First Circuit Court Surprises Media Lawyers with Controversial Decision in Libel Case

A recent decision by the 1st Circuit against Staples, Inc. surprised many media lawyers by holding that truth is not an absolute defense to a libel claim. It held that a truthful statement may give rise to a cause of action by a private-figure plaintiff if it was made maliciously. The decision departs from decades worth of jurisprudence establishing truth as an absolute defense to a defamation claim.

No doubt the extreme facts in this case drove the Court’s outcome. The case was brought by a former Staples employee who was terminated for “cause” submitting false expense reports. The termination took place after an extensive internal investigation that uncovered the fraud. After the termination, a manager issued an email to 1,500 Staples employees stating that the employee had been terminated for abusing the travel & expense policy. (The court’s commentary seems to suggest that the fact that employee was mentioned by name in this en masse email is what they thought a jury could consider to be malicious. Although the court held that there was no question that the statement in the email was true, it nonetheless allowed a libel claim to stand based on a 1902 law (G.L.c.231, sec. 92) that provides that truth is a justification for libel “unless malice is actually proved.”

 

It is important to note, however, that this decision does not mean that Staples loses on this claim. The 1st Circuit remanded the case back to the US District Court for trial where a jury may still find that the manager’s email did not constitute malice.

Another interesting part of the decision deals with stock options. As part of the for “cause” termination, the employee’s vested stock options were terminated per the terms of the option plans. The agreements provided that whether or not termination is for cause would be “as determined by Staples, which determination shall be conclusive.” Finding no prior Mass. law on this issue, the 1st Circuit held it will not second guess the Company’s termination decision unless it finds that it was “arbitrary, capricious, or made in bad faith,” which in this case was based extensive internal investigation and therefore was allowed to stand.

In this market where layoffs are looming in just about every industry, this case underscores the importance of proper procedure (and tact) in handling terminations. Based on this decision, employers should be additionally cautious when handling any announcements internal or external and discussions regarding anyone being terminated, as well as in the context of giving references or referrals. And while not all employers have Staples’ budget to conduct internal investigations to find “cause”, any determination of such a finding should be well documented.

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