Obsidian Finance Group, LLC v. Cox

Brief Fact Summary.

Cox (Defendant), a blogger, wrote several posts claiming that Obsidian Finance Group, LLC (Plaintiff) and its principal, Padrick (Plaintiff) acted fraudulently and corruptly when acting as bankruptcy trustees for Summit Accommodators, Inc. Plaintiffs successfully sued for defamation. Defendant appealed, arguing that Plaintiffs had to show negligence and actual damages in order to recover.

Synopsis of Rule of Law.

1) The negligence standard required for a private defamation suit in a matter of public concern does not turn on whether the defendant is a member of the institutional media. 2) A court-appointed bankruptcy trustee does not become a public official for purposes of determining defamation liability.

Facts.

Padrick (Plaintiff) became the bankruptcy trustee for Summit Accommodators, Inc,  (Summit) which had misappropriated funds from its clients. Defendant was a blogger with a history of making false allegations and then demanding payment for a retraction. She wrote several posts regarding Padrick and his company, Obsidian Finance Group, LLC, (Obsidian) (Plaintiff) and their handling of the Summit bankruptcy. Defendant claimed that Plaintiffs were engaged in illegal activities and that Padrick had failed to pay Summit’s taxes. Plaintiffs sued Defendant for defamation. At trial, the suit was limited to Cox’s allegation of fact regarding the payment of Summit’s taxes. The court instructed the jury that Defendant’s knowledge of the falsity of her allegations and intent in publishing them were not relevant to liability. The jury was also not required to find actual damages as damages were presumed. The jury found for Plaintiffs, awarding Padrick $1.5 million and Obsidian $1 million in compensatory damages. Defendant appealed, arguing that Plaintiffs were required to prove fault and actual damages and that Plaintiffs were public officials for purposes of defamation liability.

Issue.

1) Is the negligence standard in private defamation suits only applicable to institutional media defendants? 2) Is a court-appointed bankrutpcy trustee a public official, requiring a showing of actual malice in order to find a defendant liable?

Held.

(Hurwitz, J.) 1) No. The negligence standard required for a private defamation suit in a matter of public concern does not turn on whether the defendant is a member of the institutional media. The Supreme Court has laid out two standards for defamation cases involving the media. In New York Times Co. v. Sullivan, 376 U.S. 254 (1964), the Court found that a public official plaintiff must show “actual malice” in order to prevail in a defamation action. Actual malice requires a showing that the defendant published the defamatory statement with knowledge that it was false or reckless disregard as to whether it was false or not. In Gertz v. Robert Welch, Inc., 418 U.S. 323 (1974) the Court held that private defamation lawsuits require a showing of negligence on the part of the defendant in publishing the defamatory statement. Plaintiffs argue that the Gertz standard applies only to institutional media defendants, not to bloggers like Defendant. This reading would restrict Gertz too narrowly. The Supreme Court did not limit its holding in Gertz to institutional media and has, in other contexts, repeatedly refused to grant greater First Amendment protections to institutional media than to other speakers. Other circuits have also found that First Amendment protections do not rest on whether the speaker is a trained journalist, employed by institutional media, or merely assembling the work of others. As the Internet rises in use and print and broadcast media decline, the line between who is media and who is not is blurred. Therefore, in defamation cases, the matters of concern are the public-figure status of the plaintiff and the public importance of the statement. The Gertz negligence standard for private defamation actions applies beyond cases with institutional media defendants.

Plaintiffs further argue that Gertz requires the statements concern a matter of public concern in order for the negligence standard to apply, and that Defendant’s statements did not address a matter of public concern. Even if Plaintiff’s reading of Gertz is correct on this point, defendant’s blog post qualifies as touching on a matter of public concern. Public allegations that someone is involved in a crime are generally a matter of public concern. Defendant’s posts did not concern a matter solely in her interest, or in the interest of a specific audience. She published the post to the public at large. Because Defendant’s post was about a matter of public concern, the trial court should have instructed the jury that Defendant was liable only if she acted negligently. Additionally, under the Gertz standard, the Plaintiffs were required to prove either actual damages, or if relying on presumed damages, had to prove Defendant acted with actual malice. Reversed as to this issue.

2) No. A court-appointed bankruptcy trustee does not become a public official for purposes of determining defamation liability. If Plaintiffs were public officials, they would be required to meet the Sullivan standard and show that Defendant acted with actual malice to recover. However, the Plaintiffs were not public officials merely because they were part of the judicial process of a bankruptcy. Padrick was not elected or appointed to a government position and did not, in his role as a trustee, exercise substantial control over governmental affairs. A debtor who seeks Chapter 11 protection does not turn into a public official, so the trustee appointed to stand in his place in administering the Chapter 11 estate is not one either. Because Plaintiffs were not public officials, the jury did not have to find that Defendant acted with actual malice in order to find her liable. Affirmed on this issue.

Reversed and remanded.

Discussion.

When a defamatory statement involves a private plaintiff and matters not of public concern, presumed and punitive damages are permitted without a showing of actual malice. Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749 (1985). The 9th Circuit’s finding that Defendant’s statement concerned a matter of public concern meant that on remand Plaintiffs would have to either prove actual damages or, in order to recover presumed or punitive damages, would have to prove actual malice.