|
|
http://laws.findlaw.com/4th/972492p.html |
U.S. 4th Circuit Court of Appeals
99
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
FOOD LION, INCORPORATED,
Plaintiff-Appellee,
v.
CAPITAL CITIES/ABC, INC.; LYNNE
LITT, a/k/a Lynne Neufes; ABC
HOLDING COMPANY; AMERICAN
BROADCASTING COMPANIES,
INCORPORATED; RICHARD N. KAPLAN;
IRA ROSEN; SUSAN BARNETT,
Defendants-Appellants,
ADVANCE PUBLICATIONS,
INCORPORATED; ASSOCIATED PRESS;
THE ASSOCIATION OF AMERICAN
PUBLISHERS; CBS BROADCASTING,
INCORPORATED; CABLE NEWS
No. 97-2492
NETWORK, INCORPORATED; GANNETT
COMPANY, INCORPORATED; THE
HEARST CORPORATION; KING WORLD
PRODUCTIONS, INCORPORATED;
MCCLATCHY NEWSPAPERS,
INCORPORATED; THE NATIONAL
ASSOCIATION OF BROADCASTERS;
NATIONAL BROADCASTING COMPANY,
INCORPORATED; THE NEWSPAPER
ASSOCIATION OF AMERICA; NATIONAL
PUBLIC RADIO, INCORPORATED; THE
NEW YORK TIMES COMPANY; THE
RADIO-TELEVISION NEWS DIRECTORS
ASSOCIATION; THE REPORTERS
COMMITTEE FOR FREEDOM OF THE
PRESS; INVESTIGATIVE REPORTERS;
EDITORS, INCORPORATED; NATIONAL
GROCERS ASSOCIATION;
INTERNATIONAL MASS RETAIL
ASSOCIATION; WILLIAM E. LEE; JOHN
DEMOTT; ROBERT ELLIS SMITH; MIKE
ROSEN; ACCURACY IN MEDIA; MEDIA
RESEARCH CENTER; ATLANTIC LEGAL
FOUNDATION; SOUTHEASTERN LEGAL
FOUNDATION,
Amici Curiae.
FOOD LION, INCORPORATED,
Plaintiff-Appellant,
v.
CAPITAL CITIES/ABC, INC.; LYNNE
LITT, a/k/a Lynne Neufes; ABC
HOLDING COMPANY; AMERICAN
BROADCASTING COMPANIES,
INCORPORATED; RICHARD N. KAPLAN;
IRA ROSEN; SUSAN BARNETT,
No. 97-2564
Defendants-Appellees,
ADVANCE PUBLICATIONS,
INCORPORATED; ASSOCIATED PRESS;
THE ASSOCIATION OF AMERICAN
PUBLISHERS; CBS BROADCASTING,
INCORPORATED; CABLE NEWS
NETWORK, INCORPORATED; GANNETT
COMPANY, INCORPORATED; THE
HEARST CORPORATION; KING WORLD
PRODUCTIONS, INCORPORATED;
2
MCCLATCHY NEWSPAPERS,
INCORPORATED; THE NATIONAL
ASSOCIATION OF BROADCASTERS;
NATIONAL BROADCASTING COMPANY,
INCORPORATED; THE NEWSPAPER
ASSOCIATION OF AMERICA; NATIONAL
PUBLIC RADIO, INCORPORATED; THE
NEW YORK TIMES COMPANY; THE
RADIO-TELEVISION NEWS DIRECTORS
ASSOCIATION; THE REPORTERS
COMMITTEE FOR FREEDOM OF THE
PRESS; NATIONAL GROCERS
ASSOCIATION; INTERNATIONAL MASS
RETAIL ASSOCIATION; WILLIAM E.
LEE; JOHN DEMOTT; ROBERT ELLIS
SMITH; MIKE ROSEN; ACCURACY IN
MEDIA; MEDIA RESEARCH CENTER;
ATLANTIC LEGAL FOUNDATION;
SOUTHEASTERN LEGAL FOUNDATION,
Amici Curiae.
Appeals from the United States District Court
for the Middle District of North Carolina, at Winston-Salem.
N. Carlton Tilley, Jr., Chief District Judge.
(CA-92-592-6)
Argued: June 4, 1998
Decided: October 20, 1999
Before NIEMEYER, MICHAEL, and MOTZ, Circuit Judges.
_________________________________________________________________
Affirmed in part and reversed in part by published opinion. Judge
Michael wrote the opinion, in which Judge Motz joined. Judge Nie-
3
meyer wrote a separate opinion, concurring in part and dissenting in
part.
_________________________________________________________________
COUNSEL
ARGUED: Bruce J. Ennis, Jr., JENNER & BLOCK, Washington,
D.C., for Appellants. Richard L. Wyatt, Jr., AKIN, GUMP,
STRAUSS, HAUER & FELD, L.L.P., Washington, D.C., for Appel-
lee. ON BRIEF: Paul M. Smith, Mark D. Schneider, Deanne E. May-
nard, Michelle B. Goodman, Christopher A. Bracey, JENNER &
BLOCK, Washington, D.C.; William H. Jeffress, Jr., Randall J. Turk,
MILLER, CASSIDY, LARROCA & LEWIN, Washington, D.C.;
Alan N. Braverman, Nathan Siegel, ABC, INCORPORATED, New
York, New York; Kathleen M. Sullivan, STANFORD LAW
SCHOOL, Stanford, California; Hugh Stevens, EVERETT, GAS-
KINS, HANCOCK & STEVENS, Raleigh, North Carolina, for
Appellants. Michael J. Mueller, Thomas P. McLish, AKIN, GUMP,
STRAUSS, HAUER & FELD, L.L.P., Washington, D.C.; W. Andrew
Copenhaver, Timothy G. Barber, WOMBLE, CARLYLE, SAN-
DRIDGE & RICE, P.L.L.C., Winston-Salem, North Carolina, for
Appellee. Floyd Abrams, Gail Johnston, CAHILL, GORDON &
REINDEL, P.C., New York, New York, for Amici Curiae Advance
Publications, et al. David B. Smallman, SIMPSON, THACHER &
BARTLETT, New York, New York, for Amicus Curiae Investigative
Reporters. Thomas F. Wenning, Ronald A. Bloch, NATIONAL
GROCERS ASSOCIATION, Reston, Virginia; Christopher A. Weals,
Donald L. Rosenthal, SEYFARTH, SHAW, FAIRWEATHER &
GERALDSON, Washington, D.C., for Amicus Curiae Grocers. Neal
Goldfarb, TIGHE, PATTON, TABACKMAN & BABBIN, L.L.C.,
Washington, D.C., for Amici Curiae Lee, et al. Martin S. Kaufman,
Edwin L. Lewis, Douglas Foster, ATLANTIC LEGAL FOUNDA-
TION, INC., New York, New York, for Amicus Curiae Foundation.
Valle Simms Dutcher, SOUTHEASTERN LEGAL FOUNDATION,
Atlanta, Georgia; Charles J. Cooper, Michael W. Kirk, COOPER,
CARVIN & ROSENTHAL, P.L.L.C., Washington, D.C., for Amicus
Curiae Southeastern Legal.
_________________________________________________________________
4
OPINION
MICHAEL, Circuit Judge:
Two ABC television reporters, after using false resumes to get jobs
at Food Lion, Inc. supermarkets, secretly videotaped what appeared
to be unwholesome food handling practices. Some of the video foot-
age was used by ABC in a PrimeTime Live broadcast that was sharply
critical of Food Lion. The grocery chain sued Capital Cities/ABC,
Inc., American Broadcasting Companies, Inc., Richard Kaplan and Ira
Rosen, producers of PrimeTime Live, and Lynne Dale and Susan Bar-
nett, two reporters for the program (collectively,"ABC" or the "ABC
defendants"). Food Lion did not sue for defamation, but focused on
how ABC gathered its information through claims for fraud, breach
of duty of loyalty, trespass, and unfair trade practices. Food Lion won
at trial, and judgment for compensatory damages of $1,402 was
entered on the various claims. Following a substantial (over $5 mil-
lion) remittitur, the judgment provided for $315,000 in punitive dam-
ages. The ABC defendants appeal the district court's denial of their
motion for judgment as a matter of law, and Food Lion appeals the
court's ruling that prevented it from proving publication damages.
Having considered the case, we (1) reverse the judgment that the
ABC defendants committed fraud and unfair trade practices, (2)
affirm the judgment that Dale and Barnett breached their duty of loy-
alty and committed a trespass, and (3) affirm, on First Amendment
grounds, the district court's refusal to allow Food Lion to prove publi-
cation damages.
I.
In early 1992 producers of ABC's PrimeTime Live program
received a report alleging that Food Lion stores were engaging in
unsanitary meat-handling practices. The allegations were that Food
Lion employees ground out-of-date beef together with new beef,
bleached rank meat to remove its odor, and re-dated (and offered for
sale) products not sold before their printed expiration date. The pro-
ducers recognized that these allegations presented the potential for a
powerful news story, and they decided to conduct an undercover
investigation of Food Lion. ABC reporters Lynne Dale (Lynne Litt at
the time) and Susan Barnett concluded that they would have a better
5
chance of investigating the allegations if they could become Food
Lion employees. With the approval of their superiors, they proceeded
to apply for jobs with the grocery chain, submitting applications with
false identities and references and fictitious local addresses. Notably,
the applications failed to mention the reporters' concurrent employ-
ment with ABC and otherwise misrepresented their educational and
employment experiences. Based on these applications, a South Caro-
lina Food Lion store hired Barnett as a deli clerk in April 1992, and
a North Carolina Food Lion store hired Dale as a meat wrapper
trainee in May 1992.
Barnett worked for Food Lion for two weeks, and Dale for only
one week. As they went about their assigned tasks for Food Lion,
Dale and Barnett used tiny cameras ("lipstick" cameras, for example)
and microphones concealed on their bodies to secretly record Food
Lion employees treating, wrapping and labeling meat, cleaning
machinery, and discussing the practices of the meat department. They
gathered footage from the meat cutting room, the deli counter, the
employee break room, and a manager's office. All told, in their three
collective weeks as Food Lion employees, Dale and Barnett recorded
approximately 45 hours of concealed camera footage.
Some of the videotape was eventually used in a November 5, 1992,
broadcast of PrimeTime Live. ABC contends the footage confirmed
many of the allegations initially leveled against Food Lion. The
broadcast included, for example, videotape that appeared to show
Food Lion employees repackaging and redating fish that had passed
the expiration date, grinding expired beef with fresh beef, and apply-
ing barbeque sauce to chicken past its expiration date in order to mask
the smell and sell it as fresh in the gourmet food section. The program
included statements by former Food Lion employees alleging even
more serious mishandling of meat at Food Lion stores across several
states. The truth of the PrimeTime Live broadcast was not an issue in
the litigation we now describe.
Food Lion sued ABC and the PrimeTime Live producers and
reporters. Food Lion's suit focused not on the broadcast, as a defama-
tion suit would, but on the methods ABC used to obtain the video
footage. The grocery chain asserted claims of fraud, breach of the
duty of loyalty, trespass, and unfair trade practices, seeking millions
6
in compensatory damages. Specifically, Food Lion sought to recover
(1) administrative costs and wages paid in connection with the
employment of Dale and Barnett and (2) broadcast (publication) dam-
ages for matters such as loss of good will, lost sales and profits, and
diminished stock value. Punitive damages were also requested by
Food Lion.
The district court, in a remarkably efficient effort, tried the case
with a jury in three phases. At the liability phase, the jury found all
of the ABC defendants liable to Food Lion for fraud and two of them,
Dale and Barnett, additionally liable for breach of the duty of loyalty
and trespass. Based on the jury's fraud verdict and its special interrog-
atory findings that the ABC defendants had engaged in deceptive acts,
the district court determined that the ABC defendants had violated the
North Carolina Unfair and Deceptive Trade Practices Act (UTPA).
Prior to the compensatory damages phase, the district court ruled that
damages allegedly incurred by Food Lion as a result of ABC's broad-
cast of PrimeTime Live -- "lost profits, lost sales, diminished stock
value or anything of that nature" -- could not be recovered because
these damages were not proximately caused by the acts (fraud, tres-
pass, etc.) attributed to the ABC defendants in this case. See Food
Lion, Inc. v. Capital Cities/ABC, Inc., 964 F. Supp. 956, 958
(M.D.N.C. 1997) (setting forth rationale for ruling at trial). Operating
within this constraint, the jury in the second phase awarded Food Lion
$1,400 in compensatory damages on its fraud claim, $1.00 each on its
duty of loyalty and trespass claims, and $1,500 on its UTPA claim.
(The court required Food Lion to make an election between the fraud
and UTPA damages, and the grocery chain elected to take the $1,400
in fraud damages.) At the final stage the jury lowered the boom and
awarded $5,545,750 in punitive damages on the fraud claim against
ABC and its two producers, Kaplan and Rosen. The jury refused to
award punitive damages against the reporters, Dale and Barnett. In
post-trial proceedings the district court ruled that the punitive dam-
ages award was excessive, and Food Lion accepted a remittitur to a
total of $315,000.
After trial the ABC defendants moved for judgment as a matter of
law on all claims, the motion was denied, and the defendants now
appeal. Food Lion cross-appeals, contesting the district court's ruling
that the damages the grocery chain sought as a result of the
7
PrimeTime Live broadcast were not recoverable in this action. We
now turn to the legal issues.
II.
A.
We must first consider whether the ABC defendants can be held
liable for fraud, breach of the duty of loyalty, and trespass as a matter
of North Carolina and South Carolina law and whether the North Car-
olina UTPA applies. As a federal court sitting in diversity, we are
obliged to interpret and apply the substantive law of each state. See
Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). This process is more
complicated here because neither state's highest court has applied its
law to circumstances exactly like those presented in this case. Thus,
we must offer our best judgment about what we believe those courts
would do if faced with Food Lion's claims today. See Hatfield v.
Palles, 537 F.2d 1245, 1248 (4th Cir. 1976) (noting that when "[t]here
have been no decisions by the South Carolina Supreme Court . . . [a]
federal court must . . . endeavor to decide the issue in the way it
believes the South Carolina Supreme Court would decide it."). In con-
ducting our analysis, we may of course consider all of the authority
that the state high courts would, and we should give appropriate
weight to the opinions of their intermediate appellate courts.
Commissioner v. Estate of Bosch, 387 U.S. 456, 465 (1967) (noting
that when there is no decision by a state's highest court, federal court
must apply what it "find[s] to be the state law after giving `proper
regard' to relevant rulings of other courts of the State."); Sanderson
v. Rice, 777 F.2d 902, 905 (4th Cir. 1985) (noting that "[a]n opinion
of an intermediate appellate court is persuasive in situations where the
highest state court has not spoken"). Finally, we review de novo the
district court's determinations on these questions of state law. Salve
Regina College v. Russell, 499 U.S. 225, 231 (1991).
1.
Food Lion, proceeding under the proof limitations on damages,
sought $2,432.35 in compensatory damages on its fraud claim and the
jury awarded $1,400. According to ABC, the district court erred in
upholding the verdict on this claim because Food Lion did not prove
8
injury caused by reasonable reliance on the misrepresentations made
by Dale and Barnett on their job applications. We agree.
To prove fraud under North Carolina law, the plaintiff must estab-
lish that the defendant (1) made a false representation of material fact,
(2) knew it was false (or made it with reckless disregard of its truth
or falsity), and (3) intended that the plaintiff rely upon it. In addition,
(4) the plaintiff must be injured by reasonably relying on the false
representation. See Ragsdale v. Kennedy, 209 S.E.2d 494, 500 (N.C.
1974); Britt v. Britt, 359 S.E.2d 467, 471 (N.C. 1987), criticized on
other grounds, Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 374
S.E.2d 385, 391-92 (N.C. 1988). The elements of fraud in South Car-
olina are essentially the same. See Florentine Corp., Inc. v. PEDA I,
Inc., 339 S.E.2d 112, 113-114 (S.C. 1985). It is undisputed that Dale
and Barnett knowingly made misrepresentations with the aim that
Food Lion rely on them. Thus, only the fourth element of fraud, inju-
rious reliance, is at issue. Food Lion claimed two categories of injury
resulting from the lies on the job applications: the costs associated
with hiring and training new employees (administrative costs) and the
wages it paid to Dale and Barnett.
The main component of Food Lion's claim for fraud damages
relates to administrative costs resulting from its employment of Dale
and Barnett. These are routine costs associated with any new
employee, including the costs of screening applications, interviewing,
completing forms, and entering data into the payroll system. Also
included are estimated costs attributable to trainees for lower produc-
tivity and customer dissatisfaction. Food Lion offered testimony that
these costs totaled $1,944.62. It is undisputed that the jobs held by
Dale and Barnett, meat wrapper trainee and deli clerk, were ones with
high turnover. Still, Food Lion claims that because of the reporters'
misrepresentations on their employment applications, it was forced to
"incur these [administrative] costs for two more employees," Appel-
lee's Opening Br. at 15, because the reporters quit their jobs after one
or two weeks.
As indicated, under North and South Carolina law a plaintiff claim-
ing fraud must show injury proximately caused by its reasonable reli-
ance on a misrepresentation. See Britt, 359 S.E.2d at 471 (requiring
that plaintiff be "injured by reasonably relying on the false representa-
9
tion."); Florentine Corp., 339 S.E.2d at 114 (same). In this case,
therefore, Food Lion had to show (1) that it hired Dale and Barnett
(and incurred the administrative costs incident to their employment)
because it believed they would work longer than a week or two and
(2) that in forming this belief it reasonably relied on misrepresenta-
tions made by Dale and Barnett.
On their job applications Dale and Barnett did misrepresent matters
such as their backgrounds, experience, and other employment. They
did not, however, make any representations about how long they
would work, and Food Lion did not ask for any. To the contrary, the
applications signed by Dale and Barnett expressly provided that either
side -- company or employee -- could terminate the employment at
any time. Each application contained the same provision, written in
no uncertain terms: "I also understand and agree that if employed,
employment is for an indefinite period of time, and that I have the
right to terminate my employment at any time for any reason, as does
the Company." Food Lion also understood what this meant. As one
of its payroll managers acknowledged on cross-examination, "when
Food Lion hires a new deli clerk or a new meat clerk. . . it assume[s]
the risk that that person might stay only a few days." Dale and Barnett
were, in short, at-will employees.
Because Dale and Barnett did not make any express representations
about how long they would work, Food Lion is left to contend that
misrepresentations in the employment applications led it to believe
the two would work for some extended period. There is a fundamental
problem with that contention, however. North and South Carolina are
at-will employment states, and under the at-will doctrine it is unrea-
sonable for either the employer or the employee to rely on any
assumptions about the duration of employment. At-will employment
means that (absent an express agreement) employers are free to dis-
charge employees at any time for any reason, and employees are free
to quit. See Kurtzman v. Applied Analytical Indus., Inc., 493 S.E.2d
420, 422 (N.C. 1997) ("in the absence of a contractual agreement
between an employer and an employee establishing a definite term of
employment, the relationship is presumed to be terminable at the will
of either party without regard to the quality of performance of either
party"); Small v. Springs Indus., Inc., 388 S.E.2d 808, 810 (S.C. 1990)
("An individual working for an employer under a contract of employ-
10
ment for an indefinite period can be terminated at will. At-will
employment is generally terminable by either party at any time, for
any reason or for no reason at all.") (citations omitted).
Food Lion's claim for administrative costs attributable to Dale and
Barnett is simply inconsistent with the at-will employment doctrine.
Under that doctrine Food Lion could not reasonably rely on the sort
of misrepresentations (about background, experience, etc.) made by
the reporters to conclude that they would work for any extended
period. As a result, Food Lion did not show that the administrative
costs were an injury caused by reasonable reliance on the misrepre-
sentations.
Food Lion also sought to recover the full amount ($487.73) of the
wages it paid to Dale and Barnett, arguing that it was fraudulently
induced to pay the wages because of the misrepresentations on the
reporters' employment applications. The last (proximate cause) ele-
ment of fraud is again the only one at issue: Food Lion had to show
that it paid the wages in reasonable reliance on the misrepresenta-
tions.
Food Lion relies on the jury's findings on a separate claim, the
finding that Dale and Barnett breached their duty of loyalty to Food
Lion, to argue that it proved fraud damages for the wages it paid. Spe-
cifically, Food Lion says that "it is apparent[from the disloyalty ver-
dict] that the jury found Food Lion did not receive adequate services
for the wages it paid Dale and Barnett." Appellee's Opening Br. at 14.
However, proof of the breach of duty of loyalty, for which the jury
awarded nominal damages of $1.00, does not equal proof of fraud
damages for inadequate services. That is because it is possible to per-
form the assigned tasks of a job adequately and still breach the duty
of loyalty. For fraud damages Food Lion still had to prove reliance
on the misrepresentations.
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. Indeed,
11
shortly before Dale quit, her supervisor said she would "make a good
meat wrapper." And, when Barnett quit, her supervisor recommended
that she be rehired if she sought reemployment with Food Lion in the
future. 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.1 The fraud verdict must be reversed.2
_________________________________________________________________
1 Food Lion cannot rely on Daniel Boone Complex, Inc. v. Furst, 258
S.E.2d 379 (N.C. Ct. App. 1979), to recover administrative costs and
wages as fraud damages in this case. Food Lion argues that under Daniel
Boone it can recover damages if it simply proves that it was fraudulently
induced to hire Dale and Barnett. That is an oversimplification. In Daniel
Boone the plaintiff-borrower was induced to enter into a loan agreement
based on misrepresentations about the identity of the lenders. The Court
of Appeals of North Carolina said the borrower had a choice of remedies:
Ordinarily, a party who has been fraudulently induced to enter
into a contract or sale has a choice of remedies. He may repudi-
ate the contract, and tendering back what he has received under
it, may recover what he had parted with or its value; or he may
affirm the contract, keeping whatever property or advantage he
has derived under it, and may recover in an action for deceit the
damages caused by the fraud.
Id. at 387 (citation omitted). Thus, Daniel Boone says that a party fraud-
ulently induced to enter a contract in North Carolina has two options. He
may sue for money damages, keeping whatever benefits he received
under the fraudulent contract. Or, he may repudiate the contract, tender
back what he received under it, and seek the value of what he parted
with. The latter Daniel Boone remedy cannot apply in this case. We are
dealing with employment contracts, and it is impossible for Food Lion
to tender back what it received under those contracts. In other words,
Dale wrapped meat and Barnett worked at the deli counter. Food Lion
kept those services, and there is no way to tender them back. Because
Food Lion cannot satisfy the "tender back" element of Daniel Boone's
repudiation remedy, it is left with a basic fraud claim for money dam-
ages, which, as we have said, fails for lack of proof of injurious reliance.
2 Our colleague, in partial dissent, argues that the administrative costs
attributable to Dale and Barnett should be recoverable as fraud damages.
To reach that result, the dissent would fundamentally alter the at-will
employment doctrine by qualifying an employee's right to quit at any
time. According to the dissent, Dale and Barnett induced Food Lion to
12
2.
ABC argues that Dale and Barnett cannot be held liable for a
breach of duty of loyalty to Food Lion under existing tort law in
North and South Carolina. It is undisputed that both reporters, on
behalf of ABC, wore hidden cameras to make a video and audio
record of what they saw and heard while they were employed by Food
Lion. Specifically, they sought to document, for ABC's PrimeTime
Live program, Food Lion employees engaging in unsanitary practices,
treating products to hide spoilage, and repackaging and redating out-
of-date products. The jury found that Dale and Barnett breached their
duty of loyalty to Food Lion, and nominal damages of $1.00 were
awarded.3
_________________________________________________________________
hire them and spend money to train them by impliedly representing (as
at-will job applicants) that (1) they "intend[ed] to work indefinitely, until
[there was] a change in circumstances" and that (2) there was "a possibil-
ity that they would become long-term employees." Post at 30. But these
implied representations that the dissent would impute are in essence rep-
resentations about the potential duration of employment, and here they
would translate into an obligation to work longer than a week or two.
Such an obligation is inconsistent with, and cannot be enforced under,
the at-will employment doctrine. Thus, when Food Lion, as an at-will
employer, incurred the administrative expenses, it took the full risk that
Dale and Barnett might do what any at-will employee was free to do (and
what many at Food Lion did) -- quit within a very short time.
Nor can fraud damages be supported by the breach of duty of loyalty
we confirm in the next subpart. The dissent argues that because Dale and
Barnett (by silence) misrepresented their loyalty, Food Lion was willing
to spend the money to train them on the chance they might become long-
term employees. See post at 32. Missing out on that "chance" is too spec-
ulative to form a basis for damages. Even if Food Lion had spent the
money on new hires who were loyal, there is no evidence that the hypo-
thetical new hires would have stayed any longer than Dale and Barnett
in these high turnover jobs. Indeed, Food Lion conceded at trial that it
could not prove actual damages resulting from the breach of duty of loy-
alty.
3 As we have already mentioned, Food Lion acknowledged at trial that
it could not quantify actual damages on this claim. The jury was there-
fore instructed that it could award only nominal damages.
13
As a matter of agency law, an employee owes a duty of loyalty to
her employer. In South Carolina it is "implicit in any contract for
employment that the employee shall remain faithful to the employer's
interest throughout the term of employment." Berry v. Goodyear Tire
and Rubber Co., 242 S.E.2d 551, 552 (S.C. 1978). In North Carolina
"the law implies a promise on the part of every employee to serve
[her] employer faithfully." McKnight v. Simpson's Beauty Supply,
Inc., 358 S.E.2d 107, 109 (N.C. Ct. App. 1987). The courts of North
and South Carolina have not set out a specific test for determining
when the duty of loyalty is breached. Disloyalty has been described
in fairly broad terms, however. Employees are disloyal when their
acts are "inconsistent with promoting the best interest of their
employer at a time when they were on its payroll," Lowndes Prods.,
Inc. v. Brower, 191 S.E.2d 761, 767 (S.C. 1972), and an employee
who "deliberately acquires an interest adverse to his employer . . . is
disloyal," Long v. Vertical Techs., Inc., 439 S.E.2d 797, 802 (N.C. Ct.
App. 1994).
ABC is correct to remind us that employee disloyalty issues are
usually dealt with in the context of the employment contract: unfaith-
ful employees are simply discharged, disciplined, or reprimanded. Up
to now, disloyal conduct by an employee has been considered tortious
in North and South Carolina in three circumstances. First, the tort of
breach of duty of loyalty applies when an employee competes directly
with her employer, either on her own or as an agent of a rival com-
pany. See id. at 801-02 (duty breached when employee used current
employer's resources during business hours to develop rival com-
pany); Lowndes Prods., 191 S.E.2d at 767 (duty breached when
employees conspired to take trade secrets and hire away other work-
ers for the benefit of rival company they were forming). Second, the
tort applies when the employee misappropriates her employer's prof-
its, property, or business opportunities. See Sara Lee Corp. v. Carter,
500 S.E.2d 732, 736-37 (N.C. Ct. App. 1998) (duty breached when
employee bought parts for employer at above market prices from
company partly owned by employee); Construction Techniques, Inc.
v. Dominske, 928 F.2d 632, 636-39 (4th Cir. 1991) (applying South
Carolina law) (employee's ownership interest in one of his employ-
er's suppliers was inherently adverse to interests of employer; duty of
loyalty was not breached only because employee disclosed this inter-
est to employer). Third, the tort applies when the employee breaches
14
her employer's confidences. See Lowndes Prods. , 191 S.E.2d at 767
(duty breached when employees used employer's trade secrets after
forming competing business).
Because Dale and Barnett did not compete with Food Lion, misap-
propriate any of its profits or opportunities, or breach its confidences,
ABC argues that the reporters did not engage in any disloyal conduct
that is tortious under existing law. Indeed, the district court acknowl-
edged that it was the first court to hold that the conduct in question
"would be recognized by the Supreme Courts of North Carolina and
South Carolina" as tortiously violating the duty of loyalty. Food Lion,
Inc. v. Capital Cities/ABC, Inc., 964 F. Supp. 956, 959 n.2 (M.D.N.C.
1997). We believe the district court was correct to conclude that those
courts would decide today that the reporters' conduct was sufficient
to breach the duty of loyalty and trigger tort liability.
What Dale and Barnett did verges on the kind of employee activity
that has already been determined to be tortious. The interests of the
employer (ABC) to whom Dale and Barnett gave complete loyalty
were adverse to the interests of Food Lion, the employer to whom
they were unfaithful. ABC and Food Lion were not business competi-
tors but they were adverse in a fundamental way. ABC's interest was
to expose Food Lion to the public as a food chain that engaged in
unsanitary and deceptive practices. Dale and Barnett served ABC's
interest, at the expense of Food Lion, by engaging in the taping for
ABC while they were on Food Lion's payroll. In doing this, Dale and
Barnett did not serve Food Lion faithfully, and their interest (which
was the same as ABC's) was diametrically opposed to Food Lion's.
In these circumstances, we believe that the highest courts of North
and South Carolina would hold that the reporters-- in promoting the
interests of one master, ABC, to the detriment of a second, Food Lion
-- committed the tort of disloyalty against Food Lion.
Our holding on this point is not a sweeping one. An employee does
not commit a tort simply by holding two jobs or by performing a sec-
ond job inadequately. For example, a second employer has no tort
action for breach of the duty of loyalty when its employee fails to
devote adequate attention or effort to her second (night shift) job
because she is tired. That is because the inadequate performance is
simply an incident of trying to work two jobs. There is no intent to
15
act adversely to the second employer for the benefit of the first. Cf.
Long, 439 S.E.2d at 802 (finding disloyalty when employee "deliber-
ately" acquired an interest adverse to his employer). Because Dale
and Barnett had the requisite intent to act against the interests of their
second employer, Food Lion, for the benefit of their main employer,
ABC, they were liable in tort for their disloyalty.
We hold that, insofar as North and South Carolina law is con-
cerned, the district court did not err in refusing to set aside the jury's
verdict that Dale and Barnett breached their duty of loyalty to Food
Lion.
3.
ABC argues that it was error to allow the jury to hold Dale and
Barnett liable for trespass on either of the independent grounds (1)
that Food Lion's consent to their presence as employees was void
because it was based on misrepresentations or (2) that Food Lion's
consent was vitiated when Dale and Barnett breached the duty of loy-
alty. The jury found Dale and Barnett liable on both of these grounds
and awarded Food Lion $1.00 in nominal damages, which is all that
was sought in the circumstances.
In North and South Carolina, as elsewhere, it is a trespass to enter
upon another's land without consent. See, e.g. , Smith v. VonCannon,
197 S.E.2d 524, 528 (N.C. 1973); Snow v. City of Columbia, 409
S.E.2d 797, 802 (S.C. Ct. App. 1991). Accordingly, consent is a
defense to a claim of trespass. See, e.g., Miller v. Brooks, 472 S.E.2d
350, 355 (N.C. Ct. App. 1996), review denied, 483 S.E.2d 172 (N.C.
1997). Even consent gained by misrepresentation is sometimes suffi-
cient. See Desnick v. American Broad. Cos., 44 F.3d 1345, 1351-52
(7th Cir. 1995) (Posner, C.J.). The consent to enter is canceled out,
however, "if a wrongful act is done in excess of and in abuse of
authorized entry." Miller, 472 S.E.2d at 355 (citing Blackwood v.
Cates, 254 S.E.2d 7, 9 (N.C. 1979)). Cf. Ravan v. Greenville County,
434 S.E.2d 296, 306 (S.C. Ct. App. 1993) (noting that the law of tres-
pass protects the "peaceable possession" of property).
We turn first to whether Dale and Barnett's consent to be in non-
public areas of Food Lion property was void from the outset because
16
of the resume misrepresentations. "[C]onsent to an entry is often
given legal effect" even though it was obtained by misrepresentation
or concealed intentions. Desnick, 44 F.3d at 1351. Without this result,
a restaurant critic could not conceal his identity when he
ordered a meal, or a browser pretend to be interested in mer-
chandise that he could not afford to buy. Dinner guests
would be trespassers if they were false friends who never
would have been invited had the host known their true char-
acter, and a consumer who in an effort to bargain down an
automobile dealer falsely claimed to be able to buy the same
car elsewhere at a lower price would be a trespasser in a
dealer's showroom.
Id.
Of course, many cases on the spectrum become much harder than
these examples, and the courts of North and South Carolina have not
considered the validity of a consent to enter land obtained by misrep-
resentation. Further, the various jurisdictions and authorities in this
country are not of one mind in dealing with the issue. Compare
Restatement (Second) of Torts, § 892B(2) (1965) ("[i]f the person
consenting to the conduct of another . . . is induced [to consent] by
the other's misrepresentation, the consent is not effective for the
unexpected invasion or harm") and Shiffman v. Empire Blue Cross
and Blue Shield, 681 N.Y.S.2d 511, 512 (App. Div. 1998) (reporter
who gained entry to medical office by posing as potential patient
using false identification and insurance cards could not assert consent
as defense to trespass claim "since consent obtained by misrepresenta-
tion or fraud is invalid"), with Desnick, 44 F.3d at 1351-53 (ABC
agents with concealed cameras who obtained consent to enter an oph-
thalmic clinic by pretending to be patients were not trespassers
because, among other things, they "entered offices open to anyone");
Baugh v. CBS, Inc., 828 F. Supp. 745, 757 (N.D. Cal. 1993) ("where
consent was fraudulently induced, but consent was nonetheless given,
plaintiff has no claim for trespass"); and Martin v. Fidelity & Cas. Co.
of New York, 421 So.2d 109, 111 (Ala. 1982) (consent to enter is
valid "even though consent may have been given under a mistake of
facts, or procured by fraud") (citation omitted).
17
We like Desnick's thoughtful analysis about when a consent to
enter that is based on misrepresentation may be given effect. In
Desnick ABC sent persons posing as patients needing eye care to the
plaintiffs' eye clinics, and the test patients secretly recorded their
examinations. Some of the recordings were used in a PrimeTime Live
segment that alleged intentional misdiagnosis and unnecessary cata-
ract surgery. Desnick held that although the test patients misrepre-
sented their purpose, their consent to enter was still valid because they
did not invade "any of the specific interests[relating to peaceable pos-
session of land] the tort of trespass seeks to protect:" the test patients
entered offices "open to anyone expressing a desire for ophthalmic
services" and videotaped doctors engaged in professional discussions
with strangers, the testers; the testers did not disrupt the offices or
invade anyone's private space; and the testers did not reveal the "inti-
mate details of anybody's life." 44 F.3d at 1352-53. Desnick sup-
ported its conclusion with the following comparison:
"Testers" who pose as prospective home buyers in order to
gather evidence of housing discrimination are not trespass-
ers even if they are private persons not acting under color
of law. The situation of [ABC's] "testers" is analogous. Like
testers seeking evidence of violation of anti-discrimination
laws, [ABC's] test patients gained entry into the plaintiffs'
premises by misrepresenting their purposes (more precisely
by a misleading omission to disclose those purposes). But
the entry was not invasive in the sense of infringing the kind
of interest of the plaintiffs that the law of trespass protects;
it was not an interference with the ownership or possession
of land.
Id. at 1353 (citation omitted).4
We return to the jury's first trespass finding in this case, which
rested on a narrow ground. The jury found that Dale and Barnett were
trespassers because they entered Food Lion's premises as employees
with consent given because of the misrepresentations in their job
applications. Although the consent cases as a class are inconsistent,
_________________________________________________________________
4 Desnick noted in a separate discussion that the test patients were not
sent in to commit a tort or some other injurious act. 44 F.3d at 1353.
18
we have not found any case suggesting that consent based on a
resume misrepresentation turns a successful job applicant into a tres-
passer the moment she enters the employer's premises to begin work.
Moreover, if we turned successful resume fraud into trespass, we
would not be protecting the interest underlying the tort of trespass --
the ownership and peaceable possession of land. See Desnick, 44 F.2d
at 1352; see generally Matthews v. Forrest, 69 S.E.2d 553, 555 (N.C.
1952); Ravan, 434 S.E.2d at 306. Accordingly, we cannot say that
North and South Carolina's highest courts would hold that misrepre-
sentation on a job application alone nullifies the consent given to an
employee to enter the employer's property, thereby turning the
employee into a trespasser. The jury's finding of trespass therefore
cannot be sustained on the grounds of resume misrepresentation.
There is a problem, however, with what Dale and Barnett did after
they entered Food Lion's property. The jury also found that the
reporters committed trespass by breaching their duty of loyalty to
Food Lion "as a result of pursuing [their] investigation for ABC." We
affirm the finding of trespass on this ground because the breach of
duty of loyalty -- triggered by the filming in non-public areas, which
was adverse to Food Lion -- was a wrongful act in excess of Dale
and Barnett's authority to enter Food Lion's premises as employees.
See generally Blackwood, 254 S.E.2d at 9 (finding liability for tres-
pass when activity on property exceeded scope of consent to enter).
The Court of Appeals of North Carolina has indicated that secretly
installing a video camera in someone's private home can be a wrong-
ful act in excess of consent given to enter. In the trespass case of
Miller v. Brooks the (defendant) wife, who claimed she had consent
to enter her estranged husband's (the plaintiff's) house, had a private
detective place a video camera in the ceiling of her husband's bed-
room. The court noted that "[e]ven an authorized entry can be trespass
if a wrongful act is done in excess of and in abuse of authorized
entry." Miller, 472 S.E.2d at 355. The court went on to hold that
"[e]ven if [the wife] had permission to enter the house and to autho-
rize others to do so," it was a jury question"whether defendants'
entries exceeded the scope of any permission given." Id. We recog-
nize that Miller involved a private home, not a grocery store, and that
it involved some physical alteration to the plaintiff's property (instal-
lation of a camera). Still, we believe the general principle is applica-
19
ble here, at least in the case of Dale, who worked in a Food Lion store
in North Carolina. Although Food Lion consented to Dale's entry to
do her job, she exceeded that consent when she videotaped in non-
public areas of the store and worked against the interests of her sec-
ond employer, Food Lion, in doing so.
We do not have a case comparable to Miller from South Carolina.
Nevertheless, the South Carolina courts make clear that the law of
trespass protects the peaceable enjoyment of property. See Ravan, 434
S.E.2d at 306. It is consistent with that principle to hold that consent
to enter is vitiated by a wrongful act that exceeds and abuses the priv-
ilege of entry.
Here, both Dale and Barnett became employees of Food Lion with
the certain consequence that they would breach their implied prom-
ises to serve Food Lion faithfully. They went into areas of the stores
that were not open to the public and secretly videotaped, an act that
was directly adverse to the interests of their second employer, Food
Lion. Thus, they breached the duty of loyalty, thereby committing a
wrongful act in abuse of their authority to be on Food Lion's prop-
erty.
In sum, we are convinced that the highest courts of North and
South Carolina would hold that Dale and Barnett committed trespass
because Food Lion's consent for them to be on its property was nulli-
fied when they tortiously breached their duty of loyalty to Food Lion.
Accordingly, as far as North and South Carolina law is concerned, the
jury's trespass verdict should be sustained.
4.
Dale worked in a Food Lion store in North Carolina. Based on the
jury's finding of fraud and a special interrogatory, the district court
determined that ABC and Dale were liable under the North Carolina
UTPA, N.C. Gen. Stat. § 75-1.1. Because Food Lion elected to take
damages on the fraud claim, the district court awarded no damages on
the UTPA claim. ABC argues that the Act does not apply to the cir-
cumstances of this case, and we agree.
20
North Carolina's UTPA prohibits "[u]nfair methods of competi-
tion" and "unfair or deceptive acts or practices" that are "in or affect-
ing commerce." N.C. Gen. Stat. § 75-1.1(a)."Commerce" is defined
to include "all business activities, however denominated." N.C. Gen.
Stat. § 75-1.1(b). Food Lion contends that Dale's misrepresentations
on her job application were "deceptive acts""in or affecting com-
merce" because they were made to further the production of
PrimeTime Live, a business activity.
Although the UTPA's language is quite broad, "the Act is not
intended to apply to all wrongs in a business setting." HAJMM Co.
v. House of Raeford Farms, Inc., 403 S.E.2d 483, 492 (N.C. 1991).
The Act's primary purpose is to protect the consuming public. See
Skinner v. E.F. Hutton & Co., Inc., 333 S.E.2d 236, 241 (N.C. 1985).
It gives a private cause of action to consumers aggrieved by unfair or
deceptive business practices. See Marshall v. Miller, 276 S.E.2d 397,
400 (N.C. 1981). In addition, businesses are sometimes allowed to
assert UTPA claims against other businesses because"unfair trade
practices involving only businesses" can "affect the consumer as
well." United Labs., Inc. v. Kuykendall, 370 S.E.2d 375, 389 (N.C.
1988). But one business is permitted to assert an UTPA claim against
another business only when the businesses are competitors (or poten-
tial competitors) or are engaged in commercial dealings with each
other. See, e.g., Winston Realty Co. v. G.H.G., Inc., 331 S.E.2d 677
(N.C. 1985) (UTPA applies when temporary personnel agency falsely
claims to have conducted background checks of workers it sends to
companies); Harrington Mfg. Co. v. Powell Mfg. Co., 248 S.E.2d 739
(N.C. Ct. App. 1979) (UTPA applies when manufacturer passes off
its competitor's goods as those of its own); Concrete Serv. Corp. v.
Investors Group, Inc., 340 S.E.2d 755, 760-61 (N.C. Ct. App. 1986)
(UTPA covers acts intended to deceive suppliers into extending
credit). In any event, the fundamental purpose of the UTPA is to pro-
tect the consumer, and courts invariably look to that purpose in decid-
ing whether the Act applies. See Lindner v. Durham Hosiery Mills,
Inc., 761 F.2d 162, 165-67 (4th Cir. 1985).
The district court found an UTPA violation because ABC is a busi-
ness that engaged in deception. However, the deception -- the mis-
representations in Dale's application -- did not harm the consuming
public. Presumably, ABC intended to benefit the consuming public by
21
letting it know about Food Lion's food handling practices. Moreover,
ABC was not competing with Food Lion, and it did not have any
actual or potential business relationship with the grocery chain. The
UTPA, therefore, cannot be used here because there is no competitive
or business relationship that can be policed for the benefit of the con-
suming public. The North Carolina statute has not been applied to a
circumstance like this, and we believe the Supreme Court of North
Carolina would hold that it should not be. We therefore reverse the
district court's judgment that the ABC defendants, including Dale,
were liable under the North Carolina UTPA.
B.
ABC argues that even if state tort law covers some of Dale and
Barnett's conduct, the district court erred in refusing to subject Food
Lion's claims to any level of First Amendment scrutiny. ABC makes
this argument because Dale and Barnett were engaged in newsgather-
ing for PrimeTime Live. It is true that there are "First Amendment
interests in newsgathering." In re Shain, 978 F.2d 850, 855 (4th Cir.
1992) (Wilkinson J., concurring). See also Branzburg v. Hayes, 408
U.S. 665, 681 (1972) ("without some protection for seeking out the
news, freedom of the press could be eviscerated."). However, the
Supreme Court has said in no uncertain terms that"generally applica-
ble laws do not offend the First Amendment simply because their
enforcement against the press has incidental effects on its ability to
gather and report the news." Cohen v. Cowles Media Co., 501 U.S.
663, 669 (1991); see also Desnick, 44 F.3d at 1355 ("the media have
no general immunity from tort or contract liability").
In Cowles, Cohen, who was associated with a candidate for gover-
nor of Minnesota, gave damaging information about a candidate for
another office to two reporters on their promise that his (Cohen's)
identity would not be disclosed. Because editors at the reporters'
newspapers concluded that the source was an essential part of the
story, it was published with Cohen named as the origin. Cohen was
fired from his job as a result, and he sued the newspapers for breaking
the promise. The question in the Supreme Court was whether the First
Amendment barred Cohen from recovering damages under state
promissory estoppel law. The newspapers argued that absent "a need
to further a state interest of the highest order," the First Amendment
22
protected them from liability for publishing truthful information, law-
fully obtained, about a matter of public concern. Id. at 668-69 (quot-
ing Smith v. Daily Mail Publ'g Co., 443 U.S. 97, 103 (1979)). The
Supreme Court disagreed, holding that the press"has no special
immunity from the application of general laws" and that the enforce-
ment of general laws against the press "is not subject to stricter scru-
tiny than would be applied to enforcement against other persons or
organizations." Id. at 670 (quoting Associated Press v. NLRB, 301
U.S. 103, 132 (1937)).
The key inquiry in Cowles was whether the law of promissory
estoppel was a generally applicable law. The Court began its analysis
with some examples of generally applicable laws that must be obeyed
by the press, such as those relating to copyright, labor, antitrust, and
tax. Id. at 669. More relevant to us, "[t]he press may not with impu-
nity break and enter an office or dwelling to gather news." Id. In ana-
lyzing the doctrine of promissory estoppel, the Court determined that
it was a law of general applicability because it"does not target or sin-
gle out the press," but instead applies "to the daily transactions of all
the citizens of Minnesota." Id. at 670. The Court concluded that "the
First Amendment does not confer on the press a constitutional right
to disregard promises that would otherwise be enforced under state
law." Id. at 672. The Court thus refused to apply any heightened scru-
tiny to the enforcement of Minnesota's promissory estoppel law
against the newspapers.
The torts Dale and Barnett committed, breach of the duty of loyalty
and trespass, fit neatly into the Cowles framework. Neither tort targets
or singles out the press. Each applies to the daily transactions of the
citizens of North and South Carolina. If, for example, an employee of
a competing grocery chain hired on with Food Lion and videotaped
damaging information in Food Lion's non-public areas for later dis-
closure to the public, these tort laws would apply with the same force
as they do against Dale and Barnett here. Nor do we believe that
applying these laws against the media will have more than an "inci-
dental effect" on newsgathering. See Cowles , 501 U.S. at 669, 671-72.
We are convinced that the media can do its important job effectively
without resort to the commission of run-of-the-mill torts.5
_________________________________________________________________
5 Indeed, the ABC News Policy Manual states that "news gathering of
whatever sort does not include any license to violate the law."
23
ABC argues that Cowles is not to be applied automatically to every
"generally applicable law" because the Supreme Court has since said
that "the enforcement of [such a] law may or may not be subject to
heightened scrutiny under the First Amendment." Turner Broad. Sys.,
Inc. v. FCC, 512 U.S. 622, 640 (1994) (contrasting Barnes v. Glen
Theatre, Inc., 501 U.S. 560 (1991), and Cowles). In Glen Theatre
nude dancing establishments and their dancers challenged a generally
applicable law prohibiting public nudity. Because the general ban on
public nudity covered nude dancing, which was expressive conduct,
the Supreme Court applied heightened scrutiny. Glen Theatre, 501
U.S. at 566. In Cowles a generally applicable law (promissory estop-
pel) was invoked against newspapers who broke their promises to a
source that they would keep his name confidential in exchange for
information leading to a news story. There, the Court refused to apply
heightened scrutiny, concluding that application of the doctrine of
promissory estoppel had "no more than [an] incidental" effect on the
press's ability to gather or report news. Cowles , 501 U.S. at 671-72.
There is arguable tension between the approaches in the two cases.
The cases are consistent, however, if we view the challenged conduct
in Cowles to be the breach of promise and not some form of expres-
sion. In Glen Theatre, on the other hand, an activity directly covered
by the law, nude dancing, necessarily involved expression, and
heightened scrutiny was applied. Here, as in Cowles, heightened scru-
tiny does not apply because the tort laws (breach of duty of loyalty
and trespass) do not single out the press or have more than an inciden-
tal effect upon its work.
C.
For the foregoing reasons, we affirm the judgment that Dale and
Barnett breached their duty of loyalty to Food Lion and committed
trespass. We likewise affirm the damages award against them for
these torts in the amount of $2.00. We have already indicated that the
fraud claim against all of the ABC defendants must be reversed.
Because Food Lion was awarded punitive damages only on its fraud
claim, the judgment awarding punitive damages cannot stand.
III.
In its cross-appeal Food Lion argues that the district court erred in
refusing to allow it to use its non-reputational tort claims (breach of
24
duty of loyalty, trespass, etc.) to recover compensatory damages for
ABC's broadcast of the PrimeTime Live program that targeted Food
Lion. The publication damages Food Lion sought (or alleged) were
for items relating to its reputation, such as loss of good will and lost
sales. The district court determined that the publication damages
claimed by Food Lion "were the direct result of diminished consumer
confidence in the store" and that "it was[Food Lion's] food handling
practices themselves -- not the method by which they were recorded
or published -- which caused the loss of consumer confidence." Food
Lion, Inc. v. Capital Cities/ABC, Inc., 964 F. Supp. 956, 963
(M.D.N.C. 1997). The court therefore concluded that the publication
damages were not proximately caused by the non-reputational torts
committed by ABC's employees. We do not reach the matter of prox-
imate cause because an overriding (and settled) First Amendment
principle precludes the award of publication damages in this case, as
ABC has argued to the district court and to us. Food Lion attempted
to avoid the First Amendment limitations on defamation claims by
seeking publication damages under non-reputational tort claims, while
holding to the normal state law proof standards for these torts. This
is precluded by Hustler Magazine v. Falwell, 485 U.S. 46 (1988).
Food Lion acknowledges that it did not sue for defamation because
its "ability to bring an action for defamation . . . required proof that
ABC acted with actual malice." Appellee's Opening Br. at 44. Food
Lion thus understood that if it sued ABC for defamation it would have
to prove that the PrimeTime Live broadcast contained a false state-
ment of fact that was made with "actual malice," that is, with knowl-
edge that it was false or with reckless disregard as to whether it was
true or false. See New York Times Co. v. Sullivan, 376 U.S. 254, 279-
80 (1964). It is clear that Food Lion was not prepared to offer proof
meeting the New York Times standard under any claim that it might
assert. What Food Lion sought to do, then, was to recover
defamation-type damages under non-reputational tort claims, without
satisfying the stricter (First Amendment) standards of a defamation
claim. We believe that such an end-run around First Amendment
strictures is foreclosed by Hustler.
In Hustler a popular liquor advertisement prompted the magazine
to run a parody of the ad, labeled as such, that featured the Reverend
Jerry Falwell "discussing" an incestuous sexual act he had undertaken
25
while drunk in disgusting circumstances. Falwell sued the magazine
and its publisher, Larry Flynt, seeking damages for libel and inten-
tional infliction of emotional distress. At trial the jury held against
Falwell on the libel claim, specifically finding that the ad parody
could not reasonably be understood as describing actual facts about
Falwell or actual events in which he participated. The jury, however,
found for Falwell on the emotional distress claim and awarded com-
pensatory and punitive damages.
It was clear that Falwell, in asserting the claim for intentional
infliction of emotional distress, sought "damages for emotional harm
caused by the publication of an ad parody offensive to him." Hustler,
485 U.S. at 50 (emphasis added). In the Supreme Court the question
was whether Falwell had to satisfy the heightened First Amendment
proof standard set forth in New York Times. After concluding that the
ad parody was protected expression, the Court, in an opinion by Chief
Justice Rehnquist, held that the constitutional libel standard applied
to Falwell's emotional distress claim:
We conclude that public figures and public officials may
not recover for the tort of intentional infliction of emotional
distress by reason of publications such as the one here at
issue without showing in addition that the publication con-
tains a false statement of fact which was made with"actual
malice," i.e., with knowledge that the statement was false or
with reckless disregard as to whether or not it was true.
Hustler, 485 U.S. at 56.
Hustler confirms that when a public figure plaintiff uses a law to
seek damages resulting from speech covered by the First Amendment,
the plaintiff must satisfy the proof standard of New York Times. Here,
Food Lion was not prepared to meet this standard for publication
damages under any of the claims it asserted. Unless there is some way
to distinguish Hustler (we think there is not, see below), Food Lion
cannot sustain its request for publication damages from the ABC
broadcast.
Food Lion argues that Cowles, supra, and not Hustler governs its
claim for publication damages. According to Food Lion, Cowles
26
allowed the plaintiff to recover -- without satisfying the constitu-
tional prerequisites to a defamation action -- economic losses for
publishing the plaintiff's identity in violation of a legal duty arising
from generally applicable law. Food Lion says that its claim for dam-
ages is like the plaintiff's in Cowles, and not like Falwell's in Hustler.
This argument fails because the Court in Cowles distinguished the
damages sought there from those in Hustler in a way that also distin-
guishes Food Lion's case from Cowles:
Cohen is not seeking damages for injury to his reputation or
his state of mind. He sought damages . . . for breach of a
promise that caused him to lose his job and lowered his
earning capacity. Thus, this is not a case like Hustler . . .
where we held that the constitutional libel standards apply
to a claim alleging that the publication of a parody was a
state-law tort of intentional infliction of emotional distress.
Cowles, 501 U.S. at 671. Food Lion, in seeking compensation for
matters such as loss of good will and lost sales, is claiming reputa-
tional damages from publication, which the Cowles Court distin-
guished by placing them in the same category as the emotional
distress damages sought by Falwell in Hustler . In other words,
according to Cowles, "constitutional libel standards" apply to damage
claims for reputational injury from a publication such as the one here.
Food Lion also argues that because ABC obtained the videotapes
through unlawful acts, that is, the torts of breach of duty of loyalty
and trespass, it (Food Lion) is entitled to publication damages without
meeting the New York Times standard. The Supreme Court has never
suggested that it would dispense with the Times standard in this situa-
tion, and we believe Hustler indicates that the Court would not. In
Hustler the magazine's conduct would have been sufficient to consti-
tute an unlawful act, the intentional infliction of emotional distress,
if state law standards of proof had applied. Indeed, the Court said,
"[g]enerally speaking the law does not regard the intent to inflict emo-
tional distress as one which should receive much solicitude." Hustler,
485 U.S. at 53. Notwithstanding the nature of the underlying act, the
Court held that satisfying New York Times was a prerequisite to the
recovery of publication damages. That result was"necessary," the
27
Court concluded, in order "to give adequate `breathing space' to the
freedoms protected by the First Amendment." Id. at 56.
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.
IV.
To recap, we reverse the judgment to the extent it provides that the
ABC defendants committed fraud and awards compensatory damages
of $1,400 and punitive damages of $315,000 on that claim; we affirm
the judgment to the extent it provides that Dale and Barnett breached
their duty of loyalty to Food Lion and committed a trespass and
awards total damages of $2.00 on those claims; we reverse the judg-
ment to the extent it provides that the ABC defendants violated the
North Carolina UTPA; and we affirm the district court's ruling that
Food Lion was not entitled to prove publication damages on its
claims.
AFFIRMED IN PART AND REVERSED IN PART
NIEMEYER, Circuit Judge, concurring in part and dissenting in part:
Because I believe that ample evidence supports the jury's verdict
finding that the ABC defendants acted fraudulently, I dissent from
Part II.A.1. of the majority opinion. I am pleased to join the remain-
der.
I
The transactional facts are not disputed. In order to obtain an inside
story, ABC's PrimeTime Live devised a plan by which ABC's
employees would falsely represent themselves to Food Lion to obtain
jobs in its stores and then would secretly film the activities of Food
Lion's employees, including themselves, using miniature "spy cam"
equipment.
28
In applying for jobs at Food Lion stores, ABC reporters Lynne
Dale and Susan Barnett misrepresented themselves, their experience,
and their references, even though they certified that their applications
were complete and truthful. More fundamentally, they misrepresented
themselves as bona fide applicants for employment. They were
already employees of ABC and knew that within a week or two they
would no longer be working for Food Lion. After Food Lion gave
them jobs at stores in North Carolina and South Carolina, Dale and
Barnett roamed the stores to obtain film footage for PrimeTime Live.
While some of the film footage so obtained was damaging to Food
Lion, these reporters contributed to the damage. For example, when
Barnett saw food that she suspected to be out of date, she sold it to
her camera crew rather than throw it away. Similarly, she attempted
to sell such food to a customer. When these reporters obtained their
film footage -- after two weeks for Barnett and one week for Dale
-- they quit their jobs at Food Lion and provided the videotapes to
ABC's PrimeTime Live for broadcast on national television.
The jury returned a verdict against the ABC defendants based on
fraud and awarded Food Lion $1,400 in compensatory damages and
over $5.5 million in punitive damages. The district court remitted the
$5.5 million punitive damage award to $315,000. I would affirm this
judgment.
II
The elements of a fraud claim under North Carolina law are "(1)
[a] [f]alse representation or concealment of a material fact, (2) reason-
ably calculated to deceive, (3) made with intent to deceive, (4) which
does in fact deceive, (5) resulting in damage to the injured party."
Myers & Chapman, Inc. v. Thomas G. Evans, Inc., 374 S.E.2d 385,
391 (N.C. 1988) (emphasis omitted) (quoting Ragsdale v. Kennedy,
209 S.E.2d 494, 500 (N.C. 1974)). The requirements under South
Carolina law are similar. See Florentine Corp. v. PEDA I, Inc., 339
S.E.2d 112, 113-14 (S.C. 1985).
In reversing the jury's fraud verdict, the majority agrees with the
ABC defendants that Food Lion failed to prove the injury element of
its fraud claim because the expenses it incurred in training at-will
employees could not be claimed as damages. The majority explains,
29
"North and South Carolina are at-will employment states, and under
the at-will doctrine it is unreasonable for either the employer or the
employee to rely on any assumptions about the duration of employ-
ment." Ante, at 10.
I respectfully disagree, and my disagreement focuses on (1) the dif-
ference in hiring a person who intends to work indefinitely and a per-
son who intends to work one or two weeks and fails to disclose that
intent, and (2) the ABC employees' misrepresentation of loyalty
inherent in their application for a job. I will discuss these in order.
A
The majority concludes that there is no difference in Food Lion's
unwitting employment of ABC reporters who intend to leave within
one or two weeks and employment of applicants who have no specific
intent about the duration of their employment because both types of
the employment are "at will." This, however, overlooks the difference
between a bona fide at-will employee and an undercover news
reporter who knows from the beginning that she will stay only two
weeks. With the former, normal risks allow for the possibility that
Food Lion can obtain long-term, experienced, faithful service from
which it can recover its training expenses; with the latter there is no
such possibility.
Applicants for employment, even at-will employment, present
themselves representing by implication: (1) that they want to become
employees; (2) that they intend to work indefinitely, until a change in
circumstances leads them or their employer to terminate the arrange-
ment; (3) that there is a possibility that they would become long-term
employees; and (4) that they will be loyal employees as long as they
work, prepared to work at the promotion of their employer's business.
ABC's undercover reporters presented themselves to Food Lion, rep-
resenting all of these matters falsely. They did not, during the applica-
tion process, disclose that they did not intend to become employees
at all. Indeed, they were already employed by ABC, and their applica-
tion for employment with Food Lion was only a sham to get them into
locations within Food Lion where they otherwise would not be per-
mitted. Moreover, the ABC employees had no intention of allowing
the normal risks of at-will employment to govern their term; they
30
knew from the beginning that they were to be at Food Lion only long
enough to obtain damaging information.
In training new employees and investing in their future, Food Lion
has a right to assume that the normal risks attend the relationship and
that some of those employees will eventually become experienced
and loyal employees who will provide a return on the costs of training
them. The fact that Food Lion would not make such an investment in
an applicant if the applicant stated that she was an ABC employee
only seeking inside information and that she would leave after two
weeks defines the injury sustained by Food Lion. Indeed, far less
injury is required by law. Where a plaintiff presents evidence that the
defendant's fraudulent misrepresentation induced the plaintiff to deal
"with a party with whom it did not wish to deal," "sufficient injury"
has been shown "to meet the requisite damage element of fraud" and
the plaintiff is "entitled to recover any damages shown to result there-
from." Daniel Boone Complex, Inc. v. Furst , 258 S.E.2d 379, 386-87
(N.C. Ct. App. 1979). Not only was Food Lion induced to hire per-
sons it would not otherwise have hired, it was induced to spend
money on persons whose potential for employment was nil, contrary
to the potential of a bona fide applicant for at-will employment.
B
Similarly and perhaps more importantly, Dale and Barnett's
implied representations that they would be loyal Food Lion employ-
ees injured Food Lion. Both North Carolina and South Carolina law
provide that implicit in any contract for employment is the duty of the
employee to "remain faithful to the employer's interest throughout the
term of employment." Berry v. Goodyear Tire & Rubber Co., 242
S.E.2d 551, 552 (S.C. 1978); see also McKnight v. Simpson's Beauty
Supply, Inc. 358 S.E.2d 107, 109 (N.C. Ct. App. 1987) ("[T]he law
implies a promise on the part of every employee to serve his employer
faithfully"). And when an employee acts adversely to the interest of
his employer, he is disloyal and his discharge is justified. Berry, 242
S.E.2d at 552.
In this case, Dale and Barnett never intended to work as loyal
employees for Food Lion and to promote the business of Food Lion.
On the contrary, they applied to Food Lion with the secret intent to
31
obtain sensational and damaging evidence to publish against Food
Lion. And in furtherance of that purpose they even failed to do what
they were hired to do. As one snippet from their videotape shows,
instead of cleaning a meat grinder that a loyal employee would have
undertaken to clean, even if the task were not specifically assigned to
the employee, the ABC employee photographed the dirty meat
grinder and offered it as an example of poor food-handling practices.
Moreover, in seeking to "uncover" practices, the ABC employees
baited fellow employees to say and do things that they knew would
undermine Food Lion's standing food-handling practices. Indeed, a
portion of the majority opinion, which I have joined, concludes that
these employees breached their duties of loyalty to Food Lion and, in
doing so, caused Food Lion damage. I believe that this very breach
and injury, when intended from the very beginning, also supports
Food Lion's fraud claim.
III
In short, the ABC employees misrepresented their potential for
staying at Food Lion and they misrepresented their loyalty. Food Lion
had less of a chance -- indeed, no chance -- of developing experi-
enced, long-term, and loyal employees because the likelihood of that
possibility was misrepresented. If these ABC employees had dis-
closed their true identities and intentions accurately, Food Lion would
never have hired them and incurred expenses to train them on the
chance that they would stay because the employees had already deter-
mined there was no such chance.
In my judgment, the jury had ample evidence to reach the conclu-
sion that the ABC defendants committed common law fraud, and I
would affirm its verdict.
32
FOOTNOTES