Teilhaber Mfg. Co. v. Unarco Materials Storage, a Div. of Unarco Industries, Inc.

• Decision Date: 16 November 1989
• Docket Number: Nos. 87CA0363,87CA0070,s. 87CA0363
• Citation: 791 P.2d 1164
• Parties: TEILHABER MANUFACTURING COMPANY, a Colorado corporation, Plaintiff-Appellee and Cross-Appellant, v. UNARCO MATERIALS STORAGE, A DIVISION OF UNARCO INDUSTRIES, INC., Defendant-Appellant and Cross-Appellee. . IV
• Court: Colorado Court of Appeals

Page 1164

791 P.2d 1164

TEILHABER MANUFACTURING COMPANY, a Colorado corporation Plaintiff-Appellee and Cross-Appellant, v. UNARCO MATERIALS STORAGE, A DIVISION OF UNARCO INDUSTRIES INC., Defendant-Appellant and Cross-Appellee.

Nos. 87CA0363, 87CA0070.

Colorado Court of Appeals,

Div. IV.

Nov. 16, 1989.

Rehearing Denied Dec. 21, 1989.

Certiorari Granted May 14, 1990.

Kripke, Epstein & Lawrence P.C., Kenneth N. Kripke and Scott W. Lawrence, Denver, for plaintiff-appellee and cross-appellant.

Weller, Friedrich, Ward & Andrew, J. Mark Smith and Marsha P. Tedstrom, Denver, for defendant-appellant and cross-appellee.

Opinion by Judge METZGER.

Defendant, Unarco Materials Storage, Inc. (Unarco), appeals the judgment entered upon a jury verdict finding it liable for product disparagement. Plaintiff, Teilhaber Manufacturing Company (Teilhaber), cross-appeals, asserting that the trial court erred in denying its request for prejudgment interest. We affirm in part, reverse in part, and remand with directions.

Teilhaber developed and produced the "Cue-Rack," an industrial storage rack, and began competing with Unarco, which also produced an industrial storage rack. Feeling the adverse effects of this competition, Unarco sought to obtain a Cue-Rack to conduct independent tests and thus compare the Cue-Rack to its own product. The storage rack ultimately obtained was actually a hybrid comprised of uprights manufactured by Teilhaber for the Cue-Rack and beams manufactured by another company.

After conducting some tests on this hybrid rack, Unarco disseminated a "preliminary test report," which purported to evaluate the Cue-Rack, to its employees and distributors. Some distributors informed their purchasers of these reports. This report, written by Unarco's chief engineer, disputed Teilhaber's representations concerning the Cue-Rack's strength and weight-bearing capacity. The report is appended to this opinion.

Teilhaber sued Unarco for product disparagement, contending that the statements made in the report were false. Unarco denied liability, asserting that the report contained only opinions and accurate statements of fact, which were protected by the First Amendment.

The jury returned a verdict in favor of Teilhaber for $1,763,131 plus costs. The trial court denied Teilhaber's request for prejudgment or moratory interest. This appeal followed.

I.

Unarco contends the trial court erred in denying its motion for directed verdict. It argues that the test report, to the extent it is disparaging, consists of opinion and/or substantially true statements of fact and, therefore, is protected by the First Amendment. We find no error.

Restatement (Second) of Torts §§ 623(A) and 624 (1976), which we here adopt, provide:

"One who publishes a false statement harmful to the interests of another is subject to liability for pecuniary loss resulting to the other if

(a) he intends for publication of the statement to result in harm to interests of the other having a pecuniary value, or either recognizes or should recognize that it is likely to do so, and

(b) he knows that the statement is false or acts in reckless disregard to its truth or falsity.

. . . . .

The rules on liability for the publication of an injurious falsehood stated in § 623A apply to the publication of a false statement disparaging another's property rights in land, chattels or intangible things, that the publisher should recognize as likely to result in pecuniary harm to the other through the conduct of third persons in respect to the other's interests in the property."

The tort of product disparagement requires proof of the following elements: (1) a false statement; (2) published to a third party; (3) derogatory to the plaintiff's business in general, to the title to his property, or its quality; (4) through which the defendant intended to cause harm to the plaintiff's pecuniary interest, or either recognized or should have recognized that it was likely to do so; (5) with malice; (6) thus, causing special damages. See Henderson v. Times Mirror Co., 669 F.Supp. 356 (D.Colo.1987). Williams v. Burns, 540 F.Supp. 1243 (D.Colo.1982).

In this case, the existence of some of these elements was undisputed. Both parties agree as to the falsity of the statements that the test was performed on a Cue-Rack "furnished" by Teilhaber. Because the Cue-Rack was a hybrid, this admitted falsity is pervasive and renders all the reported test results false as regards the Cue-Rack. Thus, any opinion was based, necessarily, on false facts. Moreover, the fact that the rack tested was a hybrid was neither disclosed in, nor could it be inferred from, the report. As to the other elements, our examination of the record reveals sufficient evidence to support a jury finding in favor of Teilhaber on each. Accordingly, recovery was proper unless the statements in the report fall within the ambit of First Amendment protection.

The constitutional protections afforded a defendant in a defamation action are applicable to a defendant in a product disparagement action. Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984). Thus, in general, a statement of opinion, as opposed to a statement of fact, will be protected expression under the First Amendment.

However, not all forms of opinion are entitled to such protection. An opinion will support a defamation action if the language is defamatory and the underlying defamatory facts which provide a basis for the opinion are false and are not disclosed in context. Burns v. McGraw-Hill Broadcasting Co., Inc., 659 P.2d 1351 (Colo.1983); Restatement (Second) of Torts, § 566 (1976). Such was the case here.

Unarco does not dispute that the pivotal facts underlying the report--that the test was not conducted on a Cue-Rack furnished by Teilhaber--are false and undisclosed. Consequently, any opinions in the report are not protected by the First Amendment. Accordingly, the trial court did not err in denying Unarco's motion for directed verdict.

II.

Unarco next contends that the trial court erroneously admitted evidence concerning general business damages, in violation of the general rule that only special damages may be recovered in a product disparagement action. Again, we find no error.

In a product disparagement action, the plaintiff must always prove special damages. Williams v. Burns, supra. He is required to establish a pecuniary loss that has been realized or liquidated, as in the case of specific lost sales. W. Keeton, Prosser & Keeton on Torts § 128 (1984). If a plaintiff cannot show special damages, no cause of action is established. Williams v. Burns, supra. To make the required showing, a plaintiff usually must identify those persons who refuse to purchase his product because of the disparagement. See W. Keeton, supra § 128 (1984).

Strict imposition of this requirement has led to many difficulties. Formerly, it was nearly always held that it was not enough to show a general decline in business following the publication of the falsehood. See Electric Furnace Corp. v. Deering Milliken Research Corp., 383 F.2d 352 (6th Cir.1967), McGaw v. Webster, 79 N.M. 104, 440 P.2d 296 (1968). This was so, even if there was evidence eliminating other causes for the decline. See Hunt Oil Co. v. Berry, 227 Miss. 234, 86 So.2d 7, corrected 227 Miss. 680, 86 So.2d 854 (1956). Thus, a plaintiff was required to identify the particular purchasers who...