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Dairy Stores Inc. v. Sentinel Publishing Co.

Decided: October 21, 1986.

DAIRY STORES, INC., T/A KRAUSZER'S FOOD STORES, PLAINTIFF-APPELLANT
v.
SENTINEL PUBLISHING CO., INC., PATERSON CLINICAL LABORATORY, INC., AND KATHLEEN DZIELAK, DEFENDANTS-RESPONDENTS



On certification to the Superior Court, Appellate Division, whose opinion is reported at 198 N.J. Super. 19 (1985).

For affirmance -- Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For reversal -- None. The opinion of the Court was delivered by Pollock, J. Garibaldi, J., concurring in the result. Garibaldi, J., concurring.

Pollock

This appeal requires that we declare the standard of liability of a newspaper, its reporter, and an independent laboratory retained by them for statements that allegedly defamed the plaintiff corporation's reputation and disparaged its product. Relying on the first amendment to the United States Constitution, the Law Division granted summary judgment for the defendants, finding that they had not published the statements with reckless disregard for their truth. 191 N.J. Super. 202 (1983). The Appellate Division affirmed. 198 N.J. Super. 19 (1985). We granted certification, 101 N.J. 236 (1985), and now affirm the judgment of the Appellate Division. In reaching that result, we look to federal law for guidance, but we base our decision on the common-law privilege of fair comment.

I

During a drought in 1981, two weekly newspapers, The Sentinel and The Suburban, both owned by defendant Sentinel Publishing Co., Inc. (Sentinel), published a series of articles on the increased sale of bottled water in Milltown. By executive order of the Governor, water usage in Milltown and 87 other municipalities was restricted to 50 gallons of water per person, per day. Exec.Order No. 104 (Feb. 7, 1981). Shortly after a period of heavy rain, Milltown residents noticed that their tap water tasted odd and had a strong odor. As a result, sales of bottled water increased. Plaintiff, Dairy Stores, Inc., t/a Krauszer's Food Stores (Krauszer's), sold water bottled by Krauszer's Dairy, Inc. and distributed by Covered Bridge, Inc., neither of which was a party to this action. Between January and February 1981, sales at Krauszer's Milltown convenience store increased more than 50 percent, and in one week sales jumped from an average of 40 gallons to 700 gallons.

Defendant Kathleen Dzielak wrote three articles that were published in Sentinel newspapers about the water shortage, Milltown's water problem, and the bottled water industry. In

pursuing her story, she tried to learn the source of Krauszer's bottled water, which was sold under the label "Covered Bridge Crystal Clear Spring Water" (Covered Bridge). Krauszer's declined to identify the source, and Dzielak took a bottle of Covered Bridge water to an independent state-certified testing laboratory, New Jersey Dairy Laboratories. When Dzielak asked whether testing could prove that the water was spring water, the laboratory supervisor told her that a positive chlorine test result would exclude the possibility that the water came from a spring. Upon recognizing the Covered Bridge label, the supervisor advised Dzielak that Krauszer's was a customer of the laboratory, and that the supervisor was so sure Covered Bridge water did not contain chlorine that a test was "unnecessary." Nonetheless, at Dzielak's request, the supervisor tested the water and reported that it did not contain chlorine. Skeptical of the results, Dzielak took the bottle to another independent laboratory, defendant Paterson Clinical Laboratory (Paterson), for similar tests, stating that she was compiling information for an article. Paterson's laboratory director told her that exposure of the water to air made more difficult an accurate analysis of the sample. Nonetheless, in repeated tests, Paterson found that chlorine was present in the water. Dzielak took a second sealed bottle of Covered Bridge water to a third laboratory, Princeton Aqua Science, which submitted a report to Dzielak, who did not understand the results because they were expressed in a manner different from those in the other reports.

Based on her investigation, Dzielak wrote her stories and submitted them for publication. On March 11, 1981, Sentinel published the stories, two of which ran without a by-line under the headlines, "Water sales booming" and "Firms protect sources." The latter story concluded that current law did not require disclosure of the source of the water but that proposed regulations would require such disclosure. The third story was published with Dzielak's by-line and ran under a banner headline,

"Spring water/Independent lab analysis casts doubt on content." The article began:

A sample bottle of "Covered Bridge Crystal Clear Spring Water," sold at Krauszer's convenient food stores, does not contain pure spring water, according to a laboratory analysis obtained by the Sentinel Newspapers.

Tests conducted on the product, purchased at the Krauszer's store at 23 N. Main Street, Milltown, showed a chlorine content of .1 parts per million. Ralph Pugliese, director of the state-certified Paterson Clinic Lab, which conducted the tests, said pure spring water should not contain any chlorine.

"I can't see how it could possibly be spring water unless the spring source was contaminated and chlorine was added at the source. Since we thought we were dealing with a spring water sampling, when we received a .1 reading we ran the test again four or five times and had two chemists look at it to make sure."

Because of the high rate of chlorine's dissipation, either by contact with air or other substances, Pugliese conjectured that at one point the water had contained a higher concentration of chlorine.

When Jerry McCloskey, national sales manager for Krauszer's, was informed of the lab results, he insisted that no chlorine is added to Covered Bridge water at any step of the operation and that the water does come from springs.

Sentinel rejected Krauszer's request for a retraction, whereupon Krauszer's instituted its complaint asserting a claim against Sentinel and Dzielak for defamation, which the Law Division viewed as including a claim for product disparagement. 191 N.J. Super. at 210 n. 2. As against Paterson, Krauszer's asserted a claim for negligence and for interference with prospective economic advantage, which the Law Division treated as a claim for defamation. Id. at 216-21.

Defendants moved for summary judgment, arguing that the relevant principle for determining their liability was whether they published the story with actual malice. The trial court found that "consumers have a First Amendment interest in obtaining information about the products or services they buy which is comparable to their interest in being informed about political and social issues. And the media has a corresponding right to convey that information." Id. at 214 (citations omitted). Continuing with its analysis, the trial court stated that by marketing its product, "a business voluntarily exposes itself -- or at least its product or service -- to public examination in much

the same fashion as does a public official or public figure." Id. at 215. These considerations led the court to conclude that Sentinel and Dzielak were protected by the first amendment in writing the story about Krauszer's bottled water. Id. at 216. The court found further that Paterson, as an outside consultant retained by Sentinel, was also entitled to first amendment protection. Id. at 216-21. Applying the actual malice standard to the facts, the court concluded that plaintiff had not established that the defendants knew the statements to be false or "entertained serious doubts of their truth." Id. at 222. Consequently, the court granted summary judgment in favor of all defendants.

In affirming substantially for the reasons set forth in the trial court's opinion, the Appellate Division referred to Bose Corporation v. Consumers Union of United States, Inc., 466 U.S. 485, 104 S. Ct. 1949, 80 L. Ed. 2d 502 (1984), which was decided by the United States Supreme Court after publication of the Law Division's opinion. The Appellate Division read Bose as extending the actual malice test to product disparagement. 198 N.J. Super. at 20.

At the outset, we must consider the distinction between causes of action for defamation and for product disparagement. The focus of our decision, however, is on the dispute whether the articles were privileged because they treated matters of public interest and, if so, whether the defendants were so careless that they lost the protection of any such privilege. In ruling for defendants, the lower courts looked to federal constitutional law and found that Krauszer's had not established that the defendants published the articles with "actual malice," a test that the United States Supreme Court has developed to measure statements about public officials and public figures. We find, however, that the characterization of Krauszer's as a public figure is problematic, and that the more appropriate principle is the common-law privilege of fair comment. Before embarking on a more detailed analysis of the principles of

defamation law, including fair comment, we must first determine the nature of the cause of action.

II

Plaintiff has pursued the cause as one for defamation, but the cause could also be viewed as one for product disparagement. Indeed, the concurring opinion treats the case as if it were exclusively an action for product disparagement. We are sensitive, as was the Law Division, 191 N.J. Super. at 210 n. 2, to the potential implication of product disparagement principles, but we are constrained to decide the case as the parties and the lower courts have viewed it, as an action for defamation.

Although the two causes sometimes overlap, actions for defamation and product disparagement stem from different branches of tort law. A defamation action, which encompasses libel and slander, affords a remedy for damage to one's reputation. W. P. Keeton, D. Dobbs, R. Keeton, & D. Owen, Prosser & Keeton on Torts § 111 at 771 (5th ed. 1984) (Prosser & Keeton); Restatement (Second) of Torts § 559 (1965) (Restatement (Second)). By comparison, an action for product disparagement is an offshoot of the cause of action for interference with contractual relations, such as sales to a prospective buyer. Prosser & Keeton, supra, § 128 at 962-63; Restatement (Second), supra, § 623 comment g; 2 F. Harper, F. James & O. Gray, Law of Torts § 6.1 at 474 (2d ed. 1986) (Harper, James & Gray). The two causes may merge when a disparaging statement about a product reflects on the reputation of the business that made, distributed, or sold it. If, for example, a statement about the poor quality of a product implies that the seller is fraudulent, then the statement may be actionable under both theories. Prosser & Keeton, supra, § 128 at 964; see, e.g., Lehigh Chem. Co. v. Celanese Corp. of Am., 278 F. Supp. 894, 896-97 (D.Md.1968); Harwood Pharmacal Co. v. National Broadcasting Co., 9 N.Y. 2d 460, 463-64, 214 N.Y.S. 2d 725, 727-28, 174 N.E. 2d 602, 603-04 (1961); Panster v. Wasserman, 190 A.D. 822, 180

N.Y.S. 718 (1920); Larsen v. Brooklyn Daily Eagle, 165 A.D. 4, 150 N.Y.S. 464 (1914), aff'd, 214 N.Y. 713, 108 N.E. 1098 (1915). Courts generally are reluctant to impute a lack of integrity to a corporation merely from a criticism of its product. See Note, Corporate Defamation and Product Disparagement: Narrowing the Analogy to Personal Defamation, 75 Colum.L.Rev. 963, 970-71 (1975); Note, Libel and the Corporate Plaintiff, 69 Colum.L.Rev. 1496, 1499 (1969); Prosser & Keeton, supra, § 128 at 965. On the premise that the reputation of a business is more valuable than any particular product it sells, courts have responded more readily to a claim of damage to one's reputation than to a claim for product disparagement. Bose Corp. v. Consumers Union of U.S., Inc., 508 F. Supp. 1249, 1270 (D.Mass.1981), rev'd on other grounds, 692 F.2d 189 (1st Cir.1982), aff'd on other grounds, 466 U.S. 485, 104 S. Ct. 1949, 80 L. Ed. 2d 502 (1984). Semantics contributes to the confusion of the two causes because terms used to describe a product disparagement action, such as "trade libel" and "slander of title," tend to blur the distinction between such an action and one for defamation.

Recent decisions of the United States Supreme Court have further blurred the dividing line between the two causes. Traditionally, a plaintiff in a product disparagement action has borne the burden of establishing that the disparaging statement was both false and injurious. By comparison, in a defamation action, the plaintiff was entitled to a presumption that the defamatory statement was both false and harmful. See 2 Harper, James & Gray, supra, § 6.1A at 274; Comment, The First Amendment and the Basis of Liability in Actions for Corporate Libel and Product Disparagement, 27 Emory L.J. 755, 760-61 (1978); Note, Corporate Defamation and Product Disparagement, supra, 75 Colum.L.Rev. at 969 n. 29; Note, Libel and the Corporate Plaintiff, supra, 69 Colum.L.Rev. at 1497-99. Just this year, however, the United States Supreme Court held that when a statement treats a matter of public concern, the plaintiff in a defamation action has the burden of

proving that the statement is false. Philadelphia Newspapers, Inc. v. Hepps, U.S. , , 106 S. Ct. 1558, 1559, 89 L. Ed. 2d 783, 787 (1986). Earlier the Court had ruled that a plaintiff was not entitled to presume damages from the publication of a statement about a matter of public concern, unless the statement was published with actual malice. Gertz v. Robert Welch, Inc., 418 U.S. 323, 349-50, 94 S. Ct. 2997, 3012, 41 L. Ed. 2d 789, 811 (1974); see also Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749, 761, 105 S. Ct. 2939, 2946, 86 L. Ed. 2d 593, 603-04 (1985). As a result, the difference between product disparagement and defamation has narrowed further when a statement treats a matter of public concern.

Here, Sentinel's article reported the presence of chlorine in Covered Bridge water and stated that Krauszer's kept the source of its bottled water a "well-guarded secret." Arguably, these statements not only disparaged Covered Bridge water by casting doubt on whether it was spring water, but also defamed Krauszer's corporate reputation by implying that it was trying to hide something through non-disclosure of the source of the water, e.g., that the water did not come from a spring or that the spring was contaminated.

Because this matter was presented on review of an order granting defendants' motion for summary judgment, we view the facts in the light most favorable to the plaintiff, giving it the benefit of all favorable inferences that may legitimately be drawn from the record. Viviano v. Sybron, 101 N.J. 538 (1986). Thus, for the purposes of this appeal, we assume that the articles were not only disparaging, but also false and defamatory. As a result, the distinction between defamation and product disparagement disappears, and our attention shifts to whether the publications were privileged and whether the defendants abused any such privilege.

III

The evolution of the law of defamation reflects the tension between society's competing interests in encouraging the free

flow of information about matters of public concern and in protecting an individual's reputation. At one time, the common law placed so high a premium on the protection of a person's reputation that it imposed strict liability for the publication of a defamatory statement. Prosser & Keeton, supra, § 113 at 804. More recently, the United States Supreme Court has declared that publishers may not be held liable for certain defamatory statements without showing that they were at least negligent. Gertz v. Robert Welch, Inc., supra, 418 U.S. at 346-47, 94 S. Ct. at 3010, 41 L. Ed. 2d at 809. That declaration is consistent with the increasing awareness of the need for public information on a wide variety of issues.

Traditionally, the common law has accommodated that need by recognizing that some otherwise defamatory statements should be "privileged," i.e., that their publication does not impose liability on the publisher. Privileges may be "absolute," which means that the statements are completely immune, or "qualified." A qualified privilege may be overcome, with the result that the publisher will be liable, if publication of a defamatory statement was made with "malice." Common-law malice, or malice-in-fact, has meant variously that the statement was published with an improper purpose or ill will, or without belief or reasonable grounds to believe in its truth. See Coleman v. Newark Morning Ledger Co., 29 N.J. 357, 374-75 (1959); 2 Harper, James & Gray, § 5.27 at 234-39; Restatement of Torts §§ 600, 601 (1938) (Restatement).

Certain statements, such as those made in judicial, legislative, or administrative proceedings, are absolutely privileged because the need for unfettered expression is crucial to the public weal. See Rainier's Dairies v. Raritan Valley Farms, Inc., 19 N.J. 552, 558 (1955). Other statements, such as those made outside those forums but for the public welfare, enjoy a qualified privilege. Coleman v. Newark Morning Ledger Co., supra, 29 N.J. at 375-84; Leers v. Green, 24 N.J. 239, 253-55 (1957). For example, property owners have a qualified privilege

to make statements about potential drainage, health, and fiscal problems from a proposed trailer park. Hohl v. Mettler, 62 N.J. Super. 62, 66-67 (App.Div.1960). Likewise, citizens have a qualified privilege to make statements to authorities for the prevention and detection of crime. Dijkstra v. Westerink, 168 N.J. Super. 128, 134-36 (App.Div.), certif. denied, 81 N.J. 329 (1979). We have also recognized a qualified privilege of the press to report statements made in a public municipal council "conference room" meeting. Swede v. Passaic Daily News, 30 N.J. 320, 333-34 (1959). Therefore, a qualified or conditional privilege has emerged as one of the prime means for the common law to balance the interests in reputation with the publication of information in the public interest. Restatement (Second), supra, Conditional Privileges, Scope Note preceding § 593, at 258.

Insofar as defenses to product disparagement are concerned, a qualified privilege should exist wherever it would exist in a defamation action. Prosser & Keeton, supra, § 128 at 974; Restatement (Second), supra, § 646A. Because the common law historically has held the interest in one's reputation as more worthy of protection than the interest of a business in the products that it makes, it follows that the right to make a statement about a product should exist whenever it is permissible to make such a statement about the reputation of another.

One illustration of a qualified privilege is fair comment, which is sometimes described as rendering a statement non-libelous. No matter how described, the defense is lost upon a showing that the statement was made with malice. F. Harper & F. James, Law of Torts, § 5.28 at 457 (1956) (Harper & James). The roots of fair comment are imbedded in the common law, but in recent years, those roots have intertwined with others arising from constitutional law. Explanation of fair comment in its present form requires not only an exploration of ...


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