An appeals panel in Rochester has split 3-2 in tossing out a defamation action against the largest upstate newspaper, The Buffalo News, in a case that hinged on the absolute shield protecting accurate reporting of judicial proceedings.

Alf v. The Buffalo News, 12-00560, centered on Civil Rights Law §74, and the newspaper’s reporting on a federal plea bargain by a firm founded by plaintiff Christopher Alf. The firm, National Air Cargo Holdings (NAC), is a transportation business that coordinates the delivery of military equipment, medical supplies and other freight for the U.S. Air Force.

National Air Cargo brought an end to a lengthy FBI investigation into alleged overcharges to the military by pleading guilty in 2008 to a single charge of falsifying a record and agreeing to pay nearly $28 million in fines and restitution to the federal government. However, neither National Air Cargo nor Alf was ever charged with a crime and Alf has insisted that his company did nothing wrong. Alf later successfully challenged a debarment order that prohibited him from contracting with the government.

The Buffalo News published several articles about National Air Cargo and Alf indicating that the firm had admitted “cheating” the government and reporting that Alf had evaded prison by retaining “the best lawyers money could buy,” records show.

Alf sued the newspaper for libel and Erie County Supreme Court Justice Gerald Whalen (See Profile) dismissed the action under Civil Rights Law §74, which provides that a “civil action cannot be maintained against any person, firm or corporation for the publication of a fair and true report of any judicial proceeding.”

The Appellate Division, Fourth Department, last week affirmed, barely.

While both Whalen and the Fourth Department majority found that the newspaper’s articles were protected by §74, they differed on whether the stories were accurate.

Whalen said the reporting was not accurate and would have led a reader to wrongly conclude that Alf had admitted defrauding the government, but he said it was “accurate enough” to fall within the §74 shield.

The Fourth Department majority said the articles, viewed as a whole, “would leave the average reader to conclude that NAC, not [Alf] himself, had cheated the government”

Further, the majority of Justices John Centra (See Profile), Erin Peradotto (See Profile) and Stephen Lindley (See Profile) noted that while National Air Cargo pleaded guilty to filing a false instrument—and not bilking the government—it also agreed to pay nearly $28 million in fines and restitution.

“In view of the agreement by NAC to the amount of the government’s loss, together with its admission to submitting a false document to the government on at least one occasion, we conclude that the statements in the articles that NAC repeatedly overcharged the government, and that there would be no jail time for [Alf] and other company officials, were substantially accurate,” the majority said in a memorandum.

The majority also observed that the statements in The Buffalo News were similar to those in the U.S. Department of Justice’s press releases on the case.

Justices Edward Carni (See Profile) and Rose Sconiers (See Profile) dissented and would have reinstated Alf’s claim against the newspaper.

The dissenters said that the newspaper, by “imput[ing] wrongdoing to [Alf] as an individual,” did not act “as the agent of the public, reporting only that which others could hear for themselves were they to attend the proceedings” (quoting from the court’s own 1982 precedent in Hogan v. Herald Co., 84 AD2d 470, which set the standard for §74 applicability).

Alf’s attorney, John Walsh of Carter Ledyard & Milburn in Manhattan, said the two-judge dissent gives him a direct route to the Court of Appeals, and he will immediately file notice of appeal.

“The last word has not been uttered in this case,” he said.

Walsh said the Fourth Department majority “missed the point” —which is that there was nothing in court implicating his client— and said The Buffalo News “went way off the rails” in suggesting that Alf was involved in criminal conduct.

“This is a very important case,” Walsh said. “The dissenters have pointed out the importance of proper interpretation of §74 of the Civil Rights Law. We think this decision is way off the mark.”

While Walsh said the newspaper’s reporting on National Air Cargo was “fair and accurate” and was protected by the §74 privilege, the paper cannot rely on a privilege covering judicial proceedings when there were no judicial proceedings involving Alf.

Joseph Finnerty and Karim Abdulla of Hiscock & Barclay in Buffalo represent the newspaper.

Finnerty said the majority completely vindicated the reporting.

“The newspaper published a long series of stories about a very important criminal investigation that was resolved with the largest criminal fine in the history of Western New York,” Finnerty said. “Even though it was a very complicated investigation and settlement, we now have a judicial determination that the reporting was substantially accurate. It is very gratifying for the news organization and we hope that to the extent a higher court takes a look at whatever is left it will agree.”