Court Opinion

ID: 9584520
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:49:19.641806+00
Date Added: 2024-06-11T15:08:08.383711
License: Public Domain

KELLEY, Justice
(concurring in part and dissenting in part).
The majority today sustains the trial court’s finding that Jadwin is not a public figure. The court further adopts the negligence standard as applying to a libel claim by a private individual. With these conclusions, I concur. The majority, however, overrules the trial court’s finding that the corporations owned solely by Thomas Jad-win, Tax Exempt Bond Fund for Minnesota, Inc. (Bond Fund) and Minnesota Fund Management, Inc. (MFM), are private figures, and yet it adopts the trial court’s ruling that the constitutional actual malice test is to be applied to their claims. It is from these latter conclusions that I respectfully dissent.
The majority begins its discussion of these issues by stating that Thomas Jadwin is the promoter and principal shareholder of MFM and the president and director of the Bond Fund. This reference is somewhat misleading. He is the sole shareholder, president, and secretary-treasurer of MFM. MFM is Jadwin solely doing business in corporate form. Until its shares have been sold — an event which did not occur in this case allegedly because of the publication of the alleged defamatory article — Jadwin is the Bond Fund doing business in corporate form. He also is the president, director, and sole incorporator of the Bond Fund, which was organized with the sole objective of selling its shares. Referring to Jadwin as the “principal figure”, as does the majority, in my view is misleading; he is MFM and the Bond Fund.
To accomplish his objective of selling no-load, open-end tax exempt mutual fund shares, Jadwin was required to comply with a number of federal and state security statutes. He spent approximately three years in this endeavor. In doing so, he retained and was advised by legal counsel generally acknowledged as being exceptionally proficient in security law requirements. He likewise retained and was advised by a nationally known accounting firm, which had considerable experience in the area of securities’ issues.
Federal law required that Jadwin register: (1) the mutual fund under the Investment Company Act of 1940 (15 U.S.C. § 80A-1 to 80A-52 (1982)); (2) the investment advisor under the Investment Advisor *493Act (15 U.S.C. § 80b-l to 80b-21 (1982)); (3) the transfer agent pursuant to section 17(a) of the Securities Exchange Act of 1934 (15 U.S.C. § 78q-l(c) (1982)); (4) and the securities to be offered for sale with the Securities Exchange Commission (SEC) under the Securities Act of 1933 (15 U.S.C. § 77a (1982) et seq.). Federal law also sets stringent rules regulating the distribution of sales literature in the form of both content and timing restrictions. See, e.g., 15 U.S.C. § 77e (1982); 15 U.S.C. § 77j (1982). In addition, Jadwin was required to comply with applicable provisions of Minnesota’s Blue Sky Laws. See, e.g., Minn.Stat. § 80A.01 (1984) et seq. (governing, inter alia, the registration and sale of securities); Minn.Stat. § 80A.04 (1984) and 1983 Minn.Rules 2875.2300-2875.2510 (concerning investment advisor records and licen-sure); and 1983 Minn.Rules 2875.3900-2875.3980 (governing investment companies). Numerous commentators, scholars and even this court have recognized that the basic purpose, if not the preeminent purpose, of the federal and state requirements is the dissemination of adequate and accurate information concerning mutual funds, the fund’s advisor, and the fund’s securities. See L. Loss, Fundamentals of Securities Regulation, 29-38 (1983); Bloom-enthal, Securities Law Handbook, § 2.01-.02 (1984); McMenomy v. Ryden, 276 Minn. 55, 148 N.W.2d 804 (1967); Logan v. Panuska, 293 N.W.2d 359 (Minn. 1980). Since neither federal nor state security authorities have authority to disprove of securities, the sole purpose of these registration requirements is to ensure an adequate and accurate disclosure of material facts concerning the company and the securities it proposes to sell to the end that prospective investors may make an informed appraisal of the merits of the securities. See L. Loss, Fundamentals of Securities Regulations, supra. Jadwin, as the sole owner of MFM and as the sole incorporator of Bond Fund, complied with these statutes and the rules and regulations promulgated thereunder. SEC officials as well as state officials approved his registration statements, prospectus materials and supplementary sales literature.1 Legislative bodies, both federal and state, have considered and determined what measures are necessary for the protection of investors. State and federal departments have augmented the statutes with extremely specific, comprehensive and extensive rules, regulations and liability provisions. To me it seems superfluous and unwarranted to add to this armament of federal and state regulation the weapon that a state regulated corporate entity, such as Bond Fund and MFM, must prove constitutional actual malice before recovering defamation compensatory damages. Bruno & Stillman, Inc. v. Globe Newspaper Co., 633 F.2d 583 (1st Cir.1980).
In addition, a majority of both federal and state courts have rejected the contention that corporations are always public figures. Today the majority of this court holds these two corporations must meet the higher liability threshold of proving constitutional actual malice in this defamation action. In doing so, it “question(s) whether a corporate reputation has personal qualities sought to be protected by the private figure designation in Gertz.” The majority seemingly places great reliance on Martin Marietta Corp. v. Evening Star Newspaper Co., 417 F.Supp. 947 (DD.C.1976). *494The majority of federal courts, however, have rejected the per se rule of Martin Marietta, and have in a number of cases held that a corporation may be a private figure. The reason for the general rejection of the Martin Marietta analysis is, perhaps, best stated in Trans World Accounts, Inc. v. Associated Press where the court said:
[I]t is also true that the line between the interests of natural persons and corporations is frequently fuzzy and ill defined. Various legal considerations have long led to the incorporation of businesses that are in economic reality but individual proprietorships or partnerships. On the other hand, very large business enterprises may be conducted as individual proprietorships or partnerships. For that additional reason it seems that for the purpose of applying the First Amendment to defamation claims, the distinction between corporations and individuals is one without a difference.
425 F.Supp. 814, 819 (N.D.Cal.1977).2 Similarly, the Fourth Circuit Court of Appeals in Arctic Co., Ltd. v. Loudoun Times Mirror, 624 F.2d 518 (4th Cir.1980), cert. denied, 449 U.S. 1102, 101 S.Ct. 897, 66 L.Ed.2d 827 (1981), held a corporation was not a public figure under the facts in that case so as to trigger the constitutional actual malice test. The First Circuit in Bruno & Stillman, Inc. v. Globe Newspaper Co., 633 F.2d 583 (1st Cir.1980), in rejecting the Marietta analysis said, “The only case that supports the district court’s approach [the Marietta approach] rests upon an assumption that a corporation’s interest in protecting its reputation is less important than that of an individual person.” Id. at 590. See also, Reliance Insurance Co. v. Barron’s 442 F.Supp. 1341, 1347 (S.D.N.Y.1977).
The United States Supreme Court has not yet decided whether corporations are always public figures. In Bose Corp. v. Consumers Union of the United States, Inc., 508 F.Supp. 1249, 1274 (D.Mass.1981), rev’d on other grounds, 692 F.2d 189 (1st Cir.1982) aff'd, — U.S. -, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984), the trial court held that Bose Corporation was a public figure. On appeal to the First Circuit Court of Appeals, Bose conceded the public figure characterization. Judge Campbell, however, in a concurrence stated: “I wish to emphasize my understanding that this court is in no way passing upon the actual merits of the district court’s finding that Bose Corporation was a public figure.” 692 F.2d at 197. The Supreme Court of the United States noted Judge Campbell’s special concurrence stating, “We, of course, also do not pass on that question.” — U.S. at-n. 8, 104 S.Ct. at 1955 n. 8. It is clear from both of these statements that both the Court of Appeals and the United States Supreme Court doubted the propriety of Bose Corporation’s concession that it was a public figure. This suggests to me that both courts would have found Bose Corporation to be a private figure.
State courts which have addressed the issue appear to be in accord with the majority of the federal courts. As noted in Bruno & Stillman, Inc. v. Globe Newspaper Co., supra, under the law of New Hampshire, corporations are not per se public figures. 633 F.2d 583, 590. In California, a corporation’s right to redress against defamation is well-established. Vegod Corp. v. American Broadcasting Companies, Inc., 25 Cal.3d 763, 160 Cal.Rptr. 97, 603 P.2d 14 (1979), cert. denied, 449 U.S. 886, 101 S.Ct. 242, 66 L.Ed.2d 113 (1980); DiGiorgio Fruit Corp. v. American Federation of Labor, 215 Cal.App.2d 560, 30 Cal.Rptr. 350 (1963); Daniels v. Sanitarium Association, Inc., 59 Cal.2d 602, 609, 30 Cal.Rptr. 828, 833, 381 P.2d 652, 657 (1963). New York allows corporations to sue for defamation without encountering the defense of constitutional actual malice. Greenleigh Associates, Inc. v. New York Post Corp., 106 App.Div.2d 357, 484 N.Y.S.2d 1011 (1984); Chapadeau v. Utica Ob*495server-Dispatck, Inc., 38 N.Y.2d 196, 379 N.Y.S.2d 61, 341 N.E.2d 569 (1975). The Oregon Court of Appeals has held an incorporated bank was not a public figure. Bank of Oregon et al. v. Independent News, Inc. et al., 65 Or.App. 29, 670 P.2d 616 (1983). Its decision was affirmed by the Oregon Supreme Court, 298 Or. 434, 693 P.2d 35 (1985). See also, Tribune Co. v. Levin, 426 So.2d 45 (Fla.App.1982). An analysis of these and other cases clearly demonstrates that a majority of the courts have rejected the Marietta analysis that corporations are always public figures for the purpose of a defamation suit.
However, I do not understand the majority to contend otherwise. Instead, the majority would, in effect, hold that a plaintiff corporation is a public figure if the defendant can “establish that the defamatory material concerns matters of legitimate public interest in the geographic area in which the defamatory material is published, either because of the nature of the business conducted or because the public has an especially strong interest in the investigation or disclosure of the commercial information at issue.” It is with that holding that I disagree. If either the Bond Fund or MFM was a large publicly held corporation with access to financial resources in the millions of dollars, I might well concur that either or both corporations.was a limited purpose public figure. See generally Reliance Insurance Co. v. Barron’s, 442 F.Supp. 1341 (S.D.N.Y.1977).3 Neither the Bond Fund or MFM enjoy that status. In effect, each is the alter ego of Jadwin. It seems to me highly inconsistent to hold that Jadwin is a private individual for purposes of maintaining a libel suit when the two corporations, whose only acts were those of Jadwin alone, are to be held to be limited purpose public figures and, therefore, subject to the burden of the constitutional actual malice test.4 Jadwin’s actions in forming the Bond Fund are the corporations’ actions; and the corporations’ actions are the actions of Jadwin. Thus, I fail to perceive why there should be a different standard of proof applied to the libel claims of either. Although it may well be true that in certain circumstances a corporate reputation has no personal qualities, it certainly is not true of a one-man corporation and I submit it is not true in this case.
I suggest that a corporation engaged in the business of franchising would be a public figure under the test today announced by this court. However, in Golden Bear Distributing Systems of Texas, Inc. v. Chase Revel, Inc., 708 F.2d 944 (5th Cir.1983) the court rejected the claim. There the publisher of the alleged libel contended that a corporation is a public figure by reason of its business advertising — a fact on which the majority seemingly relies heavily in this case. The Fifth Circuit held that notwithstanding advertising, the injured corporation did not “thrust itself” into a public controversy by merely advertising its services. The court there pointed out that were it to hold to the contrary, the mere fact of advertising would render all corporate business public figures in defamation suits. So too, I would presume, the publication of material concerning corporate banking policies is a matter of legitimate public interest. Certainly it cannot be said the public does not have a strong interest in the investigation and disclosure of information concerning the bank’s practices, and certainly the corporate banking business is one of the most highly regulated in our American Society. Nevertheless, the Oregon Court of Appeals in Bank of Oregon et al. v. Independent *496News, Inc. et al, swpra, and the Oregon Supreme Court, in the same case on further appeal, held that a corporate bank was not a public figure subject to the difficult and almost impossible burden of proving constitutional actual malice. The Oregon Supreme Court succinctly stated, “Merely opening one’s doors to the public, offering stocks for public sale, advertising, etc., even if considered a thrusting of one’s self into matters of public interest, is not sufficient to establish that a corporation is a public figure.” 298 Or. at 443, 693 P.2d at 42. That court further said, “The Bank of Oregon does not present that ‘exceedingly rare’ instance of an entity which is a public figure for all purposes. We find that the bank does not have ‘general fame or notoriety’ in the community in which the article was published nor does it exhibit ‘pervasive involvement in the affairs of society.’ ” 298 Or. at 444, 693 P.2d at 42. I suggest that if a highly regulated corporate bank which sells stock, solicits deposits, makes loans, administers trusts and advertises all of these functions is not a public figure, neither is the Bond Fund nor MFM.
In support of its assertion that public regulated corporations are public figures for the purpose of defamation actions, the majority relies on cases I deem to be distinguishable. For example, the situation existing in Reliance Insurance Co. v. Barron’s, involved a billion dollar, publicly held corporation proposing a $50 million stock offering. The Reliance court relied heavily on the fact of the plaintiff’s size and public ownership as well as its being subject to close regulation. American Benefit Life Insurance Co. v. McIntyre, 375 So.2d 239 (Ala.1979), involved an article on a report by the state insurance commissioner questioning the solvency of the insurance company, and Trans World Accounts, Inc. v. Associated Press, 425 F.Supp. 814 (N.D.Cal.1977), concerned the factual report of a proposed administrative complaint by the Fair Trade Commission against the libel plaintiff. Bond Fund was not a multi-mil-lion dollar widely held public corporation, nor did the Star’s article relate to investigations by public authorities of any violations of law by the Bond Fund. The registration requirements as well as the contents of its prospectus and sales materials for the Bond Fund had been approved by appropriate governmental authorities.
Moreover, in my opinion the majority’s broad holding leaves unanswered many questions of when a corporate libel plaintiff may be held to be a limited purpose public figure. For example, are the “mom and pop” corporate drug, firearm or liquor stores, all operating in highly governmental regulated areas, to be held to be public figures? How would the court deal with a small corporation containing divisions, some of which are highly regulated by the government, and some of which are not? Do equal protection problems lurk in holding that some small corporations, because they are subject to no or minimal government regulation, need only to prove negligence, while others more closely regulated are deemed to be limited purpose public figures? These and many other questions remain unanswered by the court’s opinion that seems to be primarily based on the premise that highly regulated corporations are limited purpose public figures.
Admittedly, any enunciated test for determination when a corporation is a limited purpose public figure for purposes of a defamation action may leave unanswered questions. I suggest it is more appropriate to determine the issue on an ad hoc basis, which, at a minimum, would encompass an analysis of such factors as capitalization, debt, the number and breadth of public stock ownership, the entity’s share of the market, the subject matter of the story, and, perhaps other considerations. When the corporate plaintiff is subject to extensive governmental regulations, and when its business activities have been approved by the governmental agencies, in my view, there is even less reason to give the factor of governmental regulation much weight in the analysis.
In this case both Bond Fund and MFM were newly incorporated at the time of the article. The Bond Fund had no assets or liabilities at the time of the publication, *497and, in fact, could not commence operations until the required $1 million minimal capitalization required by the Minnesota securities law was raised. This requirement in and of itself was for the protection of investors. MFM assets consisted solely of capitalized expenses, all of which had been advanced by Jadwin, incurred in connection with its incorporation, registration as an investment advisor, and promotion of the Bond Fund.
The majority seeks to justify the incon-gruent results (that permits Jadwin to recover on a negligence theory even though, for practical purposes, his individually owned corporations will most likely not be able to recover), by indicating that with respect to corporations like Bond Fund and MFM, the imposition of the proof of constitutional actual malice test will encourage the media to probe the business world “to the depth necessary to permit the kind of business reporting vital to an informed public.” With the general proposition that the media should “probe the business world,” I do not disagree, and, indeed, think it is laudatory that it does. But, I submit that is not the issue. The issue is whether they can do so negligently and irresponsibly so long as they do not act with constitutional actual malice and thus escape the liability for negligence to which practically all other persons and segments of our society are bound.5 I am not unmindful of the need for robust and untrammeled debate on public issues and investigative journalism of newsworthy events.
In cases involving governmental officials and others who have thrust themselves into the vortex of the public arena, our courts, recognizing the value of vigorous press coverage, have made the media’s accountability lower. In all other cases, I would hold the negligence standard applicable. I fail to see how either Bond Fund or MFM has thrust itself into the public arena. Accordingly, I would hold that both are private individuals for the purpose of this libel action, and should only carry the burden of proving negligent publication.

. The trial court concluded that since MFM was not named in the news article, it had failed to state a claim. I would hold this was error. Any prudent investor would likely attribute to MFM any allegations of problems associated with Bond Fund because the investment advisor is so closely associated with the fund, and indeed manages it. Bond Fund is MFM’s only "client." A number of cases hold a person need not be named in the publication, if the context of the publication, in essence, identifies the person. See e.g. Avins v. White, 627 F.2d 637, 643 (3rd Cir.), cert. denied, 449 U.S. 982, 101 S.Ct. 398, 66 L.Ed.2d 244 (1980) (It is not necessary for an alleged defamatory statement to refer specifically to plaintiff before it is actionable); Zerpol Corp. v. DMP Corp., 561 F.Supp. 404, 410 (E.D.Pa.1983) (test is whether defamatory communications may reasonably be understood as referring to plaintiff); Miller v. Lear Siegler, Inc., 525 F.Supp. 46, 55 (D.Kan.1981) (one claiming libel need not be named in article and court may look to extrinsic evidence to determine if article has application to particular party).

. The court went on to hold that although the plaintiff was not a public figure, it became one after the F.C.C. had filed a complaint against it alleging illegal collection practices, 425 F.Supp. at 820-821. In this case at bar, of course, there has been no such governmental action.

. This case involved a corporation with billions in assets, a large number of shareholders, and a $50 million national stock offering.

. At the time of the allegedly libelous publication MFM was a one person corporation as was Bond Fund. Jadwin can probably prove his personal financial loss causally related to the business failure. This creates an anomaly. The corporations can’t recover their actual losses because of the almost impossible burden of proving constitutional actual malice, whereas Jadwin, if negligence is proved, could recover the identical losses. This anomalous result subverts the whole rationale purportedly justifying the imposition of the public figure's actual malice standard in the suit brought by the corporation.

. In rebuttal to an article written by columnist William Safire (November 20, 1984) advocating the constitutional actual malice test in all libel actions, Arnold H. Ismach, an associate professor in the University of Minnesota’s School of Journalism and Mass Communication, wrote "A standard this charitable is found nowhere in the law or the Constitution. Negligence and recklessness have their price. It is society’s way of telling us that we have to perform to certain standards when the lives or reputation of others are involved. Otherwise, what would inhibit the reckless driver, the abusive policeman, the careless dog owner, the custodian of an icy sidewalk? Should they be able to claim absence of malicious intent as absolution?’’ A. Ismach, Good Faith is a Bad Test for Media, Minneapolis Star & Tribune, Dec. 4, 1984, at 15A, Col. 1.