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Trade Libel Claims Must Clear High Legal Hurdle to Succeed

by Guylyn Cummins

Guylyn R Cummins
The Fourth District Court of Appeal, Division One, in San Diego, California, reversed a libel verdict in excess of $1,500,000 in Melaleuca v. Clark, clarifying important constitutional protections in trade libel claims. Critically, the court required a plaintiff to prove by clear and convincing evidence that the defendant knew his or her statements about a product were false, or entertained serious doubts as to whether they were true, in order to recover for trade libel.
Dr. Hulda R. Clark, Ph.D., an independent research scientist, developed technology — a syncrometer— which she believes is capable of detecting the presence of carcinogenic chemicals, such as benzene, in trace amounts in certain products. Clark is the author of two books that advocate avoidance of such products for health reasons.
In her books, Clark stated that she had found benzene in Melaleuca products, a company that sells a line of personal hygiene, cosmetic, household cleaning, over-the-counter pharmaceutical, nutrition and pet care products. Melaleuca retained an independent laboratory to conduct tests of its products using conventional gas chromography and mass spectroscopy, which found no benzene.
Melaleuca then sued Clark for trade libel and other economic interference claims. At trial, Melaleuca asked the court to prevent Clark from attempting to establish the truth of her statements by relying on her syncrometer. Melaleuca's expert testified at trial that there was no accepted scientific basis for the syncrometer testing advocated by Clark in her books.
The trial court ruled that Clark's syncrometer testing was not an accepted scientific procedure to be admissible and held she could not use it to establish the existence of benzene in Melaleuca products. The trial court did permit Clark to present evidence that she used the syncrometer in order to establish her state of mind at the time she published the books.
The jury found Clark's statements were false and that, while she did not know they were false, she nonetheless published them in reckless disregard of their falsity. The jury awarded $6,000 in special damages and $178,000 in presumed damages on the defamation claims. With respect to the economic interference claims, the jury found Melaleuca suffered an additional $366,000 in compensatory damages. The jury also awarded $1,000,000 in punitive damages.
Following the entry of judgment on the jury's verdict, the trial court granted Melaleuca a permanent injunction against Clark, preventing her from publishing her statements about Melaleuca products. Clark appealed.


The Appellate Court's Scientific Analysis

The appellate court, like the trial court, determined Clark's statements involved matters of public concern and that Melaleuca had the burden of establishing that Clark's statements were false. While noting the sparseness of legal authority with respect to using experts in defamation actions to establish truth or falsity, the court first held that, in appropriate circumstances, a plaintiff may rely on expert testimony to establish the falsity of statements.
In cases where one of the underlying disputes is over the chemical or biological make-up of a particular material, the court reasoned there is no inherent impediment to the use of expert testimony to establish the falsity of factual statements. Likewise, a defamation Trade Libel Claims defendant may find it helpful or necessary to present expert testimony as to the truth of the allegedly defamatory statements.
Having determined the propriety of using expert testimony, the court then turned to whether Clark's testimony passed scrutiny to be admissible. Under the law, when an expert offers testimony which is based upon the application of a new scientific technique, the party offering the expert's testimony must demonstrate the technique is sufficiently established to have gained general acceptance in the relevant field.
The court found no reason that litigants in defamation actions should be able to avoid these legal constraints, as they have an interest in preventing the use of purely experimental techniques to persuade the trier of fact on the issue of truth or falsity. Moreover, the court reasoned that a defamation defendant has other important defenses even where it has relied on unproven scientific techniques.
Because Clark offered no evidence to show her syncrometer testing had been accepted in any field of chemistry (indeed, she was quite candid about its novelty), she could not show the syncrometer testing passed legal requirements for admissibility. Accordingly, the court ruled, there was no error in preventing Clark from using syncrometer testing as a means of proving the truth of her statements.


The Appellate Court's Constitutional Malice Analysis

With respect to constitutional malice, the appellate court first noted that the law governing defamation and injurious falsehood is essentially liberal and designed to assure the free flow of information in our society. The principal means by which the flow of information is protected is the requirement that a defamation or injurious falsehood plaintiff prove a defendant spoke with some degree of culpability.
California, like 33 other states, permits defamation liability so long as it is consistent with the requirements of the United States Constitution. In cases involving the reputation of a private figure, California permits recovery for damage to reputation on the basis of negligence.z
Importantly, where a defendant's statements do not impugn the reputation of a plaintiff — either individual or corporate — there is considerably less justification for permitting liability to be imposed on the basis of negligence alone. Accordingly, where the unique interest that individuals and business organizations have in their reputation is not implicated, the court held the public's interest in avoiding self-censorship requires that the highest standard of culpability be applied.
In the context of allegedly false statements about the contents or quality of a product, the court ruled a plaintiff must demonstrate the highest degree of culpability, i.e., the defendant's actual knowledge of falsity or actual serious doubts as to the truth of his or her statements. This standard, the court found, was based on the distinction at common law that has always given the owner or marketer of a product very limited rights against the publisher of statements that disparage the product (see Restatement (2d) Torts, § 623A and § 626). The public has always had a well-recognized interest in knowing about the quality and content of consumer goods.
The common law distinction was further buttressed by the constitutional preference for the free exchange of ideas established in New York Times v. Sullivan (1964) 376 U.S. 254. In the New York Times decision, the Supreme Court borrowed the common law standard that a speaker disparaging a product must know his or her statements are false or act in reckless disregard of their truth or falsity. After the New York Times decision, the Clark court reasoned, the First Amendment will not permit liability to be imposed for injurious falsehood absent a showing of constitutional malice.
Clark's statements were made in the context of books espousing her scientific theories and advocating the adoption of what she believes are healthy nutritional practices and the avoidance of substances she believes cause serious illnesses. Because her statements reflected merely upon the quality of the products Melaleuca sold, the court found there was no disparagement of the company's reputation and thus Melaleuca's claim was simply one of trade libel. Accordingly, the judgment of Melaleuca could not be affirmed absent a finding that Clark acted with constitutional malice.

California's BAJI 7.04.1 Instruction on Constitutional Malice Invalidated

Using California Form BAJI 7.04.1 on constitutional malice, the trial court had instructed the jury that they could find Clark acted with constitutional malice if she "must have had" serious doubts about the truth of her statements concerning Melaleuca's products. Because the jury had found Clark did not know her statements were false, the appellate court agreed with Clark's argument that the instruction was confusing because it suggested to the jury that so long as a reasonable person in Clark's position would have had serious doubts about the truthfulness of her statements, Clark acted with constitutional malice.
The Clark court held, as the law is clear that a finding of constitutional malice is a subjective standard, objective recklessness or doubt cannot survive constitutional scrutiny. In this regard, the court noted that the United States Supreme Court has repeatedly eschewed liability based on what a speaker "must have realized." The appellate court stated that such reasoning may be adequate when an alleged libel purports to be an eyewitness or some other direct account of events that speak for themselves; however, such deductive analysis is inadequate when the libel is based on choices the defendant has made in describing what others have written or said or, as in this case, drawn conclusions from extensive or complex research.
Because the instruction allowed the jury to draw the inference as to what Clark "must have believed," the verdict could not stand. In assessing the prejudice from the erroneous instruction, the court noted the record could support a belief that Clark was as concerned and sincere about her findings as any of history's scientific iconoclasts. Further, the jury had found she did not know her statements were false. In light of these circumstances, the court had little doubt that Clark would have obtained a more favorable verdict had the jury been properly instructed.

For more information, contact Guylyn Cummins (619) 699-3610 or javascript:EmailWindow%20('gcummins@graycary.com') of our Litigation Group.


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