Case Analysis: Defamation

Our firm receives many inquiries regarding potential defamation claims.  A recent case in the United States District Court of Maryland provided a thorough analysis for such claims, which we present below.

In Clayton v. Fairnak, No. JKB-18-2134, 2018 BL 455739 (D. Md. Dec. 10, 2018), Plaintiff Cavin Clayton filed suit against his former employer, Enterprise SI Corporation, and Enterprise SI's owner, Gregory T. Fairnak, alleging defamation for allegedly false statements made by Defendants in conjunction with Clayton's application for increased government security clearance.  Defendants filed a motion to dismiss which the court granted for the reasons explained below.

I. Factual Background 

Plaintiff Clayton is an independent contractor who provides services under contract to various federal agencies. Clayton was employed with Defendants through his corporate entity for some time, but, in August 2016, Defendants informed him that his services would no longer be required.  He now competes with Defendants for government contracts. 

Sometime after parting ways with Defendants, Clayton applied for increased security clearance from the federal government, which involved gathering information from previous companies with which he'd worked, including Enterprise SI.  In mid-December 2016, Defendant Fairnak and/or other agents of Defendant Enterprise SI returned a form to the U.S. Office of Personnel Management (OPM) stating that Clayton had been "fired . . . for cause." According to Clayton, the statement was false, and Defendants made it either knowing it was false or negligently, with "the intent to harm Clayton's chances" of obtaining federal contracts. 

Finally, Clayton claimed that Defendants' statement to OPM harmed "his standing and reputation within his professional community," caused him "mental anguish and personal humiliation," and made it "significantly more difficult" for him to "obtain necessary federal government security clearance now and in the future."  Clayton sought compensatory and punitive damages. 

II. Analysis

Defendants argued that Plaintiff failed to sufficiently allege the basic elements of a defamation claim under Maryland law. 

To state a claim for defamation under Maryland law, a plaintiff must allege (1) that "the defendant made a defamatory statement to a third person," (2) that "the statement was false," (3) that "the defendant was legally at fault in making the statement," and (4) that "the plaintiff suffered harm." Lindenmuth v. McCreer, 233 Md. App. 343  (Md. Ct. Spec. App. 2017).

Failure to plausibly allege any one of these elements warrants dismissal. Although Plaintiff cleared the first hurdle by alleging a potentially defamatory statement, he failed to allege more than speculative harm under the fourth element.

A. Defamation Per Se and Defamation Per Quod

A defamatory statement is one that "tends to expose a person to public scorn, hatred, contempt or ridicule," and that "discourages others in the community from having a good opinion of, or from associating or dealing with, that person." Id. Maryland law distinguishes between statements that are defamatory per se and defamatory per quod. Indep. Newspapers, Inc. v. Brodie, 407 Md. 415 (Md. 2009). "Where the words themselves impute the defamatory character," without the necessity of innuendo or inferences drawn from context, a statement is defamatory per se.  Id. By contrast, defamation per quod requires "extrinsic facts . . . in order to establish the defamatory character of the words" through context or innuendo. Id. To survive a motion to dismiss in a defamation per quod case, the complaint must allege such extrinsic facts. Id . Defamation per quod also requires allegations of special damages. See Metromedia, Inc ., 400 A.2d at 1119. Whether a statement is defamatory per se or per quod is a question of law. Shapiro v. Massengill, 105 Md. App. 743 (Md. Ct. Spec. App. 1995).

Plaintiff asserted that Defendants' statement to OPM that they had terminated him "for cause" was defamation per se, because it is the kind of statement that "may impair or hurt one's trade or livelihood" and may "adversely affect a plaintiff's fitness for the proper conduct of business."  However, the very case Plaintiff cites for that definition, Shapiro v. Massengill, also makes clear that not all negative employment references are actionable:

This is not to imply . . . that every negative evaluation of an employee's performance is potentially defamatory. Rather, '[t]he words must go so far as to impute to [the plaintiff] some incapacity or lack of due qualification to fill the position.' In other words, the defamatory statement must be such that[,] 'if true, [it] would disqualify him or render him less fit properly to fulfill the duties incident to the special character assumed.'

Shapiro, 661 A.2d at 218. 

The statement that Clayton was fired "for cause" does not similarly impute a defamatory meaning on its face. Reference to a prior termination for cause could give rise to an inference of past misconduct of the sort that would "render him less fit" for his profession, Shapiro, 661 A.2d at 218. However, the vagueness of the words "for cause" could also encompass a wide range of other circumstances that would not disqualify Clayton from adequately performing future government contracts—for example, temporary inability to work because of illness, or breach of a more peripheral contractual provision that does not implicate his skill or professional capacity.

The statement in this case is much closer to the one at issue in Leese v. Baltimore Cty ., 64 Md. App. 442 (Md. Ct. Spec. App. 1985). In that case, the Maryland Court of Special Appeals concluded that a statement by a former employer that the plaintiff had "failed to demonstrate ability to assume a professional management role" was not defamatory per se. 497 A.2d at 176 . Only after considering contextual factors, including the plaintiff's six years' experience with that employer in such a professional management role, did the court conclude that, in context, the statement suggested termination "for unsatisfactory performance," and was therefore actionable as defamation per quod. Id.

Similarly, the statement that Clayton was terminated "for cause" only becomes potentially defamatory in light of specific contextual facts alleged in the Complaint: that the statement was made in the context of applying for government security clearance, that it was made by a former employer who also worked on government contracts, and that it was made in reference to work Clayton had done for that employer in the context of government contracts. Defendants disputed that these allegations provide sufficient extrinsic factors to support defamation per quod.  While the Court agreed that the factual detail in the Complaint is thin, the highly sensitive nature of government work requiring a security clearance gives rise to the inference that any black mark on Clayton's record—no matter how small or ambiguous—would impugn his fitness and qualification for work at that level in the industry. It is this highly sensitive employment context that renders the statement potentially defamatory per quod—albeit, just barely.

B. Actual Damages

Defamation per quod requires plaintiffs to plead special damages—that is, to plead sufficient facts to show or infer "that [the] words . . . caused actual damage." M & S Furniture Sales, 241 A.2d at 128. Actual damages may include economic loss, as well as "impairment of reputation and standing in the community, personal humiliation, and mental anguish and suffering." Jacron Sales Co. v. Sindorf, 276 Md. 580 (Md. 1976). Damages based only on "speculation or conjecture are not recoverable," Kleban v. Eghrari-Sabet, 920 A.2d 606 , 627 (Md. Ct. Spec. App. 2007), and, at the motion to dismiss stage, damages must be alleged at least with sufficient particularity to "put the defendant on notice of the manner, nature and extent of injury." Wineholt v. Westinghouse Elec. Corp., 476 A.2d 217 , 220 (Md. Ct. Spec. App. 1984).

Here, Plaintiff alleged that Defendants' statement to OPM made "obtaining necessary federal government security clearance now and in the future . . . significantly more difficult, possibly impairing his ability to earn an appropriate salary for his labor."  He also alleged "mental anguish and personal humiliation," as well as damage to his "character and reputation," and to his "standing and reputation within his professional community."  These allegations are insufficient to raise a plausible right to relief.

Plaintiff's allegation of harm due to future "difficulty" obtaining security clearance is wholly unsupported by any specific facts and, therefore, amounts to pure "speculation and conjecture." Kleban, 920 A.2d at 627 . His allegation of past difficulty obtaining clearance is too vague to suggest actual injury. Plaintiff did not allege that his application for clearance was denied or that it was protracted or delayed such that it caused him additional expense or anxiety, or that it prevented him from pursuing certain jobs. Plaintiff did not allege that he lost even a single professional opportunity that he otherwise would have had as a result of Defendants' statement to OPM. See DeWitt v. Scarlett, 77 A. 271 , 273 (Md. 1910) (requiring an allegation that identifiable individuals were dissuaded from doing business with the plaintiff as a result of the defamatory statement).

With respect to reputational harm, mental anguish, and personal humiliation, Plaintiff's allegations are little more than a recitation of the categories of harm that might be compensable as actual injury, but they are completely "devoid of [the] 'further factual enhancement'" required at the pleading stage. Iqbal, 556 U.S. at 678. He has not alleged that any past or prospective associates have been unwilling to engage with him as a result of the statement on the OPM form, or that any professional or personal acquaintances outside of OPM even knew about it. The bare allegation of "mental anguish and personal humiliation," standing alone, does not suffice to create a plausible claim of compensable injury. Compare Wineholt, 476 A.2d at 221 (reversing dismissal where the plaintiff alleged "extreme mental and emotional anguish which prevented her from engaging in her normal vocation and avocations" and reputational harms "suggest[ing] a loss of substantial hospitality of friends"). Without even the most cursory details about "the manner, nature and extent" of the alleged harms, id. at 220 , the Court is unable to infer that, as a result of the statement, Plaintiff suffered any actual injury at all.

Accordingly, the Court concluded that Plaintiff failed to sufficiently allege special damages as required in cases of alleged defamation per quod. As such, Plaintiff's Complaint was insufficient to state a plausible claim for relief and the Court therefore granted Defendants' motion to dismiss.

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