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Sedore v. Recorder Publishing Co.

September 17, 1998


The opinion of the court was delivered by: Kestin, J.A.D.

Argued: April 22, 1998

[9]    Before Judges King, Kestin and Cuff.

On appeal from the Superior Court of New Jersey, Law Division, Civil Part, Somerset County.

Defendants appeal from the trial court's order denying their motion for summary judgment dismissal of a defamation action based upon the publication of a news article about the closing of an automobile dealership, Somerset Hills Audi (SHA). A simultaneously entered discovery order granting plaintiffs' cross-motion is also a subject of this appeal. It provides:

Defendant shall provide to counsel for Plaintiffs the name, address and telephone number of each and every subscriber to The Bernardsville News as of August, 1995, for the reasons stated on the record, in open Court, and it is further ordered that Plaintiff shall give Defendant prior notice of the letter to be sent to Defendant's newspaper subscribers.

We reverse and dismiss the complaint.


On August 9, 1995, an article on the first page of the Bernardsville News (the News), under the byline of David Polakiewicz, discussed the recent shut-down of SHA, a Bernardsville dealership:

The findings of a police investigation into the closing of the Somerset Hills Audi dealership last month have been forwarded to the Somerset County Prosecutor's Office to determine if any criminal charges are warranted against its owners.

Detective Sgt. Kevin Valentine said Monday police began investigating the circumstances around the July 28 closing of the Morristown Road car dealership after complaints were received from employees that paychecks had bounced.

Valentine said that if the prosecutor's office finds criminal wrongdoing, a further investigation would be conducted. If found to be a civil matter, Valentine said police involvement would end. Former employees of the dealership would then have to pursue legal action themselves to recoup wages due from the owners of the defunct business.

Valentine said the closing occurred due to a financial dispute involving the dealership's owners and Volkswagen Credit Inc. (VCI) of Woodcliff Lake. The owners, he said, were apparently in arrears on payments owed to the credit company.

VCI obtained an order in state Superior Court in early July, Valentine said, which froze the assets of the dealership. The court document lists the owners of Somerset Hills Audi, Inc. as Paul Reynolds, James Sedore and Mayfair Investments, Inc. Reynolds and Sedore could not be reached for comment on Tuesday.

The balance of the article gave an account of the alarmed reaction of dealership employees regarding their bounced paychecks, as well as the predicament of customers who had been taken by surprise by the closure of SHA.

The defamation suit was brought by James P. Sedore and Paul Reynolds, Jr. against the News; Polakiewicz, the reporter; The Recorder Publishing Co., publisher of the News; and Charles Zavalick, editor of the News. Plaintiffs contend that the defamation consisted of the false attribution to them of an ownership interest in SHA. They contend further that the News article's use of the phrase "[t]he court document" incorrectly implied that the source of the ownership information was an order obtained by VCI. Plaintiffs maintain they were not owners of SHA, but "victims" like the other employees, because their paychecks also bounced and they lost their jobs. Although plaintiffs acknowledge SHA's wrongdoing was accurately described in the article, they assert that because they were falsely named as owners, the wrongdoing was erroneously attributed to them by implication, injuring their reputations as a result, and causing them damage.

Both Reynolds and Sedore had years of experience working with Audi. When an Audi dealership in Bernardsville, which had previously employed Reynolds, was up for sale in 1994, Reynolds went to David T. Lardier, President of Mayfair Investment Corporation (Mayfair), intending to borrow funds to purchase the dealership. Lardier instead decided to have his corporation buy the dealership, with Reynolds and Sedore to be minority shareholders owning interests of five percent each. Reynolds testified that he and Sedore were useful to Lardier because he "needed automobile experience to get a franchise."

SHA was incorporated on July 26, 1994. On September 12, 1994, a letter was sent to VCI as part of an application for a line of credit for "floor plan" financing of new and used vehicles for the dealership. The letter described Lardier as "dealer principal and president" of SHA; Sedore as Vice President and General Manager; and Reynolds as Vice President. Both Sedore and Reynolds were termed "minority shareholders," each possessing five percent of the corporate shares. The letter indicated that SHA had been capitalized by Lardier alone, and that Sedore and Reynolds "will not contribute to [SHA] financially. . . ."

On October 10, 1994, Lardier's application for the Audi dealership was tentatively granted, primarily conditioned upon the dealership obtaining a $1,500,000 line of credit with VCI. An unsigned draft of the dealership agreement forwarded to Lardier by Audi in December of 1994 contained an addendum specifying that Reynolds and Sedore must "at all times" continue as operating managers, and must each initially own five percent of the capital stock of the dealership, with the right to acquire more shares "on reasonable terms." Sedore confirmed in depositions that Audi's approval of SHA had been contingent upon his and Reynolds's involvement. Yet, he also indicated that Lardier returned the dealership agreement with the names of Reynolds and Sedore removed from it, and that as early as December, at an awards banquet in the Virgin Islands, Sedore informed a highly placed corporate official in Audi of North America that he and Reynolds were being excluded from ownership. According to Sedore, as a result of this conversation Audi informed Lardier again, in a letter sent in late December or early January, that the franchise agreement was contingent upon the inclusion of Reynolds and Sedore. Sedore testified that no actual dealership agreement was ever signed: SHA and Audi "worked on a letter of intent."

In January of 1995, Reynolds and Sedore retained an attorney to help them claim their ownership shares of SHA. The attorney contacted a professional associate of Lardier, requesting copies of certain documents, with the professed purpose of "achiev[ing] immediate finality" with regard to the "proper" documentation of Reynolds's and Sedore's position as minority stockholders. A "special counsel" to SHA responded in a letter dated February 9, 1995, that Reynolds and Sedore were corporate officers, but not shareholders of SHA, and refused to provide the documentation requested.

Reynolds testified in a deposition that sometime between November, 1994 and May 31, 1995, he had notified his customer base of more than 100 personal customers that he was returning to Bernardsville as a partner in the SHA dealership. Both Reynolds and Sedore spoke with the shop mechanics, as well, and told them that they were both to be part owners of the dealership. The sales/business manager and the assistant sales manager were also told that Reynolds and Sedore were owners along with Lardier.

By July of 1995, VCI had taken legal action against SHA, Mayfair and Lardier because SHA was in arrears on payments owed to VCI for cars that had been sold. VCI was concerned about tracing "$1.75 million in proceeds obtained from [SHA's] sale of more than 50 vehicles `out of trust.'"

On July 28, 1995, the dealership closed. SHA employees' paychecks had already bounced before that date.

On July 31, 1995, a "final judgment and order" was entered against SHA, Mayfair and Lardier upon their default in making a payment of $350,000.00 to VCI's counsel as previously ordered by the court. VCI was awarded possession of the vehicles, parts and inventory of SHA; and SHA, Mayfair and Lardier were forbidden to dispose of any of SHA's assets.

By August 9, 1995, when the News article which is the subject of this suit was published, plaintiffs were in the process of purchasing the dealership's assets from VCI. They claim that the alleged defamatory publication hampered them in this undertaking and otherwise caused them personal and professional harm. They allege further that defendants failed to comply with their request to print a correction of the article and a retraction of the offending portion.


A defamatory statement is one that "asserts or implies a statement of fact which is damaging to reputation." Lutz v. Royal Ins. Co., 245 N.J. Super. 480, 492 (App. Div. 1991). See also Restatement (Second) of Torts § 559, at 156 (1977) ("A communication is defamatory if it tends so to harm the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him."). Whether a statement is defamatory is ordinarily a question of law for the court to determine. Kotlikoff v. The Community News, 89 N.J. 62, 67 (1982). See also Cibenko v. Worth Publishers, Inc., 510 F.Supp. 761, 764 (D.N.J. 1981). The jury decides the question only when the trial court determines that "the statement is reasonably susceptible to both a defamatory and a non-defamatory meaning[.]" Molnar v. The Star-Ledger, 193 N.J. Super. 12, 18 (App. Div. 1984). The publication as a whole must be considered, with the alleged defamation weighed in context. Cibenko, supra, 510 F.Supp. at 764. The law of defamation must accommodate two conflicting values: the concern for protecting individuals in the "`enjoy[ment of] their reputations unimpaired by false and defamatory attacks,'" Costello v. Ocean County Observer, 136 N.J. 594, 606 (1994) (quoting Swede v. Passaic Daily News, 30 N.J. 320, 331 (1959)), and the often colliding interest of promoting free communication in an open society. Costello, supra, 136 N.J. at 606 ("Privileges that restrict recovery for defamation . . . are `designed to protect speech in those narrowly defined instances in which the public interest in unrestrained communication outweighs the right of redress.'") (quoting Fees v. Trow, 105 N.J. 330, 336 (1987). See also Sisler v. Gannett Co., Inc., 104 N.J. 256, 265 (1986) (discussing the court decisions "which attempt to pacify the warring interests of free speech and individual reputation"). The key principle in defamation/free expression cases is the "profound national commitment to the principle that debate on public issues should be uninhibited, robust, and wide-open[.]" New York Times Co. v. Sullivan, 376 U.S. 254, 270, 84 S. Ct. 710, 721, 11 L. Ed. 2d 686, 701 (1964). See also, e.g., Turf Lawnmower Repair, Inc. v. Bergen Record Corp., 139 N.J. 392, 409 (1995), cert. denied, 516 U.S. 1066, 116 S. Ct. 752, 133 L. Ed. 2d 700 (1996); Sisler, supra, 104 N.J. at 266.

Under New York Times Co. v. Sullivan, supra, a public official may not recover damages in a defamation suit "relating to his official conduct unless he proves that the statement was made with `actual malice'- - - -that is, with knowledge that it was false or with reckless disregard of whether it was false or not." 376 U.S. at 279-280, 84 S. Ct. at 725, 11 L. Ed. 2d at 706. This standard was extended to apply to public figures in Curtis Publishing Co. v. Butts, 388 U.S. 130, 87 S. Ct. 1975, 18 L. Ed. 2d 1094 (1967).*fn1

The United States Supreme Court has been less definitive in addressing the appropriate standard for application to private persons. Those accustomed to the public eye usually enjoy significantly greater access to the channels of effective communication and hence have a more realistic opportunity to counteract false statements than private individuals normally enjoy. Private individuals are therefore more vulnerable to injury, and the state interest in protecting them is correspondingly greater.

[Gertz v. Robert Welch, Inc., 418 U.S. 323, 344, 94 S. Ct. 2997, 3009, 41 L. Ed. 2d 789, 808 (1974) (citations omitted).]

Public officials are seen to have accepted "the risk of closer public scrutiny" by virtue of seeking public office, ibid., and public figures are regarded to "have thrust themselves to the forefront of particular public controversies in order to influence the resolution of the issues involved." Id. at 345, 94 S. Ct. at 3009, 41 L. Ed. 2d at 808. Both "invite attention and comment," having "voluntarily exposed themselves to increased risk of injury from defamatory falsehood[.]" Id. at 345, 94 S. Ct. at 3009-10, 41 L. Ed. 2d at 808.

Private individuals, for their part, are considered not only more vulnerable, but more "deserving" of protection. Ibid. Because the actual malice standard imposes a "very heavy burden" on plaintiffs, Turf, supra, 139 N.J. at 433, the Gertz court determined that the First Amendment does not require imposing the New York Times v. Sullivan "actual malice" standard on defamation suits brought by private individuals.

Thus, with a few caveats, including that presumed or punitive damages may not be recovered without "a showing of knowledge of falsity or reckless disregard for the truth[,]" 418 U.S. at 349, 94 S. Ct. at 3011, 41 L. Ed. 2d at 810, Gertz left essentially in state hands the development and application of the law governing defamation in respect of private plaintiffs.

[S]o long as they do not impose liability without fault, the States may define for themselves the appropriate standard of liability for a publisher or broadcaster of defamatory falsehood injurious to a private individual.

[418 U.S. at 347, 94 S. Ct. at 3010, 41 L. Ed. 2d at 809 (citations omitted).]

In Turf, supra, 139 N.J. 392, the New Jersey Supreme Court addressed the questions of whether and when to apply the actual malice standard to private individuals. In doing so, the Court was governed by its view expressed in Sisler, supra, 104 N.J. 256, that New Jersey's Constitution affords greater protection to free speech than is provided by the Federal Constitution.

[O]ur decisions, pronounced in thebenevolent light of New Jersey's constitutional commitment to free speech, have stressed the vigor with which New Jersey fosters and nurtures speech on matters of public concern.

[Id. at 271-72.]

However, although acknowledging that prior cases had imposed the actual malice standard where "business activities . . . intrinsically implicated important public interests," Turf, supra, 139 N.J. at 411-12, the Court drew some lines. The Court noted that sole proprietorships or stores, "like a local `mom and pop' stationery store, shoemaker, tailor, cleaner, or barber," were not public figures and their doings were not matters of public concern. Id. at 412. The same held true for the lawnmower repair business that was the subject of Turf, see id. at 413 (noting that such a business usually triggers the negligence standard as distinguished from the actual malice standard). Ordinary businesses and their owners were deemed to be private persons, and the heightened burden of the actual malice standard did not apply to them. Id. at 427-28. Certain "matters of public concern," however, such as conduct that "would constitute a violation of the Consumer Fraud Act," id. at 427, as well as activities affecting the health and safety of the citizenry, or involving a highly regulated industry, see id. at 410 (citing Sisler, supra, 104 N.J. 256 and Dairy Stores, Inc. v. Sentinel Publishing Co., 104 N.J. 125 (1986)), are sufficient to trigger application of the actual malice standard. Turf, supra, 139 N.J. at 416, 426-27. The criterion for application of that standard to private persons was succinctly stated:

The public [has] a legitimate interest in any business charged with criminal fraud, a substantial regulatory violation, or consumer fraud that raises a matter of legitimate public concern. When the media addresses those issues of legitimate and compelling public concern, the actual-malice ...

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