More often than not, private universities try to keep the courts out of their affairs by arguing that their actions unfold far outside the public sphere, and so are shielded from government scrutiny or second guessing. But the University of Pennsylvania sought to make the opposite argument in a recent case -- and a federal appeals court on Monday rejected it.

In its ruling, the U.S. Court of Appeals for the Third Circuit concluded that Penn could be sued for defamation under Pennsylvania law for comments one of its officials made during an internal grievance procedure about a lecturer in the university's veterinary school.

In 1999, Karen Overall was on a one-year appointment at Penn as a lecturer specializing in behavioral veterinary medicine when Gail Smith, the chairman of the clinical studies department in which Overall worked, announced that the vet school was establishing a more-permanent "clinical educator" position in Overall's specialty. According to the court's written opinion, Smith and Overall were friendly, leading to speculation at the veterinary school that Overall had an inside track to the job. 

But when the search committee for the position twice rejected Overall for the job and awarded it to another woman (essentially ending Overall's career at Penn), she filed a complaint through Penn's Faculty Grievance Procedure charging Smith (who is a man) with sex discrimination, among other things.

During testimony during the grievance process, according to the Third Circuit opinion, Smith said that it was "common knowledge" that Overall had represented herself as having a Ph.D. before she received one; that she had described publications as being "peer reviewed" that actually hadn't been, and that she had misused grant funds earmarked for clinical work.

When the grievance panel sided with the university, Overall complained unsuccessfully to the Pennsylvania Human Rights Commission and the U.S. Equal Employment Opportunity Commission, and she sued the university and Smith in federal court, charging them with defamation and retaliation as well as employment discrimination. The federal court dismissed her lawsuit in 2003.

In its decision Monday, though, a three-judge panel of the Third Circuit upheld much of the lower court's findings but cited one major flaw in its ruling. In rejecting Overall's claim that Smith had defamed her, the lower court had interpreted Pennsylvania law to say that Penn's internal grievance procedure qualified as a "quasi-judicial" proceeding, and concluded that all statements made during that proceeding were therefore shielded by "absolute immunity," and so could not be the basis for a civil lawsuit.

The lower court erred, the appeals panel ruled, in concluding that just because some of the goals and attributes of Penn's grievance procedure were similar to other sorts of public administrative or judicial proceedings, "government involvement is also a necessary condition for according quasi-judicial status to grievance procedures." In other words, Penn's grievance process was too private. 

"Sound reasons exist for this public-private distinction," the court's written opinion said. "Government hearings typically involve basic procedural safeguards that may be lacking in private proceedings. For example, the Penn grievance procedure at issue here did not require sworn testimony. The volunteer faculty members who presided over the hearing lacked the power to make any binding judgment or enforce any disciplinary measures; they could only make recommendations. And of particular relevance to this case, no one kept a transcript what was said during the hearing, so there is no record of exactly what Dr. Smith said when he allegedly defamed Dr. Overall."

The appeals court sent the case back to the federal district court to decide whether or not Smith actually defamed Overall.