Jefferson County School Dist. No. R-1 v. Moody's Investor's Services, Inc., R-1

• Decision Date: 04 May 1999
• Docket Number: P,No. 97-1157,R-1,97-1157
• Citation: 175 F.3d 848
• Parties: 1999-1 Trade Cases P 72,509, 27 Media L. Rep. 1737 JEFFERSON COUNTY SCHOOL DISTRICT NO.laintiff--Appellant v. MOODY'S INVESTOR'S SERVICES, INC. Defendant--Appellee
• Court: U.S. Court of Appeals — Tenth Circuit

Page 848

175 F.3d 848

1999-1 Trade Cases P 72,509, 27 Media L. Rep. 1737

JEFFERSON COUNTY SCHOOL DISTRICT NO. R-1, Plaintiff--Appellant v. MOODY'S INVESTOR'S SERVICES, INC. Defendant--Appellee

No. 97-1157.

United States Court of Appeals Tenth Circuit.

May 4, 1999.

Alexander Halpern (William Stuart Stuller with him on the briefs), of Caplan and Earnest, L.L.C., Boulder, Colorado, for Plaintiff--Appellant

Robert M. Callagy, Joshua M. Rubins of Satterlee Stephens Burke and Burke LLP, New York, New York, Jeffrey A. Chase, of Jacobs, Chase, Frick, Kleinkopf, and Kelley, L.L.C., Denver, Colorado, Local Counsel, for Defendant-Appellee

Before KELLY, HENRY, Circuit Judges, and BRETT, District Judge. ^*

HENRY, Circuit Judge.

This diversity action arises out of the defendant-appellee Moody's Investor's Services ("Moody's") article evaluating refunding bonds issued by the plaintiff-appellant Jefferson County School District ("the School District") in October 1993. Contending that Moody's evaluation was materially false, the School District asserted claims against Moody's for intentional interference with contract, intentional interference with business relations, and publication of an injurious falsehood. It also sought to amend its complaint to add antitrust claims.

Moody's filed a motion to dismiss or, in the alternative, for summary judgment. Applying Fed.R.Civ.P. 12(b)(6), the district court concluded that the School District had failed to state a claim upon which relief could be granted. It reasoned that Moody's article was protected by the First Amendment because it neither stated nor implied an assertion that was provably false. The court also denied the School District's motion for leave to amend its complaint.

The School District now appeals. For the reasons set forth below, we conclude that the district court properly dismissed the School District's complaint and that it did not abuse its discretion in denying the School District's motion for leave to amend. We therefore affirm the district court's decision.

I. BACKGROUND

Because we are reviewing the district court's decision to grant Moody's motion to dismiss for failure to state a claim, we accept the allegations of the First Amended Complaint as true. Witt v. Roadway Express, 136 F.3d 1424, 1431 (10th Cir.), cert denied, --- U.S. ----, 119 S.Ct. 188, 142 L.Ed.2d 153 (1998). We view the record in the light most favorable to the School District. Id.

In 1993, the School District decided to refinance part of its bonded indebtedness by issuing refunding bonds, thereby obtaining the benefit of lower interest rates. Even though it had retained Moody's in the past, the School District selected two other agencies to rate its bonds. As a result, it paid no fee to Moody's and provided Moody's with no information about its current financial condition.

The School District brought the bonds to market on October 20, 1993. Initially, they sold well, and the District received subscriptions for the purchase of substantially all of the issue. However, less than two hours into the sales period, Moody's published an article regarding the bonds in its "Rating News," an electronically distributed information service sent to subscribers and news services. Moody's stated that although it had not been asked to rate the bonds, it intended to assign a rating to the issue subsequent to the sale. Moody's then discussed the bonds and the School District's financial condition, concluding that "[t]he outlook on the district's general obligation debt is negative, reflecting the district's ongoing financial pressures due in part to the state's past underfunding of the school finance act as well as legal uncertainties and fiscal constraints under Amendment 1." ¹ Aplt's App. at 7. Within minutes, "The Dow Jones Capital Market Reports," an electronic publication owned and operated by Dow Jones & Company, issued an electronic communication repeating the Moody's statement about the refunding bonds' "negative outlook."

The School District alleges that Moody's statement was materially false in that it indicated that the School District's financial condition was not creditworthy and conveyed the impression that Moody's assessment was based on current information. The School District further maintains that the most recent The district court treated Moody's motion as a motion to dismiss and granted it. Observing that a statement "of opinion relating to matters of public concern which does not contain a provably false factual connotation" or which "cannot reasonably be interpreted as stating actual facts about an individual" is protected by the First Amendment, Aplt's App. at 345 (quoting Milkovich v. Lorain Journal Co., 497 U.S. 1, 20, 110 S.Ct. 2695, 111 L.Ed.2d 1 (1990)), the court held that Moody's statements about the refunding bonds were not provably false and were therefore immunized from the School District's tort claims by the First Amendment.

                financial information that it had sent to Moody's was more than a year old.  According to the School District, Moody's published the article in order to retaliate against it for deciding to use other credit rating agencies, and the article had a significant effect on the marketing of the bonds:  purchase orders ceased, several buyers canceled prior orders, and the School District was forced to reprice the bonds at a higher interest rate in order to complete the sale, thereby causing it to suffer a net loss of $769,000. 2  The School District's First Amended Complaint names Moody's as a defendant and asserts claims under Colorado law for intentional interference with contractual relations, intentional interference with prospective contractual relations, and publication of an injurious falsehood.  In response, Moody's filed a motion to dismiss, or in the alternative, for summary judgment.  The District objected and then filed a motion for leave to file a second amended complaint adding antitrust claims against Moody's for monopolization and attempted monopolization under section 2 of the Sherman Act, 15 U.S.C. § 2
                

The court then turned to the school district's motion to file an amended complaint adding antitrust claims against Moody's. In light of its conclusion regarding the District's state law tort claims, the court said, " the core issue ... is whether constitutionally protected expression of opinion, without more, is immune from Sherman Act liability." Aplt's App at 347. The court concluded the First Amendment afforded Moody's opinion the same protection from the federal antitrust claims as it did from the state tort claims. Reasoning that the proposed amendment of the complaint would be futile, the court denied the School District's motion for leave to file a second amended complaint.

II. DISCUSSION

On appeal, the School District argues that the district court erred in dismissing its claim for publication of an injurious falsehood, challenging the conclusion that Moody's evaluation of the refunding bonds constituted a protected expression of opinion. Alternatively, the School District argues that, even if Moody's evaluation of the bonds is constitutionally protected, the allegations of its complaint address Moody's conduct in addition to its speech. As a result, it contends, its claims for intentional interference with contractual and business relations should not have been dismissed. Finally, the School District maintains, the district court erred in denying its motion for leave to amend its complaint to add antitrust claims against Moody's. As with the intentional interference claims, the School District alleges that its antitrust claims are directed at Moody's conduct and not solely at its speech.

In addressing the School District's arguments, we begin with an overview of the

First Amendment's protection of statements of opinion from defamation claims. Then, we apply those general First Amendment principles to the School District's claim for publication of an injurious falsehood. Finally, we turn to the alternative arguments that, even if Moody's evaluation of the refunding bonds is constitutionally protected, the School District should still be allowed to proceed on its intentional interference and antitrust claims.

A. First Amendment Protection of Expressions of Opinion

The law of defamation and the First Amendment serve competing social values. The former protects an individual's interest in his or her good name, providing a cause of action for damage to reputation caused by false statements. See Milkovich v. Lorain Journal Co., 497 U.S. 1, 11-14, 110 S.Ct. 2695, 111 L.Ed.2d 1 (1990) (summarizing the history of defamation law). The latter protects freedom of expression and "was fashioned to assure unfettered interchange of ideas for the bringing about political and social changes desired by the people." New York Times v. Sullivan, 376 U.S., 254, 269, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964).

Beginning with Justice Brennan's landmark opinion in Sullivan, the Supreme Court has held that the First Amendment's guarantee of freedom of expression limits the scope of state defamation laws. Milkovich, 497 U.S. at 14, 110 S.Ct. 2695. Thus, the First Amendment prohibits public officials and public figures from recovering damages for false and defamatory statements unless they demonstrate that the statement was made with actual malice. See id. (discussing Sullivan and Curtis Publishing Co. v. Butts, 388 U.S. 130, 87 S.Ct. 1975, 18 L.Ed.2d 1094 (1967)). Additionally, in defamation actions against media defendants, the First Amendment requires that a plaintiff bear the burden of proving that the statement in question was false and that the defendant had the requisite state of mind. See id. (discussing Philadelphia Newspapers, Inc. v. Hepps, 475 U.S. 767, 777, 106 S.Ct. 1558, 89 L.Ed.2d 783 (1986)).

In Milkovich, the case applied by the district court in dismissing the School District's defamation claim, the Supreme Court addressed...