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filed: March 25, 1988.


Appeal from the Order of the Court of Common Pleas, Civil Division, of Allegheny County at No. GD 84-21886.


James A. Ashton, Pittsburgh, for appellants.

James D. Morton, Pittsburgh, for Ingersoll, Newlin, McCullough, Uhl and Giarla, appellees.

Frederick W. Bodd, III, Pittsburgh, for Alexander & Green and McDermott, appellees.

Rowley, Tamilia and Popovich, JJ.

Author: Popovich

[ 373 Pa. Super. Page 10]

This is an appeal from the order of the Court of Common Pleas of Allegheny County granting the defendants' preliminary

[ 373 Pa. Super. Page 11]

    objections in the nature of a demurrer to the plaintiffs' complaint. We affirm.

As is our function upon an appeal from a decision of the court below sustaining preliminary objections in the nature of a demurrer, we must accept as true every relevant fact sufficiently averred in the plaintiffs' complaint together with every inference favorable to the non-moving party which is fairly deducible therefrom. Wojciechowski v. Murray, 345 Pa. Super. 138, 497 A.2d 1342 (1985).

The complaint, viewed in light of the aforementioned, reveals that in 1975 the plaintiffs (Garland and Ganassi) acquired a controlling interest in FSC Corporation, a holding company incorporated under the laws of Delaware. Ultimately, Garland became Chief Executive Officer and Chairman of the Board of Directors and Ganassi rose to the level of Vice Chairman of the Board of Directors.

In 1981, it appears that FSC was experiencing financial difficulties. In an effort to aid the corporation, the plaintiffs agreed to sell a major portion of their interest in FSC to some investors known as the Portnoy Group. In exchange, the Portnoy Group agreed to infuse five to ten million dollars of new working capital into the corporation. As a part of the agreement, the plaintiffs elected the Portnoy Group to the Board of Directors, resigned their positions as officers and members of FSC and caused the resignation of the balance of the Board of Directors and senior management.

The Portnoy Group took over the management of FSC, the control of which lasted but ten days before it rescinded the agreement and advised the plaintiffs to resume their positions as members of the Board of Directors. In an effort to regain their positions with FSC, the plaintiffs consulted the defendant law firms, Alexander and Green and Buchanan Ingersoll,*fn1 who advised them that a shareholders

[ 373 Pa. Super. Page 12]

    meeting and subsequent election were a condition precedent to resuming their posts with FSC.

Before any meeting could be conducted to reinstate the plaintiffs, FSC filed for bankruptcy under Chapter 11 with the United States Bankruptcy Court for the Western District of Pennsylvania. At that time, defendant Uhl, who was executive vice-president of FSC, was appointed by the Bankruptcy Court as responsible officer for the debtor corporation. Thereafter, according to the plaintiffs, it became evident that the defendants had no intention of including them in the operation of FSC, the substance of which took the form of a purported conspiracy on the part of the defendants to malign and defame the plaintiffs. More particularly, the plaintiffs formulated their allegations in a complaint filed December 5, 1984, the essence of which asserted that the defendants were accountable to them on grounds rooted in conspiracy (count I), fraud and deceit (count II), breach of contract (count III), defamation (count IV), libel (count V), invasion of privacy -- false light (count VI), interference with prospective business or contractual relations (count VII) and intentional infliction of emotional distress (count VIII).

On February 2, 1987, the court below issued an order, the portion of which we need be concerned with relates to the sustaining of the defendants' preliminary objections in the nature of a demurrer to counts IV (defamation), V (libel) and VI (invasion of privacy -- false light). No other aspect of the order has been appealed by the plaintiffs to this Court.*fn2

[ 373 Pa. Super. Page 13]

The first issue we shall address concerns the claim that the defendants made false, defamatory and scandalous statements concerning the plaintiffs which were not rendered privileged because of the method and manner of their dissemination, i.e., through documents submitted during the course of the Chapter 11 proceeding.

In this Commonwealth, our Supreme Court has had occasion recently to crystalize those conditions which must exist for one's communications to be labelled privileged, and, thus, immune from suit; to-wit:

The essential realm of protected communication . . . has traditionally been regarded as composed only of those communications which are issued in the regular course of judicial proceedings and which are pertinent and material to the redress or relief sought.

Whether a challenged communication is published prior to, or during, a judicial proceeding, it must bear a certain relationship to the proceeding so as to qualify it as privileged. That relationship is, in either case, the same . . . . [I]n reference to communications made during judicial proceedings, it is necessary that a protected communication have been pertinent and material to the redress sought and that the communication have been issued in the regular course of the proceedings. Similarly, with respect to communications made prior to the institution of proceedings, the protected communication would need to have been pertinent and material and would need to have been issued in the regular course of preparing for contemplated proceedings.

Post v. Mendel, 510 Pa. 213, 221 & 223, 507 A.2d 351, 355 & 356 (1986) (Emphasis in original; citations omitted).

Evaluated by the Post standard, we find that the allegedly false and defamatory statements contained in Exhibits A, B, C and D, attached to the plaintiffs' complaint and attributed to the defendants, are privileged as having been

[ 373 Pa. Super. Page 14]

    made, as is even conceded by the plaintiffs at paragraph 65 of their complaint, at "the commencement of the FSC Chapter 11 case . . . ."

To elucidate, Exhibit A is a letter from the defendant Buchanan Ingersoll to Judge Paul A. Simmons of the United States District Court for the Western District of Pennsylvania. The letter summarizes a reorganization plan contemplated by FSC. In the course of discussing the plan, its author makes reference to the plaintiffs; namely:

Let me now turn to the "Shareholders' Outline of a Plan" submitted by The Official Committee of Equity Security Holders . . . . Of the six-page outline, better than half is taken up with the customary diatribe from the Equity Committee that weaves claims of "illegal freezeout" with apologies for Messrs. Garland and Ganassi's abandonment of FSC in the fall of 1981. We submit that the presentation of FSC's outline of its proposed plan and its commitment to file its plan by September 24, no useful purpose would be served by reconstituting boards of directors for these Debtors and other subsidiaries of FSC. Indeed, the very limited resources of these Debtors should not be burdened further with fights over temporary seats on boards of directors. With the filing of the FSC plan all parties in interest will have an opportunity to be heard and through the processes of the Bankruptcy Code such objections as they may have will be dealt with. Further, we submit that this is not the place to argue over the actions and inactions of Messrs. Garland and Ganassi in their management of FSC and its subsidiaries. Rather, we simply note that they are the subject of a class action pending in this Court entitled Joseph Ratner, et al. v. G. Gray Garland, et al., Index No. 81-1756, brought by the stockholders of FSC on behalf of a large class of purchasers of FSC common stock, many of whom are purportedly represented here by the Equity Committee, in which Messrs. Garland and Ganassi are alleged to have committed several serious violations of the Federal securities laws during their management tenure. The

[ 373 Pa. Super. Page 15]

FSC plan will propose that the interests of Messrs. Garland and Ganassi and the other two former members of FSC's board as stockholders of FSC be equitably subordinated under Section 510(c) of the Bankruptcy Code and that they receive nothing. At the plan hearings on this aspect of FSC's plan, their record as management will be thoroughly examined.

However, a few brief comments on the Equity Committee's so-called "plan" are in order. That "plan" contains something old and something new.

The "old" is the mysterious outside third party investor with the "enviable track record" . . . who would invest in FSC provided "FSC is clear of any legal entanglements" . . ., whatever that might mean, and we take it, provided Messrs. Garland and Ganassi are back on the board. Messrs. Garland and Gannassi [sic] have on repeated occasion [sic] said they could produce an investor, and they tell us they have found one. Yet they decline to tell Your Honor and to tell us who he is, what his financial resources are, or on what terms he proposes to invest.

Their scheme is nothing more than a rehash of what they proposed at the meeting with creditors and FSC on June 20, 1984 -- put them back in control of the board they abandoned and they will then disclose the identity of their mystery investor. Their "plan" speaks of an unnamed investor who is willing to buy an unstated number of FSC shares at an unstated price and who would merge his undisclosed businesses into FSC on unknown terms. This is exactly the type of loosely set deal Messrs. Garland and Ganassi arranged with the Portney-Powers group in September, 1981 that led directly to FSC's bankruptcy.

In sum, the Equity Committee's "plan" is not a plan but a smokescreen thrown up in an effort to hide the attempt by Messrs. Garland and Ganassi to regain control of FSC. It brings forth the "old" -- the mysterious investor, a Trojan horse as enshrouded today as he has been in the past, and it presents something "new" -- a plan of

[ 373 Pa. Super. Page 16]

    distribution which because it cannot be confirmed renders it a dead letter from the start.

To reiterate, instantly we have the commencement of bankruptcy proceedings by FSC. Thereafter, as documented in the letter denominated Exhibit A, the communique was prepared "in response to the suggestions . . . made" by Judge Simmons at a conference regarding FSC's bankruptcy. Thus, the plan proposed by the defendants and their discussion of the plaintiffs' reorganization plan were matters germane to the bankruptcy proceedings. Further, the letter proffered a legal argument to the District Court and requested it to take a particular position in regard thereto. (See Exhibit A, reproduced in footnote 3.)*fn3

[ 373 Pa. Super. Page 19]

Under the criteria set forth in Post, we hold that the letter at issue here was "pertinent and material" to the proposed course the District Court would pursue in FSC's bankruptcy, and, moreover, the letter was issued in the "regular course" of the proceedings in that it was prepared in reply to the District Court's request for input from those having an interest in FSC's bankruptcy. Accordingly, the letter is deemed a privileged communication entitling its author to protection from suit. See Post, supra.

As for Exhibits B, C and D, all of which are affidavits filed in Bankruptcy Court,*fn4 we rule that each is a

[ 373 Pa. Super. Page 22]

    statement made in the course of a judicial proceeding, and, therefore, cannot give rise to an action for defamation. See Kemper v. Fort, 219 Pa. 85, 88-90, 67 A. 991, 992-93 (1907); B.B.C.I., Inc. v. Canada Dry Delaware Valley Bottling Co., 393 F.Supp. 299 (E.D.Pa.1975).

The last issue to be addressed concerns the plaintiffs' assertion that the court below erred in not granting them leave to amend their complaint.

Of record appears an amended complaint filed by the plaintiffs on June 21, 1985, which is over six (6) months after the original complaint was submitted to the prothonotary. However, there is no indication in the record filed with this Court that the court below ruled on the plaintiffs' requested amendment. The only insight we have as to the course pursued below is confined to the plaintiffs' brief. Therein, it is asserted that, as to the amended complaint, "no action was taken by the lower court even though it had at least two opportunities to do so; once at the hearing on the preliminary objections and when Appellants sent a letter to the court requested [sic] action (R. 52a and R. 68a, respectively)." (Plaintiffs' Brief at 20-21)

[ 373 Pa. Super. Page 23]

We make mention of the method by which we have ascertained the course taken on this issue below because it appears only in the plaintiffs' brief, and, in this jurisdiction, such an issue is not cognizable in the form presented. See McCormick v. Allegheny General Hospital, 364 Pa. Super. 210, 527 A.2d 1028 (1987). Notwithstanding the deficiency in the record, the issue is equally not subject to review since, as a condition precedent to the court entering upon an inquiry and making a determination of whether prejudice would befall the opposing party if the late filing would be permitted, the plaintiffs have failed to show sufficient cause for the delay in filing the late pleading. See Joyce v. Safeguard Mutual Insurance Co., 362 Pa. Super. 522, 524 A.2d 1362 (1987) (en banc), rev'd on other grounds 517 Pa. 488, 539 A.2d 340 (1988). As a result, the issue is found wanting and the requested relief is denied.

Order affirmed.


Order affirmed.

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