Orr v. Argus-Press Co.
| Decision Date | 19 October 1978 |
| Docket Number | No. 76-2206,ARGUS-PRESS,76-2206 |
| Citation | 586 F.2d 1108 |
| Parties | 4 Media L. Rep. 1593 Harlan E. ORR, Plaintiff-Appellee, v. TheCOMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
DesJardins & DesJardins, Jerry L. DesJardins, Owosso, Mich., for defendant-appellant.
James J. Kobza, Muskegon, Mich., for plaintiff-appellee.
Before PHILLIPS, Chief Judge, and CELEBREZZE and MERRITT, Circuit Judges.
In this diversity case, following a jury trial in the United States District Court for the Eastern District of Michigan, appellant, the Argus-Press Company, was found liable for $5,000 compensatory damages and $15,000 punitive damages for publishing an allegedly libelous article regarding the indictment and arrest of Harlan Orr, appellee, on charges of securities fraud. We conclude that "actual malice" is the standard to be applied in the present case, both under the "qualified privilege" developed at common law in the courts of Michigan and under the first amendment, as interpreted by the Supreme Court in New York Times Co. v. Sullivan, 376 U.S. 254, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964), and later cases. While the malice standards are somewhat different under Michigan law and under the first amendment, both of those standards protect the newspaper from liability in the context of this case. We therefore vacate the judgment below and remand the case to the District Court to dismiss plaintiff's suit with prejudice.
Orr, a Wisconsin attorney and president of the J.M.H. Development Company, proposed to build a shopping mall in Owosso, Michigan. The venture was publicized in the local press, in part as a result of efforts by Orr and his associates to obtain publicity. To raise money, Orr prepared and distributed to local investors a prospectus describing the project. Orr was attempting to raise $250,000 through stock sales but, in fact, received only $27,500 from five local investors. The project fell through, and the investments were returned.
In November, 1973, Orr and a business associate were indicted in connection with the venture on a total of thirty-four charges of violations of the Michigan securities laws. Orr himself was charged with fifteen counts. Five counts charged the unlawful sale of unregistered stock; eight counts charged the unlawful failure to disclose information; two counts charged affirmative acts of deceit, alleging that Orr had told two potential investors that J. C. Penney Company, a large department store, had already leased space in the proposed mall when, in fact, the company had not done so.
After Orr's indictment and arrest, the Argus-Press published the following story. We italicize the words which Orr contends are libelous:
"Two Charged in Shopping Mall Fraud ":
A former Owosso man and his business partner have been charged with a total of 34 counts of fraud in connection with a Phony shopping Mall investment Scheme that allegedly sought to take $250,000 from local investors according to Shiawassee County Sheriff's Dep. Herb Runyan.
Merlin Goodrich, 39, now of rural Muskegon, and Harlan E. Orr, 71, president of the J.M.H. Development Corp., Muskegon, were taken into custody on the charges by Muskegon County Sheriff's deputies Monday and transferred to the Shiawassee County Jail later in the day. Goodrich is Charged with 19 counts of fraud, Orr, with 15.
Following arraignment this morning a preliminary examination for Goodrich was scheduled in District Court for Jan. 8 and his bond was set at $2,000. A December preliminary examination was scheduled for Orr, whose bond was set at $5,000.
Charges against the two men stem from a proposed Chippewa Mall investment project, to be developed by J.M.H. Development, which the men claimed was to have been built on five parcels of land along E. M. 21, between Herb's Auto Parts and the Owosso Auto Auction, Runyan said.
Goodrich, who listed his occupation as pastor of a Muskegon church, and Orr reportedly approached area persons last April seeking twenty-five $10,000 investment subscriptions for the proposed 30-store, $250,000 mall. Runyan said the men had obtained five local subscriptions totaling $27,500, but that the monies had been returned to the investors Sept. 21 after a joint investigation of the project was under way by the securities division of the Michigan Department of Commerce, the county sheriff's department and Owosso post state police.
Returning the money did not stop prosecution, Runyan explained, because The fraud charges are for the alleged sale of unregistered securities and for the alleged misrepresentation of securities offered for sale. The two men reportedly claimed the J. C. Penney Company had agreed to build an anchor store in the mall. Penney Company officials denied the claim, Runyan said.
Investigation of the project began when a local person involved in the investment transactions turned over evidence to detectives at the county sheriff's department, Runyan said. He added that at least 10 other persons and representatives of Newell Real Estate, 440 Corunna Ave., and Walker Realty, 211 E. Williams St., the two real estate firms which were handling the land for the project, had given statements implicating Goodrich and Orr in the Alleged swindle.
Each charge of Fraud against Goodrich and Orr carries a maximum sentence of three years in prison or a $5,000 fine, or both. (Emphasis added.)
Orr concedes that the basic factual statements contained in the story are true, but he objects to the characterization of his dealings as an "alleged swindle" and as "a phony shopping mall investment scheme that sought to take $250,000 from local investors." He also challenges the newspaper's description of the indictment as charging "fraud."
The District Court charged the jury that it should apply Michigan's common law privilege of fair comment, as follows:
Under the Common Law rule of privilege, (there) is a qualified privilege for publications which are made in good faith on a matter of public concern and interest. The alleged libelous article published by the defendant in the Argus Press is entitled to this privilege if the article was published in good faith and without malice, for the criminal charges against plaintiff . . . was a matter of public concern and interest. . . . (An article is not published in good faith) if it is published either with knowledge of its falsity or with reckless disregard as to whether it is false or not. In order for a newspaper to have been reckless with regard to whether the article was false, the newspaper must have a higher degree of culpability than mere negligence or a failure to exercise reasonable care. Recklessness requires the defendants to have a high degree of awareness of the probable falsity of the article published.
The language of this charge combines the language of Michigan's common law privilege with the language of the first amendment privilege, as announced by the Supreme Court in a series of cases beginning with New York Times v. Sullivan, supra.
The District Court left to the jury the question of whether the state's accusations against Orr amounted to fraud. The charge strongly suggests that the Court believed that the newspaper unfairly described the charges as "fraud":
You must determine whether the alleged libelous article, when taken in its entirety and plain and natural meaning, expresses a fair and true report of the charges filed against the plaintiff and whether any inaccuracies would have changed the effect on the reader . . . . The article in question refers to these charges as being fifteen counts of "fraud."
The term "fraud" has various meanings under the law. The general meaning of fraud is to induce another person to part with a valuable thing by means of deception as by the intentional concealment of the truth.
The Michigan securities law (de)fines:
"Fraud" more broadly and does not require any intent to deceive. For purposes of this act, fraud includes anything less than full disclosure of a matter where lack of full disclosure could be misleading to a purchaser of securities. Thus, the charges against plaintiff of misrepresentation cannot be considered as charges of fraud within the meaning of that Act.
Since the term "fraud" has various meanings, the use of the term would be accurate but not fair. (Emphasis added.)
The jury apparently found that the words "fraud" and "swindle" were not justified by the facts and that the newspaper acted with "malice" in publishing the article. We hold that on the specific facts of this case a jury could not reasonably find that the newspaper's characterizations of the proceedings were sufficiently inaccurate to permit a concomitant finding that the newspaper published the article with "malice."
Few areas of the law are as analytically difficult as that of libel and slander where courts attempt to mesh modern, first amendment principles with common law precedents. For the sake of clarity, we will discuss first the state law issues, then the constitutional problems presented by this case; but as a legal and practical matter, the two approaches are bound together. 1
Initially, we consider the issues presented in this case under Michigan law: Is the article substantially true? If not, has the plaintiff proven that the newspaper published the story in bad faith?
First, as the District Court instructed the jury, the article is not libelous if substantially true. "To be true," the Court correctly stated, "it is not essential that the literal truth be established in every detail as long as the article contains the gist of the truth as ordinarily understood." We believe that most, if not all, of the reporter's story on Orr is substantially truthful and therefore not actionable.
Neither...
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