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Software executive cannot sue over cease-and-desist

Litigation privilege covers letter sent by ex-employer

2_neih1027_STOPA Massachusetts trial judge has found that a software executive who received a cease-and-desist letter from his former employer could not sue for tortious interference because the communications at issue were protected by the absolute litigation privilege.

The executive argued that the cease-and-desist letter, which accused him of misappropriating a customer list and soliciting two former co-workers in violation of a restrictive covenant, unfairly caused his new employer to fire him.

But Superior Court Judge Douglas H. Wilkins was not convinced and allowed the employer’s Rule 12(b)(6) motion to dismiss.

“The litigation privilege applies not only to statements by attorneys but also to ‘communications by a party’ as long as the other conditions for the privilege are present,” the judge wrote. “[The company] has shown on the face of the Complaint that its communications and actions were ‘preliminary to a proposed judicial proceeding’ and that ‘legal action was contemplated when the allegedly [offending] statements [and actions] were made.”

The six-page decision is Pegasystems v. Manning.

‘Shoot first’

Steven D. Weatherhead of Boston’s Bello Welsh represented the employer. He said it is common for an employer in a misappropriation case to send a cease-and-desist letter before initiating litigation, and that such communications often prompt the parties to sit down and settle their differences short of filing suit.

“But if a cease-and-desist letter could become actionable, a lot of people are going to stop sending them and are going to just run into court and file the suit,” he said. “People will take a shoot-first-and-ask-questions-later approach, and I don’t think that’s good for anyone because if you can’t legitimately assert your rights in a pre-litigation correspondence, that’s a problematic system.”

Many lawyers think of the litigation privilege only in the defamation context, Weatherhead said. But the ruling should make clear that it applies the same to a cease-and-desist letter like the one before Wilkins, in which the employer accused the executive of soliciting two former co-workers and violating a confidentiality clause.

“What’s key is that there is a serious contemplation of litigation and that the ultimate judicial proceeding is related to the allegations set forth in the communication,” he said. “In this case, that was crystal clear because everything alleged in the letter is what was ultimately brought as a claim in the complaint.”

Jody L. Newman of Collora in Boston, who represented the executive, declined to comment.

John E. Coyne of Boston, who argued a 2008 Appeals Court case cited by Wilkins, said the absolute privilege is not limited to comments made by attorneys. It applies equally to statements from non-lawyer agents, officers or parties to a suit, he said.

But judges will recognize the privilege only if a statement was made in the context of litigation, Coyne said.

“The Appeals Court took a pretty broad view in my case as to what that privilege covers,” he said. “If someone is testifying at a deposition or a hearing or a trial, the courts have obviously said they have immunity, and the same goes for statements made in anticipation of trial before anything has even been filed.”

Such a principle has long been recognized in the anti-SLAPP arena, according to Coyne, who said it made sense to apply it to a fact pattern such as the one presented to Wilkins.

“It’s the chilling effect that the court is concerned about,” Coyne said. “People should have a right to pursue their litigation as they choose to do so.”

Joseph G. Blute of Boston represented a lawyer from Nutter, McClennen & Fish, who asserted the privilege in a 1996 Appeals Court case also cited by Wilkins.

In Doe v. Nutter, McClennen & Fish, the firm’s neurologist client received a Chapter 93A demand letter sent by a plaintiff patient’s attorney.

The letter and a draft complaint, which accused the neurologist of sexual harassment, contained a “cc” to the plaintiff, Blute said. The neurologist’s Nutter McClennen lawyer sent a response to the plaintiff’s lawyer, which similarly included a cc to the plaintiff.

Blute, who practices at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, said the plaintiff then amended the complaint to add the firm as a defendant for allegedly violating the rules of professional conduct by directly communicating with the plaintiff.

“The [plaintiff] put the firm in the same lawsuit as the party they were defending, thus creating a situation where they would have to recuse themselves,” Blute said. “There is a policy behind this absolute privilege, which tries to ensure you can zealously advocate your cause without having to worry about being put in that situation.”

A Superior Court judge dismissed the claims, Blute said, and the Appeals Court and Supreme Judicial Court later affirmed the decision.

“Even though [Nutter] involved the conduct of a lawyer, it doesn’t surprise me that it’s being cited [by Wilkins] because the policy behind the rule is that if it relates to litigation or a judicial proceeding, you should have a lot of leeway as to how you litigate the case,” Blute said. “What you don’t want is to have these sideshows going on where the manner of communication ends up getting litigated, rather than the merits of the claim.”

Counter letter

When defendant Mark Manning was hired as director of health care services for plaintiff Pegasystems, he signed a “standards letter,” which contained a limited non-competition and non-solicitation agreement.

Manning accepted an offer in late 2013 to become CEO of Healthx, an Indianapolis-based health care technology company that does not compete with Pegasystems and was not identified in the standards letter. During an exit interview with Pegasystems on Jan. 31, the company made no mention of the letter.

A week later, Healthx publicly announced it had hired Manning.

Pegasystems then sent Manning and Healthx a letter accusing him of violating the terms of the standards letter. Pegasystems’ vice president addressed the letter to Manning in his personal and professional capacity and accused him and Healthx of improperly soliciting and hiring two of its employees.

The first business day after receiving the letter, Pegasystems had additional communication with Healthx. That same day, Healthx fired Manning due to concerns about potential litigation.

The following month, Pegasystems filed suit against Manning for breach of contract and misappropriation of confidential information. Manning responded with his counterclaim for $8.2 million, alleging tortious interference, misrepresentation and violation of Chapter 93A.

Impact of ‘Nutter’

In dismissing the counterclaims, Wilkins wrote that statements made in the course of a court proceeding or about pending litigation are absolutely privileged as long as they relate to the suit.

He said there was no allegation in the executive’s counterclaim that the employer had filed its complaint for an improper purpose or without probable cause.

Wilkins cited the Nutter decision for the proposition that the privilege provides a complete defense even for statements made in bad faith or with actual malice.

“The Nutter case is particularly germane,” the judge said. “There, an attorney’s pre-litigation response to a demand letter … was absolutely privileged even though it contained an allegedly bad faith threat and was sent directly to a client who was represented by counsel.”

The judge noted that while the executive in Pegasystems alleged that his former employer had additional communications with his new employer, there was not enough specification in the counterclaim about the nature of those conversations.

Wilkins said his ruling did not bar the executive from amending his claim to allege that the conversation concerned something other than the litigation.

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