Opinion
Nos. 2007-SC-000573-DG, 2008-SC-000317-DG.
Rendered August 26, 2010.
On Review from Court of Appeals, Case No. 2006-CA-000395-MR, Boyd Circuit Court No. 02-CI-01131.
William C. Rambicure, Christopher D. Miller, Christopher B. Rambicure, Rambicure Miller, P.S.C., Lexington, Kentucky, Counsel for Appellant/Cross-Appellee.
Carl D. Edwards, Jr., Leigh Gross Latherow, Keri E. Lucas, Vanantwerp, Monge, Jones, Edwards 8B McCann, LLP, Ashland, Kentucky, Counsel for Appellees/Cross-Appellants.
Appellant/Cross-Appellee, Mary Beth Calor, filed this action against Appellees/Cross-Appellants, Ashland Hospital Corporation, d/b/a King's Daughters Medical Center and its CFO, Paul McDowell (collectively "KDMC"), in Boyd Circuit Court. The case went to a jury trial on claims of slander, intentional interference with a contract and punitive damages. The jury rendered a verdict in favor of Calor in the amount of $534,050. The Court of Appeals reversed, holding that KDMC was entitled to judgment as a matter of law on its claim of qualified privilege to the slander claim and the claim for intentional interference with a contract, and remanded to the circuit court. This Court granted discretionary review, and now reverses and remands to the Court of Appeals.
I. Background
Calor is an anesthesiologist who entered into a written Physician Services Agreement with a medical staffing agency, Staff Care, Inc. KDMC is a 440 bed medical hospital located in Ashland, Kentucky. Prior to contracting with Staff Care for locum tenens anesthesiologists, KDMC had contracted for these services with the chair of their anesthesiology department, who had an anesthesiology practice group that serviced the hospital. However, this group resigned, and KDMC determined that it needed to hire five or six anesthesiologists on staff. Until that was accomplished, KDMC had to rely on locum tenens anesthesiologists provided by Staff Care, including Calor. She began her services to KDMC in October 2001 and continued through June 2002 when KDMC released her over concerns about her billing records.
A locum tenens physician is one "who substitutes for another temporarily." Taber's Cyclopedic Medical Dictionary L-38 (10th ed. 1965); see also Black's Law Dictionary 959 (8th ed. 2004) (defining term as a "deputy; a substitute; a representative").
While Calor worked at KDMC, she and other anesthesiologists were recruited by KDMC to join its staff as members of a new anesthesiology group. She alleged this effort continued up until her release. Testimony indicated this recruitment effort was not revealed to Staff Care until after Calor's termination by KDMC.
Calor claimed an extraordinary amount of hours worked, which she recorded on forms that had to be signed off on by either the Chair or Vice-chair of KDMC's anesthesiology department. This was required by Staff Care, to ensure that it billed and paid its physicians appropriately. Staff Care's scheduling coordinator noticed the extremely large number of hours Calor billed, and called KDMC's Physician Recruiter in January 2002 to discuss her concerns. Staff Care paid the malpractice insurance premiums for its contract physicians, and the premium was directly related to the number of hours worked by the physicians.
Testimony at trial indicated that the cost to KDMC for the locum tenens physicians had significantly exceeded the amount budgeted for those services. As early as January 15, 2002, McDowell had already looked at some of Calor's billings, and questioned their reasonableness. In February, KDMC decided to withhold payments to Staff Care for Calor's services, but did not inform either of them at that time. By May, Staff Care had invoices for over $200,000 in billings that were past due, since KDMC withheld not only Calor's billings, but other physicians' as well. When Staff Care inquired about this, KDMC gave excuses, and even made statements about planning to pay that were not true. KDMC did not tell Staff Care and Calor that they were investigating her billing at that time. As the dispute continued, allegations that Calor refused to fill out appropriate forms and that her time could not be accounted for by hospital records arose. This culminated when McDowell set a meeting with Calor on June 21, 2002 to discuss her billing. However, he refused to proceed when Calor's husband, who kept her records, also came to the meeting. Instead, McDowell severed her assignment at that time.
McDowell then called a supervisor at Staff Care, who wrote in her daily work notes, "He explained they are releasing Dr. Mary Beth Calor as of today due to her falsifying timesheet in hours worked and overtime." Staff Care told McDowell that it was relying on the fact that KDMC doctors had signed off on the timesheets, and that it had been waiting for 120 days to hear from KDMC if there were any billing problems. McDowell informed her that they had been conducting an "investigation." That same day, he spoke with another supervisor at Staff Care and told the supervisor that he had information that showed Calor had falsified her billings. Over the next weeks, McDowell and the supervisor spoke often, and McDowell told him a dollar amount that he claimed Calor had overbilled. However, the investigation had not been able to show whether Calor had worked 670 hours she had claimed. The typical accusations and denials played out over that time.
KDMC did not pay Staff Care, who sued to recover on its contract but settled prior to trial. In turn, Staff Care did not pay Calor. Calor filed this action to recover her lost income, reputational damages, and punitive damages. She alleged, and offered proof at trial to show, that KDMC had not conducted a thorough investigation, that it made defamatory statements about her work, that its motives were to hire her on staff to cut locum tenens costs or to otherwise interfere with her contract with Staff Care, and that McDowell knew when he made these remarks that he could not prove them.
KDMC defended generally, but just before trial raised a qualified privilege defense based on a common business interest that it had not pleaded affirmatively even though it had previously been given leave of court to amend to raise other defenses. The trial court did not instruct on the qualified privilege, and the jury found for Calor on all three of her claims.
The Court of Appeals reversed, holding that KDMC was entitled to the qualified privilege as a matter of law and that the trial court should have granted summary judgment or a directed verdict in favor of the hospital on both the slander and intentional interference with a contract claims. The parties raised other issues — including whether the privilege issue should have been submitted to the jury, the statements in question were privileged because they were either true or opinion, the use of an alleged "golden rule" argument was improper, the punitive damages instruction was erroneous and the award was excessive and against the weight of the evidence — but the Court of Appeals did not reach them because it resolved the case by deciding only that the qualified privilege barred Calor's claims as a matter of law.
This Court granted discretionary review on Calor's motion. She claims that the Court of Appeals erred by holding that the qualified privilege barred her claim as a matter of law, arguing that the Court of Appeals applied the wrong standard of review; that KDMC's failure to raise the privilege as an affirmative defense was a fatal procedural default; that the privilege did not apply at all; that even if the privilege was applicable, the jury effectively found that KDMC abused (and thereby lost) it; and that the intentional interference with a contract claim was properly submitted to the jury. KDMC cross-appealed, disputing each of Calors claims and arguing four additional issues: that the statements were privileged as either truth or opinion; that Calor's counsel made an improper golden-rule argument at trial; that the trial court erred by not presenting the issues of abuse of the privilege to the jury; and that the punitive damages award was excessive and against the weight of the evidence.
II. Defamation and the Common Interest Qualified Privilege
Calor's defamation claim arose in the business context of her employment through Staff Care as a physician at KDMC through statements made by its agent to the effect that she had falsified her time records at the hospital. Because such statements tend to "impute crime" or "unfitness to perform duties of office," she correctly argued, and the trial court properly agreed, that she was entitled to prove her case as slander per se. See Courier Journal Co. v. Noble, 251 Ky. 527, 65 S.W.2d 703 (1933). As a per se action, her slander claim entitled her to a presumption of damages and she could "`recover without allegation or proof of special damages."' Stringer v. Wal-Mart Stores, Inc., 151 S.W. 3d 781, 794 (Ky. 2004) (quoting Hill v. Evans, 258 S.W.2d 917, 918 (Ky. 1953)). To defend against a slander perse action, KDMC was required to prove that the statements were true (truth is a complete defense even if stated with bad faith or ill will), mere opinion, or that it was entitled to application of a qualified privilege under the facts of the case.
As an alternative to the defenses of truth and opinion, KDMC claimed a qualified privilege stemming from a common business interest with Staff Care which required it to make the allegedly defamatory statements to Staff Care in promotion of that interest. Calor argues that the Court of Appeals erred by holding that KDMC was entitled to the defense as a matter of law. KDMC claims it was entitled to summary judgment as a matter of law.
Problematically, this claim was not made until the pretrial conference, and had not been raised as an affirmative defense in KDMC's answer or subsequent amended answer in which it raised other defenses.
A. Procedural Default of the Qualified Privilege
Calor argues that KDMC procedurally defaulted any claim to the qualified privilege because it is an affirmative defense and was not included in either its answer or amended answer as required by CR 8.03. The Kentucky Rules of Civil Procedure require that "a party shall set forth affirmatively . . . any other matter constituting an avoidance or affirmative defense." CR 8.03. Likewise, "[e]very defense, in law or fact, to a claim for relief in any pleading . . . shall be asserted in the responsive pleading thereto. . . ." CR 12.02. However, multiple exceptions to this requirement are provided by CR 15.01 and 15.02. Under CR 15.01 a party may amend his answer within twenty days of serving his original answer, by leave of court when justice so requires, or by written consent of the adverse party. Under CR 15.02, "[w]hen issues not raised by the pleadings are tried by the express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings." That rule also allows amendment of the pleadings to conform to the proof at trial when the presentation of the merits will be subserved thereby without undue prejudice to the opposing party.
In its entirety, CR 15.02 reads:
When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleading as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence.
The interplay of these rules is important in this case because KDMC failed to affirmatively plead the defense of qualified privilege. The record reveals that the complaint in this action was filed on October 30, 2002, and this claim of privilege first appeared in written form in a pretrial memorandum filed on April 24, 2004. It was not, however, addressed by the parties and the court until October 24, 2004, which was the Friday before the trial was scheduled to begin on Monday. KDMC had filed a summary judgment motion to be heard on that date arguing that it was entitled to have judgment in the action because it had a qualified common interest privilege as a matter of law.
Calor responded that the privilege was an affirmative defense that had not been raised in the pleadings, and argued that KDMC was foreclosed from making the privilege argument due to its procedural default. After appearing to agree that the privilege was procedurally defaulted, the judge then engaged in discussions with counsel for both parties that indicated his belief that the privilege question was subsumed in the defamation claim, and that there were unanswered questions of fact for the jury. Consequently, the summary judgment motion was denied.
Counsel for KDMC continued at trial to raise the question of qualified privilege, either as a pure question of law or a question of fact, through two directed verdict motions and a tendered instruction laying out the elements of the privilege. The trial court refused to give the proposed instruction, and the case was submitted to the jury only on the defamation claim, the interference with a contract claim, and the punitive damages claim. However, because the procedural default should have been cured by the trial court allowing amendment under CR 15.02, and assuming that KDMC was entitled to claim the privilege, which is discussed below, the failure to instruct on the qualified privilege was error.
CR 15.02 applies specifically to issues raised at trial which have not been raised in the pleadings, and therefore is not in conflict with CR 8.02 and 12.02, which involve notice during the pleading and discovery stages of an action. The latter rules provide an opportunity to obtain judgment on the pleadings when applicable, and to allow targeted discovery which can lead to early settlement, thus promoting judicial economy. CR 15.02 requires that if evidence is offered at trial on unpleaded issues, the party opposing must object to the evidence as being offered on an unpleaded issue or the issue is deemed tried by express or implied consent and will be treated as if it had been raised in the pleadings. See Nucor Corp. v. General Elec. Co., 812 S.W.2d 136, 145 (Ky. 1991) ("It seems clear that at the trial stage the only way a party may raise the objection of deficient pleading is by objecting to the introduction of evidence on an unpleaded issue. Otherwise he will be held to have impliedly consented to the trial of such issue/' (quotation marks and citation omitted)).
If objection is made, the trial court may allow amendment of the pleadings as a general matter of discretion, but shall allow the pleadings to be amended if the issue goes to the merits of the case and there is no prejudice to the opposing party. The intent of the rule is to address issues arising out of the evidence actually presented at trial, and to ensure that if a new issue arises from that evidence, the full merits of the trial have been addressed. Id.
Here, this issue was not raised for the first time at trial, though it was raised after discovery was completed (except for several newly found boxes of files which caused the court to reschedule the trial to allow examination by Calor), and thus did not conflict with the purposes of CR 8.03 and CR 12.02. And, had the trial court not been mistaken about the law regarding qualified privilege in slander actions, as discussed below, it could have allowed an amendment at the pre trial on April 24, 2004.
Although Calor did object to the privilege issue at trial, she did not object to the evidence related to the privilege. In fact, such an objection would not have been successful, as the evidence presented in defense of the slander claim, the intentional interference claim, and the punitive damages claim is the same evidence that would be considered to determine the qualified privilege fact questions (e.g., was KDMC acting in good faith and in a reasonable manner?). Thus evidence was introduced at trial which addressed this unpleaded defense. The court is mandated by CR 15.02 to allow the amendment when it goes to the merits of the case and the opposing party will not be prejudiced. The proposed amendment went to the merits and Calor would not have been prejudiced, as none of the proof would have been significantly different.
Finally, that KDMC did not actually move the court to amend its answer and add the qualified privilege defense until after the proof was closed is no bar either. Under CR 15.02, the motion to amend may be made by "any party at any time, even after judgment. . . ." (Emphasis added.) The trial court should have allowed the amendment when requested during trial.
B. Defamation and the Privilege
The question then is whether KDMC was entitled to the protection of the privilege. This requires an examination of the law on slander and the qualified privilege of common interest. The essential elements of slander are: "(a) a false and defamatory statement concerning another; (b) an unprivileged communication to a third party; (c) fault amounting at least to negligence on the part of the publisher; and (d) either actionability of the statement irrespective of harm or the existence of special harm caused by the publication/' Restatement (Second) of Torts § 558 (1977). When the communication concerns allegations of criminal behavior or unfitness to perform a job, which are not true, the communication is slander per se, and proof of context is not required.
Defamation actions in general involve (usually) intentional communications that are false and injurious to another's reputation or good name. When brought against a public official or a public figure, the plaintiff must prove that the defamatory statement was made with "actual malice — that is, with knowledge that it was false or with reckless disregard of whether it was false or not." New York Times v. Sullivan, 376 U.S. 254, 279-80 (1964). For the average citizen who leads a private life, however, published statements that are false and injurious and made with mere negligence are sufficient to allow recovery. Calor is not a public figure or elected official, so her burden was only to prove that the statements were false, damaging, and at least negligently made. Since the claim was for slander per se, she was not required to prove special damages.
The question before this Court is whether the statements were protected by the qualified privilege afforded to statements made in the course of a common business interest.
This Court has "recognized a series of qualified or conditional privileges, including where the communication is one in which the party has an interest and it is made to another having a corresponding interest." Stringer, 151 S.W.3d at 796 (quotation marks omitted). Basically, if the statement concerns an interest common to both parties, it is covered by the privilege. "The determination of the existence of privilege is a matter of law."' Id. (quoting Columbia Sussex Corp., Inc. v. Hay, 627 S.W.2d 270, 276 (Ky. App. 1981)).
Clearly, KDMC and Staff Care had a common interest in the accurate reporting of Calor's work hours. KDMC did not want to pay for hours she did not work, and Staff Care did not want to pay malpractice premiums for hours she did not work. This common interest allowed KDMC to assert a qualified privilege to the communication. The privilege is only applicable where the statements made were defamatory; otherwise, there is no need to resort to such a defense. In fact, KDMC specifically argued in its summary judgment motion that the trial court could assume the statements were defamatory in evaluating the privilege.
As noted above, the question of the existence of a qualified privilege is a question of law. KDMC showed a common interest with Staff Care, which is sufficient to show entitlement to the privilege as a matter of law. To this extent, the Court of Appeals was correct: KDMC demonstrated the existence of the qualified privilege.
"However, the key word is `qualified,' and the privilege can be lost if abused or exceeded. . . ." Stringer, 151 S.W.3d at 797. Merely asserting and demonstrating the existence of the privilege does not automatically relieve KDMC of liability, as the privilege is qualified. The privilege is not absolute, and its protection may be lost (or waived) through a defendant's actions that constitute abuse of the privilege.
The condition attached to all such qualified privileges is that they must be exercised in a reasonable manner and for a proper purpose. The immunity is forfeited if the defendant steps outside the scope of the privilege, or abuses the occasion. The qualified privilege does not extend . . . to the publication of irrelevant defamatory matter with no bearing upon the public or private interest which is entitled to protection.
Id. (quoting Tucker v. Kilgore, 388 S.W.2d 112, 115 (Ky. 1964)) (omission in original). Thus, there are questions of fact that control applicability of the privilege to a given defamatory statement (thus the use of the adjective "qualified"). Those questions of fact are qualifications or conditions which must be met to afford a defense.
The practical effect of this is that once a privilege has been placed in issue, the plaintiff may rebut the claim "by a showing that either there was no privilege under the circumstances or that it had been abused." Columbia Sussex Corp., 627 S.W.2d at 276; see also Restatement (Second) of Torts § 599 ("One who publishes defamatory matter concerning another upon an occasion giving rise to a conditional privilege is subject to liability to the other if he abuses the privilege.").
Abuse of the privilege occurs in a number of situations:
The privilege may be abused and its protection lost by the publisher's knowledge or reckless disregard as to the falsity of the defamatory matter; by the publication of the defamatory matter for some improper purpose; by excessive publication; or by the publication of defamatory matter not reasonably believed to be necessary to accomplish the purpose for which the occasion is privileged.
Restatement (Second) of Torts § 596 cmt. a (citing §§ 600-605A).
Whether the privilege is waived or abused, however, is a question properly submitted to a jury, and cannot be decided by a court as a matter of law. See Columbia Sussex Corp., 627 S.W.2d at 276 ("The determination of the existence of privilege is a matter of law. However, whether or not such has been waived is factual. A jury should be instructed accordingly/' (citation omitted)). KDMC submitted an instruction proclaiming the existence of the privilege but also reflecting the idea the privilege can be lost through abuse. Though that instruction reflected the law, and KDMC demonstrated that it was entitled to the privilege, the trial court declined to give the instruction.
Some Kentucky cases have indicated that all questions related to the qualified privileges are matters of law and therefore decidable only by a court. See, e.g., Landrum v. Braun, 978 S.W.2d 756, 758 (Ky. App. 1998). To the extent that these cases indicate that questions related to abuse or waiver of the privilege are to be determined by the court as questions of law, rather than by the jury as mixed questions of fact and law, they are overruled.
The only problem with KDMC's proposed instruction is that it treated the privilege separately from the elements of slander. The better instruction would be similar to the example in 2 John S. Palmore and Donald P. Cetrulo, Kentucky Instructions to Juries, Civil § 40.10 (5th ed. 2006 release no. 3, 2008), which incorporates the "abuse" into the slander instruction itself. However, Palmore and Cetrulo's instruction does not reflect all of the possible ways of abusing the privilege, listing only two of the four described above, and a proper instruction would reflect the relevant category of "abuse" applicable to a given case.
Such an instruction would have put Calor in the position of having to prove that KDMC abused the privilege, whether by not acting in a reasonable manner when it made the defamatory statements, by acting for an improper purpose, or by acting with reckless disregard or knowledge of the falsity of the statements. Her proof generally consisted of evidence that KDMC did not do a reasonable investigation of her time sheets, that it knew when it made the statement that it could not prove it, that it did not want to pay her for all the hours she worked, that it used this conflict to its advantage by not paying on other contracts it had with Staff Care, and that even after beginning to question her timesheets it continued to try to hire her on staff to reduce the cost of the locum tenens contracts.
The "reasonable manner" at issue in a defamation case is how the statement was communicated — i.e., only to those who share the common interest, not to the public large — and whether it contained additional defamatory matter that was unnecessary to accomplish the purpose of the privilege. Here, KDMC made the communication only to Staff Care or employees involved in both businesses, so KDMC could reasonably argue that the communication was confined to only people who were included in the qualified privilege. Similarly, the communication related only to Calor's billing and hours, which falls within the core of the interest shared by KDMC and Staff Care.
Similarly, Calor introduced sufficient evidence at trial to at least create a question of whether KDMC was acting for a proper purpose or in reckless disregard or with knowledge of the falsity of the statements (a requirement this Court's cases have usually described as whether the statement was "in good faith"). Calor offered proof that KDMC failed to adequately investigate its claims, since it had no evidence either way about the 670 hours it disputed and had not interviewed witnesses about whether Calor had been in the hospital during those times. In fact, the investigation was not completed when McDowell made the statements. Calor also offered proof that KDMC had an interest in ending her work as a locum tenens physician (as evidenced by their simultaneous negotiations with her to become a permanent — and thus less expensive — member of the hospital staff).
Consequently, the jury should have been instructed about the existence of the qualified privilege and instructed to determine whether KDMC abused the privilege. The Court of Appeals was incorrect to hold that KDMC was entitled to judgment as a matter of law and not requiring an instruction to the jury.
III. Conclusion
Having concluded that the Court of Appeals was erroneous in its holding that KDMC was entitled to judgment as a matter of law, but concluding that KDMC was entitled to an instruction on the qualified privilege, this Court will go no further because there are determinations to be made by the intermediate court before these issues will be reviewed by this Court. Therefore, the judgment of the Court of Appeals is reversed and this case is remanded to that court to determine the effect of the trial court's failure to give the necessary jury instruction on the qualified privilege and to address any other issues previously raised but not decided that are necessary for a complete resolution of this case.
Minton, C.J., Cunningham, Schroder, Scott and Venters, JJ., concur. Abramson, J., not sitting.