Opinion ID: 345587
Heading Depth: 2
Heading Rank: 2

Heading: The Application of New Jersey Law.

Text: 36 Our task now is to determine whether the district court's order can be sustained under our exposition of the New Jersey law. Since we are reviewing a preliminary injunction, not a final judgment, our task is made somewhat more complex. Although the right upon which this cause of action is based is state-created, Rule 65(a) of the Federal Rules of Civil Procedure contemplates a federal standard as governing requests addressed to federal courts for preliminary injunctions. See 11 Wright & Miller, Federal Practice and Procedure, § 2943 at 390-91 (1973). The question before us thus has both federal and state aspects. 37 We pointed out the yardsticks for granting a preliminary injunction in the federal courts in Oburn v. Shapp, 521 F.2d 142, 147 (3d Cir. 1975): 38 In measuring the district court's consideration of appellants' motions for preliminary injunctive relief, we recognize that the moving party must generally show (1) a reasonable probability of eventual success in the litigation and (2) that the movant will be irreparably injured pendente lite if relief is not granted. (Citations) Moreover, while the burden rests upon the moving party to make these two requisite showings, the district court should take into account, when they are relevant, (3) the possibility of harm to other interested persons from the grant or denial of the injunction, and (4) the public interest. 39 See also Delaware River Port Auth. v. Transamerican Trailer Transp., 501 F.2d 917 (3d Cir. 1974). On reviewing an order granting a preliminary injunction we must reverse if the district court has abused its discretion as determined by the criteria enunciated in Oburn, committed error of law, or made a clear mistake in the consideration of the proof. Oburn, supra 521 F.2d at 147, citing Nat'l Land & Investment Co. v. Specter, 428 F.2d 91, 95 (3d Cir. 1970). 40 Our review of the order granting the preliminary injunction in the instant case need proceed no further than the first of the four Oburn criteria that plaintiffs show a reasonable probability of eventual success in the litigation. Since the plaintiffs' success is to be determined under New Jersey law, the first requisite to sustain the order is that plaintiffs have shown a reasonable probability of eventual success in making out their cause of action under the applicable law of that state. More specifically, plaintiffs must have shown a reasonable probability that they will be able eventually to meet their burden of proving publication, falsity, malice, and special damages. 41 Plaintiffs, however, have made no such showing. Publication, of course, has been amply proved, but for reasons we discuss hereafter, we believe plaintiffs have not shown a reasonable probability that they will be able to prove falsity by a preponderance of the evidence or that they will be able to prove special damages. Viewed from another angle, we might say that the plaintiffs' failure in these two elements flowed from the commission of errors of law on the issues of falsity and special damages. Either way, the order of the district court must be reversed. Oburn v. Shapp, supra 521 F.2d at 147. We will discuss each issue in turn. 12 42 (1) Falsity of the Disparaging Communications 43 In allocating the burden of proof on the issue of falsity, the district court reached a result contrary to the law of New Jersey. The district court opined that (a)s a matter of policy in the disparagement of quality cases, it would appear eminently fair and reasonable to place the burden of proving the truth of the disparaging statement upon the speaker. 414 F.Supp. at 760. A federal court's independent determination of policy is quite irrelevant, however, if it is inconsistent with the state law which the court is obliged to apply. 44 The one New Jersey case on point, Andrew v. Deshler, supra, strongly implies that a New Jersey court would place the burden of proving the falsity of the disparaging communication on the plaintiff rather than placing the burden of proving the truth on the defendant. Even if there were no New Jersey case on point, we would be inclined to assume that a New Jersey court would follow the apparently unanimous view of other jurisdictions that the plaintiff in a product disparagement action must bear the burden of proving the falsity of the disparaging communications. See, e. g., Restatement (Second) of Torts § 651(1) (c) (Tentative Draft No. 13, 1967); W. Prosser, Law of Torts § 128 at 919-20 (4th ed. 1971); 13 Note, supra note 2, 75 Colum.L.Rev. at 969 n. 29. We conclude, therefore, that the district court erred as a matter of law when it relieved the plaintiffs from the weighty burden of proving the falsity of the disparaging communications. 45 This conclusion, however, does not end our inquiry into the burden of proof issue. System maintains that even if we assume arguendo that the district court did misallocate the burden of proof, the error was harmless. In essence, System argues that the proof which it in fact adduced would have been more than sufficient to meet the burden, had it been charged with that obligation. This argument ignores the reality that the district court's findings of falsity in certain disparaging statements were in substantial measure a product of the court's decision to place the burden of proof on the defendant instead of on the plaintiffs. Indeed, the very first sentence of the court's discussion on the issue of truth or falsity bespeaks an express reliance on its erroneous conclusion as to the burden of proof: In view of the foregoing discussion (as to burden of proof) and an evaluation of the facts, this Court concludes that the defendant, Scientific Games, . . . made false and disparaging statements about plaintiffs' instant lottery ticket . . . . 414 F.Supp. at 761 (emphasis supplied). The discussion of the individual disparaging statements stresses that they had not been proven true rather than that they had been proven false: 46 The statement to the Omaha lottery director regarding the New Jersey State Police finding was never proven to be true. 47 (I)t was never proven that plaintiffs' Delaware and Omaha lottery tickets were insecure. 48 Id. (emphasis supplied). The only finding by the district court that a statement had been affirmatively proven false is that 49 Statements to the effect that ticket agents in Omaha were ripping off the public by breaking the ticket were clearly false, for plaintiff established that there were no problems with the Omaha (ticket). 50 Id. This one finding does seem unequivocal but it, like the others, follows an express reference to the erroneous conclusion that defendants bore the burden of proof. 51 The district court's opinion thus contains at most a single affirmative finding that one of the defendant's statements had been proven false and we do not consider it sufficient to justify System's characterization of the misallocation of the burden of proof as harmless. Furthermore, the conclusion is inescapable that plaintiffs have not shown a reasonable probability that in a full-scale trial on the merits they will meet their burden of proving the falsity of the disparaging statements of which they complain. 52 (2) Special Damages 53 In reliance on Black & Yates v. Mahogany Assn., 129 F.2d 227 (3d Cir.), cert. denied, 317 U.S. 672, 63 S.Ct. 76, 87 L.Ed. 539 (1942), and Edwin L. Weigand v. Harold E. Trent Co., 122 F.2d 920 (3d Cir. 1941), the district court held that disparagement can be enjoined when a proper case is presented and . . . no special damages need be shown or alleged for such relief. 414 F.Supp. at 758. Reliance on these two cases was inappropriate and the resulting conclusion of law was erroneous. 54 We must reiterate that the question before us is whether System has shown a reasonable probability of eventual success in this litigation under the law of New Jersey. New Jersey law defines all the rights and liabilities of the parties including the question whether special damages need be shown or alleged. This is true both as to the action for damages, Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Klaxon v. Stentor Elec. Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941), and as to the prayer for permanent injunctive relief. Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945). Black & Yates, supra, is thus inapposite on two grounds: first, insofar as it holds that the availability of injunctive relief is to be determined by federal law without reference to the state rules of law which define the state-created right, Black & Yates was overruled by Guaranty Trust, supra, 326 U.S. at 108-09, 111-12, 65 S.Ct. 1464; 14 secondly, insofar as it was concerned with state law, Black & Yates, dealt with the law of Delaware, not the law of the State of New Jersey. As Weigand, supra, contains no more than a conclusory repetition of the holding of Black & Yates without citation to additional authority, its relevance can be no greater than that of Black & Yates on which it reposes. 55 The relevant law, we believe, is found not in Black & Yates and Weigand but in the New Jersey cases, specifically Henry v. Vaccaro Const. Co. v. A. J. DePace, Inc., 137 N.J.Super. 512, 349 A.2d 570, 573 (1975): 56 As recognized by Prosser, the instant action is only loosely allied to defamation, being rather an action on the case for special damages flowing from the interference to business. Prosser, Torts (4 ed. 1971), § 128 at 915. The action requires special damage in all cases, unlike ordinary defamation. 57 See also Andrew v. Deshler, supra. We therefore hold that under New Jersey law, disparagement of a product cannot be enjoined unless the plaintiff proves special damage. The district court, in the case sub judice, however, believing the existence of special damage to be irrelevant, made no finding that System had suffered special damages and it thus cannot be said that System has shown a reasonable probability of eventual success in proving this essential element of its claim.