Summary of a Recent
Judicial Development in
Labor

Proof of Falsity and Malice Required to Recover Reputational Damages

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Smithfield Foods, Inc. v. United Food and Commercial Workers International Union, 584 F. Supp. 2d 838, 2008 WL 4724689 (E.D. Va. 2008), the United States District Court for the Eastern District of Virginia held that in order to recover for "reputational" damages resulting from an alleged corporate campaign against its pork processing operations, a plaintiff had to show both falsity of the publications and actual malice on the part of the defendant.

Background

Smithfield brought an action for violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and state law claims of tortious interference with contract and unfair trade practices against the United Food and Commercial Workers International Union (UFCW). Id. at *1. Smithfield claimed that the UFCW publicly announced a "corporate campaign" against it in an attempt to force it to recognize the UFCW as the collective bargaining representative of the employees at its pork processing plant in Tar Heel, North Carolina. Id. Smithfield sought recovery for damages including: (1) the "direct" expenses realized as a result of the campaign; (2) "customer specific" lost profits; (3) a loss of free advertising on the Oprah Winfrey show; (4) "nationwide" lost profits; and (5) cumulative abnormal returns on its stock price. Id.

Arguments

The defendants argued that Smithfield could only recover damages relating to its reputation if it was able to satisfy constitutional defamation standards, which would require Smithfield to prove that the publications were false and made with actual malice. Id.

Smithfield argued that the First Amendment did not protect extortionate speech, and thus whether the falsity of the statements made by the defendants was irrelevant. Id. at *4. Alternatively, it argued that none of its losses constituted "reputational damages," so no heightened First-Amendment scrutiny was required. Id. at *6.

Analysis and Holdings

The court explained that when a plaintiff who qualifies as a "public figure" seeks damages resulting from speech covered by the First Amendment, it may recover for a claim of defamation only upon proof that the challenged statements were false and that defendant acted with "actual malice," meaning with knowledge of its falsity or with reckless disregard of the truth. Id. at *2-3. In other words, "if the damages sought are for injury to reputation caused by some sort of publication, the plaintiff must prove, by clear and convincing evidence, falsity of the statement and actual malice in the publication of it, even if the claim is not for defamation." Id. at *4. The court pointed out that regardless of whether the defendants' statements were constitutionally protected, the constitutional defamation standards (falsity and malice) applied when a plaintiff sought to recover for reputational injury from publication. Id. at *5-6. The court admitted that it was often difficult to distinguish between reputational and economic damages because the former often results in the latter, but reasoned that a party's own characterization of its damage claims is highly persuasive in determining the type of damages sought. Id. at *6. The court concluded that Smithfield's characterization of its damages strongly indicated that they were "reputational" in nature, pointing to statements such as "the Smithfield brand name has been significantly tarnished" and the repeated mention of a loss of goodwill in its complaint. Id. at *6-7. Therefore, the court held that at trial, Smithfield must prove both falsity and actual malice to recover for alleged reputational damages. Id. at *8.

The case was decided on October 23, 2008.