Opinion
99 C 3477
May 12, 2000
MEMORANDUM AND ORDER
The October 5, 1998, issue of Forbes magazine contained an article entitled "Stuffing the Creditor" by Brigid McMenamin. In that article, which addressed the bankruptcy proceedings relating to the 203 North LaSalle Street Partnership, Forbes asked, "[h]ave the courts gone too far in protecting debtors against creditors?" and answered, "[i]n this case it sure looks like it." Plaintiff Mark Wilkow, who was responsible for the operations of the general partner in a limited partnership that owned fifteen floors of the 203 North LaSalle building, was not pleased with the article. In this action, he claims that defendants Forbes, Inc. and Brigid McMenamin defamed him and placed him in a false light. The defendants seek to dismiss Wilkow's complaint pursuant to Fed.R.Civ.P. 12(b)(6). For the following reasons, the motion to dismiss is granted.
I. Background
The following facts are drawn from Wilkow's complaint. The court also takes judicial notice of the four opinions in the bankruptcy proceedings: the bankruptcy court's opinion, In re 203 North LaSalle Street Ltd. Partnership, 190 B.R. 567 (Bankr. N.D. Ill. 1995) (" LaSalle I"); the district court's opinion, 195 B.R. 692 (N.D. Ill. 1996) (" LaSalle II"); the Seventh Circuit's opinion, 126 F.3d 955 (7th Cir. 1997) ( "LaSalle II"); and the Supreme Court's opinion, 119 S.Ct. 1411 (1999) ( "LaSalle IV"). See Menominee Indian Tribe of Wisconsin v. Thompson, 16] P.36 449, 456 (7th Cir. 1998) (a court may consider judicially noticed documents, such as documents contained in the public record, without converting a motion to dismiss into a motion for summary judgment), cert. denied, 119 S.Ct. 1459 (1999). In addition, the court notes that it has attached a copy of the article that is at the center of this case as an appendix to this order.
A. The Bankruptcy Proceedings
The October 5, 1998, edition of Forbes contained an article about a bankruptcy reorganization plan proposed "by a real estate partnership led by Marc Wilkow." Wilkow was responsible for the operations of the general partner in a limited partnership that owned the beneficial interest in a land trust which, in turn, owned fifteen floors of the 203 North LaSalle building. The land trust borrowed approximately $93 million from a bank consortium to develop and lease the building, and the partnership granted a mortgage to secure this debt. The $93 million loan was non-recourse. In other words, the partners were not personally responsible for the loan, instead, the bank could look only to the "bricks and mortar" of the building for repayment.
Due to a recession in the Chicago real estate market, Wilkow, on behalf of the partnership, sought an extension of the maturity of the loan. When his efforts proved unfruitful, the partnership defaulted, leaving an unpaid balance of approximately $93 million. LaSalle II, 195 BR. at 696. The bank then filed suit to foreclose on its mortgage. If the bank had foreclosed, the individual partners in the partnership would have incurred personal tax liability of approximately $20 million. LaSalle III, 126 F.3d at 958. To stave off this liability, the partnership filed a Chapter 11 bankruptcy, which entitled them to stay the foreclosure proceedings.
The partnership proposed a plan based on what is commonly known as the "new value corollary." See Complaint at ¶¶ 17-18. As the Seventh Circuit explained, a reorganization generally must adhere to the absolute priority rule, which prevents a junior class of creditors (such as equity holders) from receiving or retaining any interest under a plan if a senior class of creditors (such as secured lenders) object. Id. at 962-63. The new value corollary, however, allows a junior claim holder to retain an interest over the objection of a senior creditor if the junior interest holder contributes new capital ( i.e., new value) to the reorganized entity. Id.
The parties' characterizations of the proposed reorganization plan differ. Wilkow stresses that his description of the plan focuses on the money that the bank could recover from its non-recourse loan if it foreclosed. According to Wilkow:
[T]he plan required the bankruptcy court to determine how much money the Banks would realize, assuming that the Banks were then permitted to foreclose on their security interests — which was the only source of repayment the Banks had. The plan gave inter alia the Banks a continuing security interest in that reduced amount of debt, added an obligation to pay interest monthly on that reduced amount of secured debt; the right to receive any excess cash flow to be applied against the principal amount of the secured debt, and required that the secured debt remain in place for another ten years — providing that all interest payments remained current and no other defaults occurred. As to the remaining portion of the original bank loan — which is the amount the Banks could not have recovered had they been permitted to then foreclose on the building — the plan gave the Banks an unsecured, non-interest bearing claim in that amount which would be repaid immediately after the secured debt was repaid, and before the repayment of any equity interest or any of the new capital that was required to fund the plan.
Complaint at ¶ 17.
On the other hand, the defendants' description of the plan is as follows: Under its Plan, the Partnership would retain its ownership of the Building, despite its admitted default, in exchange for a contribution over time to the reorganized Partnership with a present value of approximately $4 million. [ LaSalle III, 126 F.3d at] 959. The Bank would retain a secured claim of $55 million to be repaid over time with interest, but the $38 million balance of the Partnership's debt would not bear interest and would be treated as unsecured and paid, if at all, only out of any excess proceeds from the eventual sale or refinancing of the Building.
Defendants' Memorandum at 2.
Finally, the Seventh Circuit's encapsulation of the plan is that:
Under the . . . plan, the debtor's partners would contribute new capital: $3 million the day after the effective date of the plan and five annual installments of $625,000 thereafter. LaSalle would pay the non-insider trade creditors in frill without interest. Upon confirmation, the insiders would waive their general unsecured claims. The priority and state tax claims under the plan would be paid within 30 days of approval. Bank America's secured claim ($54.5 million) would be paid partly in cash, $1.1 million within 5 days of the effective date of the plan, and the rest as a 7-10 year interest-bearing note secured by the property. Monthly payments would be made on a 30-year amortization schedule, and any excess payments would be applied to the principal. At the end of that time, if the property were sold or refinanced, any additional proceeds, after the secured claim is paid, would be applied toward Bank America's unsecured claim, $38.5 million. The plan also provided that, in the case of default, the debtor's deed held in escrow would be conveyed to Bank America.LaSalle III, 126 F.3d at 959 (internal footnote omitted).
Despite vigorous opposition by the bank, the bankruptcy court rejected the bank's claim that the partnership's retention of ownership violated the absolute priority rule. The bankruptcy court approved the plan, and its decision was affirmed by the district court and the Seventh Circuit. The Supreme Court then granted certiorari.
B. The Forbes Article
Forbes published the article that is at the heart of this action in its October 5, 1998, issue, while the bankruptcy case was pending before the Supreme Court. This issue was distributed on or about September 21, 1998. In his complaint, Wilkow focuses on Forbes' use of the terms "stifling" and "shafting" the creditor and Forbes' comment that "many judges, ever more sympathetic to debtors, are allowing unscrupulous business owners to rob creditors."
He also points out that the article did not state that the loan was non-recourse, and alleges that the plan protected all of the money that the bank could have received if it foreclosed. He thus takes issue with Forbes' statements that "Bank of America National Trust Savings Association claims that it was stiffed by a real estate partnership led by Marc Wilkow of MJ Wilkow, Ltd., a Chicago-based manager of strip malls and offices" and "[u]nder Wilkow's plan the bank must give up as much as 40% of its claim while Wilkow and his partners get to keep the building."
He also claims that the statement that "Wilkow and his partners pleaded poverty" is false and disparaging and, in any event, is immaterial as the loan was non-recourse. In addition, he challenges Forbes' assertion that the plan would cause the bank to "take an up-to-$38 million haircut," again stressing that the loan was non-recourse, so the bank received frill protection for the amount that it could have recovered if it had foreclosed. Finally, Wilkow alleges that the article provided a misleading description of the plan and left a false impression that Wilkow forced the bank to trade its $93 million claim for a $55 million claim.
Wilkow read the article on September 21, 1998. The following day, he sent a detailed rebuttal letter to Forbes and asked for 1000 words in the magazine's "Point of View" section (as opposed to the "Readers Say" department, which Wilkow alleges is "buried" in the magazine). Forbes offered to run "a short version" (125 words) of Wilkow's rebuttal letter in the "Readers Say" department. Wilkow declined this offer and indicated that he would pursue legal remedies.
The court notes that the word count fUnction in its word processor states that the Forbes article contains 641 words.
In his three count complaint, Wilkow claims that publication of the article injured his reputation and seeks damages for defamation per se (Count I), defamation per quod (Count II), and false light invasion of privacy (Count III). Diversity jurisdiction under 28 U.S.C. § 1332 is proper as Wilkow is an Illinois citizen, Forbes is a New York corporation with its principal place of business in New York, McMenamim is a New York citizen, and it does not appear to a legal certainty that Wilkow cannot satisfy the $75,000 jurisdictional amount if he were to prevail on the merits. See, e.g. Target Market Publishing, inc. v. ADVO, Inc., 136 F.3d 1139, 1141 (7th Cir. 1998), citing St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 290 (1938). Accordingly, the court turns to the merits of the parties' dispute.
II. Discussion
A. Standard on 12(b)(6) Motion to Dismiss
In ruling on a motion to dismiss pursuant to Fed.R.Civ.P. 12 (b)(6), the court must assume the truth of all facts alleged in the complaint, construing the allegations liberally and viewing them in the light most favorable to the plaintiff. See, e.g., McMath v. City of Gary, 976 F.2d 1026, 1031 (7th Cir. 1992); Gillman v. Burlington N. R.R. Co., 878 F.2d 1020, 1022 (7th Cir. 1989). Dismissal is properly granted only if it is clear that no set of facts which the plaintiff could prove consistent with the pleadings would entitle the plaintiff to relief Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Kunik v. Racine County, Wis., 946 F.2d 1574, 1579 (7th Cir. 1991). citing Hishon v. King Spalding, 467 U.S. 69, 73 (1984).
The court will accept all well-pled factual allegations in the complaint as true. Miree v. DeKalb County, 433 U.S. 25, 27 n. 2 (1977). In addition, the court will construe the complaint liberally and will view the allegations in the light most favorable to the non-moving party. Craigs, Inc. v. General Electric Capital Corp., 12 F.3d 686, 688 (7th Cir. 1993). However, the court is neither bound by the plaintiff's legal characterization of the facts, nor required to ignore facts set forth in the complaint that undermine the plaintiff's claims. Scott v. O'Grady, 975 F.2d 366, 368 (7th Cir. 1992).
B. The Fair Report Privilege
Both Illinois (Wilkow's domicile) and New York (the defendants' domicile) recognize a fair report privilege. Specifically, in New York, "[a] civil action cannot be maintained against any person, firm, or corporation, for the publication of a fair and true report of any judicial proceeding . . . . or for any heading of the report which is a fair and true headnote of the statement published." Section 74 of the New York Civil Rights Law, McKinney's Civil Rights Law § 74. Illinois courts have recognized an identical privilege. O'Donnell v. Field Enterprises, 145 Ill. App.3d 1032, 1036, 491 N.E.2d 1212, 1216 (1st Dist. 1986). New York and Illinois, however, diverge as to whether the fair report privilege is absolute.
Section 74 applies to any "civil action." Nevertheless, New York does not recognize a cause of action for false light so no cases apply § 74 to false light claims. It is well-established, however, that common law privileges covering defamation claims, including the fair report privilege, apply equally to all causes of action sounding in defamation, including false light claims. See, e.g., Sullivan v. Conway, 157 F.3d 1092, 1098-99 (7th Cir. 1998) ("the same privileges are applicable to the false-light tort as to the defamation tort"). Thus, if § 74 applies, it shields the defendants from Wilkow's defamation and false light claims.
In New York, a fair report is absolutely privileged, and the defendant's state of mind or purpose in publishing the report is irrelevant. Glendora v. Gannett Suburban Newspapers, 608 N.Y.S.2d 239, 241 (N.Y.A.D.2d Dept. 1994). In contrast, Illinois appellate courts disagree as to whether the fair report privilege can be overcome, and the Illinois Supreme Court has not addressed this issue. Cf. O'Donnell v. Field Enterprises, 145 Ill. App.3d at 1036, 491 N.E.2d at 1215-16 (follows Restatement (Second) of Torts and hold that fair reporting privilege is absolute); Gist v. Macon County Sheriffs Dep't, 284 Ill. App.3d 367, 373, 671 N.E.2d 1154, 1161 (4th Dist. 1996) (fair report privilege is conditional and may be overcome by a showing that the defendant knew a statement was false or recklessly disregarded the truth or falsity of a statement); Tepper v. Copley Press, Inc., 308 Ill. App.3d 713, 717-19, 721 N.E.2d 669, 673-676 (2d Dist. 1999) (fair report privilege is absolute). Since Illinois law favors Wilkow and New York law favors the defendants, the parties, unsurprisingly, disagree as to the law governing the privilege issue.
When exercising diversity jurisdiction, the court must look to the choice-of-law rules of the forum state, Illinois, to determine which state's substantive law should apply. See, e.g., Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 497 (1941). The Illinois Supreme Court uses the Restatement (Second) of Conflicts of Law's "most significant relationship" test when choosing the appropriate law in tort cases. See, e.g., Esser v. McIntyre, 169 Ill.2d 292, 297-98, 661 N.E.2d 1138, 1141 (Ill. 1996), citing Ingersoll v. Klein, 46 Ill.2d 42, 262 N.E.2d 593 (Ill. 1970); Ruiz v. Blentech Corp., 89 F.3d 320, 323 (7th Cir. 1996).
"The Second Restatement method is constructed around the principle that the state with the most significant contacts to an issue provides the law governing that issue." Ruiz v. Blentech Corp., 89 F.3d at 323-24. In "conflicts-speak," this is known as the doctrine of depecage. Spinozzi v. ITT Sheraton Corp., 174 F.3d 842, 848 (7th Cir. 1999); In re Air Crash Disaster Near Chicago, Illinois on May 25, 1979, 644 F.2d 594, 610-11 (7th Cir 1981) (defining depecage as "the process of applying rules of different states on the basis of the precise issues involved").
Under the doctrine of depecage. the court must identify each issue raised in a case and then determine the controlling law on an issue-by-issue basis. Vantassell-Martin v. Nelson, 741 F. Supp. at 704; Restatement (Second) of Conflicts § 145, comment d ("[e]ach issue is to receive separate consideration if it is one which would be resolved differently under the local law rule of two or more of the potentially interested states"). The issue of whether a statement is defamatory or invades the right to privacy is distinct from the issue of whether that statement is privileged. Vantasseli-Martin v. Nelson, 741 F. Supp. at 704 (the threshold defamation issue and the applicability of defenses are separate issues); Restatement (Second) of Conflicts § 145, comment d ("the local law of the state where the parties are domiciled, rather than the local law of the state of conflict and injury, may be applied to determine whether one party is immune from tort liability to the other . . .").
Thus, if the conflicts question here turns on whether the same law necessarily applies to the defamation and privilege issues raised in this case, the answer would be "no." Here, however, the question is narrower: whether the doctrine of depecage requires the court to treat the fair reporting privilege separately from the reach of that privilege ( i.e., whether it is absolute or qualified). The court declines to splinter the issue in this fashion, as issue-by-issue treatment does not require the court to conduct a conflicts analysis for each and every aspect of a particular issue. See Ruiz v. Blentech Corp., 89 F.3d 320, 325-26 (7th Cir. 1996) (doctrine of decepage required the district court to treat corporate and tort liability separately). With this in mind, the court turns to whether Illinois or New York law governs the privilege issue as a whole.
Under Illinois' conflict rules, the law of the state with the most significant relationship "determines whether a person is excused from liability by reason of the fact that his action was required or privileged by the local law of the state where he acted." Restatement (Second) of Conflicts § 163. The following factors govern which state has the more significant relationship with an issue: (1) the place of the injury; (2) the place where the injury-causing conduct occurred; (3) the parties' domiciles; and (4) the place where the relationship between the parties is centered. Fredrick it Simmons Airlines Inc., 144 F.3d 500, 503 (7th Cir. 1998); Restatement (Second) of conflicts § 145; see also Restatement (Second) of Conflicts § 150(1) ("[t]he rights and liabilities that arise from defamatory matter in any one edition of a book or newspaper, or any one broadcast over radio or television, exhibition of a motion picture, or similar aggregate communication are determined by the local law of the state which, with respect to the particular issue, has the most significant relationship to the occurrence and the parties . . ."). Illinois courts also consider "the interests and public policies of potentially concerned states . . . as they relate to the transaction in issue." Fredrick v. Simmons Airlines, Inc., 144 F.3d at 503.
Here, Wilkow was injured in Illinois; the injury-causing conduct occurred in New York, where Forbes is located and McMenamin resides; Wilkow is domiciled in Illinois and Forbes and McManamin are domiciled in New York; and the parties' relationship does not have a center, in that Forbes and McManamin communicated via telephone from their respective domiciles. The interests and public policies of Illinois and New York are thus critically important.
The Restatement notes that, where the privilege laws in the state of injury and the state of the conduct differ, "the state of injury would have an obvious interest in providing compensation for injuries suffered within its territory and thus in having its rule of liability applied. On the other hand, the state of conduct would also have an interest in having its rule of non-liability applied to conduct that took place within its borders." Restatement (Second) of Conflicts § 163, comment a. It then solves this conundrum by stating that, "[i]n these circumstances, the rule of liability of the state of injury should usually be applied unless the policy underlying the rule of non-liability is a strong one, as would probably be true if the conduct was required as opposed to being only privileged." Id.
The court, unlike Wilkow, does not read this comment as saying that a policy underlying a privilege is a strong one only if the state where the allegedly wrongful conduct occurred required the conduct. Instead, it interprets the example provided by the Restatement as an example of a strong policy. Here, Illinois has a "(great] interest in seeing that the person injured by. remarks recover." Vantassell-Matin it Nelson, 741 F. Supp. at 704. In other words, Illinois policy supports its libel and slander laws by ensuring that persons who claim they have been defamed have a remedy. Id.; see also Restatement (Second) of Conflicts § 150(2) ("[w]hen a natural person claims that he has been defamed by an aggregate communication, the state of most significant relationship will usually be the state where the person was domiciled at the time, if the matter complained of was published in that state"). This policy, however, directly relates to the underlying defamation claim, as opposed to the privilege issue.
In contrast, New York's policy is closely tied to the privilege issue. New York has a strong interest in encouraging unfettered expression by protecting certain types of speech within its borders. See id. Thus, it made its privilege absolute. See Williams v. Williams; 298 N.Y.S.2d 473 (1969). Moreover, New York's interest in fixing the scope of a privilege applicable to conduct taking place within its borders is paramount. In addition, "the policy behind exempting those who speak in certain contexts is to encourage unfettered expression . . . by ensuring that such statements do not subject the speaker to liability." Vantassell-Matin it Nelson, 741 F. Supp. at 704. This policy would be wholly eviscerated if conduct occurring in New York was evaluated under another state's privilege laws.
Finally, the fair reporting privilege is meant to protect speakers, not provide a remedy to plaintiffs. See Block it First Blood Assoc., 691 F. Supp. 685, 698 (S.D.N.Y. 1988). While conduct in New York may impact residents of other states, as is the case here, the fact remains that the conduct took place in New York, where the New York legislature has spoken regarding the breadth of its privilege. Thus, the court finds that New York's policy has a more substantial relationship with the conduct at issue here. Accordingly, the court will apply New York law to the privilege issue in the case (and, as noted above, will apply Illinois law to the defamation issue).
C. Is the Forbes Article Privileged?
As noted above, New York recognizes a fair report privilege which shields people and corporations who make true, fair reports of official proceedings from civil actions. A report is "fair and true" under New York law if it is substantially true. Becher v. Troy Publishing Co., Inc., 589 N.Y.S.2d 644, 233 (Sup.Ct. 1992). Courts apply the "fair and true" standard liberally:
In the interests of completeness, the court notes that this portion of its analysis is the same under both New York and Illinois law, as Illinois recognizes a virtually identical privilege. See Restatement (Second) of Torts § 611, at 297 (1977) ("[t]he publication of defamatory matter concerning another in a report of an official action or proceeding or of a meeting open to the public that deals with a matter of public concern is privileged if the report is accurate and complete or a fair abridgement of the occurrence reported").
[w]hen determining whether an article constitutes a "fair and true" report, the language used therein should not be dissected and analyzed with a lexicographer's precision. This is so because a newspaper article is, by its very nature, a condensed report of events which must, of necessity, reflect to some degree the subjective viewpoint of its author. Nor should a fair report which is not misleading, composed and phrased in good faith under the exigencies of a publication deadline, be thereafter parsed and dissected on the basis of precise denotative meanings which may literally, although not contextually, be ascribed to the words used.Id. at 234.
Moreover, when the media is covering judicial proceedings, it is not "held to a standard of strict accountability for use of legal terms of art" and hence may be shielded by § 74 even if the article is "not precisely or technically correct by every possible definition." Id. Thus, "in areas of doubt and conflicting considerations, it is almost always preferable to err on the side of free expression." Id. In addition, an article is not inaccurate simply because it does not recite the plaintiffs side of the dispute. Glendora v. Gannett Surburban Newspapers, 608 N.Y.S.2d 239, 240 (Sup.Ct. 1994). Nevertheless, if a published account of judicial proceedings suggests that the subject of the article engaged in more serious conduct than reflected in the underlying judicial proceeding, § 74 is inapplicable. Goldreyer, Ltd v. Van de Wetering, 630 N.Y.S.2d 18, 22 (N.Y.A.D. 1st Dept. 1995).
In addition, New York (like Illinois) recognizes an opinion privilege which shields expressions of opinion or personal taste from litigation. Goldreyer, Ltd. v. Van de Wetering, 217 N YS.2d at 434-35. Opinions in the form of "imaginative expression" or "rhetorical hyperbole" are thus not actionable. Id. On the other hand, statements which have a precise meaning or can be objectively characterized as true or false are, by definition, not opinions and thus are outside the ambit of the opinion privilege. Id. at 435. With these principles in mind, the court turns to the Forbes article.
As with the fair report privilege, Illinois also recognizes an opinion privilege. See, e.g. Koiegctv v. Heftal Broadcasting Corp., 154 Ill.2d 1. 14-16, 607 N.E.2d 201, 208-09 (Ill. 1992).
In his complaint, Wilkow focuses on Forbes' use of the phrases "stifling the creditor" and "shafting" the creditor and Forbes' comment that "many judges, ever more sympathetic to debtors, are allowing unscrupulous business owners to rob creditors." According to Wilkow, these phrases, as well as the article's failure to state that the loan was non-recourse, render the article unfair.
Whether a document contains a "fair report" of judicial proceedings is a question of law for the court to decide. Karp v. Hill and Knowlton, Inc., 631 F. Supp. 360, 363 (S.D.N Y 1986); Easton v. Public Citizens, Inc, 19 Media L. Rep. 1882, No. 91 CIV 1639 (JSM), 1991 WL 280688 *2 (S.D.N.Y. Dec. 26, 1991), aff'd by 969 F.2d 1043 (2d Cir. 1992) (table). If the words in the allegedly defamatory document are ambiguous, however, then a fact question exists which must be resolved by the ultimate trier of fact. Karp it Hill and Knowlton, Inc., 631 F. Supp. at 363; Easton v. Public Citizens, Inc, 1991 WL 280688 at *2 (collecting cases). In other words, if the words used by the defendants have more than one meaning, the jury must decide how an average reader would interpret the disputed passages. Easton v. Public Citizens, Inc, 1991 WL 280688 at *2.
Here, the court finds that the statements in the article are unambiguous and fairly reflect the relevant portions of the underlying judicial opinions. As set forth more fully below, Forbes was entitled to parse its report of the opinions from the bank's perspective, which was that the plan violated the absolute priority rule by allowing the partnership to keep the building without repaying its loan in full. Wilkow's arguments to the contrary are egoistic as they do not admit of any view of the bankruptcy proceedings in this hotly disputed case other than his own.
1. Forbes' Description of the Bankruptcy Proceedings
As noted above, Wilkow posits that, because the loans were non-recourse, Forbes' negative statements about the bankruptcy failed to fairly reflect what happened in the bankruptcy case. In response, the defendants first assert that, since the underlying judicial opinions do not state that the loans were non-recourse in connection with their discussion of the new value corollary, the court should not criticize the article for failing to reflect a fact that is not in the underlying opinions.
The judicial opinions summarized by the article do note, in the background section, that the loans were non-recourse. See, e.g., LaSalle III, 126 F.3d at 258. However, those opinions, as well as the subsequent Supreme Court decision, do not mention this fact in their analysis sections vis-a-vis the new value corollary. LaSalle IV, 119 S.Ct. at 1417-22, LaSalle III, 126 F.3d at 962063; LaSalle II, 195 BR. at 707-08; LaSalle I, 190 BR. at 586-87. Since the article's focus is on the new value corollary and the underlying opinions do not reference the fact that the loans were non-recourse when discussing this issue, the only logical conclusion is that the non-recourse nature of the loans is not germane to the new value corollary issue.
The article's failure to mention the fact that the loan was non-recourse is not actionable for another reason. Wilkow's focus on the non-recourse nature of the loan, which meant that the bank was in the same position it would have been in had it foreclosed, glosses over the fact that the bankruptcy negatively affected the bank. As noted by the defendants, regardless of recourse, the partnership agreed to pay $93 million to the bank, including a $40 million unsecured claim, and the partnership defaulted but nevertheless was allowed to keep the building under the new value corollary. The opinions reflected the bank's position that the plan violated the traditional absolute priority rule to its detriment, and the article reflects those portions of the opinions.
Specifically, the bank had contended that the partnership had proposed the plan to avoid the adverse tax consequences of foreclosure and that the partnership improperly discriminated against its $40 million unsecured claim. LaSalle I, 190 BR. at 590, 585. According to the opinions in the bankruptcy case, the bank was guaranteed $55 million (out of the total $93 million) under the proposed plan, of which $1.1 million was paid in cash. While the bank theoretically could receive more under the plan, any additional amounts were not guaranteed. See LaSalle III, 126 F.3d at 959; LaSalle II, 195 BR. at 698; LaSalle I, 190 B.R. at 576. Forbes, in an exercise of its editorial judgment, was entitled to look at matters from the bank's perspective (the glass was half empty as additional amounts were not guaranteed), as opposed to Wilkow's perspective (the glass was half full, as the bank could potentially receive funds above and beyond the guaranteed $55 million).
Moreover, the fact that payments above $55 million were not guaranteed support Forbes' statements that "Bank of America will get as little as $55 million plus interest" and that "the bank would likely receive a fraction of what it was owed." On a related note, the court finds that the article's statement that, "[u]nder Wilkow's plan the bank must give up to as much as 40% of its claim while Wilkow and his partners get to keep the building" is an accurate description of the opinions in the bankruptcy case. As noted by the bankruptcy court, the bank's deficiency claim would not be paid in full under the partnership's plan and the deficiency claim, if paid, would have a potential value of 16% of its stated amount. LaSalle I, 190 B.R. at 586, 588. In other words, the Bank could, under the plan, lose up to 40% of its original $93 million claim, while the partnership got to keep the building.
In addition, Forbes was under no obligation to add that not all of the $93 million was secured. The article was about the new value corollary, under which the partnership was allowed to keep the building under a plan which did not provide for definite payment of the bank's deficiency claim and did not allow it to reach the partnership's equity interest. See LaSalle I, 190 B.R. at 586. The bank's legal fight to an unsecured deficiency claim does not alter the fundamental nature of the partnership's plan, which did not follow the traditional right to absolute priority, and Forbes was entitled to couch its article from the bank's perspective. See Glendora v. Gannett Suburban Newspapers; 608 N.Y.S.2d 239, 240 (N.Y. A.D. 1994).
Moreover, adding in a statement about the unsecured deficiency claim would not have changed the overall import of the article. See Goldreyer, Ltd v. Van de Wetering, 630 N.Y.S.2d 18, 22 (Sup.Ct. AD. 1995). In short, as Forbes put it, the bank took a "haircut," in that the court's application of the new value corollary did not inure to its benefit and, in fact, left it in a substantially worse position than it would have been had the partnership honored its original obligations or had the courts sided with the bank on the new value corollary issue. Thus, Forbes' failure to discuss the unsecured deficiency claim is not actionable because it did not affect the reason why Forbes opined that the bankruptcy was unfair to the bank.
In addition, the accuracy of an article is not impaired simply because it does not contain the plaintiff's side of the story. Glendora v. Gannett Suburban Newspapers, 608 N.Y.S.2d at 240. Here, looking at the opinions from the bank's perspective, the bankruptcy did not inure to its benefit in a dramatic way. On the other hand, looking at those same opinions from Wilkow's perspective, the bank got what it could have received if it had foreclosed so it was no worse off Because Forbes was not obligated to view the bankruptcy proceedings through Wilkow's eyes, however, its failure to recount Wilkow's side of the dispute by, for example, focusing on the nonrecourse nature of the loans, is not actionable. See id.
2. Wilkow's Purported Personal Liability Financial Position
Wilkow also asserts that the article unfairly attributed the partnership's default to him personally. His argument is based on three statements in the article:
• "The Bank of America National Trust Savings Association claims it was stiffed by a real estate partnership led by Marc Wilkow of MJ Wilkow, Ltd., a Chicagobased manager of strip malls and offices."
• "Under Wilkow's plan the bank must give up as much as 40% of its claim while Wilkow and his partners get to keep the building."
• "But by the mid-1990s, rents were not keeping up with costs. When the principal came due in January 1995, Wilkow and his partners pleaded poverty. To keep the bank from foreclosing, LaSalle Partnership filed for bankruptcy."
Wilkow acknowledges that he was responsible for the operations of the partnership's general partner (Amended Complaint at ¶ 14) and personally decided to file for bankruptcy on behalf of the partnership (Amended Complaint at ¶ 16). Hence, Forbes' reference to the partnership headed by Wilkow is accurate. Moreover, a report should not be "parsed and dissected on the basis of precise denotative meaning which may, literally, although not contextually, be ascribed to the words used." Becher v. Troy Publishing Co, Inc., 589 N.Y.S.2d at 2334. Here, a fair reading of the plain language used by Forbes leads inexorably to the conclusion that the article was discussing the activities of Wilkow, in his capacity as a partner, and the partnership generally.
Wilkow also focuses in on the statement, "Wilkow and his partners pleaded poverty, " claiming that it is inaccurate and disparaged him. The reference to the "poverty" purportedly pleaded by Wilkow and his partners is troubling, at least initally, as the underlying judicial opinions do not identify the reason Wilkow decided to file for bankruptcy. News articles are, however, by definition summaries of larger, more detailed proceedings. Thus, they necessarily reflect their author's subjective viewpoint. Becher v. Troy Publishing Co, Inc., 589 N.Y.S.2d at 233. They also necessarily use words or phrases that reflect the essence of the underlying opinions, but which may not be in those underlying opinions. See id.
In other words, a report need not use only words in the underlying judicial opinion to be protected by § 74. Instead, it must fairly reflect the underlying proceedings. To hold otherwise would require authors to quote opinions verbatim and would prevent magazines from offering fair summaries. Hence, the fact that the underlying opinions do not discuss the partnership's reasons for filing bankruptcy does not mean that the poverty comment is, per se, unprotected by § 74.
Was it fair for Forbes to state that Wilkow and his partners pleaded poverty? Wilkow says no, as he never personally refused or was unable to honor any obligations to creditors. Forbes says yes, as the partnership elected to file for bankruptcy rather than repay the original loan in full. In colloquial terms, an entity's decision to file for bankruptcy is based on a plea of poverty as, if that entity was able to satisfy its obligations, it would not be eligible for protection under the bankruptcy laws. Since the words "Wilkow and his partners," in context, refers to the partnership and the partnership indisputably chose to file for bankruptcy rather than honor its obligations, the court agrees with Forbes that the "pleading poverty" comment was fair, albeit unflattering to the partnership. Thus, the court rejects Wilkow's arguments and finds that, because the statements discussed above fairly abridge the bankruptcy opinions, the defendants are protected by § 74.
D. "Stifling" and "Shafting" by "Unscrupulous Business Owners"
The parties focus on paragraphs 31 and 32 of the complaint, which are based on the article's use of the words "stuffing" and "shafting" and its description of Wilkow as an unscrupulous business owner" who "robs creditors." The defendants assert that these statements are protected by the First Amendment because they are rhetorical hyperbole and subjective opinions based on disclosed facts. Unsurprisingly, Wilkow disagrees, claiming, like Iago, that these statements are defamatory. See William Shakespeare, Othello act III, sc. iii 157-61 ("Who steals my purse steals trash. "Tis something, nothing; "Twas mine, `tis his, and it has been slave to thousands; But he that filches from me my good name, robs me of that which not enriches him, and makes me poor indeed").
As discussed above, Illinois law applies to Wilkow's defamation claims. In Illinois, a statement of fact is not shielded from an action for defamation by being prefaced with the words "in my opinion, ' but if it is plain that the speaker is expressing a subjective view, an interpretation, a theory, conjecture, or surmise, rather than claiming to be in possession of objectively verifiable facts, the statement is not actionable." Haynes v. Alfred A. Knopp, 8 F.3d 1222, 1227 (7th Cir. 1993). Whether a statement is a factual assertion (and thus is actionable if false), or is protected opinion is a question of law for the court. See, e.g., Dilworthy v. Dudley, 75 F.3d 307, 309 (7th Cir. 1996).
More specifically, a statement is protected by the First Amendment only if it cannot be "reasonably interpreted as stating actual facts." Bryson v. News America Publications Inc., 174 Ill.2d 77, 100, 672 N.E.2d 1207, 1220 (Ill. 1996), quoting Milkovich v. Lorain Journal Co., 497 U.S. 1, 20 (1990). Four considerations are relevant when considering whether this requirement has been met: (1) does the language have a precise and readily understood meaning, or is the language at issue loose, figurative, rhetorical, or hyperbolic, thus negating the impression that it presents actual facts?; (2) does the general tenor of the context in which the statement appears negate the impression that the statement has factual content?; (3) is the statement objectively verifiable as true or false?; and (4) does the social context and setting in which the statement was published support a conclusion that readers would readily consider the statement to be opinion, not fact? Hopewell v. Vitullo, 299 Ill. App.3d 513, 518-20, 701 N.E.2d 99, 103-04 (1st Dist. 1998).
If a statement is not protected by the opinion privilege, it is nevertheless not actionable if the gist of that statement is true (i.e., if the statement is substantially true). Haynes v. Alfred A. Knopp, 8 F.3d at 1227. This is the case even if the statement is not 100% accurate; if the "sting" of the purportedly defamatory statement is true, a plaintiff cannot prevail. Id; Vachet v. Central Newspapers, Inc., 816 F.2d 313, 316 (7th Cir. 1987). To determine the "sting" of an article, the court "must look at the highlight of the article, the pertinent angle of it, and not to items of secondary importance which are inoffensive details, immaterial to the truth of the defamatory statement." Vachet v. Central Newspapers, Inc., 816 F.3d at 316, citing Wilson it United Press Ass'n, 343 Ill. App. 238, 240, 98 N.E.391, 392 (1st Dist. 1951). With these principles in mind, the court turns to Wilkow's arguments regarding the article's use of the words "stiffing" and "shafting" and its reference to "unscrupulous business owners" who "rob creditors."
To put these terms in context, the article is entitled "Stiffing the Creditor." A picture accompanying the article is captioned, "Chicago's 203 North LaSalle Street, Stiffing the bank with court approval." The article also states, "It happens every day: Business seeks refuge in bankruptcy; owner and creditor make a deal — leaving owner in charge. Presumably the creditors are satisfied that they got the best possible deal under the circumstances. But what if the owner tries to shaft them by offering only pennies on the dollar? These days, often as not, courts are siding with the bankrupt owners and forcing creditors to accept almost whatever deal the bankrupt party offers them. In short, many judges, ever more sympathetic to debtors, are allowing unscrupulous business owners to rob creditors."
According to Wilkow, "stifling" means "not paying when there is an expectation of payment" and "shafting" means "treating someone harshly, unfairly, or treacherously." Amended Complaint at ¶ 31 32. According to Wilkow, he did not "stiff' or "shaft" the bank because the loan was "non-recourse . . . and there was never any expectation of payment from Wilkow." Id. This argument is unpersuasive.
First, the "stuffing" and "shafting" comments, in context, refer to the partnership and its proposed plan, not Wilkow personally. Second, while both "stifling" and "shafting" are readily understood colloquial terms, they are impossible to quantify or to objectively verify as true or false. Hopewell v. Vitullo, 299 Ill. App.3d at 518-20, 701 N.E.2d at 103-04. They are thus similar to the word "incompetent," which has different meanings to different people. Id. (the broad scope of the word "incompetent" lacks the necessary detail to have a precise meaning as "there are numerous reasons why one might conclude that another is incompetent; one person's idea of when one reaches the threshold of incompetence will vary from the next person's").
Whether the plan "stuffed" or "shafted" the bank depends on the definition ascribed to that word by the person evaluating the plan: a debtor's attorney, a creditor's attorney, or a random person on the street would each look at this issue differently. See Sullivan v. Conway, 157 F.3d 1092, 1097 (7th Cir. 1998) ("to say that [the plaintiff] is a very poor lawyer is to express an opinion that is so difficult to verify or refute that it cannot feasibly be made a subject of inquiry by a jury"); cf. Dubinsiky v. United Airlines Master Executive Council, 303 Ill. App.3d 317, 326, 708 N.E. 441, 448-49 (1st Dist. 1999) (statement "I believe that federal laws have been broken" specifically accused the plaintiff of violating the law and hence was not a statement of opinion).
Moreover, the overall flavor of the article negates an interpretation of these words as factual. The article's thrust is that the new value corollary is unfair to creditors and that courts are unfairly taking the debtor's side in bankruptcy cases in general. In other words, the article reads like an editorial criticizing the opinions of the courts which considered the bankruptcy case, not an objective summary of the history of the bankruptcy. See Dilworth v. Dudley, 75 F.3d 307, 310 (7th Cir. 1996) (describing the plaintiff as a "crank" is "basically just a colorful and insulting way of expressing disagreement with his master idea, and it therefore belongs to the language of controversy rather than to the language of defamation"); Saenz v. Playboy Enterprises, Inc., 653 F. Supp. 552 (N.D. Ill. 1987) ("A reader of criticism expects rhetorical hyperbole and vivid metaphor, so the use of lively language is understood as hyperbole and metaphor, not as fact"), aff'd by 841 F.2d 1309 (7th Cir. 1988).
In any event, it is undisputed that the partnership's plan did not ensure that the partnership would completely repay all monies owed to the bank. The bank was thus "stuffed" under Wilkow's definition of that term, in that the partnership's default ultimately led to a situation where the bank was not guaranteed frill payment despite its expectation of payment as of the time it made the loan.
Moreover, the fact that a portion of the loan was unsecured did not mean that the bank did not expect repayment of that portion of the loan from the partnership. The unsecured portion of the loan was not a gift from the bank to the partnership — the bank lent money to the partnership expecting to be repaid in full. Subsequent events — the bankruptcy and the lower courts' adoption of the new value corollary — doomed that expectation. But they do not alter the fact that, as discussed above, the new value corollary, as viewed by the bankruptcy, district, and appellate courts, did not inure to the bank's benefit. Thus, the court's decisions "stuffed" and "shafted" the bank in that they left the bank with substantially less than it would have had if the courts had rejected the new value corollary. The court thus finds that the terms "stuffing" and "shafting" are not actionable.
But what about the article's statement that "many judges, ever more sympathetic to debtors, are allowing unscrupulous business owners to rob creditors"? Wilkow contends that this statement is one of fact, not opinion, since it calls him "unscrupulous" and says he "rob[bed]" his creditors. In context, however, it is clear that this sentence reflects Forbes' opinion that the new value corollary espoused by Wilkow and his partners and adopted by the courts is unfairly pro-debtor.
Indeed, the article itself expressly states that courts side with debtors "often as not" and that "[t]he U.S. Supreme Court will soon test the limits" of the leniency given to the plan at issue in the 203 North LaSalle case. The clear implication of the "unscrupulous owners" sentence is thus that debtors who propose a plan incorporating the new value corollary are "unscrupulous business owners" because that bankruptcy theory is improper; that the courts nevertheless accept plans featuring the new value corollary; that Forbes thinks that plans which rely on the new value corollary (including the partnership's plan) are highway robbery; that the courts erred when they approved such plans; and that the Supreme Court will soon have the last word on the subject. Kirk v. CBS, Inc., No. 83 C 2764, 1987 WL 11831 *4-5 (N.D. Ill. Jun. 4, 1987) (CBS's description of chiropractor who used the "metabolic" approach to cancer treatment as an "unscrupulous charletan," "cancer con artist," and "quack" reflected CBS's view of treatment and thus was a protected statement of opinion).
In other words, the sentence, in context, is an attack on debtors who raise a new value corollary argument and courts which accept this argument, not an objective, quantifiable statement of fact about Wilkow personally. The Supreme Court ultimately agreed with Forbes' take on the new value corollary issue, which was colorfUlly expressed in the article, characterizing the partnership's plan as "doomed" and explaining that creditors, not the courts, should be the ones to decide whether to accept a reorganization plan that fails to offer them adequate protection or fails to honor the absolute priority rule. LaSalle IV, 526 U.S. at 454, 457.
With respect to the word "robbed," the court also notes that a reasonable reader of the article could not think that Wilkow robbed the bank in a literal ( i.e., criminal) sense. This conclusion is supported by Greenbelt Cooperative Publishing Association v. Bresler, 398 U.S. 6. 14 (1970), which addressed a newspaper article describing a developer's proposal for rezoning as "blackmail." Explaining that even the most careless reader would have understood that the word was "no more than rhetorical hyperbole, a vigorous epithet used by those who considered [the developer's] negotiating position extremely unreasonable," the court concluded that the term "blackmail" was not actionable. Here, as in Greenbelt, the word at issue is obviously not a statement of fact. Thus, the use of the non-factual word "robbed" is a fUrther signal to the reader entitled to vigorously champion the bank's view of the bankruptcy proceedings before the Supreme Court ruled. Because Forbes claimed insight into the bankruptcy proceedings, as opposed to a knowledge of specific facts about Wilkow personally, the "unscrupulous business owners" sentence is protected by the First Amendment. See Haynes v. Alfred v. Knopf, Inc., 8 F.3d at 1227.
III. Conclusion
As discussed above, the article consists of either opinion protected by the First Amendment or a fair report that is protected by § 74 and hence is non-actionable. Accordingly, Wilkow's complaint fails to state a claim for which relief may be granted and is hereby dismissed with prejudice. The clerk is directed to enter a Rule 58 judgment and terminate this case. In addition, the court commends counsel for their throughly researched and well-written briefs.
Appendix
The following article appeared in the October 5, 1998, issue of Forbes magazine. It was accompanied by a photograph of the 203 North LaSalle building captioned "Chicago's 203 North LaSalle Street, Stifling the bank with court approval."
Have the courts gone too far in protecting debtors against creditors? In this case it sure looks like it.
Stuffing the creditor
By Brigid McMenamin
IT HAPPENS EVERY DAY: Business seeks refUge in bankruptcy; owner and creditors make a deal — leaving owner in charge.
Presumably the creditors are satisfied that they got the best possible deal under the circumstances. But what if the owner tries to shaft them by offering only pennies on the dollar? These days, often as not, courts are siding with the bankrupt owners and forcing creditors to accept almost whatever deal the bankrupt party offers them.
In short, many judges, ever more sympathetic to debtors, are allowing unscrupulous business owners to rob creditors.
Unless a creditor is prepared to spend years battling it out in court, he usually caves in. Forget the old rule that in bankruptcy creditors enjoy "absolute priority" over debtors.
The U.S. Supreme Court will soon test the limits of this leniency. It has agreed to review a case in which the Bank of America National Trust Savings Association claims it was stiffed by a real estate partnership led by Marc Wilkow of MJ Wilkow, Ltd., a Chicago-based manager of strip malls and offices.
The bank is asking the Court to nix a bankruptcy plan under which it might receive as little as $55 million for its $93 million lien against a Chicago office building. Under Wilkow's plan the bank must give up as much as 40% of its claim while Wilkow and his partners get to keep the building.
A lot rides on an eventual Supreme Court decision. That's why eight outsiders have filed friend-of-the-court briefs, including the American Bankers Association, the American Council of Life Insurance, the American College of Real Estate Lawyers and the Solicitor General.
The whole mess started in 1987 when Bank of America began lending 203 N. LaSalle Street Partnership $93 million to build a sleek building in Chicago with a 15-floor, 547,000-square-foot office space. The place was soon humming, 98% leased to everything from Coopers Lybrand to the American Civil Liberties Union.
But by the mid-1990s, rents were not keeping up with costs. When the principal came due in January 1995, Wilkow and his partners pleaded poverty. To keep the bank from foreclosing, LaSalle Partnership filed for bankruptcy. Appraisals of the property came in at less than $60 million. In theory the bank was entitled to the entire amount. It suggested selling the property to the highest bidder. Determined to keep the building, LaSalle partners asked the bankruptcy court instead to accept a plan under which the bank would likely receive a fraction of what it was owed while the partners would keep the building. The bank, not the equity holder, would take the hit.
Yet federal judge Paul Plunkett blessed LaSalle's plan. Bank of America will get as little as $55 million plus interest — and even that in monthly payments over seven to ten years.
What happened to the old "absolute priority rule"? To get around that, the partners used a controversial "new value" concept in which the owners agree to kick in fresh capital in return for equity.
To validate the concept, the owners proposed to put in $6.1 million in fresh capital, over five years.
Nice deal — for the debtor. The bank takes an up-to-$38 million haircut, and the owner throws in just $4.1 million in present value.
In September 1997 the federal appeals court that heard the case deferred to the lower court's decision. So the bank petitioned the Supreme Court to step in. On May 4 it agreed.
Bank of America's argument has been boosted by a February ruling from a federal appeals court in New York that found in favor of the creditors in a similar situation. With two such recent conflicting rulings and so much at stake, arguments before the Supreme Court will be heard on Nov. 2.
Realizing the Court could rule against the partnership, Wilkow says he is willing to sweeten his offer. "The time to talk settlement is when there's a cloud of uncertainty over everyone's head," he explains.