Latest Food Lion ruling isn’t clear-cut win for free press

Friday, October 29, 1999

So much for thinking I could take the easy way out.

As I read the press accounts of the federal appeals court’s reversal of the Food Lion verdict, I thought writing a commentary about the decision would be easy. Jump on the huge-win-for-the-media bandwagon. Diss the trial court judge who allowed this end run around the First Amendment. Trumpet the court’s recognition that investigative reporting, even if a little deceptive, must be protected.

Then I read the court’s opinion.

Instead of finding flowery First Amendment doctrine, I found painstaking analyses of state fraud and employment law. The 4th Circuit, in fact, did not even mention the First Amendment when it threw out the compensatory and punitive damages awarded on Food Lion’s fraud claim. Maybe the decision is still a major victory for the media, but that conclusion isn’t as obvious as I originally thought.

Even in the trial court, this case was about the legal link between the reporters’ conduct and Food Lion’s alleged damages. Food Lion sued ABC and its reporters and producers for fraud, breach of duty for lack of loyalty, trespass and unfair trade practices after two ABC reporters went undercover as Food Lion employees and secretly videotaped several unsanitary food-handling practices. Food Lion did not challenge the truthfulness of the “PrimeTime Live” broadcast about these practices, and the trial court judge ruled early in the case that Food Lion could not seek “publication” damages — that is, damages for loss of reputation, loss of goodwill and lost sales.

With that avenue foreclosed, Food Lion focused on punitive damages. At their highest, Food Lion’s compensatory damages were relatively small — $2,432.55 on the fraud claim, for example, to compensate Food Lion for its administrative costs in interviewing and training the ABC employees who went undercover as Food Lion employees. If it could establish even a small amount of compensatory damages, however, Food Lion could ask the jury to punish ABC for its deceptive practices. This approach worked, as the jury awarded just $1,402 in compensatory damages but over $5 million in punitive damages. The punitive damage award — which the trial judge later reduced to $315,000 — was based solely on Food Lion’s fraud claim.

In what now appears to be brilliant lawyering, ABC did not put all of its appellate eggs in the First Amendment basket. Instead, it also argued that the compensatory and punitive damage awards on Food Lion’s fraud claim could not stand because, under state fraud law, Food Lion had not proved that the reporters’ fraud caused it any financial damage. Without such damage, ABC argued, punitive damages could not be awarded.

The appeals court agreed, holding that Food Lion had not proved the elements necessary to sustain a fraud verdict. In doing so, the court analyzed the case in three bite-sized pieces.

First, the court identified the misrepresentations at issue — the employment histories and other information provided by the two reporters when they applied for the Food Lion jobs. Second, the court concluded that the reporters knew their representations were false and that they intended Food Lion to rely on them.

Third, the court analyzed whether Food Lion could reasonably have relied on the truth of the representations when it hired the reporters. Could Food Lion, the court asked, reasonably have expected these job applicants to work more than the two weeks the reporters worked? If so, the court said, Food Lion legitimately could claim to have been misled and therefore could recover its administrative costs, together with punitive damages. If not, the requested damages could not be recovered.

The court, relying on the presumption of at-will employment, held that Food Lion could not reasonably have expected the reporters to work for any extended time. Under the employment at-will doctrine, the employer is free to fire the employee at any time and the employee is free to quit at any time. Therefore, the court reasoned, any administrative costs that Food Lion incurred were incurred knowing that the reporters/employees might quit after one or two days. The administrative costs thus were not attributable to the reporters’ deception but instead were part of the risk that Food Lion assumed when it hired any employee.

The dissenting judge in the court’s 2-1 decision argued that the majority’s reliance on the at-will doctrine was misplaced because, in this case, the reporters’ fraudulent intent deprived Food Lion of the possibility that they would become long-term employees. While Food Lion knows that many employees work only for brief periods, the dissent said, the grocer willingly incurs the administrative costs because it knows that some employees will work for extended periods. Moreover, the dissent argued, Food Lion indisputably would not have incurred the costs in this case had the reporters disclosed their true intent.

All three of the judges agreed that the reporters had breached their duty of loyalty to Food Lion and that they had trespassed on Food Lion property. Again, however, Food Lion was unable to link these claims to any monetary damages, so it had to settle for the $1 awarded by the jury on each claim.

The court’s most resounding blow for the First Amendment was its rejection of Food Lion’s argument that the trial court should have allowed the jury to award publication damages. Calling this argument an “end-run around First Amendment strictures,” the court held that Food Lion could not recover defamation-type damages unless it proved that ABC had either knowingly or recklessly broadcast a false statement of fact. This ruling, however, did not break any new ground, as the U.S. Supreme Court issued a similar decision more than 10 years ago.

As important as the court’s decision is for ABC, its impact on future cases appears limited. The court did not hold that the First Amendment precludes punitive damage awards against deceptive investigative reporters. It did not recognize any special protection for newsgathering, even if the public has a vital interest in the report. It did not say that the truthfulness of a story immunizes reporters for liability for fraud, trespass or other state law torts.

Rather, the court said only that Food Lion in this case had not proved that the reporters’ fraud caused the grocer any specific damage. The next case might be different. It might not involve bogus employees. It might take place in a state that recognizes exceptions to at-will employment. It might be brought by a claimant more sympathetic than Food Lion.

Then, and only then, will we learn the significance of the decision in Food Lion v. Capital Cities/ABC, Inc.

Douglas Lee is a partner in the Dixon, Ill., law firm of Ehrmann Gehlbach Beckman Badger & Lee and a legal correspondent for the First Amendment Center.