Watts-Robinson v. Shelton.  Watts-Robinson sued Shelton for defamation, claiming he had defamed her while testifying before the Disciplinary Hearing Commission of the North Carolina State Bar.

During the DHC hearing, Watts-Robinson was accused of mismanaging funds in client trust by taking interest on the account for herself (rather than the Interest on Lawyer Trust Account as required). She was also accused of misconduct while representing a client in an employment discrimination case (the Billips case) by accessing her client’s settlement money, which should have been in trust, for her own benefit.

Watts-Robinson was disbarred on December 2, 2014.

Shelton was opposing counsel in the underlying Billips case. During the DHC hearing, Shelton testified that Watts-Robinson had asked him to reissue the settlement check for nearly $100,000 to her operating account, and that he had concerns that she was running a “scam” and that his client would get dragged into a dispute between she and her client.

Watts-Robinson sued Shelton, claiming his use of the word “scam” defamed her. Shelton moved to dismiss for failure to state a claim. The district court granted that dismissal.

Watts-Robinson appealed, claiming that dismissal was improper, and that the trial court improperly considered her debarment order because it was more prejudicial than probative.

Otherwise defamatory statements are absolutely privileged where they are made in the course of a judicial proceeding and are sufficiently relevant to that proceeding.

Watts-Robinson argued that the DHC hearing was not focused on any “scam,” and therefore Shelton’s “scam” claim was not “sufficiently relevant to the proceeding.”

The North Carolina Supreme Court was not impressed by this argument:

To the contrary, central to the subject matter of Watts-Robinson’s disciplinary hearing was her alleged mismanagement of entrusted client funds, including the settlement proceeds from the Billips action. Considering the entire exchange in context, Shelton’s response to questioning that he was concerned “Watts-Robinson was potentially trying to run some kind of scam on Mr. Billips” after she requested the settlement check be reissued in a manner that would permit her to deposit the check into her own bank account, because she was concerned Billips would not reimburse her for some expense, was sufficiently relevant such that it was not palpably irrelevant to the subject matter of the disciplinary proceeding.

Accordingly, Shelton’s testimony during the disciplinary hearing was absolutely privileged, and the trial court properly granted his motion to dismiss under Rule 12(b)(6) for failure to state a claim.

The Supreme Court was also unconvinced by the argument that the debarment order should have been excluded because of its potential for prejudice. The hearing was a bench trial. This means there was no jury. Rule 403, which is intended to ensure a jury is not prejudiced by evidence with little probative value, is not really applicable to bench trials. Even so, the Court concludes that the debarment order was relevant to whether Shelton’s testimony was privileged and Watts-Robinson did not demonstrate any improper bias on the part of the trial court.

The takeaways for North Carolina lawyers: Don’t mess with trust accounts. Don’t expect sympathy from the Supreme Court if you do.

More generally, for everyone: Judicial privilege is alive and well in North Carolina.