Appeals court overturns defamation award against blogger

SAN FRANCISCO — A federal appeals court unanimously overturned a defamation award against a blogger Friday, ruling that 1st Amendment protections for traditional news media extend to individuals posting on the Web.

“The protections of the 1st Amendment do not turn on whether the defendant was a trained journalist, formally affiliated with traditional news entities,” Judge Andrew D. Hurwitz wrote for a three-judge panel of the 9th U.S. Circuit Court of Appeals.

The panel said its holding was the first of its kind within the 9th Circuit, though other circuit courts have held that individuals have the same free speech rights as the news media.

“This case is the first one from a federal court of appeals that specifically protects the rights of bloggers,” said UCLA constitutional law professor Eugene Volokh, who represented blogger Crystal Cox on appeal.

Friday’s ruling paved the way for a new trial for Cox, who accused a company of illegal conduct on several websites she created. The 9th Circuit said Cox “apparently has a history of making similar allegations and seeking payoffs in exchange for retraction.”

Obsidian Finance Group, an Oregon firm that advises financially troubled businesses, and Kevin D. Padrick, one of its principals, sued Cox after she accused them of fraud, corruption and other misconduct in connection with a bankruptcy by one of Obsidian’s clients. A court appointed Padrick to serve as the Chapter 11 trustee in the bankruptcy, and charged him with marshaling the assets of the bankrupt firm to pay off clients whose money had been misappropriated in a Ponzi scheme, the 9th Circuit said.

Cox’s blog posts “raised questions about whether they were failing to protect the defrauded investors because they were in league with their original clients,” the court said.

A district court in Oregon held that all but one of Cox’s posts was constitutionally protected opinion, but allowed a trial on a blog that accused Padrick of having failed to pay taxes that his client company owed.

Cox represented herself at the trial, and the jury awarded the plaintiffs a total of $2.5 million in damages. Cox appealed. She did not contest the jury’s finding that her post was false and damaged reputations, but she argued that she could not be held liable unless the jury first determined that she had acted with negligence or malice.

The 9th Circuit said the jury should have been instructed to decide whether Cox had behaved negligently because her posts involved a matter of public concern but were not aimed at a public official.

Under settled law, a public official who seeks compensation for defamation must prove that the defendant acted with “actual malice,” publishing a statement known to be false or with reckless disregard for the truth. The court said bankruptcy trustees are compensated from the assets of the Chapter 11 estate they administrator, not the government, and therefore are not public officials.

A finding of malice would be required, though, before a jury could award monetary damages for presumed but unproven harm to the plaintiffs’ reputations, the court said.

The panel rejected Obsidian’s claims that Cox’s other blog posts were defamatory. She accused Obsidian of paying off “media” and “politicians” and said the company might have hired a hit man to kill her.

She used terms such as “thugs” and “evildoers” in almost stream-of-consciousness sentences, the court said. The rants were so extreme that no one would have taken them for objective fact, the court said.

“While we are obviously disappointed in the ruling, we do note that the court concluded that there was no dispute that the statements were false and defamatory,” lawyers for Obsidian said in a prepared statement. “Ms. Cox’s false and defamatory statements have caused substantial damage to our clients, and we are evaluating our options with respect to the court’s decision.”

maura.dolan@latimes.com