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Salzano v. North Jersey Media Group Inc.

May 11, 2010

THOMAS JOHN SALZANO, PLAINTIFF-RESPONDENT AND CROSS-APPELLANT,
v.
NORTH JERSEY MEDIA GROUP INC., D/B/A THE RECORD, NORTH JERSEY.COM, MALCOLM BORG, STEPHEN A. BORG, MARTHA MCKAY, AND JONATHAN MARKEY, DEFENDANTS-APPELLANTS AND CROSS-RESPONDENTS, AND GLEN RIDGE VOICE, INC. AND FRANK A. ORECHIO, DEFENDANTS.



On certification to the Superior Court, Appellate Division, whose opinion is reported at 403 N.J. Super. 403 (2008).

SYLLABUS BY THE COURT

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Publications that might otherwise be actionable under the law of defamation, through exercise of an established privilege, may be protected from liability because of a recognition that the publisher is acting in furtherance of a socially important interest that is entitled to protection, even at the expense of uncompensated harm to an individual's reputation. One such privilege, the fair-report privilege, extends to publication of defamatory matter concerning another in a report of an official action or proceeding, or of a meeting open to the public that deals with a matter of public concern. This privilege acknowledges the value placed on the right of the public, in a democratic society, to be informed about a wide variety of official matters. The fair-report privilege attaches where the report is accurate and complete or a fair abridgement of the occurrence that is recounted. In this appeal, the Court addresses whether there is an initial pleadings exception to the fair-report privilege for a published report recounting information found in complaint filed in bankruptcy court but not yet adjudicated and whether the publications at issue were a full, fair, and accurate report of a government proceeding.

In June 2004, NorVergence, Inc. (NorVergence), a telecommunications company, abruptly laid off approximately 1,300 employees and disconnected services to thousands of its small business customers. On June 30, 2004, an involuntary bankruptcy petition was filed against NorVergence. On July 14, 2004, NorVergence consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code and the immediate conversion of the case to Chapter 7 liquidation proceedings. On November 4, 2004, the Federal Trade Commission filed suit against NorVergence because of unfair and deceptive practices. The court entered default against NorVergence and determined that NorVergence caused injury of at least $172,997,758.

Thomas John Salzano (plaintiff) is the son of the former chief managing officer/consultant of NorVergence, Thomas N. Salzano, and the nephew of the company's chief executive officer, Peter J. Salzano. Plaintiff was never an employee of NorVergence. On March 1, 2006, the trustee for the bankrupt estate of NorVergence filed a complaint against plaintiff in the United States Bankruptcy Court for the District of New Jersey, joining plaintiff as a third-party defendant in the bankruptcy proceeding. The complaint sought to void fraudulent transfers made to plaintiff and to impose a constructive trust or equitable lien on those proceeds. The complaint alleged that plaintiff unlawfully diverted, converted, and misappropriated NorVergence funds for his own personal benefit to the detriment of NorVergence by 1) in 2003, applying two NorVergence checks totaling $210,200 toward the purchase of his personal residence in Glen Ridge, New Jersey; and 2) charging personal expenses between November 2002 and March 2004 to NorVergence's American Express Business credit card totaling $268,795.84, as well as using other corporate credit cards in undisclosed amounts. All charges were for expenditures entirely unrelated to NorVergence business.

On March 2, 2006, The Record published a report written by Martha McKay, with the headline "Man accused of stealing $500,000 for high living," and the subheading "NorVergence funds were taken." The story recounts information found in the bankruptcy complaint. In addition, the report stated that plaintiff and his father had started a Kenilworth business called the Charity Shack, "which also went belly-up." On the same date, the report was posted on the website of NorthJersey.com, with the same headline but written without the subheading. On March 9, 2006, the report was republished by Glen Ridge Voice under the headline, "Argyle residence allegedly bought with stolen funds." It was also posted on the website of LeasingNews.org under the headline. "NorVergence BK charges Salzano son stealing $1/2 MM."

On February 20, 2007, plaintiff filed a pro se complaint alleging defamation and associated torts against North Jersey Media Group, Inc. (NJMG), which publishes The Record; Malcolm Borg, NJMG's CEO; Jonathan Markey, NJMG's president; NorthJersey.com; Stephen A. Borg, editor/publisher of The Record and NorthJersey.com; Martha McKay, staff reporter for The Record and author of the report; Glen Ridge Voice, Inc., which publishes Glen Ridge Voice; and Frank A. Orechio, the president of Glen Ridge Voice (collectively, defendants). In his complaint, plaintiff contends that certain statements in the report were defamatory per se in that the use of the words "stealing," "stolen funds," and "taken" imputed criminal conduct to him; the trustee's assertions were baseless and unsupported; defendants republished them "intentionally, maliciously, and with reckless and/or negligent disregard for the truth;" and defendants "knew or should have known of their falsity." The complaint included one count of gross negligence for failure to perform any due diligence into the true nature of the bankruptcy complaint and failure to conduct a fair reading of the complaint by which a reasonable person would have determined that the trustee did not allege or imply stealing. In addition, the complaint alleged invasion of privacy (public disclosure of private facts) for disclosure of his private residential address. The complaint also claimed invasion of privacy (false light), malice, and negligent and intentional infliction of emotional distress. Plaintiff sought presumed, consequential, compensatory, and punitive damages, as well as costs and a retraction.

Defendants moved to dismiss plaintiff's complaint for failure to state a claim on which relief can be granted, arguing that, among other things, their reporting was covered by the fair-report privilege, and that, in the alternative, the reports were not defamatory because they were accurate and not made maliciously. The trial judge granted the motion and dismissed plaintiff's complaint.

The Appellate Division reversed and remanded for trial, concluding that, although the report was a full, fair, and accurate report of the bankruptcy proceeding, the fair-report privilege did not apply to initial pleadings. The panel further concluded that the malice standard applied to the NorVergence bankruptcy related statements because the bankruptcy was a matter of public concern. Finally, the panel ruled that the claim regarding the allegations about the Kenilworth business should not have been dismissed and that issue was remanded for the development of a full record. The panel did not address plaintiff's remaining claims (invasion of privacy and infliction of emotional distress) except to note that the parties can continue to pursue them before the trial court.

The Supreme Court granted certification.

HELD: The fair-report privilege extends to defamatory statements contained in filed pleadings that have not yet come before a judicial officer. The privilege is a hybrid, conditional insofar as it attaches only to full, fair, and accurate reports of government proceedings but becoming absolute once those prerequisites are met. Fault, sufficient to defeat the privilege, occurs when the publisher fails to do what is necessary to render the report full, fair, and accurate. If the publication satisfies that standard, the state of mind of the publisher is irrelevant. The portion of the challenged publications that was based on a bankruptcy complaint was full, fair and accurate, and thus, immune from a defamation lawsuit because of the fair-report privilege. Because the publications also contained defamatory information derived from sources other than the complaint, plaintiff may pursue his lawsuit in connection therewith.

1. A defamatory statement is one that is false and harms the reputation of another such that it lowers the defamed person in the estimation of the community or deters third parties from dealing with that person. Defamation law generally imposes liability on the one who repeats or republishes the defamatory statements of another. At issue here is the fair-report privilege, which protects the publication of defamatory matters that appear in a report of an official action or proceeding, or a meeting open to the public that deals with a matter of public concern. The fair-report privilege is one of the most powerful and frequently used common-law defenses and is widely recognized in judicial decisions and statutes. (Pp. 13-18)

2. The issue of whether there is an initial pleadings exception to the fair-report privilege was left unanswered in Costello. Among our sister jurisdictions, there is a clear trend away from recognizing the initial pleadings exception. A majority of jurisdictions that have considered the issue extend the fair-report privilege to encompass initial pleadings and filings. The rationale for this approach is four-pronged: 1) the filing of a complaint is itself a public act; 2) the privilege serves the public's interest in the judicial system, and this interest begins with the filing of a complaint; 3) a judicial action limitation on the privilege would purportedly decrease the risk of publishing scurrilous pleading, but this limitation is ineffective; and 4) the public has a sophisticated understanding of the court system and is capable of evaluating information obtained from a complaint. In addition, a suit for malicious prosecution or malicious use of process may be instituted against those who file groundless lawsuits, thus providing an aggrieved plaintiff a remedy for defamation in an initial complaint and serving as a deterrent to filing baseless lawsuits. (Pp. 18-24)

3. The Court now aligns itself with the weight of modern authority and holds that the fair-report privilege extends to defamatory statements contained in filed pleadings that have not yet come before a judicial officer. The initial pleadings exception is at odds with the reality that the complaint is open to public view through open access to public records, including papers filed with the court. Because members of the public cannot attend every single court case or review every filing, it is critical that the press be able to report fairly and accurately on every aspect of the administration of justice without fear of having to defend a defamation suit and without the inhibitory effect of such fear. Further, there are frivolous lawsuit protections for individuals against whom frivolous lawsuits are filed. The public policy underpinnings of the fair-report privilege -- advancement of the public's interest in the free flow of information about official actions -- would be thwarted by the recognition of the initial pleadings exception. A full, fair, and accurate report regarding a public document that marks the beginning of a judicial proceeding deserves the protection of the privilege. (Pp. 24-28)

4. Defendants' report of the contents of the bankruptcy complaint is subject to the application of the fair-report privilege. A full, fair, and accurate account of an official proceeding need not be exact, it need only convey to the reader a substantially correct account of the contents of the official document. In this case, a reasonable person would understand that the complaint alleged certain facts but that those allegations had not yet been adjudicated. Furthermore, in light of the respective dictionary definitions, the allegations in the bankruptcy complaint that plaintiff "unlawfully misappropriated" funds belonging to NorVergence fits comfortably within the definition of "steal." Thus, the use of the word "steal" in the publications was not the kind of distortion that has been recognized as stripping a report of a public proceeding of its protections. Further, the report clearly states that the allegations were made by the trustee in a bankruptcy complaint and not in any sort of criminal proceeding. Because the report of the bankruptcy complaint was a full, fair, and accurate one, it enjoys the protections of the fair-report privilege. (Pp. 28-38)

5. The fair-report privilege is neither purely absolute nor purely conditional. Rather, it is a hybrid, conditional insofar as it cannot attach unless the report is full, fair, and accurate. Once that condition is met, the privilege becomes absolute and cannot be defeated. The publisher's failure to do what is necessary to make the report full, fair, and accurate is the only relevant inquiry. Here, plaintiff may not advance a challenge based on malice to the privileged report of the bankruptcy complaint because the reporting was full, fair, and accurate. However, the statement in the report regarding the Kenilworth business, Charity Shack, does not deserve the same protection as the defamatory statement was not derived from the bankruptcy complaint. Therefore, plaintiff may proceed with his suit based on that issue. However, the record on this issue must be more fully developed before the trial court. In that proceeding, the trial court should apply the standard set out in Senna, which held that where the speaker is disinterested, as is generally the case with the media; enhanced protections adhere if the publication touches on matters of public concern. The trial court may address any other issues raised by either party specific to the Kenilworth business claim. (Pp. 38-46)

Judgment of the Appellate Division is AFFIRMED IN PART and REVERSED IN PART. The Court AFFIRMS the Appellate Division's decision to permit plaintiff's case to proceed based on the Charity Shack allegations. The Court REVERSES the Appellate Division's conclusion that the initial pleadings exception to the fair-report privilege insulated the report of the NorVergence bankruptcy complaint from dismissal. The members of the Court being equally divided on the issue of the fairness and accuracy of the report of the NorVergence bankruptcy complaint, the Appellate Division's holding that the report was full, fair, and accurate is AFFIRMED.

JUSTICE HOENS, CONCURRING IN PART and DISSENTING IN PART, in which JUSTICES LaVECCHIA and RIVERA-SOTO join, concurs in 1) the majority's conclusion that the time has come to reject the initial pleadings exception to the fair-reporting privilege and the majority's thorough and persuasive explanation of why that exception has no place in our jurisprudence; and 2) the majority's conclusion that once it has been determined the privilege applies, it becomes an absolute, rather than qualified one. However, Justice Hoens dissents from the majority's analysis of the application of the fair-reporting privilege in this case because she cannot agree with the majority's conclusion that the news articles meet the test of being full, fair, and accurate. Rather, those news reports fall short of the standard that the Court has traditionally applied, with the result that they should not be cloaked in the protection that the privilege affords. The inaccuracies that take the news accounts out of the protection of the privilege lies in the use of variations in the verb "steal" both in the headlines and in the body of the reports. These definitions offer a clear connotation of the commission of a crime, which is not faithful to the allegations made by the trustee in the bankruptcy complaint.

JUSTICES ALBIN and WALLACE join in JUSTICE LONG's opinion. JUSTICE HOENS filed a separate opinion concurring part and dissenting in part, in which JUSTICES LaVECCHIA and RIVERASOTO join. CHIEF JUSTICE RABNER did not participate.

The opinion of the court was delivered by: Justice Long

Argued October 14, 2009

The law of defamation is rooted in the notion that individuals should be free to enjoy their reputations unimpaired by false and defamatory attacks. In some instances, however, publications that otherwise would be actionable may escape liability because we recognize that the publisher is acting in furtherance of a socially important interest that is entitled to protection, even at the expense of uncompensated harm to a plaintiff's reputation. That protection from liability is described as a privilege. One such privilege is accorded to the publication of defamatory matter concerning another in a report of an official action or proceeding, or of a meeting open to the public that deals with a matter of public concern. That privilege, which is denominated the fair-report privilege, recognizes the value we place on the right of the public, in a democratic society, to be informed about a wide variety of official matters. It attaches where the report is accurate and complete or a fair abridgement of the occurrence that is recounted.

This case implicates the fair-report privilege insofar as defendants published information they gleaned from a complaint filed in bankruptcy court. Plaintiff argues that the privilege does not apply to initial court pleadings because there must be some "judicial action" to trigger its protections. The lower courts were divided on that issue. We hold that the principles that inform the fair-report privilege brook no exception for initial pleadings, which fall squarely within the protective sweep of the privilege.

We are also called upon to determine the nature of the fair-report privilege and whether it is subject to defeat by proof of malice. We hold that the fair-report privilege is a hybrid. It is conditional insofar as it attaches only to full, fair, and accurate reports of government proceedings. It becomes absolute once those prerequisites are met. Fault, sufficient to defeat the privilege, occurs when the publisher fails to do what is necessary to render the report full, fair, and accurate. If the publication, in fact, satisfies that standard, the state of mind of the publisher is irrelevant.

In this case, the portion of the challenged publications that was based upon a bankruptcy complaint was full, fair, and accurate, and thus, immune from a defamation suit because of the fair-report privilege. However, because the publications also contained defamatory information derived from sources other than the complaint, plaintiff may pursue his lawsuit in connection therewith.

I.

In June 2004, NorVergence, Inc. ("NorVergence"), a telecommunications company, abruptly laid off approximately 1,300 employees and disconnected the services it provided to thousands of small businesses. On June 30, 2004, an involuntary bankruptcy petition was filed against NorVergence. On July 14, 2004, NorVergence consented to the entry of an order for relief under Chapter 11 of the Bankruptcy Code and the immediate conversion of the case to a Chapter 7 liquidation proceeding.

11 U.S.C. § 1112(b). On November 4, 2004, the Federal Trade Commission filed suit against NorVergence because of unfair and deceptive practices. The court entered default judgment against NorVergence and determined that NorVergence caused injury of at least $172,997,758.

Plaintiff Thomas John Salzano is the son of the former chief managing officer/consultant of NorVergence, Thomas N. Salzano, and the nephew of the chief executive officer of NorVergence, Peter J. Salzano. Plaintiff was never an employee of NorVergence.

On March 1, 2006, the trustee for the bankrupt estate of NorVergence filed a complaint against plaintiff in the United States Bankruptcy Court for the District of New Jersey, joining plaintiff as a third-party defendant in the bankruptcy proceeding. More specifically, the complaint sought, pursuant to 11 U.S.C. §§ 544(b), 548(a), 550(a) and N.J.S.A. 25:2-25(a), to avoid fraudulent transfers made to plaintiff, and to impose a constructive trust or equitable lien on the proceeds thereof.

The complaint alleged that plaintiff: unlawfully diverted, converted and misappropriated [NorVergence]'s funds for his own personal benefit, and to the detriment of [NorVergence], by, inter alia, (i) applying two NorVergence checks, one in the amount of $61,200.00 dated July 1, 2003, and the other in the amount of $140,000.00 dated July 29, 2003, toward the purchase of his personal residence (the "Purchase Funds") located at 20 Argyle Street, Glen Ridge, NJ (the "Property") and (ii) by charging personal expenses, such as outings to bars and clubs, clothing and other personal expenses, between November 25, 2002 and March 24, 2004, to [NorVergence]'s American Express Business Gold/Platinum totaling $268,795.84, as well as utilizing other corporate credit cards in undisclosed amounts (the "Charges") (the Charges, together with the []Purchase Funds[], the "Misappropriated Funds.")

[]The Charges were on account of expenditures that were entirely unrelated to [NorVergence]'s business. [NorVergence] transferred $268,795.84 to the AMEX Account between January 13, 2003 and April 20, 2004 in order to pay for the Charges on [plaintiff]'s behalf.

On March 2, 2006, defendant, The Record, published a report with the headline, "Man accused of stealing $500,000 for high living," and the subheading "NorVergence funds were taken." The report, written by defendant Martha McKay, stated in its entirety:

The son of the mastermind behind NorVergence, a bankrupt Newark telecommunications firm, allegedly stole close to $500,000 from the company, using the money to pay for drinks, trips to area clubs and for a five-bedroom Glen Ridge house, according to court papers filed Wednesday in U.S. Bankruptcy Court in Newark.

Thomas John Salzano, son of Thomas N. Salzano, the chief managing officer of bankrupt NorVergence, was accused of using two company checks -- one in the amount of $61,200 dated July 1, 2003, and another for $140,000 dated July 29, 2003 -- to help pay for "the purchase of his personal residence located at 20 Argyle St., Glen Ridge," the papers said.

The complaint, filed by U.S. Trustee Charles Forman, also alleges that Thomas John Salzano used a NorVergence corporate American Express card to charge "personal expenses, such as outings to bars and clubs, clothing and other personal expenses" unrelated to NorVergence business.

The charges totaling $268,795 were made between November 25, 2002, and March 24, 2004.

Neither Forman nor Salzano could be reached for comment.

NorVergence's abrupt bankruptcy in July 2004[] threw 1,300 people out of work and left thousands of small-business customers without phone and Internet service.

Legal battles raged when customers tried to get out of equipment leases that NorVergence had sold to more than 40 banks and leasing companies. In many cases, settlements have been reached, brokered by state attorneys general, providing some relief to deeply angry NorVergence customers.

Last year, a U.S[.] District Court ordered a $181.7 million default judgment against NorVergence in a case brought by the Federal Trade Commission.

Creditors assert the company owes $550 million.

Thomas John Salzano was never an employee of NorVergence, according to court papers. His father, Thomas N. Salzano, was paid hundreds of thousands of dollars as a consultant. His uncle, Peter J. Salzano, served as CEO.

Thomas John Salzano and his father started a Kenilworth business last year called Charity Snack, which also went belly-up.

The complaint filed Wednesday asks that Salzano repay what he allegedly took, plus punitive damages. In addition, the papers claim that because of his "unlawful misappropriation of [NorVergence's] funds, and fraudulent transfer[s] and unjust enrichment[,]" the house at 20 Argyle St. belongs to the trustee, whose job it is to recover any and all company assets.

The five-bedroom, three-bath home at 20 Argyle St. is listed for sale at $699,000, just reduced, according to a real estate Web site.

On the same date, the report was posted on the website of defendant NorthJersey.com, with the same headline but without the subheading. On March 9, 2006, the report was republished by defendant, Glen Ridge Voice, under the headline, "Argyle residence allegedly bought with stolen funds." It was also posted on the website of LeasingNews.org under the headline, "NorVergence BK charges Salzano son stealing $1/2 MM."*fn1

On February 20, 2007, plaintiff filed a pro se complaint alleging defamation and associated torts against defendants North Jersey Media Group, Inc. ("NJMG"), which publishes The Record; Malcolm Borg, NJMG's CEO; Jonathan Markey, NJMG's president; NorthJersey.com; Stephen A. Borg, editor/publisher of The Record and NorthJersey.com; Martha McKay, staff reporter for The Record and author of the report; Glen Ridge Voice, Inc., which ...


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