Libel Liable? Not So Much:
NY Lawyer's Statements in Letter
Found Protected by Privilege

By Nate Raymond
New York Law Journal
New York Lawyer
January 6, 2010

The former chief executive of a hospitality investment company lost an attempt to sue his investors' lawyer for libel over a letter the attorney sent claiming the executive embezzled millions of dollars.

Frank Orenstein sued attorney Reid Figel and his law firm Kellogg, Huber, Hansen, Todd, Evans & Figel in Washington, D.C., in July 2009, accusing Mr. Figel of libelling him in a letter sent to a business associate. But in a decision last week, Southern District Judge Sidney Stein dismissed the complaint, holding that Mr. Figel's statements about the former executive were protected by a qualified privilege.

"Orenstein has not overcome this privilege because he does not allege facts that support a plausible inference that Figel or his law firm acted with malice," Judge Stein wrote in Orenstein v. Figel, 09cv7060.

The decision is part of a broader dispute between Mr. Orenstein and his former partners, Lancaster Group Pte. Ltd., a holding company for a group of Kazakhstan-based companies that sought to develop hotels around the world. Lancaster hired Mr. Orenstein in 2007 to assist in developing luxury hotels and residential projects. Those projects never came to fruition, and now both sides are in the midst of an arbitration in London, said Mr. Orenstein's lawyer, Matthew Hearle at Goldberg Weprin Finkel Goldstein. In the arbitration, Mr. Orenstein is claiming that Lancaster owes him compensation, while Lancaster alleges breach of contract, Mr. Hearle said.

Mr. Orenstein, who said in his lawsuit that he has worked in the hospitality industry for 35 years, claimed that under his agreement with Lancaster, the company was supposed to provide the capital for the projects.

Lancaster formed an entity called Alatau Hospitality Limited, with Mr. Orenstein named as CEO. Among the projects Lancaster pursued under Mr. Orenstein's direction was developing a Four Seasons Hotel in Kazakhstan, according to the complaint.

Mr. Orenstein claims the projects failed because Lancaster did not provide the capital. He also claims Lancaster failed to pay him $2.5 million in compensation.

But according to Mr. Figel's motion to dismiss filed in September, Mr. Orenstein "spent millions of dollars of his investors' money for apparently illegitimate expenses associated with a series of international hotel ventures."

After the ventures failed, Lancaster retained Mr. Figel, a litigator at Kellogg Huber. Mr. Figel's past representations include defending one of three former employees of National Westminster Bank Plc linked to the Enron Corp. scandal.

In March 2009, Mr. Figel, on behalf of Lancaster and Alatau, wrote a letter to Richard Warnick, a business associate of Mr. Orenstein's in Phoenix, Ariz., at Warnick & Company LLC. Mr. Warnick had submitted invoices for work performed at Mr. Orenstein's request. In the letter, attached to the court record as an exhibit, Mr. Figel said his clients were unaware of the work Mr. Warnick performed and that more information was needed before any invoices would be paid.

Mr. Figel added in the letter that his clients' association with Mr. Orenstein "has been terminated upon the discovery of his apparent embezzlement and misappropriation of millions of dollars." He went on to say Lancaster was investigating Mr. Orenstein's "fraud and his ultra vires activities."

Mr. Warnick said in an interview that he has not been paid the roughly $100,000 he claims to be owed. "We did an awful lot of work for Lancaster while Frank Orenstein was president," he said.

Privilege Cited

Mr. Orenstein, who later received a copy of Mr. Figel's letter, claimed the attorney's statements were "false and libelous" and damaged him personally and professionally. He sued Mr. Figel and Kellogg Huber in July in Manhattan Supreme Court seeking more than $2 million in damages. The case was removed to federal court in August.

Mr. Figel argued that Mr. Orenstein's suit "constitutes an improper effort to use defamation law to chill counsels' ethical obligation to act zealously on behalf of their clients in connection with contemplated litigation." He contended the complaint should be dismissed as the statements at issue in the letter were entitled to both absolute and qualified privilege; that Mr. Orenstein had not stated a claim on which relief could be granted; and that he had not gained personal jurisdiction over Mr. Figel or his firm.

In a Dec. 30 ruling, Judge Stein sided with Mr. Figel and dismissed the complaint with prejudice.

Since Mr. Figel's statements were made in a letter in a private dispute and not in a judicial or quasi judicial proceeding, the judge said the statements were not protected by an absolute privilege. But under New York common law, Judge Stein said, a qualified privilege existed when defamatory communications are made by one person to another on a subject in which both have an interest.

In particular, Judge Stein said New York courts have recognized a qualified privilege for an attorney's statements made in furthering the representation of a client to an adverse party, as in this case.

"Figel's clients' doubts regarding the legitimacy of Orenstein's activities directly inform the questions he raises in the letter regarding Warnick's invoices," Judge Stein wrote.

Judge Stein said the complaint also lacked factual support for its conclusion that Mr. Figel or his firm would have an interest in acting maliciously toward Mr. Orenstein.

Mr. Hearle, Mr. Orenstein's lawyer, said he had not yet discussed with his client whether to appeal. Mr. Hearle said he disagreed with the decision and that the judge extended the privilege too far.

"There's certainly a privilege during the course of a litigation," he said. "But I don't think an attorney is free to write a letter or say something to someone about another just because you disagree with, in this case, an invoice."

Mr. Figel and his lawyers, Gregory Diskant and Sarah Zgliniec at Patterson, Belknap, Webb & Tyler, did not respond to requests for comment.

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