Academic journal article Journal of Corporation Law

Stealing the Good Name of the Company: The Fourth Circuit Strengthens Constitutional Barriers for Corporate Defamation Plaintiffs

Academic journal article Journal of Corporation Law

Stealing the Good Name of the Company: The Fourth Circuit Strengthens Constitutional Barriers for Corporate Defamation Plaintiffs

Article excerpt

Who steals my purse steals trash; 'tis something, nothing; Twas mine, tis his, and has been slave to thousands; But he that filches from me my good name Robs me of that which not enriches him, And makes me poor indeed. l


In early 1997, Forbes magazine did something that thousands of investment advisors do every day: it advised investors to sell their stock in a company. In this particular instance, an investment column in the magazine claimed that the stock of Biospherics, Inc. was substantially overvalued.2 After sharply criticizing the company's planned sugar substitute, "Sugaree," the magazine advised investors to sell the stock short, concluding that "the few independent analysts who follow the company think its stock is worth $2 on current business."3

However, instead of responding in kind or simply taking its lumps and moving on, Biospherics took the unusual step of defending its product and its stock value by filing a defamation suit against both Forbes, Inc. and the author in the United States District Court for the District of Maryland.4 Biospherics claimed the article contained false statements that caused the company's stock price to drop from 6 5/8 per share at the time of publication to 4 7/8 six and one half months later.5 The suit failed before reaching a trial on the merits. Despite finding that the Forbes column was indeed susceptible of a defamatory meaning,6 the district court granted summary judgment for the defendants on the ground that the allegedly defamatory statements were not capable of being proven false.7 Adopting substantially similar reasoning, the Fourth Circuit Court of Appeals subsequently affirmed the district court's judgment,8 denying Biospherics the opportunity to prove its allegations of libel in front of a jury.

Americans spend billions of dollars each year on investment information and advice, and many publications have tried to capture a portion of this lucrative market.9 Because the resulting advice has the potential to alter the market value of a company's stock, a publicly held corporation has a legitimate and substantial interest in ensuring that publication of false information does not lead investors to undervalue its stock. By summarily rejecting Biospherics' defamation claims, the Fourth Circuit has created a standard that makes it virtually impossible for a corporation10 to defend its stock value by invoking the "important social values which underlie the law of defamation."11

In contrast to the apparent position of the Fourth Circuit, this Comment argues that defamed corporations should face the same legal burdens as defamed individuals when seeking redress in the courts. Part II of the Comment will begin the discussion by analyzing the law of defamation, the First Amendment concerns that led to the untimely end of Biospherics' litigation, and the uncertain place of corporate plaintiffs in the realm of defamation law.12 Part III will then examine how both the district court13 and the court of appeals14 drew on constitutional defamation law in denying Biospherics the chance to recover from Forbes. Ultimately, the Comment will argue in Part IV that the Fourth Circuit erred in the following ways: (1) by inappropriately limiting the scope of its "context and tenor" inquiry;15 (2) by seemingly requiring statements of "opinion" to imply extremely particular defamatory facts before they can become actionable;16 and (3) by failing to distinguish between the constitutionally protected opinions of investment analysts and a publication's factual assertion that those analysts have made a very specific conclusion about the value of a corporation's stock.l7


The basic elements of the tort of defamation18 are defined by state law.19 Under the law of Maryland, which applied in Biospherics,20 "the elements necessary to establish a prima facie case of defamation sufficient to withstand a motion for summary judgment are a defamatory communication, publication to a third person, falsity, fault, and harm. …

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