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CARNEGIE INTERNATIONAL CORPORATION, et al., Plaintiffs v. GRANT THORNTON, LLP, et al. Defendants * * * * * *

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IN THE CIRCUIT COURT FOR BALTIMORE CITY Case No.: 24-C-00-002639 * * * *

MEMORANDUM OF DECISION

This matter comes before the Court on Grant Thornton, LLP's Motion for Summary Judgment on Count Eight of the Complaint, Plaintiffs E. David Gable ("Gable") and Lowell Farkas' ("Farkas") Response to Grant Thornton's Motion for Summary Judgment, Grant Thornton's Reply thereto, and the Supplemental Briefs filed by both parties on the issue of absolute immunity. As no party has requested a hearing on this matter, and upon consideration of the aforesaid motion and briefs, and upon finding that the statements made by Grant Thornton in the Form 8-K Response are entitled to absolute immunity, this Court grants Grant Thornton's Motion for Summary Judgment as to Count Eight of the Complaint. Background Plaintiff Gable was the former Chairman of Carnegie International Corporation, Inc. ("Carnegie") and Plaintiff Farkas was its President and Chief Executive Officer. In May, 2000 Carnegie and Plaintiffs Gable and Farkas, in their individual capacities, filed a Complaint against Grant Thornton among others.

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On October 2, 2001 the Court dismissed all claims brought by Gable and Farkas against Grant Thornton, except for Count Eight for defamation. On October 18, 2001 the Court bifurcated Gable's and Farkas' defamation claim from Carnegie's claims. Carnegie's claims proceeded to trial and on April 6, 2005 judgment was entered in favor of Defendant Grant Thornton on all of Carnegie's claims. The Court also entered judgment in favor of Grant Thornton on Plaintiffs Gable and Farkas' defamation claim upon finding that they failed to pursue the claim. Plaintiffs Gable and Farkas moved to amend or alter the judgment which motion was granted on August 10, 2005. Plaintiffs Gable and Farkas' defamation claim against Grant Thornton was thereby restored. Even before this Court altered the judgment, Grant Thornton filed a Motion for Summary Judgment as to Count Eight for defamation. Plaintiffs Gable and Farkas premise their defamation claim upon statements made by Grant Thornton in a Form 8-K response filed with the United States Securities Exchange Commission ("SEC"). Grant Thornton is an accounting firm that Carnegie had engaged as its certifying accountant in January, 1998. On or about September 23, 1999 Carnegie informed Grant Thornton that it was terminating Grant Thornton's engagement as the company's certifying accountants. Section 229.304 of 17 C.F.R., as discussed in greater detail below, requires a publicly traded company to file a Form 8-K with the SEC informing it of a change in the registrant's certifying accountants and the reason therefore. On September 24, 1999 Grant Thornton received a draft

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version of Carnegie's Form 8-K which stated as the reason for the change that Carnegie "has general business disagreements with Grant Thornton...." Carnegie filed its Form 8-K on September 28, 1999. Section 229.304 of 17 C.F.R. also requires the accountant to file a response letter which is appended to the registrant's Form 8-K stating "whether it agrees with the statements made by the registrant in response to this Item 304(a) and, if not, stating the respects in which it does not agree." On October 11, 1999 Grant Thornton filed its Form 8-K response letter. In its Form 8-K response, Grant Thornton stated that there indeed had been disagreements. In support thereof, it wrote that "information had come to its attention suggesting that Carnegie's upper management has been indifferent to its financial reporting responsibilities under the federal securities laws" and, thus, it could "no longer rely upon the representations of the management of Carnegie" including its Chairman, Gable, and CEO, Farkas. It is these two statements that Plaintiffs Gable and Farkas claim were defamatory. On October 13, 1999 Carnegie, with Gable as the signatory, filed an amended Form 8-K. The amended version retorts the accusations of Grant Thornton and presents in greater detail Carnegie's rendition of the events leading to its termination of Grant Thornton. In its Motion for Summary for Summary Judgment, in addition to attacking certain elements of the claim for defamation, Grant Thornton asserts that either its Form 8-K response statements were absolutely privileged, or in the alternative

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they were subject to a qualified privilege. Because this Court holds, as a matter of law, that Grant Thornton's Form 8-K response statements were entitled to an absolute privilege for the reasons set forth below, it need not address whether the statements were entitled to a qualified privilege. Analysis In deciding a motion for summary judgment, the Court must first decide whether there is a genuine dispute as to any material fact, and if not, then decide whether either party is entitled to judgment as a matter of law. Maryland Rule '5-201; Vogel v. Touhey, 151 Md. App. 682, 704 (2003) (citations omitted); Okwa v. Harper, 360 Md. 161 (2000). A material fact is one the resolution of which will somehow affect the outcome of the case. Vogel, 151 Md. App. at 704 (citing King v. Bankerd, 303 Md. 98, 111 (1985); Miller v. Fairchild Indus., Inc., 97 Md. App. 324 (1993), cert denied, 333 Md. 172 (1993). The Court must determine issues of law, but resolve no disputed issues of fact. Beatty v. Trailmaster Products, 330 Md. 726, 737 (1993). In the instant matter there are no genuine issues of material fact. The only material fact relevant to the issue of absolute immunity is whether the Grant Thornton made the alleged defamatory statements in an 8-K response. Grant Thornton does not argue that it did not make the statements and Plaintiffs Gable and Farkas do not argue that the statements were not contained in an 8-K

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response. Therefore, because there are no disputed issues of material fact, this Court will resolve this case as a matter of law. Absolute Privilege "Maryland has long recognized the existence of an absolute privilege for defamatory utterances made during the course of judicial proceedings or contained in documents directly related to such proceedings." Caldor, Inc. v. Bowden, 350 Md. 632, 648 (1993) (citations omitted). This privilege protects those "persons publishing the defamatory statement from liability even where their motives are malicious and made with the knowledge of the statement's falsity." Id. Whether such a privilege should attach is a matter of public policy and requires balancing "the public interest in free disclosure against the harm to individuals who may be defamed." Id. at 649. The underlying rationale for the absolute privilege is to encourage participants involved in the judicial search for truth "to do so without being hampered by the fear of private suits for defamation." Id. Having adopted a "broad view" of the privilege, Maryland has also extended this "`important privilege'[ ] to administrative and other quasi-judicial proceedings" when "there are sufficient judicial safeguards so as to minimize the likelihood of harm to potentially defamed (or otherwise injured) individuals who would have no legal remedy." Imperial v. Drapeau, 351 Md. 38, 45 (1998); Gersh v. Ambrose, 291 Md. 188, 192 (1981). Thus, the decision whether to afford absolute immunity to statements in an administrative proceeding is to be made

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"on a case-by-case basis and in large part turns on two factors: (1) the nature of the public function of the proceeding and (2) the adequacy of procedural safeguards which will minimize the occurrence of defamatory statements." Imperial, 351 Md. at 46 (citations and internal quotation marks omitted). Based on the analysis of these two factors below, this Court holds that Grant Thornton's statement in the 8-K response implicating Gable and Farkas is entitled to an absolute privilege. A. Nature of the Public Function In determining whether to afford the statements contained in Grant Thornton's 8-K response absolute immunity, this Court must weigh the public function served by the SEC and the purpose(s) served by the 8-K Form against the harm suffered by the Plaintiffs resulting from any defamatory statements. See Caldor, Inc., 350 Md. at 649. "The Mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets and facilitate capital formation." See http://www.sec.gov/about/whatwedo.shtl (January 5, 2006). The SEC is a federal administrative agency vested with the responsibility to enforce both the Securities Act of 1933, 15 U.S.C.

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