Mutafis v. Erie Ins. Exchange

• Decision Date: 25 March 1983
• Docket Number: Civ. A. No. 81-0044-C(H).
• Citation: 561 F. Supp. 192
• Court: U.S. District Court — Northern District of West Virginia
• Parties: Betty J. MUTAFIS, Plaintiff, v. ERIE INSURANCE EXCHANGE, et al., Defendants.

561 F. Supp. 192

Betty J. MUTAFIS, Plaintiff, v. ERIE INSURANCE EXCHANGE, et al., Defendants.

Civ. A. No. 81-0044-C(H).

United States District Court, N.D. West Virginia, Clarksburg Division.

March 25, 1983.

COPYRIGHT MATERIAL OMITTED

David J. Romano, Young, Morgan, Cann & Romano, Clarksburg, W.Va., for plaintiff.

James R. Watson, Steptoe & Johnson, Clarksburg, W.Va., for defendants.

MEMORANDUM OPINION AND ORDER

HADEN, Chief Judge.

I. Background

The Plaintiff, Betty J. Mutafis, a former policyholder of the Erie Insurance Exchange (Erie), brought this action¹ against the Defendant corporations alleging intentional infliction of emotional distress, libel, slander and breaches of the West Virginia Insulting Words Statute² and Unfair Trade Practices Act.³ The conduct complained of occurred during Erie's investigation of the insurance claims filed by the Plaintiff and her cousin, Vincent J. Oliverio, both of whom had had a car stolen in 1979. Both cars were later found "stripped" of valuable accessories and burned. During the course of this investigation, one of Erie's appraisers inserted in Plaintiff's file and cross-referenced to Oliverio's file, a memorandum stating that the Plaintiff was "heavily involved in the Mafia"⁴. At the conclusion of the two-day trial the jury returned a verdict for the Plaintiff on the Unfair Trade Practices Act count and awarded compensatory damages of $15,000 and punitive damages of $20,000. The case is presently before the Court on Erie's motions for a new trial, for judgment notwithstanding the verdict, and for a remittitur.

In support of its motions Erie challenges the jury verdict on the following grounds: (1) Erie's memorandum was protected under the First Amendment; (2) no private cause of action exists under W.Va.Code, § 33-11-4(3) or (5); (3) there was insufficient evidence to support the jury verdict; (4) the Plaintiff suffered no actual damages; (5) the jury's award of punitive damages was improper; (6) the Plaintiff did not prove that the Defendants' conduct constituted a "general business practice"; and (7) the Unfair Trade Practices Act was applied retroactively. The Court will address these arguments in seriatum.

II. Erie's Memorandum Was Not Protected By The First Amendment

Erie argues that the Supreme Court has recognized that commercial speech is entitled to First Amendment protection and that, therefore, the memorandum at issue in this action must be scrutinized in accord with constitutional standards protecting freedom of speech. Specifically, the Defendant contends that the standards set forth in New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964) apply and that any recovery by the Plaintiff should have been predicated upon a finding by the jury that the Defendant acted "maliciously" and that the Plaintiff suffered actual damages. New York Times v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964) (requirement of malice); Gertz v. Robert Welch, Inc., 418 U.S. 323, 325, 94 S.Ct. 2997, 3000, 41 L.Ed.2d 789 (1974) (requirement of actual damages). In support of this argument Erie states that there was no issue of malice to present to the jury because the Court found as a matter of law, by granting the Defendant's motion for a directed verdict as to the Plaintiff's libel and slander causes of action, that Erie had not acted maliciously.

While the Supreme Court's decision in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) does extend First Amendment protection to certain types of commercial speech, the remainder of Erie's argument does not survive scrutiny for several reasons. First, the Defendant's entire argument has as its cornerstone the contention that the Court concluded as a matter of law that Erie's employees had not acted maliciously. As the following discussion explains, the Court made no such ruling concerning the absence of a malicious motivation on behalf of Erie.

The Court did remove from the jury's consideration, on Erie's motion for a directed verdict, the Plaintiff's libel and slander causes of action. Because the communication remained entirely intra-corporate, the Court concluded as a matter of law that there had been no publication of the memorandum and that lacking this essential element the Plaintiff could not proceed on her libel and slander theories. See Mauck v. City of Martinsburg, 280 S.E.2d 216 (W.Va. 1981). As a second reason for granting Erie's motion for a directed verdict on these counts, the Court held that even if there was a publication of the memorandum, there attached to that communication a qualified privilege. Because there was no controversy concerning the circulation of the memorandum the Court ruled as a matter of law⁵ that, inasmuch as the memorandum had been "published" only to those employees of the company who had a legitimate interest in the contents of the document, the qualified privilege had not been abused or exceeded.⁶

From this ruling the Defendant infers a sub silentio finding by the Court that the employees of Erie had not acted maliciously. This inference is grounded on the principle that a qualified privilege can be abused by a person acting out of malice, as well as by over-publication. The Court acknowledges this as a correct statement of West Virginia law. Mauck v. City of Martinsburg, 280 S.E.2d 216, 221 (W.Va.1981). The infirmity of Erie's analysis lies in the fact that though the Court did specifically rule that a qualified privilege was applicable and also specifically ruled that it had not been abused by over-publication, the Court did not rule that the privilege was not abused by malice.

If the Court had simply made a general ruling, without explanation, that the conditional privilege had not been exceeded, then an argument could be made that such a ruling logically and necessarily implies two things: (1) the privilege was not abused by over-publication; and (2) the publisher did not act with malice. However, as noted above, the Court ruled only on the question of whether the memorandum was published to anyone not having a legitimate interest in it. The issue of whether Erie's employees acted with malice and thereby violated the conditional privilege was not mentioned or presented by either counsel during the arguments on the Defendant's motion for a directed verdict. Therefore, the issue of malicious motivation was not before the Court, was not considered by the Court, and accordingly, was not ruled upon by the Court in granting the Defendant's motion for a directed verdict on the Plaintiff's libel and slander causes of action. Because implicit in Erie's analysis is the contention that there was an alternate theory the Court could have relied upon to deny Erie's motion for a directed verdict on the Plaintiff's libel and slander causes of action (i.e., malicious motivation), Erie's contention here is, at best, an argument that the Court erred in favor of Erie in withdrawing the libel and slander counts from the jury's consideration.⁷

Secondly, Erie's contention that the memorandum involved here constitutes "commercial speech" protected by the First Amendment and that such communication may not serve as a basis for a defamation-type action unless the New York Times v. Sullivan standard is met finds no support in the case law or the facts of this case.

First National Bank of Boston v. Bellotti, 435 U.S. 765, 98 S.Ct. 1407, 55 L.Ed.2d 707 (1978); Virginia Board of Pharmacy v. Virginia Consumer Council, 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976); Bigelow v. Virginia, 421 U.S. 809, 95 S.Ct. 2222, 44 L.Ed.2d 600 (1975); Bates v. State Bar of Arizona, 433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1970), the cases cited by the Defendant in support of the argument that the First Amendment standards apply, are inapposite. Those cases involve state statutes restricting a commercial entity's ability to disseminate information to the public.⁸

Because there is absolutely no indication in any of these cases that constitutional standards of free speech would extend so far as to embrace entirely intra-corporate communications such as the one giving rise to this action, the Court must reject Erie's contention that the August 7, 1979, memorandum is protected under the First Amendment.

The final reason for rejecting Erie's argument on this point is that, assuming for the sake of argument that constitutional standards were applicable here, the standard by which Erie's conduct was measured did meet the First Amendment standards the Defendant urges the Court to adopt. As noted above, Erie would have the Court apply the standard of liability set forth in New York Times v. Sullivan, which requires liability to be predicated upon a finding that the Defendant acted with "actual malice". The Supreme Court defined the "actual malice" necessary to make a statement actionable as one made "with knowledge that it was false or with reckless disregard of whether it was false or not." 376 U.S. at 279-80, 84 S.Ct. at 725-26.⁹ At the trial of this action the jury was instructed that liability was dependent upon a finding that the Defendant knowingly made a false material statement concerning the Plaintiff. Thus, the Sullivan standard that the statement be made with "knowledge that it was false" was incorporated in the Court's charge to the jury. The jury's verdict for the Plaintiff indicates a finding by that body that Erie made a knowingly false statement in placing the memorandum in Plaintiff's file. Therefore, the Defendant's conduct was measured by a standard sufficient to establish liability even if the communication was protected commercial speech under the First Amendment.

For the reasons just discussed, the Court rejects Erie's argument that the Plaintiff's recovery in this action violated the First Amendment's guarantee of Freedom of Speech.

III. A Private Cause Of Action Exists Under...