The Volokh Conspiracy

Mostly law professors | Sometimes contrarian | Often libertarian | Always independent

Free Speech

>$10M Libel Verdicts: They're Not Just for Johnny Depp

But here the Iowa Supreme Court reduced the verdict to $3M, with an interesting analysis of the law of libel.


From Hoffmann v. Clark, in a unanimous opinion by Justice Matthew McDermott:

A jury awarded ["car tuning" company] Hoffmann Innovations, Inc., and its owner Jerry Hoffmann $11 million in compensatory and punitive damages against a fired employee, Scott Clark, and his new competing company [RealTuners] based mainly on defamatory statements that Clark made on social media, online forums, and in podcasts.

During the course of the litigation, the district court sanctioned Clark for violating a consent order that prevented both sides from making any statements about one another—particularly online statements—outside the litigation. But the court's contempt orders and sanctions for Clark's violations of the consent order didn't stop Clark from continuing to disparage Hoffmann. After several failed attempts to secure compliance with increasing sanctions, the court struck Clark's pleadings—most importantly, his answer and affirmative defenses. Without any defense pleaded to the petition's claims, trial proceeded on the only outstanding issue: the amount of damages….

I omit the complicated details about the case's procedural history and backstory, and turn to the court's important holdings about damages (which will in the process also quickly summarize the libel):

The jury awarded damages in roughly the amounts Hoffmann requested. It awarded Hoffmann personally $500,000 from Clark and $500,000 from RealTuners for libel per se ($1 million total). The jury awarded Hoffmann Innovations $2,060,250 from Clark and the same amount from RealTuners ($4,120,500 total). The remaining compensatory damages were for Hoffmann Innovations against Scott Clark: $27,000 for breach of fiduciary duty, $102,500 for breach of contract, and $250,000 for civil extortion. The jury thus awarded a total of $5.5 million in compensatory damages. The jury also awarded punitive damages against Clark for $2 million and against RealTuners for $3.5 million. The total verdict came to $11 million. The district court also granted the plaintiffs' request for common law attorney fees (awarded despite no contractual or statutory provision for such fees) for $210,743.21….

The Restatement offers a useful way of thinking about libel per se damages to reconcile our seemingly disparate treatments in cases. It describes special damages, which result from "the loss of something having economic or pecuniary value," and general damages, which are "imposed for the purpose of compensating the plaintiff for the harm that the publication has caused to his reputation," including emotional damages.

In a libel per se claim, general damages are the "presumed" damages. General damages must still relate to the actual harm caused by the publication, but the amount of damage to reputation is usually left in the jury's discretion. Although plaintiffs aren't required to prove special damages to recover for libel per se—because they may recover presumed general damages—plaintiffs must still prove special damages if they wish to recover special damages. Put another way, special damages are not presumed damages, nor are they a necessary element of recovery for libel per se….

On the award of damages to Hoffmann Innovations, Hoffmann described what are special damages to the business in arriving at his $4.5 million calculation. But Hoffmann acknowledged on cross-examination that the number largely reflected lost revenue—not lost profits. The jury nonetheless awarded Hoffmann Innovations $4.1 million, or 91% of the gross revenue calculation that Hoffmann proposed. Yet Hoffmann only provided one example of a business relationship that he allegedly lost because of Clark's defamatory statements, and he said his company's profit margin was 40% of the $250,000 estimated revenue from that relationship, or $100,000. He didn't offer the company's tax returns, any profit-and-loss statements, or any other similar type of proof to prove the claimed damages. On Hoffmann Innovations' overall profit margin, all we have is Hoffmann's testimony that Hoffmann Innovations sold a "low-margin product … so we had to sell a lot of them."

The appropriate measure of special damages—"the loss of something having economic or pecuniary value," as the Restatement describes them—is lost profits and not lost revenue. Other than Hoffmann's testimony about profits lost on this one particular client, evidence of Hoffmann Innovations' damages in this record is exceedingly sparse. Hoffmann testified that several employees needed to be shifted from their regular tasks to responding to customer complaints that flowed from Clark's defamatory statements, but he offered no evidence about the value of these services. We may alter a judgment that "lacks evidential support." Awarding Hoffmann Innovations damages based on lost revenue—as the jury did—results in a damage award that exceeds the amount that the company would have profited had Clark never published a defamatory statement. We find the verdict as to Hoffmann Innovations' damages flagrantly excessive on this record.

The libel per se damages awarded to Hoffmann personally present a different story. Again, with libel per se, "the jury is allowed to award substantial damages without the necessity of the plaintiff proving actual damage to reputation." Yet even though we don't impose normal standards of proof, we have said that the damages must be "the natural and probable consequences of" the statements. In other words, there must be some connection between the actual or potential harm to the plaintiff and the damages awarded. We have also said there must be proof of the plaintiff's good reputation and of dissemination of the defamatory statements. Id.

In [a 1990 case], we set aside as excessive a $250,000 verdict against an attorney who publicly accused the plaintiff of committing extortion …. There was no evidence that the plaintiff's reputation was injured or that he suffered any significant emotional distress. Yet we decided [this] in 1990, before the means of instantaneous and large-scale distribution that Clark used to defame Hoffmann—social media and podcasts—came into existence. As one commentator has observed, "Given the ease of defaming another person through the social media, it is arguable that a remedy for defamation through presumed damages is more necessary now than ever, even if plaintiffs are not able to provide evidence of actual harm to reputation in a given case." …

This case involves defamation over a period of years. Scott Clark used five different Facebook accounts, two under aliases. Clark disseminated his false statements over social media and podcasts to tens of thousands of people. He said that Hoffmann was dishonest and engaged in bribery. He falsely reported that Hoffmann knowingly sold dangerous products out of greed.

Clark engaged in bad faith conduct, threatening repeatedly to harm Hoffmann unless Hoffmann paid him off. Clark posted a video depicting Hoffmann as Adolf Hitler. Hoffmann also had to watch his reputation be "torn apart online" while being limited in how he could respond because of the consent decree. Hoffmann took years to develop his reputation. As a result of what Clark put him through, Hoffmann was "stressed to the max." He had trouble sleeping. This was "overwhelming" and "consuming."

In considering whether an award of presumed damages for libel per se is within the range of reasonableness as a natural and probable (although not necessarily proven) consequence of the defendant's conduct in this case, several questions help to focus our inquiry: (1) What was the prior reputation of the plaintiff? (2) Did the plaintiff suffer emotional distress? (3) What type of defamatory statements were made? (4) How many defamatory statements were made? (5) How widely were they disseminated?1 (6) Over what period of time were they made and disseminated? (7) Were they ever retracted? (8) Was there evidence of bad faith?2

The answers to these questions support the very substantial damages that the jury awarded to Hoffmann personally. Hoffmann proved that he had built up his reputation in the car tuning industry over many years. He proved that he suffered emotional harm. He proved that there had been repeated statements to the effect that Hoffmann was a fraudster and a thief disseminated over various media and under various personae over a period of years. Clark never showed contrition for his intentional, bad-faith, abusive conduct. To the contrary, he called in more fire….

Finally, as to Clark's challenge to the punitive damages award, we're reminded that punitive damages "must bear some relationship to actual damages, but there is no formula by which this 'relationship' may be determined." Since we've already found the jury's compensatory damages award to Hoffmann Innovations excessive, and punitive damages must be tied to compensatory damages, we find the punitive damages award was also excessive. The trial court abused its discretion in finding these damages not excessive….

The court therefore ordered a so-called "remittitur"—the plaintiff could choose to accept a reduced award, or instead have a new trial:

On the damages awarded to Hoffmann Innovations, as described above, the jury appears to have used the wrong measure of damages by accepting almost all of Hoffmann's proposed damages figure that used lost revenue instead of lost profits. Hoffmann only provided evidence of one client that Hoffmann Innovations lost because of Clark's defamation, resulting in a loss of about $100,000 in net profits. We thus order a remittitur on the jury's libel per se award, reducing the $2,060,250 awards against both Clark and RealTuners to $100,000 total, or $50,000 against each. We leave undisturbed the compensatory damages awarded to Hoffmann Innovations against Scott Clark of $27,000 for breach of fiduciary duty, $102,500 for breach of contract, and $250,000 for civil extortion, and the district court's attorney fee award of $210,743.21.

[The court didn't modify the $1M awarded in general damages to Hoffmann personally. -EV]

Because we've ordered a remittitur on the damages for libel per se for Hoffmann Innovations—a large portion of the damages awarded in this case—remittitur is also appropriate for punitive damages. The jury awarded punitive damages against Clark for $2 million and against RealTuners for $3.5 million. Having now reduced the total compensatory damages from $5,500,000 to $1,479,500—a reduction to 26.9% of the original award—we believe it appropriate to keep the jury's original ratio of compensatory-to-punitive damages by ordering remittitur of punitive damages by this amount. We therefore order remittitur of punitive damages against Clark personally from $2 million to $538,000 and against RealTuners from $3.5 million to $941,500….

I blogged about the lower court decision last year.