Business and Corporate Law: Food For Thought

>>People often forget that corporations exist within the realm of the everyday as much as individuals, governments, and small businesses, and thus are open to the same pratfalls in all aspects of law, especially battles over discrimination and defamation/libel. This blog from The Legal Intelligencer (which offers free subscription access over the Internet) illustrates how quickly such issues can transpire between a corporation and a disgruntled former employee and the use of broad-based knowledge of law and local jurisdiction in such a “big-picture” field as corporate law.

Blog This: Corporations, Defamation and the Internet

The Legal Intelligencer

By Robert C. Clothier

March 5, 2008

Editor's note: The people, companies and situations printed in italics in this story are fictional and represent hypothetical circumstances.

Increasingly, the law of defamation is being shaped by cases involving corporations, both for-profit and nonprofit, rather than traditional media defendants. The possibilities are broad and expanding. Companies can defame employees in the context of internal investigations, evaluations, firings and references. Employees, especially disgruntled ones, can likewise defame or harass their employer and fellow employees, wrecking reputations and morale. And companies can defame their competitors by disparaging others' products and services, leading to claims of trade libel, product disparagement and injurious falsehood.

Throw in the Internet and the proliferation of Web sites, blogs and e-mail, and you've got the potential for an explosion of such claims. Corporate counsel have plenty of reasons to be worried about what their company and its employees (or former employees) may be saying. Let's spin a series of not-too-unreal events to illustrate these risks and identify a number of misconceptions about libel law.

On her personal blog, Gladys Snoop, an employee at ML Capital Advisors, criticizes the top executive at the BS Fund: "In my opinion, Bradford Sterns was an incompetent idiot and should have been fired."

Is this defamatory? Very possibly. To be actionable defamation, there must be a false statement of fact. While there is no federal constitutional protection for opinion — a misconception of libel law — statements that are non-factual, such as rhetorical hyperbole or satire, or those that amount to pure opinion are not actionable. Here, the problem is that Snoop may have implied undisclosed defamatory facts about Sterns' incompetence, thereby turning her statement from pure opinion to a mixed opinion –– opinion and fact — that can form the basis of a defamation claim.

Gladys Snoop then adds: "Someone told me that Bradford Sterns ordered his people to deceive clients about collateralized debt obligation (CDO) risk while telling traders to hedge the firm's own subprime exposure."

Snoop's statement makes a factual assertion that is clearly defamatory and that, if false, could form the basis for a defamation action. Snoop was merely repeating what she heard from someone else, so she can't be held liable, right? Wrong, and another misconception of libel law. Under the republication rule of libel law, a person who repeats an allegedly defamatory statement is deemed to have endorsed the statement and can be held responsible for it.

Can the BS Fund sue Snoop for what she said about Bradford Sterns? No. Defamatory statements made about an employee do not defame the employer, and vice versa. Can Bradford Sterns sue ML for the accusation made by its employee, Gladys Snoop? Only if the employee was acting with the authority or on behalf of the employer. Here, since Snoop is making statements on her personal blog and on her own time, ML should not bear liability for what she said. And an employer can never be held responsible for a punitive damages award unless it endorsed or ratified what the employee said.

ML's head of human resources finds out about Snoop's blog, fires Snoop and sends her a letter saying: "Because you have violated ML's policies and made deliberately false statements to others, you are fired, effective immediately."

Is the letter from ML to Snoop defamation? No — at least not yet. The letter was sent to Snoop only, and there has been no publication to a third party. And, under Pennsylvania law, an employer has an absolute privilege to notify an employee of the basis for her dismissal.

But what if Snoop later reveals the reason for her firing to a prospective employer? In some jurisdictions, the doctrine of compelled self-publication could create liability for the employee's subsequent, compelled publication of the allegedly false reasons for the termination. Many courts around the country have strongly criticized this theory of liability, and it is not the law in Pennsylvania.

What if ML's human resources department provides a reference to her prospective employer that includes the reasons Snoop was fired? Under a 2005 Pennsylvania statute, employers are immune from civil liability for disclosing job performance information about a current or former employee to a prospective employer unless the employee can show, by clear and convincing evidence, the employer's lack of good faith in providing the reference. While this may sound like solid protection for the employer, it isn't. Simple negligence — albeit clear and convincing evidence of negligence — is sufficient to establish lack of good faith.

After sending the termination letter to Snoop, ML's HR person e-mails a copy of it to a distribution group of ML employees.

Could this publication of the termination letter be considered defamatory? Possibly. Intra-corporate communications are conditionally privileged in Pennsylvania, depending on whether there was a reason for those on the ML distribution list to know this information — why Snoop was terminated. Since that is likely not the case here, the privilege is lost. Companies must be scrupulously careful in determining who is allowed access to potentially defamatory information about employees.

ML, desperate to stop Snoop from saying anything about the company or its business, files a complaint with the local police, alleging — falsely — that Snoop has trespassed on company property and made harassing telephone calls to ML's employees.

Although the criminal complaint makes a defamatory accusation, it is not actionable. That is because ML's charges filed with the police are protected by the judicial proceedings privilege, an absolute privilege that cannot be defeated by the fact that ML's allegations were knowingly false or that ML was making the allegations solely to harm Snoop.

Snoop creates a new blog called "MLSucks" and posts anonymously. In one, she makes defamatory statements about ML and specifically criticizes ML's "big enchilada, whose mega-bucks pay package is his reward for nefarious dishonest dealings."

Can the big enchilada sue for defamation even though his name is never mentioned? Yes, under Pennsylvania law, you can defame someone without naming them, so long as a reasonable reader would understand the identity of the person. In this case, if ML only has one "big enchilada" with a "mega-bucks pay package," then that person would easily satisfy what is called the "of and concerning" requirement of libel law.

Can ML unmask the anonymous blogger? Anonymous bloggers have First Amendment protections, and most courts around the country have placed stringent limitations on a libel plaintiff's ability to discover their identities, essentially requiring that the plaintiff make out a prima facie libel case that would survive a motion for summary judgment — a difficult burden.

No Pennsylvania appellate court has directly addressed the issue, though several trial courts have adopted varying approaches. In one 2007 decision, Reunion Indus. v. Doe 1, Allegheny Court of Common Pleas Judge Stanton Wettick adopted the summary judgment standard.

If Snoop now blogs in California, can ML sue in Pennsylvania? To do so, ML must prove that Snoop expressly aimed her speech at Pennsylvania such that Pennsylvania is the focal point of the defamation. Since ML is based, and the big enchilada lives, in Pennsylvania, a Pennsylvania court likely would exercise jurisdiction over her.

Can ML get a court order shutting down Snoop's blog? Very unlikely, since this is considered a presumptively unconstitutional prior restraint, something the U.S. Supreme Court wouldn't do in the Pentagon Papers case. But a few intrepid trial courts around the country, angered by recalcitrant bloggers who won't stop, have shut down blogs in rulings of doubtful constitutionality.

Snoops' anonymous blog spurs an avalanche of third party postings, all making defamatory statements about ML.

Can ML sue Snoop for what these third party posters said about ML? No. Section 230 of the Communications Decency Act (CDA) gives immunity to a "provider or user" of an "interactive computer service" to the extent that they are deemed a "publisher or speaker" of information provided by another content provider. In other words, if a third party posts something on Snoop's blog, she can't be held responsible. This immunity applies even if Snoop made the decision to post the blog or edited its content, so long as she didn't materially change its meaning. ML, of course, can sue the third party posters assuming they can be identified and located.

ML's general counsel wants to send a message that the company goes after bloggers spewing defamatory material. She files a complaint suing Snoop for defamation, but she wants media attention. Her options are: (1) persuade the media folks to distribute the libel complaint against Gladys Snoop to the media, (2) talk to the media off the record, (3) do nothing and hope the media finds out.

Are ML and its lawyers at risk for what their libel complaint alleged about Snoop? No. Such complaints receive full protection by the judicial proceedings privilege.

But what happens if Snoop passes along the libel complaint to the press? Yes. That is an extrajudicial statement that is not protected by the absolute judicial proceedings privilege. Under the Pennsylvania Supreme Court's ruling in Bochetto v. Gibson, however, Snoop would have a qualified privilege, just as a newspaper has a qualified privilege (the fair report privilege) to report on complaints filed in court.

And what about the reporter — could she be compelled to disclose Snoop as a confidential source? No. The Pennsylvania Shield Law provides an absolute privilege against the disclosure of confidential sources.

What lessons should companies learn from these scenarios? Here are a few:

• Companies need to establish blogging guidelines for employees. These guidelines should prohibit blogging during working hours and limit what employees can say on their blogs.

• Companies should set up stringent policies and procedures limiting who within the company receives potentially defamatory information about employees. Only those with a legitimate reason to know the information should receive such it.

• Companies should be wary about giving references. Even though they enjoy a statutory immunity and are also subject to a qualified privilege, these protections are not strong enough to prevent libel lawsuits or to dispose of them at an early stage in the litigation.

• Companies need to take steps to ensure that what it and its employees say publicly is truthful and non-defamatory. And if something inaccurate or inappropriate about the company is posted on a company or individual blog, companies need to get the material removed quickly. This requires vigilant monitoring.