1 United States Court of Appeals,

Fifth Circuit.

No. 96-50253.

PETER SCALAMANDRE & SONS, INC., et al., Plaintiffs,

Merco Joint Venture, Plaintiff-Counter Defendant-Appellee,

v.

Hugh B. KAUFMAN, et al., Defendants,

Hugh B. Kaufman; TriStar Television, Inc., Defendants-Counter

Plaintiffs-Appellants.

June 3, 1997.

A ppeals from the United States District Court for the West ern

District of Texas.

Before DUHÉ, BENAVIDES and STEWART, Circuit Judges.

DUHÉ, Circuit Judge:

Appellants Hugh B. Kaufman and TriStar Television appeal a

defamation judgment awarding Appellee Merco Joint Venture nominal

damages of $1 against each appellant, and punitive damages of

$500,000 against Kaufman and $4.5 million against TriStar. Because

Merco failed to prove actual malice, we reverse and render judgment

for Appellants.

Background

In 1989, New York City entered into a consent decree to cease

disposing of its "sewer sludge" by dumping it into the ocean.

Sewer sludge is what remains, in solid form, after wastewater from

city sewers is processed and treated. New York City was in dire

need of a new way to dispose of its sewer sludge, and Merco Joint

Venture was formed to provide a solution to this dilemma. In 1992,1 F or its six year sludge disposal contract with the city,

Merco will receive approximately $168 million.

2 The original concept was la ter altered when the railroad

would not allow TV Nation to ride the sludge train.

2 the city contracted with Merco to dispose of up to thirty percent

of the city's sewer sludge. 1

Merco originally planned to ship the sludge to Oklahoma, and

dispose of it by spreading it on grassland. However, Merco could

not comply with Oklahoma environmental regulations in time to

accommodate its contract. Merco promptly chose Sierra Blanca, a

town in West Texas, as the new destination for the sludge. Merco

obtained s tate permits to spread sludge in Texas in less than a

month. Merco purchased a ranch in Sierra Blanca as a disposal site

for the sludge shipments, which began arriving in July 1992. When

sludge arrived from New York, Merco applied it to the ground at the

ranch as a fertilizer would be applied.

In the spring of 1994, a television show produced by TriStar

entitled "TV Nation" began developing a program segment focusing on

New York's sludge shipments to Texas. The show's creator, Michael

Moore, intended the program to be a reality-based television show

that used humor and satire to explore public issues and current

events.

The "germ" of the idea for the sludge s egment came from a

memorandum written by a TV Nation staffer. The memorandum proposed

the segme nt follow a load of sludge from the sewage plant in New

York, as it was hauled down to Texas on a train, and finally to the

Merco ranch a t Sierra Blanca. 2 The memo styled the proposed3

segment as "a piece about the socioeconomics of waste, about who

gets—literally—shat upon."

Development of the segment was assigned to Fran Alswang, a TV

Nation producer. Alswang studied publications on sludge, and

eventually visited Sierra Blanca on a scouting trip. On that trip,

she went to the Merco ranch, spoke with Merco's media director,

Kelly Sarber, and talked with both supporters and opponents of the

operation in Sierra Blanca. Alswang finished the scouting trip

with the impression the people of Sierra Blanca were divided over

whether or not the Merco ranch was beneficial to the town.

After Alswang completed her research, the sludge segment was

videotaped in June 1994. Roy Sekoff was the on-air correspondent

for the piece. TV Nation spent its first day of filming at a

sewage plant in New York, then flew to Texas and taped at the Merco

ranch and around Sierra Bla nca. Sekoff interviewed several

persons, both those associated with the ranch and those opposed to

the Merco operation.

When Alswang had prepared a preliminary "rough cut" of the

segment, she submitted it to her superiors for legal and creative

review. The reviewers suggested she find someone to respond to

Kelly Sarber's positive testimonial on the merits of sludge.

To counter Sarber, Alswang co ntacted Hugh Kaufman, a

twenty-five year EPA employee whose name she had come across in her

research. Kaufman told Alswang he was authorized to speak on

sludge as an EPA representative, and that his superiors at the EPA

g ave him permission to proceed. Alswang interviewed Kaufman and4

added portions of that interview, which questioned the sa fety of

Merco's practices, to her segment.

Alswang submitted a second rough cut of the sludge segment,

edited to include Kaufman's comments, for legal review. As support

for Kaufman's comments, she sent the legal department several

documents disputing the safety of sludge land application. Final

revisions were made, Alswang received approval for broadcast, and

the segment entitled "Sludge Train" was broadcast on August 2,

1994.

Merco was irate at the content of the broadcast, which it

contends was an unbalanced report on sewer slud ge and Merco's

practices at Sierra Blanca. After "Sludge Train" aired, Merco sued

alleging that nine portions of th e Sludge Train segment were

defamatory, d isparaging and false. Merco sued TriStar, Hugh

Kaufman, Roy Sekoff, Billy Addington (a resident of Sierra Blanca

who opposed the Merco operation), and Tri-State Broadcasting Co.

Merco dismissed all defendants except TriStar, Kaufman and Sekoff

on the eve of trial. At the close of Merco's case, the trial judge

granted Sekoff's motion for judgment as a matter of law.

The jury awarded Merco nominal damages of $2, and punitive

damages of $500,000 against Kaufman and $4.5 million against

TriStar. TriStar and Kaufman unsuccessfully moved for judgment as

a matter of law, and the trial judge entered judgment against

TriStar and Kaufman for the amount of the jury award. Kaufman and

TriStar appeal.

I.3 For the purposes of this litigation, Merco stipulated to its

public figure status.

5 TriStar and Kaufman appeal on two grounds. They first contend

Merco failed to prove TriStar and Kaufman acted with actual malice.

They next argue that, as the jury awarded only $2 total in actual

damages, the di strict court erred under both Texas and

constitutional law when it entered judgment for Merco on $4.5

million and $500,000 in punitive damages.

II.

We first address whether Merco met its burden of proving

TriStar and Kaufman acted with actual malice when they allegedly

defamed Merco.

State libel law's reach is curtailed by the constitutional

guarantees of freedom o f speech and freedom of the press.

Rosenbloom v. Metromedia, Inc., 403 U.S. 29, 30, 91 S.Ct. 1811,

1813, 29 L.Ed.2d 296 (1971). If a plaintiff alleging defamation is

considered a "public figure," 3 or a person or ent ity whose views

and actions on public issues and events are of concern to other

citizens, Curtis Publ'g Co. v. Butts, 388 U.S. 130, 162, 87 S.Ct.

1975, 1995, 18 L.Ed.2d 1094 (1967) (Warren, C.J., concurring), that

plaintiff must prove the alleged defamation was "made with "actual

malice'—that is, with knowledge that it was false or with reckless

disregard of whether it was false or not." New York Times Co. v.

Sullivan, 376 U.S. 254, 279-280, 84 S.Ct. 710, 726, 11 L.Ed.2d 686

(1964).

Because of the requiremen t in "public figure" defamation6

cases that a defendant have acted with actual malice, our standard

of review is different from the deferent ial "clearly erroneous"

standard mandated by Rule 52(a). Rather, in such cases, we have an

obligation to make an independent examination of the entire record

to ensure the judgment is supported by clear and convincing

evidence of actual malice. B ose Corp. v. Consumers Union of U.S.,

Inc., 466 U.S . 485, 511, 104 S.Ct. 1949, 1965, 80 L.Ed.2d 502

(1984). However, this obligation extends only to the ultimate

factual finding of actual malice; we do not conduct d e novo review

of the jury's determination of pr eliminary factual issues or

questions of credibility. Brown v. Petrolite Corp., 965 F.2d 38,

46 (5th Cir.1992).

Proving actual ma lice is a heavy burden. Proof that a

defendant broadcast false statements will n ot alone show actual

malice—the Supreme Court has made clear there is a significant

difference between proof of actual malice and proof of falsity.

Bose Corp., 466 U.S. at 511, 104 S.Ct . at 1965. Proof that a

defendant spoke out of dislike, or with ill will towards another,

also does not automatically meet the test of actual malice, even if

his statements are shown to be false. Garrison v. Louisiana, 379

U .S. 64, 73, 85 S.Ct. 209, 215, 13 L.Ed.2d 125 (1964) . If a

publication is undertaken in good faith, failure to investigate the

subject of that publication will not in itself establish actual

malice. St. Amant v. Thompson, 390 U.S. 727, 733, 88 S.Ct. 1323,

1326-27, 20 L.Ed.2d 262 (1968). That a defendant publishes

statements anticipating financial gain likewise fails to prove7

actual malice: a profit motive does not strip communications of

constitutional protections. H arte-Hanks Communications, Inc. v.

Connaughton, 491 U.S. 657, 667, 109 S.Ct. 2678, 2685- 86, 105

L.Ed.2d 562 (1989). As long as a defendant does not act knowing

his statement is false or with reckless disregard of its truth,

actual malice will not be present.

There are no set criteria to measure when a defendant's

actions constitute "reckless disregard" of the truth. The Court

has noted that " "[r]eckless disregard'

... cannot be fully

encompassed in one infallible definition." S t. Amant, 390 U.S. at

730, 88 S.Ct. at 1325 . "A "reckless disregard' for the truth,

however, requires more than a de parture from reasonably prudent

conduct." H arte-Hanks, 491 U.S. at 688, 109 S.Ct. at 2696. The

standard for reckless disregard "is a subjective one—there must be

sufficient eviden ce to permit the conclusion that the defendant

actually had a "high degree of awareness of

... probable falsity'."

Harte-Hanks, 491 U.S. at 688, 109 S.Ct. at 2696 (quoting Garrison,

379 U.S. at 74, 85 S.Ct. at 215- 16). The purpose of such a

flexible standard is to ensure defendants have some de gree of

culpability before they are found liable for defamation. Herbert

v. Lando, 441 U.S. 153, 171-72, 99 S.Ct. 1635, 1646-47, 60 L.Ed.2d

115 (1979).

In short, "the actual malice standard is not satisfied merely

through a showing of ill will or "malice' in the ordinary sense of

the term." H arte-Hanks, 491 U.S. at 666, 109 S.Ct. at 2685.

Culpability on the part of the defendant is essential. "There must8

be sufficient evidence to permit the conclusion that the defendant

in fact entertained serious doubts as to the truth of his

publication." S t. Amant, 390 U.S. at 731, 88 S.Ct. at 1325. That

evidence is lacking here.

III.

Merco has con t inually asserted sludge application at its

Sierra Blanca ran ch increases vegetation on arid grassland, adds

nutrients to the soil, and conditions the soil to make better use

of a limited water supply. Merco claims that "Sludge Train" was an

unwarranted attack on the land application of sludge and the Sierra

Blanca operation.

Merco argues that TriStar intended from the start to present

a nega tive, one-sided view of the sludge project. It cites the

original concept memorandum discussing "the socioeconomics of

waste" as evidence of TriStar's prejudice. It claims Fran Alswang

and TriStar deceitfully obtained the cooperation of Merco and Merco

supporters by indicating the piece would be complimentary.

Merco also contends TriStar erred in interviewing Kaufman, as

he is a "renegade" notorious for his "whistleblower" activities and

has no authority at the EPA. Merco argues Alswang had read a Wall

Street Jo urnal article that should have informed her Kaufman was

not an authorized EPA spokesperson. Merco claims it provided

Alswang with the names of "experts" who were better informed than

Kaufman, but that Alswang sought out Kaufman solely because of his

anti-sludge bias.

Appellants TriStar and Kaufman argue that, contrary to Merco's4 In fact, Merco stipulated for the purposes of this lawsuit

that the Merco project is considered by some to be controversial.

9 claims, sludge has not been proven safe for land application and

they fairly aired all points of view. Officials, scientists, and

average citize ns have debated the wisdom of spreading sludge on

farmland. 4 Appellants also claim that, beyond the general dispute

over the safety of sludge, Merco's operation in Sierra Blanca has

itself been a topic of dissension. When it came to light how

quickly Merco received state regulatory approval for its project,

Merco was subjected to media scrutiny and criticism. Appellants

note the Texas Water Commission later admitted its decision to

grant Merco regulatory approval was made too quickly: subsequent

to Merco's registration, the Commission imposed additional

restr ictions on the Sierra Blanca operation, and promulgated new

rules related to the registration of beneficial use sites. TriStar

stands by its decision to interview Kaufma n, and argues other

sources support Kaufman's views.

Merco's allegations of defamation are based on statements and

alleged implications in the TV Nation segment, including statements

that Merco was "an illegal haul and dump operation," that "[t]he

p eople of Texas are being poisoned," that sludge contained "high

levels of lead, mercury and PCBs," and an implication that Merco

committed arson. Merco also claims other aspects of the segment

amounted to defamation, such as the statement, "New York sludge

cake isn't just made of toilet refuse. In fact, anything that goes

down the drain or sewer ends up [in treatment plants]," interviews10

with persons who were not residents of Sierra Blanca about the

sludge odor, edited interview tapes with Judge Billy Love and Julie

Porter that allegedly misrepresented their statements , and a

metaphor about "the smell of money" Merco claims implied it bribed

Judge Love.

Merco claims TriStar and Kaufma n knew such statements were

false, and therefore acted with actual malice when they made and

broadcast those statements. We disagree. Merco has not met its

burden of proving actual malice as to either TriStar or Kaufman.

Merco presented no proof that TriStar and Kaufman knew, or should

have known, that any part of the "Sludge Train" broadcast was

false. Indeed, Merco failed to show any part of the broadcast

actually was false.

Merco's objections to the "Sludge Train" broadcast result from

its tendency to stretch every "implication" it finds in the

broadcast to its farthest limit, then draw dubious conclusions from

these unrealistic interpretations. It assumes viewers will

automatically reach these same illogical conclusions, and bases its

defamation claims on these assumptions.

The conclusion the evidence at trial suggests is that experts

have yet to reach a consensus on the safety of land application of

sludge. Merco itself conceded land application of sludge was

controversial. At best, Merco's evidence proved certain experts

believe sludge is safe. It did not, however, prove TriStar and

Kaufman knew or should have known their position, evidenced by the

TV Nation broadcast, was false, or that it was in fact false.11

Kaufman's statements that Merco was "an illegal haul and dump

operation," and that "[t]he p eople of Texas are being poisoned,"

were shown at trial to be Kaufman's honest beliefs, and were not so

without basis as to constitute reckless disregard o f the truth.

Kaufman testified to several aspects of the Merco operation he

found questionable, and noted instances when Merco had failed to

comply with various regulations.

Kaufma n professed his sincere belief that the land

application of sludge is dangerous, and will eventually be proved

harmful. His figurative reference to "poison" is hyperbolic, but

exaggeration does not equal defam ation. Merco repeatedly claims

experts and agencies have stated sludge is safe, and argues those

opinions prove Kaufman should have known his statements were false.

However, these expert opinions are merely that—opinions. Moreover,

because an "expert" endorses a certain practice does not mean all

reasonable debate on the merits or safety of that practice is

foreclosed.

Sekoff's voice-over comment that slu d ge contained "high

levels of lead, mercury and PCBs" likewise failed to meet the

standard of actual malice. The vagueness of the term "high levels"

makes Merco's burden of proving defamation even more difficult. As

well, the statement made no particular reference to Merco sludge,

referring instead to sludge in general. Kaufman, who originally

made the statement, based this assertion on numerous articles and

reports questioning the safety of sludge and its contents. There

was adequate support for the statement.5 In fact, TriStar edited out a reference to the company by

A ddington, who had actually stated his opposition to "the slu dge

and Merco" prompted the arson.

12 Merco's conclusion TriStar implied it committed arson stems

from a portion of the segment showing a visit by Sekoff and Billy

Addington to the remains of Addington's lumberyard. The lumberyard

had burned; a police report attributed the cause of the fire to

arson. In the segment, Sekoff stated in a voice-over that

Addington was a sludge opponent, and that Add ington believed his

opposition "has made him some powerful enemies." Addington stated:

"And many of the people of

... in town know why the arson happened,

it was because of our speaking out against the sludge."

In the segment, Addington merely stated his beliefs—that his

lumberyard was burned because he opposed bringing sludge to Sierra

Blanca. Given that a police report found the fire was arson,

Addington's belief that his involvement in a contentious dispute in

his hometown provided the motive for this crime is not reckless and

has not been proven false. Merco's name was not mentioned as a

suspect. 5 While viewers could conclude Merco was somehow

implicated in the arson, they were equally likely to believe some

other supporter of sludge in Sierra Blanca was responsible for the

fire.

The statements, "New York sludge cake isn't just made of

toilet refuse. In fact, anything that goes down the drain or sewer

ends up [in treatment plants]," did not defame Merco. Merco argues

plastics and other sewer refuse, shown in the tape accompanying the

statements, are screened out early in the wastewater process. The13

footage shown in the segment in no way impugned the character of

Merco's sludge by implying that plastics and debris end up in the

final sludge product.

Likewise, Merco's claim it was libeled because Sekoff stated

the dump was "pungently real" to the residents of Sierra Blanca,

then showed two brief interviews with persons who did not live in

the town, is groundless. TriStar did not claim the women lived in

Sierra Bla nca. The women's statements supported the "pungently

real" portion of Sekoff's voice-over by describing an odor present

in Sierra Blanca. Their place of residence has no effect on their

sense of smell.

Merco's claim TriStar committed libel by editing interview

tapes with Judge B illy Love and Julie Porter, allegedly

misrepresenting their statements, also fails. Everyone interviewed

for the segment signed a personal release form allowing TV Nation

to depict or portray them as the program in its discretion

determined. The release also gave TV Nation the right to edit any

statements or comments made on camera, and informed anyone who was

interviewed their statements coul d be altered. It is common

knowledge television programs such as TV Nation shoot more footage

than neces sary and edit the tape they collect down to a brief

piece. TV Nation was entitled to edit the tape it shot to fit into

the short time frame allotted to the sludge segment.

Finally, Merco's assertion that TriStar implied it bribed

Judge Love by using a metaphor ab out "the smell of money" is

without merit. Throughout the segment, Sekoff referred to the14

"smell of money" in connection with the Merco operation, playing on

the strong odor reportedly associated with the sludge ranch. When

he spoke with Judge Love, Sekoff introduced the inter view by

stating, "Merco, however, does have its supporters in town. I

followed the smell of money to the county courthouse where I met

Judge Billy Love, whose land co mpany profited from Merco's

arrival."

At most, TriStar can be accused of implying Judge Love was a

Merco supporter because he profited from the company's operation in

Sierra Blanca. Such an implication is not libel. Judge Love, like

many other citizens of Sierra Blanca, actually did benefit from

Merco locating in town. These benefits to Sierra Blanca were the

focus of the entire sludge segment: Sierra Blanca allowed the

establishment of a waste disposal operation, despite the fears and

concerns of certain residents, because the financial benefits

outweighed other considerations. The profit Merco brings to Sierra

Blanca is the "smell of money" Sekoff refers to in his voice-over.

In sum, while it is true the "Sludge Train" segment hardly

endorsed the land application of sludge, it does not follow that

TriStar libeled Merco because it chose to present an unenthusiastic

account of Merco and the slud ge ranch. The segment was not so

onesided, or without basis in fact, as to con stitute defamation.

Merco is a public figure engaged in a controversial business, and

should not be shocked that some disagree with its practices.

Merco's description of an "objective" segment appears

suspiciously like a segment that supported Merco's position on the6 Amendments allowing punitive damages, even if o nly nominal

damages are awarded, upon a showing of malice have since gone into

effect. T E X .C IV .P RAC

. & R EM .C ODE A NN

. § 41.004(b) (Vernon Supp.1996).

However, those amendments apply only to causes of action accruing

on or after September 1, 1995. T E X .C IV .P RAC

. & R EM .C ODE A NN

. § 41.001

historical & statutory notes (Vernon Supp.1996).

15 sludge debate. However, TriStar and Kaufman are not liable for

defamation because they refused to corroborate the Merco party

line. Defamation law should not be used as a threat to force

individuals to muz z le their truthful, reasonable opinions and

beliefs. To endorse Merco's version of defamation law would be to

disregard the constitutional protections that allow individuals to

hold and express unpopular or unconventional opinions.

Because Merco failed to meet its difficult burden of proving

actual malice by clear and convincing evidence, we find the

district court erred in e ntering judgment for Merco on its

defamation claims against TriStar and Kaufman.

IV.

As we find Merco did not present clear and convincing proof

of actual mal ice on the part of TriStar or Hugh Kaufman, and

reverse and render on that ground, we find it unnecessary to

discuss Appellants' other point on appeal. However, we note that

our resolution of this case on the ground of insufficient evidence

in no way signals a retreat from the reasoning embraced in Brown v.

Petrolite Corp., 965 F.2d 38 (5th Cir.1992), where thi s Court

reversed an award of $300,000 in puniti ve damages when the

plaintiff was awarded only $1 in compensatory damages. Under Texas

law at the time of trial, 6 this C ourt found when a plaintiff16

"suffered only nominal damages, the jury was not entitled to award

exemplary damages." I d. at 4 9; see Snead v. Redland Aggregates

Ltd., 998 F.2d 1325, 1334-35 (5th Cir.1993). Texas law clearly

establishes that "recovery of actual damages is pre requisite to

receipt of exemplary damages." D oubleday & Co., Inc. v. Rogers,

674 S.W.2d 751, 754 (Tex.1984); s ee Twin City Fire Ins. Co. v.

Davis, 904 S.W.2d 663, 665 (Tex.1995); N ewman v. Tropical Visions,

Inc., 891 S.W.2d 713, 721 (Tex.App.—San Antonio 1994); S t. Paul

Lloyd's Ins. Co. v. Fong Chun Huang, 808 S.W.2d 524, 528

(Tex.App.—Houston (14th Dist.) 1991). Such a disproportionate

award of punitive damages may also be unconstitutional. B MW of

North America, Inc. v. Gore,

--- U.S. ----, 116 S.Ct. 1589, 134

L.Ed.2d 809 (1996).

V.

As we find Merco failed to meet its burden of proving actual

malice by clear and convincing evidence, we REVERSE the judgment of

the district court and RENDER judgment for Appellants TriStar and

Kaufman, that Merco take nothing.

REVERSED and RENDERED.