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June 30, 2014

Appellate Division, First Department Creates a Defamation by Implication Standard

The New York Appellate Division, First Department recently adopted the test to apply to claims of defamation by implication. Stepanov v. Dow Jones & Co., 2014 NY Slip Op 03940 (May 29, 2014).

In Stepanov v. Dow Jones & Co., the plaintiffs, Maxim Stepanov, a Russian businessman, and a company he founded, Midland Consult [Cyprus] Ltd., alleged that they were defamed in an article titled "Crime and Punishment in Putin's Russia," which appeared on April 18, 2011 in Barron's, a weekly newspaper published by the defendant. The article described a $230 million tax embezzlement conspiracy involving Russian businessmen and officials, implicating Plaintiffs as participants.

Plaintiffs' complaint contended that the article was defamatory. It was false, disparaging, derogatory, and misleading to state or imply: 1) that plaintiffs' business conducted business with the company that sold shell companies for embezzlement; 2) that plaintiffs' business was involved with companies used to launder drug-cartel money and ship weapons; 3) that a shell company at issue had directors that worked at plaintiffs' business; and 4) that plaintiff Stepanov was a former Russian diplomat, but served under Mikhail Gorbachev and Boris Yeltsin, not Vladimir Putin.

Defendant moved to dismiss the complaint, arguing that the article was not defamatory because it was substantially true that plaintiffs had a connection to the shell company, and that the article's statements "were either not of and concerning plaintiffs or not capable of having a defamatory meaning." The lower court granted the defendant's motion and dismissed the complaint because plaintiffs did not state a valid claim for express or implied defamation.

The First Department affirmed, finding that the claims asserting express defamation are based on substantially true statements that are not reasonably susceptible of defamatory connotations and not actionable. In relation to the claim for defamation by implication, the First Department adopted the defendant's proposed standard:

To survive a motion to dismiss a claim for defamation by implication where the factual statements at issue are substantially true, the plaintiff must make a rigorous showing that the language of the communication as a whole can be reasonably read both to impart a defamatory inference and to affirmatively suggest that the author intended or endorsed that inference.

Applying this standard, the court found that none of the article's statements met the standard.

This decision is significant because it is a landmark case adopting a standard for the heavily fact-driven claims of defamation by implication. It now establishes a benchmark for lower courts to analyze similar claims. However, it should be noted that this test is only controlling in the First Department, and the other Departments may use or adopt a different test.

If you require further information regarding the content presented in this Legal Alert and its impact on your organization, please contact Thomas B. Cronmiller, Chair of the Torts & Products Liability Defense Practice Area, at (585) 295-4424 or tcronmiller@hblaw.com.


 

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