Tuesday, April 19, 2011
C.A. Upholds Arbitrator’s Order to Retract Libelous Statements
By SHERRI M. OKAMOTO, Staff Writer
This district’s Court of Appeal yesterday ruled that a Pasadena homeowner could be ordered by an arbitrator to retract certain statements he made regarding the architectural firm involved in the renovation of his residence, but could not be forced to apologize for them.
Div. Four concluded that Michael D. Schneickert could be compelled to inform a historic restoration group and others that a fact finder had found his comments about Kelly Sutherlin McLeod Architecture Inc. untrue and defamatory, without running afoul of the First Amendment.
Schneickert had hired the architect to renovate and restore his historic home at 1330 Hillcrest Avenue, in an upscale area of southeastern Pasadena. According to public records, the 8,000-square foot residence was built in 1913, and was sold in 2002 for $3.6 million.
After the relationship between the parties soured, KSMA filed a complaint against Schneickert for breach of contract, specific performance, quantum meruit, account stated, foreclosure of mechanic’s lien, defamation, and declaratory relief. Schneickert filed a separate action against KSMA’s principal, Kelly Sutherlin McLeod, for professional negligence, conversion, fraud, and violation of the unfair competition law
Both submitted their claims to the same arbitration, pursuant to the terms of the contract between them.
False and Defamatory
During arbitration, KSMA presented evidence that Schneickert made false and defamatory statements to persons in the historic restoration community regarding KSMA’s performance of the contract. It requested the arbitrator order “a full retraction of [Schneickert’s] defamatory statements against KSMA and its principal to the effect that neither KSMA nor its principal engaged in any misconduct, nor were negligent in performing any duties. This retraction shall be sent to the same people to whom Mr. Schneickert sent his malicious lies.”
The arbitrator granted KSMA’s request, finding Schneickert’s comments were “unprivileged, defamatory and clearly beyond ‘rhetorical hyperbole.’ ” He determined that a compelled retraction was an appropriate equitable remedy because the defamatory statements were causing continuing harm to KSMA’s reputation that was difficult to measure.
The retraction order required Schneickert to distribute a letter informing recipients that his remarks that KSMA’s principal “(1) stole from me; (2) is a ‘crook’; (3) is a ‘criminal’; (4) is a ‘thief’; (5) misappropriated lighting designs from my home; (6) committed fraud; (7) was responsible for an illegal bulldozing/demolition of my guest house; and (8) was responsible for my home restoration project being ‘red-tagged’ by the City of Pasadena” were “false and defamatory.”
Its closing paragraph stated that Schneickert did “hereby retract these statements and apologize for any misconceptions such statements may have caused as well as any damage such statements may have done to KSMA’s reputation.”
The parties later filed competing petitions in the Los Angeles Superior Court to vacate and confirm the final award. Judge Teresa Sanchez-Gordon vacated the retraction order, reasoning that enforcement of such “compelled speech” violated the First Amendment, but confirmed the remainder of the arbitrator’s award in favor of KSMA.
‘Tailored Correction Order’
Writing for the appellate court, Justice Steven C. Suzukawa said there was “nothing improper with an arbitrator issuing a tailored correction order after determining that a party made false statements with malicious disregard for the truth” where “such a remedy was the result of an arbitration proceeding both parties bargained for.”
Suzukawa reasoned the retraction order at issue “did not exceed the arbitrator’s powers simply because the same relief is not or might not be available in a judicial action” since the parties had agreed to be bound by the Construction Industry Arbitration Rules of the American Arbitration Association, which allow an arbitrator to grant equitable relief.
But, Suzukawa explained, the arbitrator could only require Schneickert to make “a narrow factual correction” to remedy the harm done to KSMA, and had erred by inserting language in the retraction letter which “goes beyond simple communication of the facts and improperly compels the expression of opinion.
The justice expressed concern that use of the word “false” in the retraction letter “may suggest that Schneickert agreed with the arbitrator’s finding,” and the use of the word “retract” implied “a belief that the words should not have been spoken in the first place.”
“Whether Schneickert wishes he had kept his opinions to himself or regrets that he failed to do so is irrelevant to the proper purpose of the arbitrator’s order, which is to inform others that Schneickert’s statements about KSMA and its principal are false,” Suzukawa said.
Suzukawa emphasized that “a party may be required to set the record straight,” but “in deference to the First Amendment, he may not be compelled to include a mea culpa.”
He concluded, however, that striking the offending portions of the retraction letter would not have “any conceivable effect on the merits of the decision,” which he, joined by Presiding Justice Norman L. Epstein and Justice Nora M. Manella, directed should stand.
Steven J. Goon and Robert H. Marcereau of Rutan & Tucker were counsel for KSMA while Schneickert was represented by Jeffrey K. Riffer and Susan C.V. Jones of Elkins Kalt Weintraub Reuben Gartside.
The case is Kelly Sutherlin McLeod Architecture, Inc. v. Schneickert, B223433.
Copyright 2011, Metropolitan News Company