Business Law & Ethics
2 October 2012
Defamation: Daphne Auto LLC v. Pensacola Motor Sales Defamation (defamation of character) is the tort of publication of a false statement of fact that causes injury to someone’s reputation or character. Defamation allegations can also be brought via a similar arena of portraying a false light which indicates false implications rather than definitive false statements (Citizens Media Law Project). Our case, an Alabama business lawsuit, Daphne Auto., LLC v. Pensacola Motors Sales, Inc. involves defamation in the form of slander. The case was filed January 1, 2010 in Circuit Court of Mobile County, Alabama. The litigants are Daphne Automotive, LLC d/b/a Eastern Shore Toyota and Shawn Esfahani, v. Pensacola Motor Sales, Inc. d/b/a Bob Tyler Toyota and its sales manager Fred Keener. The crux of the suit references defamatory statements made about Esfahani and Eastern Shore Toyota by Bob Tyler Toyota, its sales manager, Fred Keener, and its employees to potential customers regarding his birthplace, him being an Islamic terrorist, and that he was using his dealership to fund Taliban operations in Iraq. Mr. Esfahani learned of the alleged defamation against him from a couple that had previously purchased a vehicle from Bob Tyler Toyota but were now shopping to purchase a vehicle for the wife.
The plaintiff in his pursuit petitioned the court to be awarded compensatory and punitive damages on three courses of actions (Daphne v Pensacola): a. Slander Per Se – In most states per se indicates the statement defamatory on its face derived from the Latin for “of itself or in itself.” Slander per se has traditionally been actionable if it fell under one of the following umbrellas: * imputations of criminal conduct * allegations injurious to another in their trade, business, or profession * imputations of loathsome disease * imputations of un-chastity in a woman (Carroll)
All states except five (Arizona, Arkansas, Missouri, Mississippi and Tennessee) in the US consider these categories to be defamatory per se (LawFirms.com). b. Slander per quod – relies on context and the interpretation of the listener. This implicates that one would have to possess external knowledge to know that the statement was defamatory (Carroll). c. Intentional Interference with Business
Under Alabama law a person can be liable for interfering with the business relationship of an entity. The elements required to prove interference (tort) with a business relationship are: * there must be a contract or business relationship; * knowledge of the contract or business relationship by the defendant; * intentional interference with the contract or business relationship; * damage suffered as a result of the interference, and * the defendant must be a stranger to the relationship or contract with which he or she allegedly interfered (Johnson).
The facts of the case are in the summer of 2009, a husband and wife who had previously bought a vehicle from Bob Tyler Toyota decided to purchase vehicle for the wife. The couple shopped two dealerships, Bob Tyler Toyota and Eastern Shore Toyota, but decided to purchase from Eastern Shore Toyota rather than Bob Tyler Toyota. Prior to their final decision, this couple visited Bob Tyler Toyota showroom and met with Fred Keener, the sales manager.
Esfahani allegations of defamation per se were validated by the fact that when the couple mentioned to Keener their plans to purchase at Eastern Shore Toyota. Keener told them that Esfahani was “from the Middle East, and he was helping fund the insurgents there and also laundering money for them.” These statements to this couple were made in the presence of Bob Tyler Toyota salesman, Joe Carp. In the end, this couple decided to purchase from Eastern Shore. The salesman Joe Carp, phoned the couple while they waited to complete their purchase at Eastern Shore Toyota. Carp was alerted by the couple that they were finalizing their purchase at Eastern Shore. He, acting under the direction and supervision of Bob Tyler Toyota and Keener, the sales manager, responded: “I can’t believe you are buying from that terrorist. He is from Iraq, and he is funneling money back to his family and other terrorists. I have a brother over there and what you’re doing is helping kill my brother.” These statements were discovered to be consistent with the defamatory atmosphere created by Bob Tyler Toyota and sales manager Fred Keener, with customers who mentioned Eastern Shore Toyota.
It was also discovered that during sales meetings, Keener and the staff at Bob Tyler Toyota frequently discussed with employees Esfahani and Eastern Shore Toyota. At these meetings the plaintiffs were often labeled “terrorists” or other similar but completely false labels. Employees, especially Keener, and the salesmen, frequently and openly referred to Eastern Shore Toyota as “Middle Eastern Shore Toyota” or “Taliban Toyota.” These conversations often times occurred in the showroom and were intentionally made to be overheard by customers frequenting the Bob Tyler Toyota showroom. The alleged defamation, the plaintiff stated, could be substantiated because the statements made to customers and potential customers were determined to be completely false on their face because he was born in Iran.
Allegations of defamation per quod Esfahani were validated when Esfahani’s attorneys proved that Bob Tyler Toyota and Keener acted with knowledge of the falsity of the statements and without any regard for their slanderous effects to Esfahani and Eastern Shore Toyota. The plaintiffs reported that Bob Tyler Toyota and its agents acknowledged that statements were willfully and maliciously made. There were additional allegations that the defendants intended to injure the plaintiffs’ business and livelihood and to deprive the plaintiffs of the respect and confidence essential for them to carry on their business.
Further allegations of intentional inference with business relationships was that Bob Tyler Toyota and Fred Keener intended to deprive them of their good name, reputation, and the esteem of their customers, potential customers and various third parties. In addition it was also alleged that Bob Tyler Toyota and Fred Keeners conduct was intended to bring the business into scandal, public ridicule, shame, reproach, contempt and professional disgrace before customers, potential customers and the public at large. As a result of Bob Tyler Toyota and Fred Keener’s malicious communication and use of the false statements, Esfahani and Eastern Shore Toyota stated that they were deprived of the public confidence that they had prior to Bob Tyler Toyota acts. Eastern Shore Toyota reported that their business reputation had been damaged and the business had lost profits and had in many ways been lessened. Furthermore, as a direct result of the defendants’ malicious undertakings, Esfahani and Eastern Shore Toyota had suffered injury and damages including, without limitation, the ability to expand and add customers (Daphne v Pensacola).
The court awarded Shawn Esfahani $2.5 million in compensatory damages and $5 million in punitive damages because in the process of the court proceedings it was found that Esfahani is a naturalized U.S. citizen, who fled his native Iran in 1980 following the Islamic revolution that toppled the U.S.- backed Shah and swept Shi’ite Muslim clergy to power. He came here worked hard and was able to open his Alabama car dealership in 2007 and there was nothing found to substantiate any truth to the statements made by Bob Tyler Toyota and its agents (Rutledge, Yaghmai).
There are four basic elements a plaintiff must prove to support a claim of defamation whether it is libel (written) or slander (oral):
First, the statement, which must be about the business or person, must be false. As our case showed a corporation could sue for the defamation if the false statement is towards the corporation itself and not toward the board members or an officer (Barnes, Dworkin, and Richards 116). In our case the alleged defamatory statements were made against a corporation (Eastern Shore Toyota, LLC.) by labeling it “Taliban Toyota” and its CEO (Shawn Esfahani) stating he was born in Iraq and funding terrorists which is why both parties were listed as plaintiffs in the suit. Agents of Bob Tyler Toyota stated to the couple that the owner of the Eastern Shore Toyota, LLC, Shawn Esfahani, was from Iraq and the money that goes into his pocket contributes to the terrorist’s organizations (Dugan). However, Esfahani was born in Iran and came to the United States after Iranian Islamic revolution when he was 16 and has since obtained U.S. citizenship; therefore, the statement that Esfahani was from Iraq was undoubtedly false. This finding created the foundation for Esfahani’s attorneys to show that the other statements were also false. Esfahani and Eastern Shore Toyota satisfied the first element needed to substantiate a claim of defamation.
Second the statement must be “published” to a third party, other than the person who is being defamed. Published does not represent print here, but that the statement has to be ‘made available’ to someone other than the person about whom the statement was made. Anyone who hears the statement would have to know or have thought that it is the plaintiff’s organization (Mylawchamber). Fred Keener and Joe Carp attempted to deceive the couple by making defamatory statement in efforts to discourage or change their decision of making their purchase from Eastern Shore Toyota.
Third, it must be proven unprivileged (Morris and Stone). If the nature of the statement is “of public concern” the person who has published it could be held liable for negligence. Public figures who seek to prove that they have been defamed must prove an additional element under the First Amendment of the US Constitution, that in publishing the statement the defendant was acting with ‘actual malice’ (by publishing something they know to be a lie) or at least to have a total disregard for whether the statement is true or not (LawFirms.com). Fred Keener and many of the staff at Bob Tyler Toyota repeatedly spoke defamatory statements to and in front of customers knowing that they were false. In addition to that Fred Keener made false statements intentionally.
There are some actions in which the speaker has absolute privilege or qualified privileges which the law would not consider as liable (Morris and Stone). The statements by “members of Congress on the floor of Congress, statements by participants in judicial proceedings, and private statements between spouses are “absolutely privileged.” (Barnes, Dworkin, and Richards 116). Therefore, actions that are regarded as absolute privilege or qualified privilege can be judged under defamation as false statement (Barnes, Dworkin, and Richards 116). Since none of the defendants are viewed as public figures and the statement was not for public interest in which there is a fiduciary duty to reveal the truth, privilege does not apply in this case.
Finally, the business must be damaged by the statement (Morris and Stone). Some states permit plaintiffs to establish suffering mental anguish as opposed to damages. As with this case, Esfahani was able to prove the statements created a great deal of mental suffering. Loss of customers, profits, investors, future contractors, suppliers, and the loss of properties could occur as damage resulting in a loss of value of the business. The damages Esfahani suffered were not limited to the loss of customers or profits, but it was the feeling that he personally was affected by the slander. According to Esfahani, “the things were said was hurtful, absolutely (God) and for the first time he felt embarrassed and ashamed” (easternshorehyundai).
In today’s business world accusations of defamation are becoming more prevalent than ever before because of information technology such as blogging, email, social media such as Facebook and Twitter has made it easier for the businesses to be affected by defamatory statements (Kumar). Arenas such as advertisement are leading to many cases being brought forward by business against other business in regard to defamation. Statements on the Internet expressly or impliedly can bring about accusations of business defamation. In order for a business to prove defamation they must establish that someone has published a false or defamatory statement against their organization (Plessner, Clark). In a claim for libel, the party who is claiming for defamation has “to be identified in the claim form” by the business (Practice). The form must have included the words that are false about the business and then the claimant must specifically prove and explain the actions or the words that caused defamation, whereas in the claim for slander, the claimant must specify the specific word and the claimant must prove and show the meaning of that specific word (Practice). In our case, Eastern Shore Toyota was specifically identifiable in the defamatory statements because the couple absolutely knew that they were hearing about owner of the Eastern Shore Toyota. Also, the words were specific that Shawn Esfahani was from Iraq and he supports terrorists and his family back there with the profit he earns. If the Eastern Shore Toyota earns profit; that meant the customer were supporting Fred Kenner of Bob Tyler’s brother to get killed in Iraq; moreover, the profit Eastern Shore Toyota earns goes to Iraq to support the terrorists there and supports American soldiers who are in Iraq to get killed. The way that Fred Kenner of Bob Tyler slandered Eastern Shore Toyota was specific and identifiable. Even though a business’s goal is profit maximization, they must keep their actions within the law and ethical or we will see many more law suits for defamation brought forth. In an attempt to increase profits, agents of Bob Tyler Toyota broke the law and carried out an unethical action which is why the law and threats of punishment are not always deterrents to controlling the behaviors of business. The punitive damages awarded to Eastern Shore Toyota and Esfahani were meant to be a deterrent to other business from carrying out this type of action. Esfahani stated in public that not only was his reputation damaged but he was emotionally damaged so the money awarded was not important but he wanted justice and wanted to stand against discrimination.
While the Taliban Toyota defamation case was focused on oral statements and thus a charge of slander, the advent of the internet has created an entirely new venue for the growth of libel. Wide accessibility and a sense of anonymity have created an environment where users are emboldened to write things which they would not normally say. Product review sites and public forums abound, and these serve a valuable purpose of allowing users to discuss their experience with various products and services. However, businesses seeking to gain advantage over competitors may be tempted to post negative information about the competition. One well known example was between two natural food retailers, Whole Foods and Wild Oats. John Mackey, CEO of Whole Foods, was a frequent blogger on his company website, but further, was an anonymous poster on a Yahoo Finance forum. On the Yahoo site, he was known as a promoter of Whole Foods but would also occasionally post negative comments about Wild Oats (MacPherson, Mello, and Rinehard). Eventually, Whole Foods made a successful attempt to purchase Wild Oats. Once Mackey’s identity became known, the SEC investigated to see if he has been attempting to manipulate the share price. He was eventually exonerated and returned to blogging on the company site. In this case, his behavior apparently wasn’t tortuous; it certainly was deceptive and unethical. It certainly came close to being libelous. It was only the SECs finding that Mackey’s posts did not materially harm Wild Oats that kept him in the clear (Mitchell). This stands in contrast to the Toyota case where there was a finding that the slander did in fact harm Eastern Shore Toyota (Sayre). The key cautionary in this comparison is that the internet has opened up new ways to reach many more people and to do so more cost effectively. But this adds a burden to businesses to ensure that they do not assume anonymity provides cover for defamation.
Defamation is the act of harming a person by damaging the person’s reputation. It can be either written (libel) or oral (slander). Businesses also have protection from defamation if such acts harm their reputation or interfere with the operation. Several elements must exist for defamation to occur. First, the defamatory statements must be about the person or business. General comments about a group do not qualify as defamation even if the plaintiff is a member of the group (Barnes, Dworkin, and Richards 122). So if I say “You should not do business with Eskimos”, Joe Smith who is Eskimo and owns an Eskimo Pie franchise cannot prove defamation because the statement was not about him or his business specifically. But if I say “Joe Smith is an Eskimo and you shouldn’t do business with him because he is an Eskimo and kills walruses for fun”, then Joe may have a case for defamation.
To be slanderous, the statements must be about a matter of fact, not opinion. Simply saying “I don’t like Joe’s Eskimo Pies” is not slander. Additionally, the statement must be false. A person cannot be guilty of defamation if they are telling the truth, regardless of how damaging it might be to the plaintiff (Barnes, Dworkin, and Richards 122).
The final element for defamation to exist is that the statement must be to someone other than the plaintiff. If I tell my lawn service, Everpure Organic Lawncare, that I suspect their spray-on weed killer is not environmentally friendly, that does not qualify as slander because it is an exchange between the parties. However, if I post messages and tell my neighbors about my belief, then a third party is introduced and my action could then be defamation (Barnes, Dworkin, and Richards 122).
To defend against defamation, you must show that at least one of the elements that create defamation is absent. The best defense for defamation is truth. Someone who is communicating truth cannot be found guilty of slander (Barnes, Dworkin, and Richards 123). In the Toyota case, if the allegations of money laundering were true, there would be no slander. There are also exceptions for privileged communications but these exceptions are fairly narrow in scope (Barnes, Dworkin, and Richards 123). Other defenses for defamation are related to the size of the group and the nature of the statement. Derogatory statements about a general group cannot be used as a claim by an individual member of the group, regardless of the truth of the statement. Likewise, statements of opinion are not libelous because they cannot be proven false. The caveat on opinions, however, is when a statement of opinion implies some knowledge of fact, which can be disproven; the opinion may be the subject of a defamation charge (Velarde).
In the 20th century, the U.S. Supreme Court has allowed that only factual misrepresentation rather expressed opinion be brought in claims for libel or slander. Whether a case is deemed libel or slander has also become extremely important because in libel cases injury is presumed. But in cases where there is slander per se, proof of damage is not required. In other cases recovery is not permitted unless loss via the slander is proven (Rosenberg). This was important to our case because, although, Eastern Shore Toyota and Esfahani were able to prove their damages, the cause of slander per se permitted that they did not have to show damage because the statements were found to absolutely false (slander per se).
The history of defamation as it relates to business has evolved over the years and as we continue to become a more globalized economy and the use of the Internet will insist that legal communities, legal professionals, and the likes of U.S. Supreme Court re-examine over and over again the privilege of “freedom of speech” guaranteed by the First Amendment as relates to defamation. The burden of proof lies with the defendants and most courts today do not rely on the First Amendment to seek out their interpretations of defamation. From our research, it is certain that First Amendment is no longer an “absolute” defense to damaging the reputation of a business. Suits alleging business defamation cases are consistently arising from statements made via blogging, tweeting, online advertising, emails, and social media sites, etc. Although it must be noted that Section 230 of the Common Decency Act may protect a business from defamation if the publication was made by a third party in no way associated with that business (Citizens Media Law Project). As technology continues to progress and the economic boundaries rapidly expand we can expect to see charges of defamation spread across international borders and the laws and interpretation of defamation become more scrutinized and stretched to limits that will keep attorneys, judges, and the U.S. Supreme Court scrambling for clarification and interpretation for many years to come.

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