United States: Defamation And The Common Interest Privilege In The Construction Industry

Last Updated: September 7 2015
Article by David A. Kluft

Construction projects often involve a complex array of contractors, subcontractors, banks, bonding agents, architects, engineers and so on. With that many parties depending on each other to complete a project, negative statements about the quality and integrity of other peoples' work often arise. Such statements, if false, may give rise to defamation claims. However, even a false statement may be protected from liability by a "common interest" privilege. Two recent Massachusetts cases address what kinds of statements qualify for common interest privilege protection in matters related to the construction industry.

Defamation and Qualified Privileges

The law of defamation tends to vary from state to state. In Massachusetts, defamation is defined as the publication of a statement of fact (i.e., not opinion) concerning the plaintiff that is both false and capable of damaging the plaintiff's reputation. The statement must be published with the requisite fault — anywhere from negligence to willful lying, depending on the circumstances — and it must cause actual harm or be the type of statement presumed to cause harm.

A statement that satisfies these elements may nevertheless enjoy the protection of a "qualified" or "conditional" privilege, such as the common interest (or "shared interest") privilege. This privilege applies when the publisher and recipient of a statement share a common interest in the subject, and the statement is reasonably calculated to further that interest. The common interest privilege is most often invoked in the employment context, where an employer has a conditional privilege to disclose potentially defamatory matter about an employee's job performance to those who share an interest in that performance, such as the employee's manager, and in some cases customers or co-workers. The privilege may also arise in the context of a legal duty, such as a school principal's duty to share with parents information that may affect the welfare of their child. In Massachusetts, the privilege is considered an affirmative defense, but some jurisdictions describe it as an additional element (i.e., the element that the statement is "unprivileged").

The common interest privilege can be "abused" and thereby forfeited in certain circumstances. In Massachusetts, a conditional privilege is abused if it is (1) published with constitutional or "actual" malice, i.e., knowledge of its falsity or reckless disregard as to its truth; (2) published with common law malice, i.e., ill will or in bad faith; or (3) recklessly over-published to too many people, or to those who had no need to know the information.

Defining the Common Interest Privilege in the Construction Industry

Two recent Massachusetts Appeals Court decisions provide useful guidance about where to draw the line when applying the common interest privilege in the construction industry.

The first case, Downey v. Chutehall Construction Co., 86 Mass. App. Ct. 660 (2014), is a fairly typical application of the privilege. In that case, a homeowner hired the plaintiff, a roofing contractor, to install a roof. The homeowner later hired the defendant (another roofing professional) to investigate the cause of a leak in that roof. The defendant's report to the homeowner stated that the roof was "substandard" and had been installed by the plaintiff over soaking wet fiberboard insulation. The Appeals Court held that the report was protected by the common interest privilege. The defendant shared a common interest with the homeowner in evaluating the source of the leak so repairs could be made, and the statements in question advanced that interest. Moreover, there was no evidence that the privilege was abused through common law malice (there was no evidence of ill will), excessive publication (the statement was made only to the homeowners) or constitutional malice (the investigation was professional and not reckless).

But the privilege did not apply in Sturm Corp. v. Gilbane Building Company, 87 Mass. App. Ct. 1138 (2015). In that case, the defendant, a construction management company, became dissatisfied with the work of the plaintiff, a crane inspection company, and removed the plaintiff from an approved list of crane inspectors. Even though the defendant was now no longer working with the plaintiff, the defendant nevertheless told other construction companies that the plaintiff's work was "no good," "shoddy" and "not up to par." The Court held that the defendant's statements were not protected by a qualified privilege. Unlike the parties in Downey v. Chutehall, here the defendant was no longer working on any project that would be affected by the plaintiff's allegedly shoddy work, so it had no interest in common with the recipients of the message. The Court rejected the defendant's argument that construction companies shared a common interest in "crane safety;" a general industry-wide concern about safety was too unspecific to enjoy a qualified privilege where it did not arise from a mutual interest in the safety of a particular building site.

Other Common Interests Protected by the Privilege

Other types of statements that may be protected by the common interest privilege include:

Statements by architects to owners. Architects are generally treated as having a professional duty to the project owner and thus a common interest in the project. Therefore, their statements to owners about the performance of contractors are often protected by the common interest privilege. In Sato Construction Co. v. 17&24 Corp., 2010 N.Y. Misc. LEXIS 4437 (N.Y. Sup. Ct. Sept. 7, 2010), the Court held that an architect's statement to a building owner that there was "sufficient cause" to terminate a window installation subcontractor was conditionally privileged. In Meinhard v. Creasy, 2008 Cal. App. Unpub. LEXIS 648 (Cal. App. 3d Dist. Jan. 25, 2008), an architect's report to a homeowner criticizing a contractor's work quality, professionalism and billing practices was "obviously protected" by the common interest privilege. And in E. Construction v. Earl R. Flansburg & Assoc., 1 Mass. L. Rep. 250 (Mass. Super. Ct. 1993), an architectural firm was asked to investigate the bidders on a school construction project, and reported that one bidder had an "abominable" record, barely qualified for the job, and that most of its large projects ended up in litigation. The Court held that report was conditionally privileged (and disregarded the plaintiff's curious objection that the report, even if accurate, was unnecessarily thorough).

Statements by contractors about other contractors. Generally, a contractor working on a project has a qualified privilege to discuss the project with the owner and other entities with a common business interest in the project. In Briggs v. Newton, 984 P. 2d 1113 (Alaska 1999), a new contractor told the owner that the previous contractor's work was of low quality and that he had purposely underbid the job. The Court held that these statements were privileged because they contained information necessary for the accomplishment of a joint business interest, i.e., financing and completing the unfinished project. Similarly, in Lull v. Wick Construction, 614 P. 2d 321 (Alaska 1980), the general contractor charged with building the Juneau courthouse enjoyed a conditional privilege to tell the project's bank and bonding agent that a fireproofing subcontractor was in default for non-performance.

Communications among state agencies. Communication between government entities about public construction projects will often be privileged. In Irwin-Yaeger v. Wash. State Community College, 2015 Wash. App. LEXIS 1139 (Wash. Ct. App. June 2, 2015), staff members in charge of a reviewing bids on a building project at a state college communicated their prior bad experiences with a plumbing subcontractor to the state agency charged with overseeing public construction projects. The Court held that, even if the college and the state agency should be considered separate entities, they clearly shared a common interest in the project in question.

Unprotected Statements and Abuse

When deciding that a statement is not protected by the privilege, courts often blur the line between a statement that was never privileged in the first place, and a statement that was privileged but has lost protection because the privilege was abused. In either case, the end result is the absence of protection. The following circumstances may give rise to the non-application, or abuse, of the common interest privilege:

Alerting the Media. Perhaps the most self-evident form of abuse of the common interest privilege is when an otherwise privileged statement makes its way to the press, thus becoming over-published. In Johnson Controls v. Heery Intl, Inc., 2000 U.S. Dist. LEXIS 9608 (N.D. Tex. July 7, 2000), a consultant's report to a school committee that a contractor had not done the required work was privileged, but the leak of the same report to the Dallas Morning News was a possible abuse that precluded summary judgment. In Brown v. Kelly Broadcasting Co., 48 Cal. 3d 711 (Cal. 1989), the defendant took a different approach and argued that the public at large (and by extension the media) shared a common interest with respect to all public construction projects, but the Court rejected this broad interpretation.

Telling the Neighbors. Just because two parties both would like to see a project finished, that doesn't mean they share a truly common interest. In Levine v. Steve Scharn Custom Homes, Inc., 448 S.W.3d 637 (Tex. App. Houston 1st Dist. 2014), a dispute between a developer and contractor caused the project to sit idle, and neighbors complained about the eyesore. In response to these complaints, the developer explained that the contractor was a "crook" and encouraged the neighbors to spread the word. The Court held that there was no common interest between the developer and the neighbors. The neighbors, who were not in the market for a contractor, had no legitimate interest in the quality of the contractor's work. Sure, in one sense the neighbors and the developer were both interested in completion of the project, but these statements did not advance that interest.

Ulterior Motives. Evidence of an ulterior motive may cause a party to lose protection of the common interest privilege. In some cases, it is because an ulterior motive is evidence of bad faith and thus abuse by common law malice. For example, in Douglas Electric Corp. v. Grace, 70 Ohio App. 3d 7 (Ohio Ct. App. 1990), an electrical contractor warned a construction company about an alleged kickback scheme involving its employee and another electrical contractor. The Court held that, even if a qualified privilege applied, there was evidence of its abuse, to wit, that the defendant's real motive was not to advance a common interest, but to pressure the plaintiff to pay a disputed invoice relating to another project. In other cases, an ulterior motive simply helps to demonstrate that the interests involved are not mutual. In Teare v. United Assoc. of Journeymen & Apprentices, 98 So. 2d 79 (Fla. 1957), a union met with building owners and disparaged the non-union plumber the owners had hired. The Court held that the statements were not privileged because there was no mutuality of interest between the union reps and the owners. The Court rejected the union's argument that both had a mutual interest in "plumbing." Rather, the union's interest was to promote the union, an interest that the owners did not share.

Reckless investigations. Even in situations usually protected by the common interest privilege, evidence that the statements in question were based on a faulty investigation may show that the defendant was reckless with respect to the truth, and thus abused the privilege. In Twelker v. Shannon & Wilson, 564 P. 2d 1131 (Wash. 1977), a landslide damaged a building only two months after its completion, and the building's insurer retained a soil engineer to investigate. The engineer's report allegedly included false statements about the plaintiff (another soil engineer who worked on the original construction). The Court held that there was sufficient evidence of actual malice to survive summary judgment, including certain inaccuracies on the face of the engineer's report and also an expert opinion that the engineer's limited investigation was not sufficient to form a professional opinion about the plaintiff's work.

Statements About Competitors. By far the most inconsistent application of the common interest privilege is with respect to statements by contractors about their competitors during a bidding process. Such situations often give rise to the suspicion of an ulterior motive. One example is 360 Construction v. Atsalis Bros. Painting Co., 915 F. Supp. 2d 883 (E.D. Mich. 2012), in which the plaintiff won the contract to paint and clean the Mackinac Bridge, causing the losing bidder allegedly to initiate a smear campaign falsely linking the plaintiff to unrelated criminal matters. The Court held that the common interest privilege did not apply, in part because there was evidence of an ulterior motive: advancement of the defendant's business interests. Moreover, the Court opined that "the blanket extension of the qualified privilege to any communication between a contractor and a public agency would encourage ceaseless rounds of accusation and counter-accusation between competitors." However, it should be noted that the court in English Boiler & Tube v. W.C. Rouse & Son, Inc., 1999 U.S. App. LEXIS 2725 (4th Cir. 1999), adopted a different approach for public projects. The defendant, an unsuccessful bidder for a boiler installation subcontract at a state university, sent several letters to the school documenting the successful bidder's poor work on other projects. The Court held that the defendant had a qualified privilege to make these statements because the defendant and school (and by extension, the public at large) shared a common interest in accountability for government expenditures. In a somewhat defensive footnote, the Court denied that it was establishing a privilege for "every statement made about a potential government contractor by a competitor," but didn't go out of its way to explain where it was drawing the line.

Takeaway Points

So, if there are circumstances in which you are making a negative or potentially defamatory statement about another participant on a building project, whether you are protected by the common interest privilege will depend on your jurisdiction and on the answers to the following questions:

  • What is the common interest? Make sure you are able to articulate a specific common interest in the project that you share with the person to whom you make the statement. It is not enough that the speaker or the recipient of the information is tangentially related to the project (e.g., a neighbor or a local union). Rather, the parties to the statement should be working towards a mutual goal, and ideally will be bound by a common law or contractual duty to share information (e.g., an architect's duty to a building owner, or a contractor's duty to the bond issuer). A general industry-wide interest in safety or integrity likely will not be protected. Moreover, statements to the press or to the public at large rarely fall within the privilege.
  • Does the statement advance the interest? Even if there is a common interest, the statement must actually advance that interest. A statement advances a common interest if the recipient of the statement can act on the information to further that interest. If an architect tells an owner that a contractor is about to use substandard materials, that statement probably advances their common interest and can be acted upon to prevent a problem. On the other hand, gratuitous disparagement of a party who is not working on the project in question will not usually advance any common interest.
  • Have I done my homework? Even if your statement clearly falls under the common interest privilege, that is not a license to defame. The best practice is to make sure that statements about the quality of another's work are based on specific articulable facts. If you are only making a guess based on the available information and/or your professional judgment, say so and be specific about what information is missing. Otherwise, a court is more likely to find that your investigation was reckless, thus satisfying the test for "actual malice" abuse.
  • Is this about a competitor? Take special precautions whenever a statement concerns one of your competitors. In those cases, there is a significant danger that the plaintiff will argue that you competitive interest constitutes an ulterior motive. Before throwing caution to the wind and jumping in head first, consult with a legal professional about the risks and governing law in your jurisdiction.

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