil Service Administration (the “CSA”) (hereinafter SSA and CSA are referred to collectively as the “agencies”). No application for Oshiver’s benefits was ever filed with the Office of Personnel Management. Instead, plaintiff served garnishment interrogatories on the agencies. The agencies did not respond to the interrogatories in a timely manner, and, thus, pursuant to Pennsylvania law, plaintiff obtained a judgment in the Court of Common Pleas of Philadelphia County against both agencies. Neither agency appealed the judgment.

Plaintiff then served notice of execution on the agencies. No money was turned over to plaintiff. Consequently, “plaintiff directed the Sheriff of Philadelphia County to execute against the United States Mint,” Plaintiffs Complaint at 3, and, in fact, the Sheriff attempted to do so. The United States, however, refused to permit the execution to go forward.

On April 5, 1984, plaintiff filed this lawsuit in the United States District Court for the Eastern District of Pennsylvania. Plaintiff sought a writ of mandamus directing the United States to pay over to plaintiff the entire amount of $46,989.64, which is in excess of all monies held for Oshiver’s benefit, and awarding plaintiff attorney’s fees and costs under the Equal Access to Justice Act.

In compliance with a court Order, plaintiff amended her complaint adding Oshiver as a defendant. Plaintiff avers, and the court believes, that plaintiff exhausted all efforts to locate Oshiver, and the government had no record of Oshiver’s addresses after Oshiver’s 1968 address at 115 Fifth Street, N.E., Washington, D.C., 20002. Therefore, the court allowed plaintiff to serve Oshiver notice by publication in The Legal Intelligencer and The Washington Post on April 16, 1985.

A hearing, at which Oshiver did not appear, was held on April 24, 1985. Plaintiff’s claim against SSA was dismissed during the hearing because plaintiff conceded that there was no evidence that Oshiver ever made contributions under the Social Security system.

Plaintiff asks this court to direct the United States to pay over to plaintiff the entire judgment for child support arrearages, plus interest, including all monies held for Oshiver’s benefit by CSA, and to award plaintiff attorney’s fees and costs under the Equal Access to Justice Act.

In opposition, defendant United States contends that: (1) the court is without subject matter jurisdiction; (2) the federal statute, which authorizes garnishment of child support arrearages “due from or payable by” the United States, does not authorize garnishment of Civil Service Retirement Benefits for which application is a condition precedent of the government’s obligation to pay; (3) no authority permits the court to order an application for Civil Service Retirement Benefits to be filed in Oshiver’s absence and no authority allows an application to be filed nunc pro tunc; and (4) even if an application were filed, plaintiff would not be entitled to receive Oshiver’s retirement benefits because under Pennsylvania law Oshiver must be presumed dead in 1975, seven years before Oshiver’s sixty-second birthday and the date on which Oshiver became eligible for Civil Service Retirement Benefits.

DISCUSSION

Garnishment of Civil Service Retirement Benefits, such as those garnished in the instant case, is prohibited except as provided otherwise by federal law. Specifically, 5 U.S.C. § 8346(a) reads as follows:

The money mentioned by this subchapter is not assignable, either in law or equity, except under the provisions of subsections (h) and (j) of section 8345 of this title, or subject to execution, levy, attachment, garnishment, or other legal process, except as otherwise may be provided by Federal laws.

Federal law does permit legal process against Civil Service Retirement funds for the purpose of enforcing an individual’s obligation to pay child support. Title 42 U.S.C. § 659(a) states, in pertinent part:

Notwithstanding any other provision of law ... moneys (the entitlement to which is based upon remuneration for employment) due from, or payable by, the United States ... (including any agency, subdivision, or instrumentality thereof) to any individual, ... shall be subject, in like manner and to the same extent as if the United States ... were a private person, to legal process brought for the enforcement, against such individual of his legal obligations to provide child support____

Construing these statutes together, the court concludes, therefore, that Civil Service Retirement Benefits due from or payable by the United States may be garnished to satisfy the petitioner’s obligation to pay child support.

The plaintiff’s problem in this case, however, is that Congress has expressly stated that Civil Service Retirement Benefits may not be paid to anyone unless and until application for those payments is received by the Office of Personnel Management.

(1) No payments shall be made from the Fund unless an application for benefits based on the service of an employee or Member is received in the Office of Personnel Management before the one hundred and fifteenth anniversary of his birth.
(2) Notwithstanding paragraph (1) of this subsection, after the death of an employee, Member, or annuitant, no benefit based on his service shall be paid from the Fund unless an application therefor is received in the Office of Personnel Management within 30 years after the death or other event which gives rise to title to the benefit.

Title 5, U.S.C. § 8345(i). No such application for Oshiver’s benefits has been filed with the Office of Personnel Management by Oshiver, by his wife, or by anyone else. Consequently, the court does not believe that monies are due from or payable by the United States to Oshiver under 42 U.S.C. § 659(a). Plaintiff’s application must be denied.

Having concluded that an application must be filed with the Office of Personnel Management before benefits, even those garnished to satisfy child support obligations, may be paid, the court need not discuss the remaining issues. Nonetheless, two issues merit brief consideration.

First, the government argues that plaintiff cannot file an application for benefits and garnish those benefits on behalf of her child unless Oshiver is declared dead and she is considered a surviving spouse. The court notes, however, that in its own research it has found nothing in the statute or the statute’s legislative history to support the government’s view. Therefore, without deciding the issue, the court believes that nothing precludes a wife of a former government employee from filing an application on his behalf for benefits.

Second, the government argues that if plaintiff can apply for benefits on behalf of her husband, Oshiver would not be found to be eligible because he must be considered dead at a date seven years after he was last heard of and before Oshiver became 62 and eligible for benefits. See 20 Pa.Cons.Stat.Ann. § 5701 (Purdons 1985). The court notes that plaintiff disputes whether Oshiver can be considered dead under Pennsylvania law. The court, however, has not been asked to make a finding that Oshiver is dead, nor has the court been provided with sufficient evidence to make such a finding.

CONCLUSION

For the reasons stated above, plaintiff’s application for writ of mandamus will be denied.

An appropriate Order will be entered.

      . The parties do not specify whether a separation and support decree or an agreement obligated Oshiver to pay child support.