Ninth Circuit Gives Some Protection to Both Bloggers and Trustees

 The case of self-proclaimed "investigative blogger" Crystal Cox took another turn as the Ninth Circuit reversed and remanded the case against her. The decision gives greater First Amendment protection to bloggers than the stingy view taken by the District Court. However, it also recognizes that trustees are not public figures entitled to less deferential review. The case is Cox v. Obsidian Finance Group, No. 12-35238 (9th Cir. 1/17/14), which can be found here [an enhanced version of this opinion is available to lexis.com subscribers]. I have previously blogged about the case here and here.

What Happened

Since I have already written extensively about the case, I will just quote the Ninth Circuit's excellent summation of what happened here.

Kevin Padrick is a principal of Obsidian Finance Group, LLC (Obsidian), a firm that provides advice to financially distressed businesses. In December 2008, Summit Accommodators, Inc. (Summit), retained Obsidian in connection with a contemplated bankruptcy. After Summit filed for reorganization, the bankruptcy court appointed Padrick as the Chapter 11 trustee. Because Summit had misappropriated funds from clients, Padrick’s principal task was to marshal the firm’s assets for the benefit of those clients.

After Padrick’s appointment, Crystal Cox published blog posts on several websites that she created, accusing Padrick and Obsidian of fraud, corruption, money-laundering, and other illegal activities in connection with the Summit bankruptcy. Cox apparently has a history of making similar allegations and seeking payoffs in exchange for retraction. See David Carr, When Truth Survives Free Speech, N.Y. Times, Dec. 11, 2011, at B1. Padrick and Obsidian sent Cox a cease-and-desist letter, but she continued posting allegations. This defamation suit ensued.

The district court held that all but one of Cox’s blog posts were constitutionally protected opinions because they employed figurative and hyperbolic language and could not be proved true or false. Obsidian Fin. Grp., LLC v. Cox, 812 F. Supp. 2d 1220, 1232–34 (D. Or. 2011) [enhanced version]. The court held, however, that a December 25, 2010 blog post on bankruptcycorruption.com made “fairly specific allegations [that] a reasonable reader could understand . . . to imply a provable fact assertion”—i.e., that Padrick, in his capacity as bankruptcy trustee, failed to pay $174,000 in taxes owed by Summit. Id. at 1238. The district judge therefore allowed that single defamation claim to proceed to a jury trial. The jury found in favor of Padrick and Obsidian, awarding the former $1.5 million and the latter $1 million in compensatory damages.

Opinion, pp. 3-4.

After trial, noted First Amendment scholar Eugene Volokh (who contributes to the excellent Volokh Conspiracy blog) agreed to represent Ms.Cox on a pro bono basis. She also drew high-powered amicus support from the Reporters Committee for Freedom of the Press and Scotusblog.com.

The Issues on Appeal

The First Amendment is an interesting thing. It allows anyone to say almost anything without prior restraint from the government. However, that does not mean that free speech is free of consequences. However, whether speech can be punished as defamatory depends on both the situation of the speaker and the identity of the person spoken about. As explained by the Court of Appeals:

The Supreme Court’s landmark opinion in New York Times Co. v. Sullivan began the construction of a First Amendment framework concerning the level of fault required for defamation liability. 376 U.S. 254 [enhanced version]. Sullivan held that when a public official seeks damages for defamation, the official must show “actual malice”—that the defendant published the defamatory statement “with knowledge that it was false or with reckless disregard of whether it was false or not.” Id. at 280. A decade later, Gertz v. Robert Welch, Inc., held that the First Amendment required only a “negligence standard for private defamation actions.” 418 U.S. 323, 350 (1974) [enhanced version]. This case involves the intersection between Sullivan and Gertz, an area not yet fully explored by this Circuit, in the context of a medium of publication—the Internet—entirely unknown at the time of those decisions.

Opinion, pp. 8-9.

Crystal Cox had argued that she was entitled to be protected under the First Amendment but the District Court would have none of it. It instructed the jury that “Defendant’s knowledge of whether the statements at issue were true or false and defendant’s intent or purpose in publishing those statements are not elements of the claim and are not relevant to the determination of liability.” According to the District Court, Cox's speech did not relate to a matter of public concern because she did not meet the traditional definition of a journalist. Among other things, she was not trained as a journalist, did not interview sources and did not seek to present both sides of a story. The District Court also held that Padrick would not have been thrust into public controversy but for Cox's posts about him.

The Court of Appeals summarized Cox's position on appeal as:

Cox does not contest on appeal the district court’s finding that the December 25 blog post contained an assertion of fact; nor does she contest the jury’s conclusions that the post was false and defamatory. She challenges only the district court’s rulings that (a) liability could be imposed without a showing of fault or actual damages and (b) Padrick and Obsidian were not public officials.

Opinion, p. 7.

The Ninth Circuit's Ruling

The Ninth Circuit conclusively rejected the argument that the institutional media is entitled to greater protection under the First Amendment than other speakers. It quoted the recent Citizens United decision for the proposition that

We have consistently rejected the proposition that the institutional press has any constitutional privilege beyond that of other speakers.

Citizens United v. Federal Election Commission, 558 U.S. 310, 352 (2010) [enhanced version]. 

The Court concluded that the professional media were not entitled to greater protection than anyone else so that the identity of the speaker was constitutionally irrelevant. Instead, the critical issues were whether the plaintiff was a public figure and whether the speech related to a matter of public concern.

The protections of the First Amendment do not turn on whether the defendant was a trained journalist, formally affiliated with traditional news entities, engaged in conflict-of-interest disclosure, went beyond just assembling others’ writings, or tried to get both sides of a story. As the Supreme Court has accurately warned, a First Amendment distinction between the institutional press and other speakers is unworkable: “With the advent of the Internet and the decline of print and broadcast media . . . the line between the media and others who wish to comment on political and social issues becomes far more blurred.” Citizens United, 558 U.S. at 352. In defamation cases, the public-figure status of a plaintiff and the public importance of the statement at issue—not the identity of the speaker—provide the First Amendment touchstones. 

We therefore hold that the Gertz negligence requirement for private defamation actions is not limited to cases with institutional media defendants.

Opinion, pp. 11-12.

Having reached this conclusion, the Court still had to analyze whether Cox's speech was in fact related to a matter of public concern and whether Padrick was a public figure. The Court had little difficulty ruling for Cox on the first issue.

The December 25 post alleged that Padrick, a court appointed trustee, committed tax fraud while administering the assets of a company in a Chapter 11 reorganization, and called for the “IRS and the Oregon Department of Revenue to look” into the matter. Public allegations that someone is involved in crime generally are speech on a matter of public concern. (citations omitted). This court has held that even consumer complaints of non-criminal conduct by a business can constitute matters of public concern. (citations omitted). Cox’s allegations in this case are similarly a matter of public concern. Padrick was appointed by a United States Bankruptcy Court as the Chapter 11 trustee of a company that had defrauded its investors through a Ponzi scheme. That company retained him and Obsidian to advise it shortly before it filed for bankruptcy. The allegations against Padrick and his company raised  questions about whether they were failing to protect the defrauded investors because they were in league with their original clients.

Opinion, pp. 13-14.

However, the Court did support the trustee on the public figure issue.

Although bankruptcy trustees are “an integral part of the judicial process,” (citation omitted), neither Padrick nor Obsidian became public officials simply by virtue of Padrick’s appointment. Padrick was neither elected nor appointed to a government position, and he did not exercise “substantial . . . control over the conduct of governmental affairs.” (citation omitted). A Chapter 11 trustee can be appointed by the bankruptcy court for cause or when the best interests of the estate or creditors dictate. (citation omitted). But, an appointed trustee simply substitutes for, and largely exercises the powers of, a debtor-in-possession. (citation omitted). No one would contend that a debtor-in-possession has become a public official simply by virtue of seeking Chapter 11 protection, and we can reach no different conclusion as to the trustee who substitutes for the debtor in administering a Chapter 11 estate.

 We also reject Cox’s argument that Padrick and Obsidian were “tantamount to public officials” because they received compensation from the court for their efforts. In Gertz, the Supreme Court held that there is “no such concept” as a “de facto public official,” (citation omitted), and that a lawyer who had served briefly on several housing committees appointed by the mayor of Chicago, but who had never held “any remunerative governmental position,” could not be considered a public official. Id. Bankruptcy trustees do not receive remuneration from the government. Their compensation is drawn from the assets of the Chapter 11 estate they administer. (citation omitted). They are not rendered public officials by virtue of that compensation, any more than is an expert witness compensated by the estate.

 Opinion, pp. 15-16.

Finally, the Court affirmed the District Court's ruling that Cox's most outrageous and inflammatory statements were non-actionable.

Padrick and Obsidian argue on cross-appeal that the district court erred in granting Cox summary judgment as to her other blog posts. Among other things, those posts accuse Padrick and Obsidian of engaging in “illegal activity,” including “corruption,” “fraud,” “deceit on the government,” “money laundering,” “defamation,” “harassment,” “tax crimes,” and “fraud against the government.” Cox also claimed that Obsidian paid off “media” and “politicians” and may have hired a hit man to kill her.

In Milkovich v. Lorain Journal Co. [enhanced version], the Supreme Court refused to create a blanket defamation exemption for “anything that might be labeled ‘opinion.’” (citation omitted). This court has held that “while ‘pure’ opinions are protected by the First Amendment, a statement that ‘may . . . imply a false assertion of fact’ is actionable.” (citation omitted). We have developed a three-part test to determine whether a statement contains an assertion of objective fact. (citation omitted). The test considers “(1) whether the general tenor of the entire work negates the impression that the defendant was asserting an objective fact, (2) whether the defendant used figurative or hyperbolic language that negates that impression, and (3) whether the statement in question is susceptible of being proved true or false.”(citation omitted).


As to the first factor, the general tenor of Cox’s blog posts negates the impression that she was asserting objective facts. The statements were posted on obsidianfinancesucks.com, a website name that leads “the reader of the statements [to be] predisposed to view them with a certain amount of skepticism and with an understanding that they will likely present one sided viewpoints rather than assertions of provable facts.” (citation omitted) The district judge correctly concluded that the “occasional and somewhat run-on[,] almost ‘stream of consciousness’-like  sentences read more like a journal or diary entry revealing [Cox’s] feelings rather than assertions of fact.” (citation omitted).

As to the second factor, Cox’s consistent use of extreme language negates the impression that the blog posts assert objective facts. Cox regularly employed hyperbolic language in the posts, including terms such as “immoral,” “really bad,” “thugs,” and “evil doers.” Id. (quoting blog posts). Cox’s assertions that “Padrick hired a ‘hit man’ to kill her” or “that the entire bankruptcy court system is corrupt” similarly dispel any reasonable expectation that the statements assert facts.

And, as to the third factor, the district court correctly found that, in the context of a non-professional website containing consistently hyperbolic language, Cox’s blog posts are “not sufficiently factual to be proved true or false.” (citation omitted).

Opinion, pp. 16-17.

What It Means

Part 1--The Founding Fathers Would Be Pleased

I have quoted large portions of the opinion because I think that Judge Hurwitz wrote a masterful opinion and said it better than I could have. In my view, this opinion is an important contribution to First Amendment jurisprudence in the internet age. The District Court's ruling appeared to be based on the elitist construct that only the professional media are entitled to speak on matters of public concern. It is my belief that the founding fathers, who were well acquainted with the pamphleteering of citizen journalists, would have been appalled at the District Court's attempt to distinguish between speakers instead of speech. In case I haven't been entirely clear, the Ninth Circuit corrected an egregiously misbegotten ruling from the lower court.

Part 2--Who Is a Public Figure?

The Court's ruling on who is a public figure is interesting. Previously I did not think that public figure was synonymous with public official. However, it is something that I have wondered about. A few years back there was a case from Austin that suggested the issue. Franco v. Cronfel, 311 S.W.3d 600 (Tex. App.--Austin, 2010, no pet.) [enhanced version] is an intriguing case that does not quite get there. In that case, an attorney was appointed as a state court receiver. The judgment creditor became disenchanted with the receiver's performance and posted a report on a site called the Ripoff Report. On motion for summary judgment, State District Judge Scott Jenkins held that the receiver was a public figure, but denied the defendant's motion that there was no evidence of actual malice. The Court of Appeals affirmed the summary judgment ruling that actual malice had not been negted but found that it lacked jurisdiction over the appeal of the public figure ruling. Because the court of appeals assumed that the receiver was a public figure for purposes of appeal but did not ultimately reach the issue, the case is intriguing but not substantive.

In my view, a person does not become a public figure merely by being appointed trustee of a bankruptcy case. However, I think that a trustee or other court-appointed official could become a public figure based on either the importance of the case or the trustee's efforts to seek the limelight. To paraphrase Skakespeare, some are born public figures, some achieve public figure status and some have public figure status thrust upon them. Attorneys are shameless self-promoters. When an attorney or a trustee gets a really big case, it is human nature to want to proclaim it to the world since media exposure is free marketing. In other cases, the trustee finds himself participating in a case of such public importance that he becomes a public figure whether he wants to or not. In my view, Irving Picard is an example of both. As the trustee for Bernard L. Madoff Investment Securities, LLC, Mr. Picard became a player in one of the largest scandals of our time. According to the Huffiington Post,

A little more than two years into the job, the 69-year-old Picard, who was plucked from obscurity to recover the money, has become America's most unlikely celebrity lawyer, and perhaps its most underrated.

While Mr. Picard may not have consciously sought public figure status, any time you can be described as "America's most unlikely celebrity lawyer," you are one.

Part 3--Hyperbole and Defamation

Finally, the court's discussion of the difference between defamation and hyperbole, while legally correct, is sadly ironic. What it says is that if you are going to attack someone, the more outrageous and unprovable your statements are, the less likely it is that someone could successfully file a defamation suit against you.

An example. Let's say that I have a case with bankruptcy trustee Ron Satija and get mad at him. I post the following statement on my blog:

Ron Satija is an arrogant snot of a trustee who uses his East Coast education to oppress anyone he considers to be his social inferior. The elitist indoctrination he received at Columbia serves him well in destroying the lives of ordinary Texas citizens.

In this example, the only factual statements are that Ron Satija is a trustee and that he was educated at Columbia which is on the East Coast. The rest is hyperbole and opinion. The factual statements are undisputably true because Ron is a trustee and he did attend Columbia. While the remaining content is calculated to make people think bad things about Ron Satija, they are protected under the First Amendment.

On the other hand, assume I said:

At a 341 meeting on January 23, 2014, bankruptcy Trustee Ron Satija told debtor John Smith, "You are an ignorant cowturd who attended Texas A & M University. Therefore, I shall object to your discharge."

At this point, I have made a factually provable statement. There either was a 341 meeting held for John Smith or there was not. The statement was either made or it was not. While the statement conveys the same sentiment as before, it is now making an assertion of objective fact.

I guess that the lesson is that while we must all suffer the slings and arrows of outrageous fate, we can only sue if those arrows are tipped with factually verifiable statements.

Note:  Ron Satija is neither an arrogant snot nor an East Coast elitist. He is a well-mannered and gracious individual. I used Ron as an example because he is a friend and fellow blogger. You should check out his blog at www.spirituallybankrupt.com.

Read more at A Texas Bankruptcy Lawyer's Blog

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