The Alton Telegraph, a 38,000-circulation newspaper in Illinois, has a net worth of about $2.5 million and a libel judgment against it of $9.2 million.
The consequence of those two stark figures is self-evident: the Telegraph cannot pay the judgment -- believed to be the largest ever against a newspaper. It has filed for bankruptcy in order to keep its doors open and if appeals courts uphold the award, the newspaper faces an even more severe crisis.
The paper never published the information for which it was sued for libel. Its reporters circulated it in a memo to federal prosecutors. Ultimately, the man defamed in the memo lost his business. So the Telegraph case is unique.
But media lawyers fear that the size of the award, along with other massive judgments against newspapers, magazines and publishers over the past 18 months, signals a new era in libel law, an era of six- and seven-figure awards -- an era of mega-judgments.
Last year, a San Francisco jury awarded $4.5 million in damages to two policemen and a former prosecutor for libel by the San Francisco Examiner. In February, Penthouse magazine lost a $26.5 million judgment to a former Miss Wyoming. The following month, entertainer Carol Burnett won $1.6 million from the National Enquirer.
The Penthouse and Enquirer awards were eventually reduced and the other big judgments are being appealed. But even so, these are the sort of jury awards newspapers have gotten accustomed to reporting in cases involving doctors, hospitals, peddlers of unsafe medicines and faulty tires, not cases involving themselves. Until the last few years, they were unheard of in libel cases.
The fear is not that the media will lose more libel suits. The media win over 90 percent of them. The fear is that there will be more of them, many more because the publicity accompanying these whopping awards makes it all seem easier to potential plaintiffs. When plaintiffs do win, jurors may be emboldened to give fatter and fatter awards.
"When you get a judgment like the one in Alton, everyone in town thinks newspapers are a soft touch and they sue," said Arthur B. Hanson, general counsel for the American Newspaper Publishers Association and for a company that insures 3,000 media clients for libel actions.
The press, of course, does not like it. Media lawyers say the effect is chilling and that the trend threatens their freedom, not to mention their treasuries. They are trying new weapons, like countersuits, to prevent an onslaught of libel suits.
Lawyers representing libel plaintiffs see it all as a matter of justice and fairness, not of First Amendment guarantees. "It is the entire foundation of the American system" of law, said Rex Carr, the lawyer who sued the Alton Telegraph.
"Twelve people who have no connection and no bias to one side or the other decide it's going to take this much money to compensate" a libel victim, Carr said, and "this much money to punish" the paper. "Whether you agree that it's right or wrong, in our system, we punish the malefactor."
If it worries editors, reporters and lawyers, Carr says, that is exactly what it is supposed to do. It will make them more careful in the future, he suggested.
"It has nothing to do with freedom of the press . . . . If a newspaper truck runs into a small boy and paralyzes him and the judgment in court is more than the paper can pay, that's not a matter of freedom of the press." Carr said. The Telegraph case, in which his client lost his business because of the reporters' memo, is no different, he believes.
Two telegraph reporters were investigating organized crime allegations in the Alton and East St. Louis areas when the controversy began in 1969. During the course of their work, they received unverified tips about James C. Green, an area builder who had risen from a foundry worker to a prosperous businessman with the help of loans from a savings institution. The unsubstantiated tips alleged ties between Green and "organized crime" figures.
The reporters never established any connection and never wrote a story about it. The newspaper did not contend in its libel trial that the memo was truthful. But the reporters put the allegations into a memo which they sent to the head of a federal organized crime strike force looking into possible racketeering in the region.
The reporters testified at the libel trial that they thought the prosecutors might be able to verify the information for them.
The prosecutor forwarded the memo to the Justice Department, which, in turn, forwarded it to the Federal Home Loan Bank Board, a regulatory agency. The agency began an investigation of the savings and loan company where Green got his loans.
No charges were filed, but the institution cut off Green's credit.
His business then collapsed, according to Carr, and Green went down as fast as he had come up. The builder and developer of 2,500 apartment units became a carpenter, Carr said. Now he is trying to rebuild his business.
Green discovered the memo in 1975 after one of the reporters gave a copy to the former head of the savings and loan involved. A year later Green sued and in a five-week trial last year, a jury awarded Green $6.7 million to compensate him for business losses and $2.5 million in punitive damages.
The paper's appeal is being handled by Chicago lawyers Philip Tone (a former U.S. Appeals Court judge) and David P. Sanders and has become a major cause among libel defense lawyers.
All citizens, the lawyers say, should be shielded from retribution for turning over information to law enforcement authorities. Reporters, in particular, will be severely hampered if they are held accountable for everything they say privately while gathering news. It was the actions of the savings and loan and the federal officials, not the memo, that damaged Green.
Beyond the legal arguments, however, libel lawyers are concerned about why jurors are willing to sock the media with such large judgments.
Hanson, counsel for the American Newspaper Publishers Association and for the insurance firm --Mutual Insurance (of Bermuda) --that covers 3,000 media clients --believes press "arrogance" is responsible.
The public "doesn't like newspapers, period," he said. "The sooner we learn that, the happier we're going to be. And they don't like inaccurate reporting and the arrogance of some people" who speak for the press.
Hanson is the father of a new tactic for combating frivolous or harassing suits: the media countersuit, in which the target of a libel action sues the plaintiff to recover costs and then some. The grounds for such a suit are that the plaintiff has abused the legal process, filing a specious or ridiculous libel action. In some cases, news organizations have even tried to invoke civil rights law.
Dow Jones and Co. won $50,000 in a 1979 counterclaim after a costly but unsuccessful suit against Barron's magazine, which it owns. The $50,000 award was eventually reversed on procedural grounds.
Time magazine tried a similar tactic against Synanon, the California communal organization, after Synanon withdrew a libel suit that had cost the magazine publisher $2 million to defend. Time's action against Synanon was settled out of court.
Smaller organizations, including station KDAL in Duluth, Minn., in a case still pending, have also tried it.
"We need to win a couple of good ones before it will have an impact," said Hanson. "I'm advocating it every time we find a proper case. You can't just do it at the drop of a hat, when there might be just cause" for a libel suit.
News organizations and publishers, including The Washington Post, have also recently helped establish a Libel Defense Resource Center in New York to aid in the battle by pooling legal information for use by media defendants.
The first issue of a libel bulletin published by the center suggests that despite the recent multimillion-dollar awards, it is still a rarity for publishers or broadcasters to lose libel suits.
The bulletin summarized the results of the study (to be published soon by the American Bar Foundation) by a Stanford University professor of libel cases completed in the courts between 1977 and 1980. The success rate for plaintiffs was 7 percent. Of those successful, only six cases produced awards of more than $100,000 and five of those were drastically reduced on appeal.
The big awards in the past 18 months, like the Alton Telegraph judgment, had not run through appeals when the study was written.
"If not overturned," libel center director Henry R. Kaufman advised his readers, the new awards "could radically reverse this favorable record and could embolden the plaintiffs' bar to more aggressive action." CAPTION: Picture, Publisher Paul S. Cousley, editor Stephen A. Cousley and wire editor Dick Fackler of paper facing $9.2 million judgment. AP