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July 16, 1968

ALTOONA CLAY PRODUCTS, INC., a corporation, Plaintiff,
DUN & BRADSTREET, INC., a corporation, Defendant, v. C. R. GROVE, joined as Plaintiff by Court Order

The opinion of the court was delivered by: WEBER

 Prior aspects of this case have been reported in 37 F.R.D. 460, 246 F. Supp. 419, and 367 F.2d 625. It is a diversity action based on allegation of libel on plaintiff's business reputation. Defendant is a mercantile agency supplying reports to subscribers as a guide to their business dealings. Plaintiff is a corporation engaged as an independent sales agency, buying brick products from manufacturers and selling to construction contractors. Plaintiff was also a subscriber to defendant's service. In response to an inquiry from an interested subscriber defendant undertook to prepare a new report on plaintiff which was circulated to fifteen (15) subscribers who had requested such reports. After a statement of estimated financial worth, and an estimated statement of assets and liabilities, the report contained two notations taken from the court records of Blair County, Pennsylvania. One was a report that plaintiff had assigned all its accounts receivable, past, present and future, to a bank. This was true. The other was a notation of the entry of a confession of judgment in a penal sum of $60,000 with a docket number and term. This was false as applied to plaintiff firm, because the plaintiff's name was "Altoona Clay Products, Inc." and the judgment was actually entered against "Altoona Clay Products Company, Inc.", a predecessor to plaintiff's business which had changed its corporate name and sold its personal property and good will to plaintiff corporation when plaintiff was organized, but which continued to own real estate conveyed to it under its former corporate name.

 At the first trial of this action, plaintiff was limited to proof of special damages in support of a libel per quod, and the court granted defendant's motion for directed verdict in its favor because of the failure of proof of special damages. On appeal it was determined that a new trial must be granted because the publication was actionable without proof of special damages, and that proof of special damages should be submitted to the jury. The jury found no special damages, but awarded general damages of $110,000. The court refused plaintiff's request to argue for and receive a charge on punitive damages.

 Defendant moves for judgment N.O.V. and for new trial on arguments that will be treated in part in this opinion.

 Defendant argues that the verdict is excessive, which requires a new trial, and entirely unsupported by the evidence, which requires a directed verdict for defendant. It is an understatement to say that the verdict is shocking to the conscience of the court. While general damages are permissible in an action of libel per se and require no proof of special damages to support them, they are none the less compensatory, and must bear some relation to the evidence. 3 Restatement, Torts, § 621. A business corporation can only be damaged with respect to its credit, its profits and its property. The plaintiff here used the same evidence in support of its claim for general damages as was used to support the claim for special damages. The president of plaintiff corporation testified to the imposition of credit restrictions as a consequence of which he did not bid on certain contract opportunities as a result of which he estimated a loss of profits. We held this insufficient to support a claim for special damages in the first trial of the action, but under the mandate of the Court of Appeals they were submitted to the jury in the second trial. The jury found no special damages.

"A successful plaintiff in an action for libel or slander is entitled to recover such actual or compensatory damages as are the natural and direct or proximate result of the publication, but not speculative or remote damages, the rule applying to special as well as general damages."
53 C.J.S. Libel and Slander § 240.

 At the trial we were conscious of the liberality that must be exercised in viewing evidence of claims for special damages resulting from an alleged impairment of credit because the nature of such loss precludes definite ascertainment of the specific amount lost. Cf. Dun & Bradstreet v. Nicklaus, 340 F.2d 882 [C.A. 8, 1965]. The nature of plaintiff's evidence was highly speculative but it was nevertheless submitted to the jury. The absence of special damages is a factor to be considered in weighing the adequacy or excessiveness of general damages awarded, Regan v. O'Toole, 348 Pa. 364, 35 A.2d 55 [1944]. The fact that plaintiff is a business corporation and can be injured by false publication only with respect to its credit, property, or profits, limits the scope of compensatory general damages which it may recover, as distinguished from the damages which an individual can recover. Erick Bowman Remedy Company v. Jensen Salsbery Laboratories, 17 F.2d 255, 257 [8th Cir., 1926]; Farbenfabriken of Elberfeld Co. v. Beringer, 158 F. 802, 804 [3rd Cir., 1908].

 We are very conscious of the admonition of Lind v. Schenley Industries, Inc., 278 F.2d 79 [3rd Cir., 1960] that a grant of a new trial must be based on sound grounds and should not be made unless it is quite clear that the jury has reached a seriously erroneous result. The court may be compelled by some undesirable or pernicious element that has been introduced. When a trial has been long and complicated and deals with a matter not lying within the ordinary knowledge of jurors, a verdict may be scrutinized very closely.

 There was abundant evidence that the financial decline in this corporation had been proceeding for some years. Its capital had been seriously impaired three years before by a purchase of the outstanding controlling stock from capital contrary to the provisions of the Pennsylvania business corporation code. Even the testimony of the plaintiff's own witnesses, both its creditors and its expert financial witnesses, showed the serious financial straits of the corporation before this publication. The corporation had been delinquent in its accounts, had been given prior notices of credit limitations, and had been refused deliveries for failure to keep its payment commitments. Even after publication of this report, in March of 1963, a creditor imposed a sixty (60) day credit limitation because he felt accounts more than sixty (60) days in arrears were in peril, and plaintiff was over sixty (60) days overdue.

 A highly important factor in the minds of witnesses for plaintiff was the truthful memorandum that plaintiff had assigned all its accounts receivable, past, present and future, to a bank, leaving it with few current assets to meet substantial current liabilities.

 All of this testimony was reviewed in connection with plaintiff's claim for special damages and on the basis of it the jury found no special damages had been suffered by plaintiff. It is highly inconsistent that on the same evidence they made the award of general damages in question here.

 Apart from the lack of evidentiary basis for the damages here there were certain highly prejudicial elements introduced at trial. Despite the prior ruling of the court that it would not submit the question of punitive damages to the jury, and despite the side bar denial upon offer of proof of defendant's financial strength in support of a claim for punitive damages, plaintiff's counsel in his summation argued to the jury in reference to this case:

"It is going to be watched by many small businesses who will know that by a jury telling a large credit company that they must publish only the truth about their finances, and their credit and solvency, will not be permitted to get away with issue false credits and damaging and even killing little businesses."

 A second serious and prejudicial element in the closing address was a suggestion as to how much their damages should be. Plaintiff's counsel referred to the estimated balance sheet shown upon the report in question. He referred to the liabilities shown thereon and totalled them up to $108,900 and then added:

"Now it has been told to you and it is correct, that all of the assets of this company were turned over to a receiver-assignee for creditors they still owe, somebody who is going to take whatever assets they have and pay the bills that they owed at that time, $108,000.
When they assign these things, these items, they assign all of their property; that includes this lawsuit and any proceeds of that, go to these creditors first to be paid off. You see what they are."

 It is curiously noteworthy that the general damage verdict was for $110,000, almost the same figure. In addition to this being a totally unwarranted argument and improper suggestion to the jury, it was untrue because plaintiff did not include the assets shown on the balance sheet which were also for the use of creditors, and which, according to plaintiff's arguments, showed the plaintiff to be a solvent company.

 We do not deem objection to this argument waived by counsel's failure to object. Counsel for the defendant was forced to voice objection to plaintiff's closing at other points, which the court sustained, and defense counsel was being forced into a position of disadvantage by making such objections. Such objections have been recognized as hazardous, London Guarantee & Acc. Co. v. Woelfle, 83 F.2d 325 [8th Cir., 1936], and failure to object is not fatal where obvious prejudice has occurred. Robinson v. Pennsylvania R.R. Co., 214 F.2d 798 [3rd Cir., 1954].

 The evidence in this case with respect to damages cannot sustain this verdict. Gross sales had declined in each year from 1958 and followed the same downward trend in 1963. Net operating losses in 1963 followed the same upward trend as in the prior years. Current liabilities exceeded current assets in 1961 and the ratio increased in 1962. Both of plaintiff's financial experts testified that without regard to the mistaken notation of judgment the company was not financially stable. A very critical factor in the minds of witnesses was the undeniably true item contained on the credit report in question that in 1962 plaintiff had assigned all its accounts receivable, past, present and future, leaving practically no current assets free for the payment of current obligations. By the plaintiff's own evidence, the plaintiff corporation was shown to be insolvent by a number of tests without regard to the publication of the erroneous report of judgment. It was unable to pay current bills. As of December 31, 1962, nine days before the report in question, the company's own balance sheet showed a net worth of $4,013.13, but the counterbalancing asset was an item listed as an asset worth $4,326. represented by a note of a former employee who had embezzled funds, an item of very doubtful value. This financial statement is of doubtful value in proving worth because it did not reflect the serious impairment of capital caused by buying in the controlling stock in the corporation in 1960, and because of its failure to set up any reserve for doubtful accounts receivable which was entered in the 1963 statement as $8,420.16.

 Plaintiff corporation was essentially a one man corporation engaged in sales of brick products. Plaintiff's president was an employee of the former corporation whose mortgage and change of corporate name led to the confusion of names involved here. He and the proprietor of the former business founded a new corporation which bought the business assets of the old. Plaintiff was a minority stockholder, but after a year of operation disagreements arose, and the majority shareholder was bought out by stock redemption using capital of plaintiff corporation and by a peculiar salary bonus arrangement supported in part by profits in 1958, the sole good year. Plaintiff's president participated in a substantial bonus at the same time, and has been the sole or principal stockholder since. Thereafter sales declined, there was no profit, but plaintiff's president continued to draw his salary. When plaintiff corporation ceased to do business plaintiff's president went to work as a salesman for one of its former suppliers and has done well. Plaintiff's president attempted initially to conduct this lawsuit in the name of the corporation and it was only after compulsion of court order that the state appointed receiver for the benefit of creditors, who had received a general assignment of the corporation's assets, was made the real party plaintiff, although the trial was conducted by plaintiff's original trial counsel.

 We do not regard the evidence of damages suffered by the receiver's sale of assets over a year later at less than their claimed value to be of much value. There is no evidence to support the correctness of the values claimed, and no evidence to show diligence on the part of the receiver. We believe that this evidence is too remote and speculative to have any probative value on the issue of damages, particularly in view of the corporation's history of business decline.

 Plaintiff has alleged loss of credit as a result of the erroneous report. This makes his claim actionable per se and entitles him to general damages on proof that credit was so restricted. Regardless of whether loss of credit was actually proven, which we will consider later, we do not believe that loss of credit of a business firm, standing alone, is proof of damages, unless it connects itself with some tangible pecuniary loss of which it is the cause. Eckel v. Murphey, 15 Pa. 488, 495 [1850]; Smith v. Western Union Telegraph Co., 150 Pa. 561, 564, 24 A. 1049 [1892].

 On the basis of the foregoing, assuming plaintiff to have met the burden of proof on the other elements required of it, we find the damages awarded grossly excessive, unsupported by evidence, inconsistent with the finding of no special damages, and subject to the prejudicial influence of improper argument of plaintiff's counsel.

 In the first trial of this case the trial court, as a result of arguments on pretrial motions, held that the publication in question, a mercantile report containing an erroneous item reporting the entry of a judgment against plaintiff, constituted a libel per quod which required the proof of special damages. Although defendant had raised the objection that special damages had not been pleaded with particularity, as required by Pennsylvania law, and the Federal Rules of Civil Procedure, the court held that in view of the extensive discovery that had been conducted, defendant was informed as to the nature of the claim for damages, and denied the defendant's motion based on these grounds. We held that no general damages were allowable under such circumstances. [See 37 F.R.D. 460].

 We take the following guidelines from the opinion of the Court of Appeals as the law of the case:

1. "The plaintiff's allegation that defendant had 'erroneously' reported to plaintiff's creditors that a large judgment had been entered against it was actionable per se. The complaint clearly states that plaintiff's credit was injured as a result of the publication." (p. 629.)
2. "We read the report as not only imputing insolvency but demonstrating it: plaintiff's estimated liabilities (the liabilities column plus the $60,000 judgment) are reported as far exceeding its estimated assets. The report is, therefore, defamatory on its face." (pp. 630-631).
3. "Under these circumstances (the extent of pretrial discovery) and upon consideration of the liberalized pleadings effectuated by the Federal Rules, we hold that plaintiff's failure to attach to its complaint a copy of the report could not preclude it from arguing that the report demonstrated insolvency, nor can we perceive any prejudice to the defendant by plaintiff's belated assertion of imputed insolvency." (p. 631).

 The controlling law here is the law of Pennsylvania. Generally, Pennsylvania law in this field follows the Restatement of Torts, § 558 et seq. The requirement of 3 Restatement, Torts, § ...

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