This is a review of a defamation of character lawsuit brought by the president of a certified public accounting firm against two former employees. The former employees were attempting to open their own separate certified public accounting firm. In an effort to gain clientele, the employees attempted to convince many of their employer’s clients to leave and become clients of their new firm.
The lawsuit claimed the former employees made comments to long-term clients of the original firm suggesting the president was incompetent and involved in fraud. Those statements, the owner contended, were reckless, malicious, and untrue, and as such resulted in specific and definable economic losses.
In an attempt to recover some of the losses caused by the employee’s comments, the owner filed a defamation of character lawsuit asking for $5 million in damages.
Statement of Facts…
The Constent Group was a certified public accounting firm founded by John Constent in 1981. In the ensuing years, the firm’s steady growth necessitated the hiring of additional bright, young, and aggressive Certified Public Accountants (CPAs). By 1990, The Constent Group employed 16 CPAs, 8 Accountants, 4 bookkeepers and 22 office administration and secretarial personnel.
Since the firm specialized in Entertainment Accounting, John Constent favored those young CPAs whose personalities were engaging and who could sell themselves as well as their accounting work. Constent felt that Sandy Bender and Henry Kaplan were two such CPAs. Constent hired Bender in 1987 and Kaplan in 1988.
The nature of the accounting work required the CPAs to become thoroughly familiar with their individual clients and their specific accounting needs. Many of the clients were entertainment luminaries, and their large incomes required a good deal of personal attention.
Over the years, John Constent became proficient in his assignment of specific CPAs to specific clients. He understood the personalities and idiosyncrasies of his clients, and he knew which of his CPAs would work best with certain clients and matched them wherever possible.
Beginning in January of 2007, Sandy Bender and Henry Kaplan, now partners, began to privately make plans to leave The Constent Group and venture out on their own. To that end they began speaking confidentially with many of the clients with whom they had a close working relationship. The conversations centered around the possibility of those clients agreeing to leave the Constent Group to join a new firm of Bender and Kaplan, Certified Public Accountants, L.L.C.
To be successful Bender and Kaplan would have to recruit a certain number of high profile celebrity clients along with their substantial incomes. To that end, they began to become more and more aggressive in their recruitment campaign. They explained to those clients who would listen the substantial advantages of leaving The Constent Group and joining their new firm.
At first Bender and Kaplan took a positive approach in their pitches to clients. They extolled the many advantages of moving to their new firm, telling of such benefits as lower fees and more aggressive tax savings.
Although Bender and Kaplan were able to convince some clients, they were still woefully short of enough clients to make their firm profitable. Feeling somewhat desperate, Bender and Kaplan switched from their positive pitches to an aggressive campaign to attack the image of The Constent Group.
The two began to make negative comments to clients such as:
“John Constent is getting older. He really hasn’t kept up with many of the new tax advantages out there“; and
“The Constent Group is so large and bloated. The fees their charging you are so high because they have become bloated with overhead. They have to continue to feed the giant and you are paying for their inefficiency.”
Their new negative campaign seemed to work. Many of the clients who were ambivalent now decided to switch firms. Riding the wave of negativity, Bender and Kaplan began to step up their negative campaigning and to make the attacks more personal.
They started to refer to John Constent as “senile,” and they said the main reason they decided to leave The Constent Group was that John Constent was constantly telling the partners and associates of the firm to “pad” the clients’ bills.
John Constent began to hear from some of his most loyal and long-standing clients. They told him at first they had no problem with Bender and Kaplan asking them to join them in their firm. They had in fact listened to and appreciated some of the positive reasons for possibly switching to their new firm.
But when Bender and Kaplan began to get “dirty” as one loyal client put it, he knew it was time to give John a call. The client called John Constent and told him Bender and Kaplan said:
“The Constent Group, and especially John Constent, are a bunch of thieves and crooks.”
The client said he was shocked and dismayed over statements he knew to be wholly unfounded.
The Defamation of Character Lawsuit…
John Constent, on behalf of himself and The Constent Group filed a defamation of character lawsuit against Bender and Kaplan. The lawsuit contended Bender and Kaplan:
“…exceeded the bounds of fair play and ethical competition by untruthfully referring to John Constent and The Constent Group as a bunch of thieves and crooks. The ‘campaign of terror’ waged against John Constent and The Constent Group has been based on lies and innuendo, all of which are baseless and untruthful.”
The lawsuit went on to state:
“John Constent and The Constent group are neither crooks nor thieves. This firm has been in existence for over 30 years and not once in its history has it ever been accused of any crimes, especially none involving ‘moral turpitude’.”
The Constent Group went on to contend the untruthful and slanderous remarks defamed the character of John Constent and The Constent Group. As a result, Constent and The Constent Group lost a substantial number of clients.
John Constent said the loss of clients to Bender and Kaplan amounted to over 2 million dollars in annual income so far, and was projected to surmount an additional 3 million over the next 10 years.
In this defamation of character lawsuit the Court stated:
It is well-established in this country fair play and aggressive competition are the backbone of a free economy. There is a limit though to that competitive spirit. When a competitor, in an effort to achieve some modicum of success attacks another competitor’s character, and that attack is:
- Patently Untruthful,
- Intended to Mislead,
- Intended to Harm,
- Malicious, Reckless or Willful,
- Causes, or Intends to Inflict Economic Damage upon Another,
the Court has a duty to protect the truth. Whether the truth be favorable to one party or another, or whether the truth be favorable to one issue or another does not matter to the Court. What matters is the truth itself.
When in an economic climate one competitor attacks another with slanderous remarks, that competitor is without that competitive spirit we hold inviolate. In the case before us the Defendant has made remarks which are untrue and have economically harmed the Plaintiffs.
The Defendant was not able to produce in trial any evidence of criminal activity which might be ascribed to the Plaintiffs. Absent that proof, and in light of the Plaintiffs showing of economic damages, we find in favor of the Plaintiffs in the amount of 5 million dollars.
Defamation of Character occurs when one person or entity, either by the written word, electronic word, or spoken word publishes an untruth about another, and that untruth damages another’s reputation and results in his economic loss.
There is a thin line between that which is fair and ethical competitive advertising and that which is not. The difference may be manifested in only a few words, but when it occurs and causes harm or economic loss that advertising quickly becomes actionable and subject to a defamation of character lawsuit.
*This case example is for educational purposes only. It is based on actual events although names have been changed to protect those involved. Any resemblance to real persons or entities is purely coincidental.
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