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From the Summer 2003 issue of The News Media & The Law, page 9.

From the Summer 2003 issue of The News Media & The Law, page 9.

By Wendy Tannenbaum

When Consumers Union opened its doors in 1936 with a mission to “test products, inform the public, and protect consumers,” an average car sold for less than $1,000 and did not come with a horn, bumpers or a trunk. The organization recommended that buyers special order their automobiles to include these options to maximize safety.

In the ensuing 67 years, Consumers Union has tested the safety features of about 2,000 vehicles and thousands of other products. They estimate that more than 16 million

consumers read their auto assessments in the organization’s publication Consumer Reports.

A nonprofit organization that accepts no advertising and claims independence from corporate interests, Consumers Union calls itself an “information organization serving only consumers.” The group’s stated goal is to provide, through its magazine and Web site, independent data that can empower consumers to make safety-conscious purchasing decisions.

But Consumers Union’s ability to provide reviews for concerned consumers is being tested by a lawsuit that could change the way consumer reporting is performed throughout the country and may well affect everything from safety reports to restaurant reviews.

Automobile manufacturer Suzuki Motor Corporation sued Consumers Union in 1996 after the organization rated the company’s now-defunct sport utility vehicle — the Samurai –“Not Acceptable” in a 1988 issue of Consumer Reports. Suzuki claimed product disparagement under California law and blamed millions of dollars in lost sales on the negative review.

In May 2000, Consumers Union won a motion to have the case dismissed, but Suzuki appealed. The U.S. Court of Appeals in San Francisco (9th Cir.) ruled in June 2002 that Consumers Union would have to defend its report in a trial.

In a recent development in the case, after Consumers Union requested a rehearing of its appeal for dismissal, a narrow majority of the 25 judges on the Ninth Circuit court voted on May 19, 2003, to let its prior ruling stand and allow a trial.

The decision by the full court has sparked an uproar among media advocates, many of whom had hoped the full court would correct what they see as an unconstitutional ruling by the first appellate panel. In their view, the court failed to apply important First Amendment protections that should have allowed for dismissal of the case.

“If the kind of comments that are being made in Consumer Reports are actionable, then I really wonder whether there’s any safe harbor” for consumer reviews, said California media attorney Douglas E. Mirell of Loeb & Loeb LLP.

Mirell, like other media attorneys, agrees with the views put forth in a stinging dissent by Judge Alex Kozinski in the May 2003 ruling. Writing on behalf of himself and ten other judges, Kozinski said the majority’s decision set “a dangerous precedent” that could mean the “death of consumer ratings.”

Under the majority’s ruling, “[i]t will be impossible to issue a meaningful consumer review that a band of determined lawyers can’t pick apart in front of a jury,” Kozinski wrote. “The ultimate losers will be American consumers denied access to independent information about the safety and usefulness of products they buy with their hard-earned dollars.”

Consumers Union president Jim Guest has resolved to continue fighting the suit and plans this August to petition the U.S. Supreme Court to hear the case in its 2004 court term.

“This legal battle is important, not only for Consumers Union and Consumer Reports, but for every American concerned about the rights of an unbiased organization to test products independently and to speak out in the interest of safer products,” Guest said in a statement. “The First Amendment guarantees the right to report our independent findings, even when our judgment differs from that of the government or the company in question.”

Product disparagement lawsuits

Claims of product disparagement are not new to consumer reporting. Consumers Union has had to defend its negative reviews in court on several occasions over the years.

Just last year, for example, a California appeals court dismissed a lightbulb distributor’s complaints about a Consumer Reports article on compact fluorescents.

The article said the plaintiff’s bulbs “consistently fell short of their rated life” and recommended sticking to other brands. The court held that because Consumers Union had described its testing procedure and made no false representations in the article, the publisher could not be liable. (Lights of America, Inc. v. Consumers Union)

Other media speakers also have found themselves defending against product disparagement claims.

In 1998, media mogul Oprah Winfrey was sued for food disparagement over statements she made about “mad cow” disease. The plaintiffs in the case, Texas feed yard owners, claimed Winfrey caused a decrease in beef sales when she said she would stop eating hamburgers after a guest on her show talked about the disease.

Relying on her First Amendment right to voice her opinion, Winfrey prevailed in two separate lawsuits brought against her company. (Texas Beef Group v. Winfrey; Cactus Feeding Club v. Winfrey)

For the most part, journalists, such as Winfrey, have taken comfort in the fact product disparagement lawsuits are similar legally to defamation cases.

Whereas a defamation suit is meant to protect the reputation of a person or entity, an action for product disparagement — also called “trade libel,” “commercial disparagement” or “injurious falsehood” — is meant to compensate for monetary losses suffered as a result of statements attacking the quality of a company’s goods.

But a plaintiff claiming product disparagement must prove many of the same legal elements as one claiming defamation, and, arguably, must satisfy the constitutionally required “actual malice” requirement for cases brought by public figures. (See article on next page.)

Under Supreme Court case law, a plaintiff who brings suit against a public figure or public official based on speech must prove the statements in question were made with “actual malice,” defined by the Court as knowledge of falsity or reckless disregard for the truth of a statement.

Still, product disparagement suits pose a threat to reviewers.

In 1998, a group of 26 organizations opposed to food disparagement laws announced a campaign to work to repeal the laws in states where they exist and fight against them where they are considered.

The coalition, known as FoodSpeak, maintains a Web site that keeps track of the so-called “veggie-libel” laws and lawsuits, such as the one against Winfrey, brought under these laws.

The group says it “does not endorse the malicious or reckless defamation of persons or corporations” but opposes “all causes of action that put a price on public policy debate by exposing critics to costly litigation.”

The coalition says it “believes that the best judgments about food, food safety, and other things that matter are more likely gained from a truly diverse exchange of public opinions than through defamation lawsuits.”

Suzuki v. Consumers Union and ‘actual malice’

Washington, D.C., attorney Lee Levine, who has represented news organizations in a number of free-press cases, calls the “actual malice” standard the “crown jewel” of First Amendment law. The whole purpose of the standard, he says, is to allow critics to speak out without fear of lengthy litigation.

At stake in the Suzuki case is the proper application of the “actual malice” standard in a product disparagement case.

While Suzuki claims to have evidence of malice, Consumers Union argues that a showing of “actual malice” would be impossible, because the Samurai review fully disclosed the methodology of its testing and contained no false statements.

Suzuki’s case for malice is based on the theory that Consumers Union wanted the Samurai to fail and rigged the tests of the vehicle.

The Consumer Reports review, titled “Warning: The Suzuki rolls over too easily,” concluded that the Samurai was “so likely to roll over during a maneuver that could be demanded of any car at any time that it is unfit for its intended use.”

Suzuki said Consumers Union needed to publish a scandalous review to sell its magazine and gain supporters. The manufacturer said Consumers Union was in need of funds to pay for the organization’s new $30 million office space in Yonkers, N.Y.

The body of the article described the steps Consumers Union used to test the Samurai and conclude that the car was “Not Acceptable.”

The testing included maneuvering the vehicle on a long course simulating an emergency lane change and, on two occasions, driving the car on a short course specially designed to test for rollover. The Samurai tipped at least once on each course, once when the car was moving at 45 miles per hour, according to statements by Consumers Union.

Suzuki’s evidence of rigging comes from videotapes Consumers Union made of its course testing.

At one point during the testing, a Consumers Union employee was allegedly heard telling a driver: “If you can’t find someone to roll this car, I will.”

After the Samurai tipped, some Consumers Union onlookers appeared to cheer, and one employee allegedly said, “That’s it. That looked pretty good.”

Another reportedly congratulated the driver, saying, “All right, Ricky baby.”

Suzuki also argues that Consumers Union chose to shorten its course for additional testing of the Samurai because its employees knew the car would not tip easily on the standard course.

Consumers Union has said that in the years after the review was published, several events bolstered its “Not Acceptable” rating, including further testing, unfavorable reviews by other consumer reporters, and several lawsuits filed against Suzuki based on the Samurai’s propensity to roll over.

According to a statement released by Consumers Union in June, at least 147 people have died and about 7,000 have been injured in rollover accidents in the Samurai. Suzuki has settled numerous lawsuits brought by consumers injured and the survivors of consumers killed, some of which were filed prior to Consumers Union’s 1988 report.

Suzuki attorney George Ball could neither confirm nor deny the Samurai statistics but said Consumers Union has taken them out of context. The rollover rate of the Samurai was equivalent to that of other cars, he said, and is not indicative of a manufacturing defect. Ball said Consumers Union’s report led to an increase in lawsuits filed against the manufacturer.

In allowing the case to go forward, the majority of the Ninth Circuit held that it was “plausible” that Consumers Union “‘rigged’ a test to achieve a predetermined result in order to serve its own pecuniary interest.”

Judge Kozinski, writing for the dissenters, disagreed.

“Actual malice is not bias,” Kozinski wrote, noting that bad motives, or “ill will,” toward a plaintiff are not elements of the “actual malice” standard. Rather, under the seminal Supreme Court case on the issue, New York Times v. Sullivan, “actual malice” means knowledge that a statement is false or reckless disregard for its truthfulness.

Kozinski said it was “incomprehensible” to him that a consumer review fully disclosing its methodology could be deemed malicious under constitutional standards.

“Bias may support a showing of actual malice; if you badmouth someone, the fact that you also don’t like him makes it marginally more likely you’re lying. But bias evidence is not sufficient by itself to support a claim,” Kozinski wrote.

California attorney Mirell agreed. He called the majority’s decision “a complete misunderstanding of what constitutional malice versus ordinary malice might be.”

“It doesn’t matter whether Consumers Union’s motives were good or bad,” Mirell said. The First Amendment permits all reporting that is not performed with knowledge of falsity or reckless disregard of the truth.

Independent appellate review

Also at stake in the Suzuki case is a procedural rule that protects the press from extended litigation.

The rule, known as “independent appellate review,” was established as a constitutional mandate by the Supreme Court in recognition of the special importance of cases that threaten free speech. It requires an appeals court hearing a First Amendment case to independently assess the evidence put forth by the parties, rather than taking the trial court’s findings as fact.

Only if the evidence establishes with “convincing clarity” a possible case against the defendant may the lawsuit proceed.

The majority in the Ninth Circuit purported to apply “independent appellate review” of the evidence before it, concluding that there was sufficient evidence to allow the case to move to trial.

But Consumers Union contests the majority’s application of the rule, asserting in court papers that the court merely applied the same procedures used to govern motions to dismiss non-First Amendment cases. Such ignorance of the “independent appellate review” requirement, Consumers Union contends, conflicts with the law of most federal circuits, including the Ninth Circuit.

“Without independent review of the entire record on the issue of actual malice at the summary judgment stage the media will lose the protection of being able to dispose of a case, before it goes to a jury, where there is no clear and convincing evidence of actual malice. If left standing, this ruling will mean that virtually all public figure libel and product disparagement cases will go to trial — a result that is inimical to the First Amendment values aimed at preserving an independent and free media,” Consumers Union wrote in its brief.

Death of consumer reporting?

“Where a plaintiff’s evidence is strong enough to support a verdict, the publisher must stand trial. But there is no sensible reason to impose such onerous costs on a publisher where the plaintiff is doomed to fail,” wrote Kozinski on behalf of the Ninth Circuit dissenters.

Indeed, the costs associated with defending a consumer report are significant. Consumers Union has already spent between $5 million and $6 million in defense of its Samurai review, according to the organization’s attorney, Michael N. Pollet, and the case has not even gone to trial yet.

Pollet said Consumers Union has not allowed the rising costs to change its approach to consumer reporting. But he and other media advocates fear that the Ninth Circuit’s willingness to allow a trial in Suzuki will cause some publishers to refrain from reporting on issues of public importance.

Attorney Levine said he believes the Ninth Circuit’s decision not to rehear the Suzuki case is “potentially one of the most significant” recent developments in defamation law. He is leading an effort to gather media organizations to submit a friend-of-the-court brief urging the Supreme Court to accept Consumers Union’s petition and correct the appeals court’s error.

The brief will focus on the issues of “actual malice” and “independent appellate review” and will emphasize the ruling’s potential costs to the media and the consuming public.

The court’s failure to protect Consumers Union by dismissing the case before trial is “extremely troubling,” Levine said. If the decision is left to stand, it “will make it very easy for people who are the subject of product safety reviews to be able to strike back,” he said.

And the ruling may affect other reviews as well. Kozinzki said the threat of product disparagement suits affects “virtually any research group that criticizes corporate interests.” The ruling’s effects could spill beyond cars and electronics to reviews of literature, film, television and theater, Mirell said. “I think it becomes very dangerous for consumers of all kinds.”