Birkenfeld Loses Suit Against UBS in New York Supreme Court (1/22/18)

I recently wrote on Bradley Birkenfeld's continuing judicial efforts at some level of redemption or at least recompense.  See Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (11/13/17), here.  Birkenfeld is the former UBS account officer who was instrumental in blowing the lid on Swiss bank secrecy for U.S. tax evasion (for which he was given a whistleblower award of $104 million), but who, nevertheless, served time for a tax crime.  Birkenfeld has appeared frequently in Federal Tax Crimes Blog Entries (a search on his name will pull up the entries, either by relevance or by date order).

Birkenfeld appeared again in my search of recent cases.  In Birkenfeld v. UBS AG, 2018 N.Y. Misc. LEXIS 92; 2018 NY Slip Op 30036(U) (2018), here, The NY Supreme Court for the County of New York dismissed Birkenfeld's suit against UBS and a UBS related entity and related person for defaming him.  [Note that the linked opinion is docket # 44 on the docket sheet; Docket #43 appears to be the same opinion; readers can obtain both opinions from the docket sheet links here [Note you have to enter some information to make sure you are not a robot, but after doing so should get to the docket entries.]   Birkenfeld has filed a notice of appeal (see Docket Entry #47).  Hence I report on the opinion for dismissal.

The gravamen of the claim and the holding is (one footnote omitted):

In October of 2016 Plaintiff published a book entitled "Lucifer's Banker: The Untold Story of How I Destroyed Swiss Bank Secrecy" (Complaint ¶ 17). On or about November 6, 2016, the New York Post published an article regarding Plaintiff and his book. The article includes a  statement attributable to Defendants: "This unedited work and often unsubstantiated recollection only benefits Mr. Birkenfeld, who has been convicted in the U.S. for, among other things, having lied to the U.S. authorities."9 Plaintiff alleges that the phrase "having lied to U.S. authorities" is defamatory because he was never charged or convicted of lying to government authorities (Complaint ¶¶ 20-26). On or about April 3, 2017, the Bloomberg BNA Daily Tax Report published an article about Plaintiff which includes a similar statement attributable to Defendants: "[Plaintiff's] continuing efforts to publicize his book and his often unsubstantiated recollections only benefit Mr. Birkenfeld, who has been convicted in the US for, among other things, having lied to the US authorities." Like the New York Post article, Plaintiff alleges that the phrase "lied to the US authorities" is defamatory because he was never charged with or convicted of lying to government authorities (Complaint ¶¶ 41-47). The Complaint seeks $10 million in compensatory damages, $10 million in punitive damages, and an order requiring Defendants to retract both statements. In lieu of an answer, Defendants filed this motion to dismiss.

* * * * 

The documentary evidence presented on this motion demonstrates that the challenged statements are a substantially truthful, if not absolutely truthful, summary of Plaintiff's conviction, i.e., conspiring to defraud a United States agency in violation of 18 USC § 371. According to the Statement of Facts, which Plaintiff admitted on the record and under oath to be accurate, Plaintiff conspired to file false information with and conceal information from the IRS, a government agency. Thus, Plaintiff's focus on the differences between "lying" and "conspiracy" is unavailing. To be sure, the government does rely on other criminal statutes to charge people who lie to it (see 18 USC § 1621, 18 USC § 1001), and a person can be guilty of violating 18 USC § 371 without uttering a false statement. But despite the existence of these other statutes, Defendants may properly defend against Plaintiff's complaint by noting that he did, in fact, lie  to the government by assisting his clients to file false tax returns. 

The determinative question is whether there is a difference between accusing someone of "lying" when in fact that person was convicted of "defrauding" — in other words, whether there is a meaningful distinction between saying that someone "lied to U.S. authorities" and saying that someone "defrauded U.S. authorities." From a definitional standpoipt, to defraud n12 involves some form of misrepresentation, essentially a lie. n13 And, in the context of this case, any distinction  between these two charges is substantively insignificant. Plaintiff's indictment, Plea Agreement, Statement of Facts, and the colloquy on the record during his plea hearing all show that his crime, while perhaps most accurately described as conspiracy to defraud, in sum and substance involved a lie. Plaintiff admitted to multiple wrongful acts in furtherance of a conspiracy to hide information from the IRS by preparing false and misleading IRS forms and assisting clients to conceal assets from the US government. In its simplest form, Plaintiff did in fact lie to a federal authority. Thus, the "essence of [Defendants'] statement" was accurate. Cusimano v United Health Servs. Hosps., Inc., 91 AD3d 1149, 1152, 937 N.Y.S.2d 413 (3rd Dept 2012).
   n12 Defraud, "To cause injury or loss to (a person) by deceit" (Black's Law Dictionary (9th ed. 2009)); "To take or withhold from (one) by some possession, right, or interest by calculated misstatement or perversion of truth, trickery, or other deception" (Webster's Third New International Dictionary (1961)); Fraud, "A knowing misrepresentation of the truth of concealment of a material fact to induce another to act to his or her detriment" (Black's Law Dictionary (9th ed. 2009)).
   n13 Lie, "To tell an untruth, to speak or write falsely" (Black's Law Dictionary (9th ed. 2009); "To make an untrue statement with intent to deceive" or "to create a false or misleading impression" (Webster's Third New International Dictionary (1961)). 

Of course, Defendants' statements must be read in the context of the articles in which they appeared. But contrary to Plaintiff's arguments, reading the statements in context does not change the result. See Alf v Buffalo News, Inc., 21 NY3d 988, 990, 995 N.E.2d 168, 972 N.Y.S.2d 206 (Courts should not "view statements in isolation" when examining a libel claim); Dibble v WROC TV Channel 8, 142 AD2d 966, 967, 530 N.Y.S.2d 388 (4th Dept 1988) ("The publication must be considered in its entirety when evaluating the defamatory effect of the words"). In fact, reading the individual statements in the context of the articles in which they appear actually bolsters Defendants' argument. Both articles discuss Plaintiff's whistleblowing activities and indicate that Plaintiff's indictment and conviction arise from tax schemes, giving clear context to Defendants statements. n14 Thus, read in context, the complained-of statements did not cause any additional harm to Plaintiff over and above the harm caused by his admission that he had conspired to defraud the IRS. I therefore find that Defendants' alleged defamatory statements are substantially if not absolutely true, would produce no worse "effect on  the mind of the reader" then the purported truth (Fleckenstein, 266 NY at 23), and are not actionable as a matter of law.
   n14 Complaint, exhibit A ("For his whistleblowing, Birkenfeld was awarded a record $104 million in 2009 — and was sentenced to 40 months in prison and fined $30,000 for his part in tax-evasion transgressions"; Complaint, exhibit B ("The U.S. government indicted Birkenfeld in April 2008 for conspiracy to defraud the government through his attempts to obstruct the IRS from collecting income taxes due"). 

Defendants' statements are also protected from suit under the "fair report privilege," codified at section 74 of New York's Civil Rights Law. The statute provides that a civil action "cannot be maintained against any person, firm or corporation, for the publication of a fair and true report of any judicial proceedings." Civil Rights Law § 74. The privilege attaches when there is a statement about a judicial proceeding and the statement can be considered fair and true. Gonzalez v Gray, 69 F. Supp. 2d 561, 570 (SDNY Oct. 21, 1999). "For a report to be characterized as 'fair and true' within the meaning of the statute, . . . it is enough that the substance . . . be substantially accurate." See Holy Spirit Assn. for the Unification of World Christianity v. New York Times Co., 49 N.Y.2d 63, 67, 399 N.E.2d 1185, 424 N.Y.S.2d 165 (1979); see also Russian. Am. Found., Inc. v Daily News, L.P., 109 AD3d 410, 413, 970 N.Y.S.2d 216 (1st Dept 2013); Saleh v New York Post, 78 AD3d 1149, 1152 (2d Dept 2010). Hence, "[m]inor inaccuracies are 'not serious enough to remove [a party's] reportage'" from the protections of the state. Bouchard v Daily Gazette Co., 136 AD3d 1233, 1235, 25 N.Y.S.3d 730 (3rd Dept 2016) (quoting Misek-Falkoff v. McDonald, 63 Fed Appx 551, 552 [2d Cir 2003]). This principle is consistent with the common law of libel, which also overlooks minor inaccuracies. Cholowsky v Civiletti, 69 AD3d 110, 114, 887 N.Y.S.2d 592 (2d Dept 2009). The fair report privilege has been interpreted to provide broad protection for news reports of judicial proceedings. Id. However, the privilege applies to all persons, not just journalists. See Williams v Williams, 23 NY2d 592, 597, 246 N.E.2d 333, 298 N.Y.S.2d 473 (1969). 

Consistent with my ruling that Defendants' statements are "substantially true" in the defamation context, I find that such statements are "substantially accurate" for purposes of the fair report privilege. In reaching this decision, the court is persuaded by the Third Department's decision in Bouchard, supra. In that case, several newspapers received a Department of Justice (DOJ) press release entitled "Attorney Convicted in Mortgage Fraud Prosecution" detailing  plaintiff's charges and conviction, and later published an article entitled "Albany lawyer convicted of mortgage fraud" based upon the release. The plaintiff commenced a defamation action against the newspapers, who then secured dismissal of the lawsuit on the ground that their article was privileged under Civil Rights Law § 74. The Third Department affirmed the dismissal on appeal, holding that "[a]lthough defendants used language that differed slightly from the DOJ press release in their article, given plaintiff's criminal charges and convictions detailed in the press release, the language used . . . does not suggest more serious conduct than that actually suggested in the official proceeding . . . ." Id. at 1235. In reaching that conclusion, the court afforded defendants' statements a "liberal reading," viewed the article in its entirety, and afforded defendants' statements "some liberality." Id. 

The Second Department's decision in Cholowsky, supra, is also highly persuasive. In that case, the defendant newspaper reported that the plaintiff had pled guilty to conspiring to defraud the United States and was sentenced to probation. Further, the newspaper reported that the evidence gathered established the scheme's organizer used plaintiff's hauling permit to improperly dump hazardous waste. In dismissing plaintiff's defamation suit against the newspaper, the court held that the newspaper's reporting was privileged even though it overstated plaintiff's involvement. In fact, while on appeal plaintiff was able to show that he was actually a victim of extortion and never knowingly allowed others to use his permit, the Second Department still affirmed the dismissal of his lawsuit. Id. at 113-116. 

To the extent Plaintiff argues that Cholowsky, Bouchard, and the other cases cited by Defendants are factually distinguishable from the case at bar, the caselaw leaves no doubt that a party need not precisely report on a judicial proceeding in order for the fair report privilege to apply. See Ford v Levinson, 90 AD2d 464, 465, 454 N.Y.S.2d 846 (1st Dept 1982); D' Annunzio v Ayken, Inc., 876 F. Supp. 2d 211, 220 (EDNY July 17, 2012). Notably, at least one court has found that the fair report privilege applies where a defendant "fail[s] to precisely label plaintiff's criminal charges and convictions based on statutory definitions" because "such precision is not required under the New York Civil Rights Law." Alexander v Daily News, L.P., 2013 NY Misc. LEXIS 5993, *4 (Sup. Ct. NY Co. Jan. 11, 2013, Ling-Cohan, J.). With that in mind, Defendant's characterization of Plaintiff's conviction as "lying to the U.S. authorities" is a fair and true report of Plaintiff's conviction. This conclusion holds especially true given that both articles discuss how Plaintiff's conviction arose from defrauding the government through tax evasion. I therefore find Defendants' statements protected under Civil Rights Law § 74.