Opinion ID: 202976
Heading Depth: 2
Heading Rank: 1

Heading: The Sufficiency of the Evidence to Support the Defamation Claim

Text: To prove defamation under Maine law, a plaintiff must establish that the defendant made a false statement that lower[ed][her] in the estimation of the community. Ballard v. Wagner, 877 A.2d 1083, 1087 (Me.2005) (quoting Schoff v. York County, 761 A.2d 869, 871 (Me.2000)). Accordingly, truth is an absolute defense to a charge of defamation. Garrett v. Tandy Corp., 295 F.3d 94, 106 (1st Cir. 2002) (applying Maine law). False statements are defamatory per se if they relate to a profession, occupation, or official station in which the plaintiff was employed. See Saunders v. VanPelt, 497 A.2d 1121, 1124-25 (Me. 1985). In such cases, malice is implied as a matter of law, and a plaintiff may recover a compensatory award without proving special damages. Farrell v. Kramer, 159 Me. 387, 193 A.2d 560, 562 (1963). Per se defamation may not be actionable, however, if it is privileged. See Bearce v. Bass, 88 Me. 521, 34 A. 411, 413 (1896). A conditional privilege against liability for defamation arises in settings where society has an interest in promoting free, but not absolutely unfettered speech. Lester v. Powers, 596 A.2d 65, 69 (Me.1991). The parties agree that Merrill Lynch's statement in the U-5 is conditionally privileged under Maine law. While a conditional (or qualified) privilege does not change the actionable quality of words published, it rebuts the inference of malice that is imputed in the absence of the privilege. See Saunders, 497 A.2d at 1124. Where a conditional privilege exists, liability for defamation attaches only if the person who made the defamatory statements loses the privilege [by] abusing it. Lester, 596 A.2d at 69. A conditional privilege may be abused if the defamatory statement is made with reckless disregard as to its falsity. See Cole v. Chandler, 752 A.2d 1189, 1194 (Me.2000).
In an appeal from a district court's denial of a motion for judgment as a matter of law, we generally review questions of law de novo. Negrón v. Caleb Brett U.S.A., Inc., 212 F.3d 666, 668 (1st Cir.2000). In assessing the sufficiency of the evidence to support a jury verdict, we usually ask whether, viewing the evidence in the light most favorable to the verdict, a rational jury could have found in favor of the party that prevailed. Bisbal-Ramos v. City of Mayagüez, 467 F.3d 16, 22 (1st Cir.2006). But Merrill Lynch asks us to apply the heightened standard of review appropriate for cases raising First Amendment concerns. See Bose Corp. v. Consumers Union of United States, Inc., 466 U.S. 485, 499, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984)([I]n cases raising First Amendment issues . . . an appellate court has an obligation to `make an independent examination of the whole record' in order to make sure that `the judgment does not constitute a forbidden intrusion on the field of free expression.' (quoting New York Times Co. v. Sullivan, 376 U.S. 254, 285, 84 S.Ct. 710, 11 L.Ed.2d 686 (1964))). We decline to do so, however, because Merrill Lynch failed to argue in the trial court that this case had any First Amendment implications. In New York Times v. Sullivan , the Supreme Court for the first time held that the First Amendment limits the reach of state defamation laws. 376 U.S. at 271, 84 S.Ct. 710. Emphasizing that freedom of expression upon public questions is secured by the First Amendment, id. at 270, 84 S.Ct. 710, the Court held that a public official suing for a libelous publication critical of his official conduct could not recover unless he proved, by clear and convincing evidence, 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. Id. at 280-81, 84 S.Ct. 710. Ten years later, the Court again reviewed a defamation case in light of First Amendment considerations in Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S.Ct. 2997, 41 L.Ed.2d 789 (1974). Noting that the libelous statement at issue was of undoubted public concern, but that, unlike in New York Times, the plaintiff was not a public figure, the Court held that the First Amendment protections were reduced. Id. at 343-46, 94 S.Ct. 2997. Balancing the states' strong and legitimate . . . interest in compensating private individuals for injury to reputation against First Amendment concerns, id. at 348, 94 S.Ct. 2997, the Court held that so long as they do not impose liability without fault, the States may define for themselves the appropriate standard of liability for a publisher . . . of falsehood injurious to a private individual, id. at 347, 94 S.Ct. 2997, but that a state could not allow recovery of presumed damages absent a showing of actual malice. Id. at 349-50, 94 S.Ct. 2997. Finally, in Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. 749, 759-60, 105 S.Ct. 2939, 86 L.Ed.2d 593 (1985), the Court held that where a private figure is suing over a defamatory statement involving private matters, the role of the Constitution in regulating state libel law is far more limited. Id. at 759, 105 S.Ct. 2939. In such cases, a showing of actual malice is not necessary to establish liability or to presume damages. Id. These cases illustrate that questions of whether and to what extent the First Amendment places limits on state defamation law are not without nuance. To establish that a particular defamation case raises First Amendment concerns, a defendant must show that the purportedly defamatory statement involved either a public official or a matter of public concern, or both. See Ramírez v. Rogers, 540 A.2d 475, 477 (Me.1988) (finding that First Amendment concerns were not implicated [b]ecause th[e] case involve[d] a non-media defendant, defaming a private plaintiff concerning a matter that [was] not of public concern). Only if the defendant succeeds in doing so does the First Amendment impose a special burden on the plaintiff, and even then the specific burden imposed will depend on the circumstances of the case. Once established, it will be the facts underlying that burden that we, as appellate courts, must independently examine to make sure that the [defamation] judgment does not constitute a forbidden intrusion on the field of free expression. New York Times, 376 U.S. at 285, 84 S.Ct. 710; see also Bose, 466 U.S. at 508, 104 S.Ct. 1949 (Hence, in New York Times v. Sullivan , after announcing the constitutional requirement for a finding of `actual malice' in certain types of defamation actions, it was only natural that we should conduct an independent review of the evidence on the dispositive constitutional issue.). But Merrill Lynch has never argued, except in this court, that the First Amendment places any limit on Maine's defamation laws. It never argued before the district court that Galarneau was a public figure or that the U-5 statement involved a matter of public concern. Indeed, at trial, it never sought to impose on Galarneau the burden of establishing, by clear and convincing evidence, that Merrill Lynch had acted with actual malice in defaming Galarneau, as required by the First Amendment under the conditions set forth in New York Times. [5] Instead, Merrill Lynch relied unwaveringly on Maine common law to establish that Galarneau had the burden of proving falsity and actual malice by a preponderance of the evidence. Accordingly, the jury was never instructed as to the First Amendment's role in the case, if any. [6] As the Maine Supreme Court has noted, the burden imposed on plaintiffs by the First Amendment is distinct from that imposed by Maine common law: Discussion of public officials and public figures on matters of public concern, the U.S. Supreme Court has declared, deserves special favor in a democratic society, and thus such discussion is subject to a conditional privilegethe First Amendment privilegethat can be overcome only by clear and convincing evidence of knowledge or disregard of falsity. We do not require clear and convincing evidence, however, to overcome a conditional privilege that arises at common law and not from the First Amendment. Lester, 596 A.2d at 69-70 (internal citations omitted). Because Merrill Lynch failed to make a case for a First Amendment privilege at trial, and instead relied exclusively on the conditional privilege afforded by Maine common law, it has forfeited the argument that the First Amendment imposes a special burden on Galarneau. See United States v. Slade, 980 F.2d 27, 30 (1st Cir.1992) (It is a bedrock rule that when a party has not presented an argument to the district court, [it] may not unveil it in the court of appeals.). We therefore have no opportunity to apply heightened review. We review the sufficiency of the evidence supporting the jury's verdict as we would normally, asking whether, viewing the evidence in the light most favorable to the verdict, a rational jury could have found in favor of the party that prevailed. See Bisbal-Ramos, 467 F.3d at 22. On appeal, Merrill Lynch argues that the jury's verdict cannot stand because Galarneau failed to show that its statement was false and malicious, two requirements for liability under Maine's common law of defamation.
We begin with the question of falsity. At trial, Galarneau argued the statement in the U-5 that she had engaged in inappropriate bond trading in one client's account was false. In making this argument, she relied heavily on expert testimony from Gerald Guild, an expert in fixed income securities with forty-five years of experience in the financial services industry. Guild testified that after examining all the relevant documentation (including the Bates report), he concluded that the trading in the Ford account was appropriate and consistent with the investment objectives of the account. He testified that in his opinion, Galarneau's trading in the Ford account was neither excessive nor inappropriate [b]ecause there was a good and sufficient reason for each and every transaction. In support of her claim that the statement in the U-5 was false, Galarneau also presented evidence of Merrill Lynch's recognition and approval of the trading in the Ford account. There was testimony and documentary evidence that during the relevant period  when the trading in the Ford account was most active  two of Galarneau's supervisors at Merrill Lynch reviewed and approved the management of the Ford account on at least four separate occasions. [7] There was also evidence that, in compliance with Merrill Lynch's policy, when the Armor system triggered a fourth review of the activity in the Ford account, Heller sent Ford an activity letter on September 10, 2002; Heller drew Ford's attention to a substantial volume of trading in her account and, while noting that active trading involves special risks, never suggested it improper. In addition, Galarneau introduced two letters Merrill Lynch sent to the Maine Securities Division on July 2 and September 8, 2003, in response to inquiries regarding the Ford complaint, which characterized the Galarneaus' approach to the trading in the Ford account as prudent when viewed in the context of the overall market and economic conditions at the time. Galarneau also presented testimony from the authors of these letters, Andrew Kandel and Kathleen Durning, that they always tell the truth when they communicate with state regulators, and that no one ever told the Maine Securities Division that either letter was inaccurate or misleading. Finally, Galarneau presented evidence that at the time she was terminated, inappropriate bond trading was not one of the reasons Merrill Lynch provided for the termination. She also introduced a letter from Merrill Lynch to the Maine Securities Division dated January 28, 2004 (after her termination), explaining that Galarneau was fired for violating the firm's time and price discretion policy and because of management's ongoing concerns regarding [t]he activity in Ms. Ford's account, but also describing the account as only somewhat active, and noting that [the Ford account] was . . . well diversified between fixed income, equities and cash. Merrill Lynch argues that Galarneau's evidence is insufficient to support a finding of falsity because: Guild's conclusory opinion is belied by Galarneau's frequent short-term trading in long-term bonds; the purported approval of Galarneau's trading was based largely on Galarneau's own reports and was given before the Bates report revealed the inappropriateness of her trading; although Hocking did not use the term inappropriate trading, he did tell Galarneau that she was terminated for exercising very poor judgment in the Ford account by pursuing the complicated strategy after having been warned of similar conduct in the past; and Merrill Lynch's letter to Maine regulators specifically noted that Galarneau had been terminated, inter alia, as a result of management's ongoing concerns regarding [t]he activity in Ms. Ford's account. But these are all arguments that the jury heard and apparently rejected. Our task on review is not to weigh the evidence. It is to ask whether, viewing the evidence in the light most favorable to the verdict, there is sufficient evidence supporting the jury's verdict. Bisbal-Ramos, 467 F.3d at 22. We find that there is. The expert testimony that Galarneau's trading was appropriate, even if active, is strong evidence that Merrill Lynch's statement on the U-5 Form is false. Merrill Lynch disagrees, focusing on the fact that Galarneau and Guild admitted that the trading in the Ford account was very active. However, no one contests this fact, mainly because there is no reason to; that trading is active does not necessarily mean that it is inappropriate. This much is clear not only from Guild's testimony, but also from the fact that Merrill Lynch approved of the trading for so long. The very least that may be inferred from the firm's repeated approval of the trading in the Ford account is that there are circumstances in which such activity is warranted. As such, that Galarneau and Guild, along with every other witness to have testified at trial, thought that the trading in the Ford account was active does not answer the question of whether it was inappropriate. The evidence of Merrill Lynch's continuous approval of Galarneau's trading strategy while the account was at its most active, and its defense of that strategy long after the Ford complaint, also support the jury's ultimate conclusion that the U-5 statement is false. Merrill Lynch again disagrees, relying on the fact that, at the time the firm approved the trading in the Ford account, it did not have the benefit of the Bates report. But the jury was free to disregard this explanation in the face of contradictory evidence presented by Galarneau: First, Galarneau presented evidence about the distortive effect of the report. She testified that the report commingled actual securities losses with securities that were not sold, but declined in market value, counting as a loss a security that at the (arbitrary) date of the report may have been down, but later increased in value. Galarneau also pointed out that the report failed to take into account $101,000 in income Ford received and $36,000 in tax savings to Ford, as well as the subsequent $65,000 increase in value of securities retained. Testimony from Galarneau and Guild, as well as from Richard Heller, that particular trades should be viewed in the context of the overall trading strategy and the market at that time casts further doubt on the importance of the Bates report, which was limited to when a given security was purchased, the purchase price, when the security was sold, and the sale price. Finally, we are persuaded that the Bates report could not have been the revelation Merrill Lynch claims it was, given that Merrill Lynch defended Galarneau's trading in the Ford account even after the firm received the Bates report in September 2003.
Having determined that Galarneau presented sufficient evidence to support a jury finding that the U-5 statement was false, we turn to Galarneau's evidence of malice. As noted above, where a statement is conditionally privileged, liability for defamation attaches only if the person who made the defamatory statements loses the privilege through abusing it. Lester, 596 A.2d at 69. As such, Merrill Lynch will have abused its conditional privilege if it knew the statement it made in the U-5 was false or if it recklessly disregarded its falsity. Id. Much of the evidence that supports a finding of falsity also supports a finding of malice. Evidence that Merrill Lynch approved the trading as it was taking place and defended the trading after it came under attack supports the jury's conclusion that the firm either knew the statement was false, or recklessly disregarded its falsity. See Rippett v. Bemis, 672 A.2d 82, 87 (Me.1996) (Evidence is sufficient to support a finding of reckless disregard for the truth if it establishes that the maker of a statement had `a high degree of awareness of probable falsity or serious doubt as to the truth of the statement.') (quoting Onat v. Penobscot Bay Med. Ctr., 574 A.2d 872, 874 (Me.1990)). Because we find there was sufficient evidence to support the jury's finding of defamation, we affirm the district court's denial of Merrill Lynch's motion for judgment as a matter of law.