Drotzmanns, Inc. v. McGraw-Hill, Inc.

• Decision Date: 08 August 1974
• Docket Number: INCORPORATE,No. 73-1638,GRAW-HIL,A,73-1638
• Citation: 500 F.2d 830
• Parties: DROTZMANNS, INCORPORATED, Appellee, v. Mcppellant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 830

500 F.2d 830

DROTZMANNS, INCORPORATED, Appellee, v. McGRAW-HILL, INCORPORATED, Appellant.

No. 73-1638.

United States Court of Appeals, Eighth Circuit.

Submitted Jan. 17, 1974.

Decided Aug. 8, 1974.

Lyle J. Wirt, Sioux Falls, S.D., for appellant.

James E. Doyle, Yankton, S.D., for appellee.

Before MATTHES, Senior Circuit Judge, HEANEY, Circuit Judge, and TALBOT SMITH, Senior District Judge. ^*

MATTHES, Senior Circuit Judge.

This is a libel action brought by Drotzmanns, Incorporated, a South Dakota trucking company (hereinafter sometimes referred to as plaintiff), to recover general and punitive damages against McGraw-Hill, Incorporated (hereinafter referred to as defendant or McGraw-Hill), publisher of a trucking industry magazine entitled Fleet Owner. Jurisdiction is based upon diversity of citizenship and the amount in controversy. The jury found for plaintiff and awarded it $245,000 in 'general damages.' The district court denied motions by defendant for a directed verdict and for judgment n.o.v. or alternatively a new trial. Defendant has appealed from the judgment entered on the verdict.

The litigation arises from an article entitled 'Livestock Country: Fleet Auction Notices Flap in the Breeze,' published in the April 1972 issue of Fleet Owner, which has a circulation of approximately 73,000 and is distributed nationwide, primarily to various trucking companies and those involved with the trucking industry. The six-page pictorial and written article, authored by Senior Editor Bernard Swart, exhaustively recounted that many livestock haulers were being forced out of business by low freight rates unregulated by the Interstate Commerce Commission. The lead illustration for the article depicted an auction notice, posted on the side of a building, announcing the public sale on January 28, 1971, of trucking equipment owned by 'Drotzmann's, Inc.-- Yankton, South Dakota.'

Immediately beneath the illustration, the article was prefaced with the following two paragraphs:

Hundreds of livestock haulers are being forced out of business because of declining cutthroat rates and destructive conditions in their non-regulated portion of the trucking industry.

It's the depression and dustbowl days all over again for many livestock truckers as notices of public auction of vehicles and assets of bankrupt, longtime fleets flap from fenceposts and clog the mails in cattle country.

Plaintiff's name was conspicuous by its absence from the article except in the reproduction of the sale bill; neither did the article explicitly state that plaintiff was bankrupt. However, plaintiff premised its right to recover on the theory that the reasonable implication derived from the lead illustration and the first two paragraphs was that the plaintiff's auction notice was typical of those being posted by bankrupt midwestern livestock hauling companies. More specifically, plaintiff claimed the article in pertinent part implicitly stated that it had been forced out of business and was bankrupt. ¹

Plaintiff, however, was not bankrupt, although the firm had shown losses or only minimal profits and had experienced financial problems in the several years previous to 1972. Moreover, the auction of the plaintiff's equipment, about one third of the company's fleet, ostensibly was intended solely to liquidate the interest of the one of the three brothers owning the firm who had been killed in August, 1970, and the auction notice itself so stated. ²

Several months after the article appeared in Fleet Owner, plaintiff filed this libel suit against defendant. The parties and the court entertained the view that New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), and its progeny, discussed infra, were applicable. Thus the major premise was that defendant enjoyed a constitutional privilege against liability unless it could be proven that defendant acted with actual malice, as that term is defined in New York Times v. Sullivan, supra, and subsequent cases, in publishing the assertedly libelous implication that Drotzmanns was bankrupt.

Plaintiff contended that the evidence demonstrated malice on the part of defendant. McGraw-Hill sought to defeat recovery by claiming that the article, viewed in context, was substantially true and that in any event the evidence wholly failed to establish that in the publication of the article defendant acted with malice. The issue of malice vel non was submitted to the jury and resolved against defendant.

Defendant advocates here as it did in the trial court that the evidence was insufficient to justify a finding by the jury that the libelous illustration and article had been published with malice. The defendant additionally submits that proof of actual damages was required and that the evidence conclusively showed that the plaintiff did not sustain any damages. In any event, the defendant urges that the sum awarded, $245,000, was grossly excessive.

Although this appeal was submitted in January of this year, we deferred further action pending the Supreme Court disposition of a case raising several issues similar to those in the present litigation, Gertz v. Robert Welch, Inc., 471 F.2d 801 (7th Cir. 1972), cert. granted, 410 U.S. 925, 93 S.Ct. 1355, 35 L.Ed.2d 585 (1973). The opinion recently filed in that case by the Supreme Court modifies and substantially clarifies the right of a private individual not previously in the public eye to sue for libel. Gertz v. Robert Welch, Inc., U.S. , 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974).

Before discussing Gertz further, it is appropriate to recognize that in New York Times v. Sullivan, supra, the Supreme Court held that the first amendment precluded recovery by an elected public official for a libelous statement against him unless there was proof of 'actual malice' on the part of the libeler-- evidence that the libeler knew that his statement was false or that he acted with reckless disregard of whether it was false or not. 376 U.S. at 279-283, 84 S.Ct. 710. The actual malice standard subsequently was extended to suits involving libel against public figures other than elected officials. See, e.g., Curtis Pub. Co. v. Butts, 388 U.S. 130, 87 S.Ct. 1975, 18 L.Ed.2d 1094 (1967); Rosenblatt v. Baer, 383 U.S. 75, 86 S.Ct. 669, 15 L.Ed.2d 597 (1966); Walker v. Pulitzer Pub. Co., 394 F.2d 800 (8th Cir. 1968); Pauling v. Globe-Democrat Pub. Co., 362 F.2d 188 (8th Cir. 1966), cert. denied, 388 U.S. 909, 87 S.Ct. 2097, 18 L.Ed.2d 1347 (1967). Finally, a plurality opinion in Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 91 S.Ct. 1811, 29 L.Ed.2d 296 (1971), seemed to realign the focus of the New York Times standard by suggesting that the constitutional privilege was applicable as a defense against liability for libel in any discussion of a matter of public or general significance, without regard to whether the libeled party was a public official or public figure. See Cervantes v. Time, Inc., 464 F.2d 986, 990 (8th Cir. 1972), cert. denied, 409 U.S. 1125, 93 S.Ct. 939, 35 L.Ed.2d 257 (1973). See generally Comment, 70 Mich.L.Rev. 1547 (1972).

In Gertz v. Robert Welch, Inc., supra, however, the Supreme Court reaffirmed a principle clearly inherent in the opinions of the Court before Rosenbloom on the libel privilege and held the broad constitutional privilege was inapplicable if the victim of the libel was a private individual.

Mr. Justice Powell, writing for the Court in Gertz, ruled that the need to encourage uninhibited discussion of public issues by granting a privilege against liability for libel did not outweigh in every instance the legitimate state interest in allowing libel suits to compensate persons for harm inflicted upon them by defamatory falsehoods. After outlining what he considered to be fundamental differences between those defamation plaintiffs who are public figures and those who are private citizens, Mr. Justice Powell concluded that, 'the States should retain substantial latitude in their efforts to enforce a legal remedy for defamatory falsehood injurious to the reputation of a private individual.' U.S. at , 94 S.Ct. at 3010. Consequently, the Court held that when the substance of the defamatory statement makes substantial danger to the reputation apparent, 'so long as they do not impose liability without fault, the States may define for themselves the appropriate standard of liability for a publisher or broadcaster of defamatory falsehood injurious to a private individual.' U.S. , 94 S.Ct. at 3010. After finding that the plaintiff was indeed a private individual and therefore not required to prove actual malice under the New York Times test, the Court remanded for a new trial in light of the standards set down in its opinion.

After the filing of the Supreme Court opinion in Gertz, we directed the parties to file supplemental briefs directed to the holding of the Gertz case, and they have complied. Both parties acknowledge that Gertz should be applied in deciding this appeal. Having so agreed, they part company.

Drotzmanns, Inc., in seeking affirmance, claims that the degree of culpability required to be proven in the trial of this case in order to destroy the constitutional privilege of the defendant, i.e., actual malice, is much greater than that required by the Gertz standard, that is, negligence on the part of the libeler. Hence, the plaintiff argues, the defendant should be precluded from seeking retrial on a negligence standard when a jury has already rendered a verdict necessarily finding defendant accountable for at least recklessness in publishing the defamatory material. Plaintiff further contends that the award of $245,000 is supported by substantial evidence.

McGraw-Hill again asserts that it is entitled to an outright reversal with directions to dismiss the action because plaintiff assertedly 'did not sustain any damages as a result of McGraw-Hill's publication,' and because under South Dakota law the defense of...