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Food Lion, Inc. v. Capital Cities/ABC, Inc.

Basic Facts: The ABC television show Primetime Live aired a critical program about the food handling practices of the grocery store chain Food Lion based on the undercover reporting of two of its investigative reporters, Lynne Dale and Susan Barnett. Food Lion sued, not on the grounds of defamation, but on the basis of unfair trade practices, fraud, breach of contract, etc., because the reporters gained access by getting jobs at Food Lion stores based on false resumes, which most importantly did not mention that Dale and Barnett were also employed by ABC. At the district court level, Food Lion won and was given a minimal amount of money in damages, only $1,402 total, from the two defendants. ABC, on the other hand, was fined over $5 million, though the eventual amount was reduced to a little over $300,000 in post-trial proceedings. However, the court ruled that Food Lion could not recover publication damages—revenue or loss of stock value directly attributable to the publication of the story—because those damages could not be directly attributed to the fraud committed by the defendants. Both sides appealed the decision; ABC argued that they had not committed fraud at all, and Food Lion claimed that they should be awarded publication damages as well. The case eventually made its way to the U.S. 4th Circuit Court of Appeals.

Questions: Were ABC’s reporters guilty of committing fraud against Food Lion, and if so, was Food Lion entitled to receive compensation for lost profits resulting from the airing of the story? Or could they only receive damages that were attributable to the fraud itself?

Decision: The circuit court overturned one part of the district court’s decision and affirmed the other two. It decided that the two reporters had not committed fraud, but they affirmed the lower court’s decision that they had breached their duty of loyalty and agreed that ABC was not responsible for any lost profits incurred by Food Lion. The latter argument was made on First Amendment grounds, since the claims ABC made on their program were true and therefore not defamatory, regardless of how the information was attained. The court decided that, in order to receive punitive damages, the case had to meet the New York Times standard of “actual malice,” which is the publishing or airing something that is known to be false or publishing it with reckless disregard to its truth.

According to the court, the defendants could not be found guilty of fraud because the contract they signed upon employment explicitly stated that either party could terminate employment at any time and for any reason. Therefore, Food Lion had to assume the risk of their early departure at the time of employment, and the false pretenses under which they were hired were rendered irrelevant.

Ruling: “The question is what was the proximate cause of the issuance of paychecks to Dale and Barnett. Was it the resume misrepresentations or was it something else? It was something else. Dale and Barnett were paid because they showed up for work and performed their assigned tasks as Food Lion employees. Their performance was at a level suitable to their status as new, entry-level employees. . .In sum, Dale and Barnett were not paid their wages because of misrepresentations on their job applications. Food Lion therefore cannot assert wage payment to satisfy the injurious reliance element of fraud. The fraud verdict must be reversed.”

“In sum, Food Lion could not bypass the New York Times standard if it wanted publication damages. The district court therefore reached the correct result when it disallowed these damages, although we affirm on a different ground.”

–Justice Michael, Opinion of the Court

Chris Marshall


April 5, 2010 - Posted by | Uncategorized

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