Nelson Auto Center, Inc. v. Multimedia Holdings Corporation

Filing 28

MEMORANDUM OPINION AND ORDER - Defendants' Motion to Dismiss (Doc. No. 15 ) is GRANTED and Plaintiff's Amended Complaint (Doc. No 13 ) is DISMISSED WITH PREJUDICE. (Written Opinion) Signed by Judge Donovan W. Frank on 9/12/2018. (las)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Nelson Auto Center, Inc.,

Civil No. 17-5577 (DWF/LIB)

Plaintiff,
v.

MEMORANDUM
OPINION AND ORDER

Multimedia Holdings Corporation
d/b/a KARE-TV and d/b/a KARE 11; and
Tegna, Inc.,
Defendants.

Stephen F. Rufer, Esq., and Kendra Elizabeth Olson, Esq., Pemberton, Sorlie, Rufer,
Kershner, P.L.L.P., counsel for Plaintiff.
Steven J. Wells, Esq., and Angela Porter, Esq., Dorsey & Whitney LLP, counsel for
Defendants.

INTRODUCTION
Plaintiff Nelson Auto Center, Inc. (“Plaintiff” or “Nelson Auto”), sued Defendants
Multimedia Holdings Corporation, d/b/a KARE-TV and d/b/a KARE 11, and TEGNA,
Inc. (collectively, “Defendants” or “KARE 11”), alleging defamation based on a story
that KARE 11 published in July 2017. This matter is before the Court on Defendants’
motion to dismiss. For the reasons discussed below, the Court grants Defendants’
motion.

BACKGROUND
In early 2017, KARE 11 investigated a potential overbilling scheme, which
involved the former fleet manager at Nelson Auto overcharging Minnesota police
departments for police vehicles. (Doc. No. 13 (“Am. Compl.”) ¶ 4.) In April 2017,
KARE 11 informed Nelson Auto’s principals, Brent and Laurel Nelson (the “Nelsons”),
of the investigation. (Am. Compl. ¶¶ 1, 11.) On July 24, 2017, the State of Minnesota
filed criminal charges against Gerald Worner, the former fleet manager at Nelson Auto,
charging him with five counts of theft by swindle. (Doc. No. 19 (“Porter Decl.”) ¶ 1,
Ex. A, at 1-2.) 1
Also on July 24, 2017, KARE 11 published a story to its website and its Facebook
page with the headline “KARE 11 Investigates: Criminal Charges Filed Against State
Vendor.” (Am. Compl. ¶¶ 10, 16.) The Facebook post stated: “A state vendor is now
facing criminal swindling charges after a KARE 11 investigation exposed law
enforcement agencies across Minnesota have been getting ripped off on their squad car
purchases for years.” (Doc. No. 20 (“Eckert Decl.”) ¶ 1, Ex. B.) The sub-headline of the
story read: “The Otter Tail County Attorney’s Office has filed a five-count theft by
swindle indictment against the former Fleet Manager at Nelson Auto Center in
Fergus Falls.” (Id.)

1

The Court may consider the public record related to Worner’s criminal case as it is
necessarily embraced by the Amended Complaint. See Porous Media Corp. v. Pall
Corp., 186 F.3d 1077, 1079 (8th Cir. 1999).
2

A few days after KARE 11 published the story, the Nelsons notified KARE 11
that they considered the statements in the stories to be false and requested that KARE 11
issue corrections to the stories. (Am. Compl. ¶ 15.) KARE 11 changed the headline to
state that a “former manager” at Nelson Auto was facing criminal charges and added
language to the bottom of the story: “CORRECTION: An earlier version of this report
incorrectly stated that charges had been filed against a state vendor. It has been updated
to reflect that the charges involve the state vendor’s former manager – not the
dealership.” (Id.; Eckert Decl. ¶ 2, Ex. C. 2) Nelson Auto alleges that KARE 11 never
corrected the Facebook post about the story. (Am. Compl. ¶¶ 16, 17.)
In November 2017, a story published on KARE 11’s website referenced the July
story: “RELATED: Charges filed (http://www.kare11.com/news/investigations/kare-11investigates-criminal-charges-filed-against-state-vendor/459264740). (Id. ¶ 18.) On
December 27, 2017, KARE 11 published a recap of its investigation. (Id. ¶¶ 20-22.)
Nelson Auto alleges that the December 27, 2017, story contains numerous misleading
statements implying that Nelson Auto “ignored warnings” regarding the scheme. (Id.
¶¶ 20-21.) The December 27, 2017, story notes that the “dealership owners [were] not
charged” in relation to the scheme. (Id. ¶ 22.) Nelson Auto alleges that the July,
November, and December stories “created a controversy” and that KARE 11 “sought to

2

Exhibit C to the Eckert Declaration is the corrected KARE 11 story. Because it is
embraced by Plaintiff’s Amended Complaint, the Court will consider it in deciding
Defendants’ motion to dismiss. See Porous Media Corp., 186 F.3d at 1079.
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drag Nelson Auto into the spotlight, despite Nelson Auto’s consistent and ongoing efforts
to correct the billing issues as soon as they were brought to their attention.” (Id. ¶ 23.)
Plaintiff first filed this defamation lawsuit against Defendant on December 28,
2017. On February 9, 2018, Plaintiff filed its First Amended Complaint, alleging that
KARE 11’s stories falsely claimed or implied that criminal charges were being brought
against Nelson Auto. (Am. Compl. ¶¶ 20-26.) Defendants move to dismiss the claim.
DISCUSSION
I.

Legal Standard
In deciding a motion to dismiss under Rule 12(b)(6), a court assumes all facts in

the complaint to be true and construes all reasonable inferences from those facts in the
light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th
Cir. 1986). In doing so, however, a court need not accept as true wholly conclusory
allegations, Hanten v. Sch. Dist. of Riverview Gardens, 183 F.3d 799, 805 (8th
Cir. 1999), or legal conclusions drawn by the pleader from the facts alleged, Westcott v.
City of Omaha, 901 F.2d 1486, 1488 (8th Cir. 1990). A court deciding a motion to
dismiss may consider the complaint, matters of public record, orders, materials embraced
by the complaint, and exhibits attached to the complaint. See Porous Media Corp.,
186 F.3d at 1079.
To survive a motion to dismiss, a complaint must contain “enough facts to state a
claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007). Although a complaint need not contain “detailed factual allegations,” it must
contain facts with enough specificity “to raise a right to relief above the speculative
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level.” Id. at 555. As the Supreme Court reiterated, “[t]hreadbare recitals of the elements
of a cause of action, supported by mere conclusory statements,” will not pass muster
under Twombly. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Twombly, 550 U.S.
at 555). In sum, this standard “calls for enough fact[s] to raise a reasonable expectation
that discovery will reveal evidence of [the claim].” Twombly, 550 U.S. at 556.
II.

Corporations as Public Figures
To survive a motion to dismiss on its defamation claim, Nelson Auto must plead:

(1) a false and defamatory statement; (2) publication of that statement to a third party;
and (3) harm to Nelson Auto’s reputation. Weinberger v. Maplewood Review, 668
N.W.2d 667, 673 (Minn. 2003). Additionally, when a party claiming defamation is a
public figure, then that party must not only prove that the statement is false, but also that
it was made with actual malice. New York Times Co. v. Sullivan, 376 U.S. 254, 279-80
(1964); Nw. Airlines, Inc. v. Astraea Aviation Servs., Inc., 111 F.3d 1386, 1393 (8th Cir.
1997) (applying Minnesota law). KARE 11 argues that under Minnesota law, all
corporations are public figures for purposes of defamation claims. KARE 11 argues
therefore that Nelson Auto is required to plead actual malice as part of its prima facie
defamation claim. Nelson Auto disagrees.
Nelson Auto argues that Minnesota law “distinguishes between highly regulated
industries . . . and less regulated industries, leaving space for small, family owned
businesses to keep the protection afforded by private figure status, while allowing larger
corporations, more accountable to the public through regulations, to be limited purpose
public figures.” (Doc. No. 23 (“Pl.’s Opp.”) at 3.) The Court disagrees. Where, as here,
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a corporation brings a claim for defamation against a media entity, the corporation must
allege actual malice. Nw. Airlines, 111 F.3d at 1393; Jadwin v. Minneapolis Star &
Tribune Co., 367 N.W.2d 476, 487 (Minn. 1985) (“The ‘public figure’ standards set out
in Gertz are designed to ascertain whether a person, through his activities, has lost his
claim to his private life. It makes no sense to apply those standards to a corporation,
which, regardless of its activities, never has a private life to lose.”).
Contrary to Nelson Auto’s argument, Northwest Airlines and Jadwin do not carve
out exceptions for corporations in less heavily regulated industries. (See Pl.’s Opp. at
4-5.) Although the Northwest Airlines and Jadwin courts discussed industry regulation,
neither predicated a corporation’s public-figure status on its level of regulation. Instead,
the Northwest Airlines court held that “Minnesota law considers a corporation a public
figure and requires it to show that a statement was made with actual malice to establish a
defamation claim.” 111 F.3d at 1393. In Porous Media, the Eighth Circuit affirmed this
blanket holding. 186 F.3d at 1116. Moreover, the Jadwin court specifically held that
“corporate plaintiffs in defamation actions must prove actual malice by media defendants
when the defendants establish that the defamatory material concerns matters of legitimate
public interest in the geographic area in which the defamatory material is published.”
Jadwin, 367 N.W.2d at 487-88. Finally, Nelson Auto’s reliance on Chafoulias v.
Peterson, is misplaced because in that case, the Minnesota Supreme Court considered
whether an individual plaintiff could be considered a limited purpose public figure for
purposes of his defamation claim. 668 N.W.2d 642, 648 (Minn. 2003). The Chafoulias
court was not faced with a corporate plaintiff at all. Neither the Eighth Circuit nor the
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Minnesota Supreme Court has carved out an exception from the actual malice standard
for less heavily regulated corporations. The Court declines to make such an exception
here.
Nelson Auto also argues that KARE 11’s reporting did not concern “matters of
legitimate public interest.” See Jadwin, 367 N.W.2d at 487-88. The Court disagrees.
KARE 11’s reporting focused on an overbilling scheme involving the expenditure of
public funds through a public procurement process. See Minn. Stat. Ch. 16C (“State
Procurement”). The scheme resulted in a total known loss of taxpayer dollars in the
amount of $379,722 between October 2014 and March 2017. (Porter Decl. ¶ 1, Ex. A.)
The Court concludes that KARE 11’s reporting centered on a matter of legitimate public
interest.
Nelson Auto is incorporated in Minnesota, conducts much of its business in and
with the State of Minnesota, is subject to Minnesota regulations, 3 and brings its claim
using the substantive libel law of Minnesota. See Porous Media Corp. v. Pall Corp., 173
F.3d 1109, 1116 (8th Cir. 1999) (identifying the foregoing characteristics in reaching the
conclusion that Porous Media, as a corporation, is a public figure). Based on the
foregoing, the Court concludes that Plaintiff is a public figure for purposes of its
defamation claim and that it must plead actual malice to state an actionable defamation
claim.

3

Minn. Stat. §§ 325F.662-666 (automobile dealer licensing regulations); Minn.
Stat. Chs. 168 and 168A (vehicle licensing and registration requirements); 16C (state
procurement requirements).
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III.

Actual Malice
Nelson Auto argues it has adequately pleaded facts showing actual malice. (Pl.’s

Opp. at 9.) Statements are made with actual malice if they are made: (1) “with
knowledge that the statements were false,” or (2) “with reckless disregard of whether
they were true or false.” Nw. Airlines, 111 F.3d at 1395. Reckless disregard requires a
showing that the speaker “entertained serious doubts as to the truth of the publication.”
St. Amant v. Thompson, 390 U.S. 727, 731 (1968). “Moreover, ‘actual malice’ does not
mean that the defendant acted with ill will or spite.” Chafoulias, 668 N.W.2d at 654.
Nelson Auto identifies four specific allegations in its Amended Complaint that it
claims constitute actual malice:
12.
KARE 11’s investigation included extensive information
related to the criminal charges that would eventually be brought against the
Nelson Auto employee responsible for the over-billing issues and KARE 11
was aware that no criminal charges were being considered against Laurel
Nelson, Brent Nelson, or Nelson Auto.
***
14.
Through the investigation, KARE 11 had knowledge that the
defamatory statements detailed above were false, but KARE 11 recklessly
disregarded the truth and published the defamatory statements anyway.
15.
On or about July 28, 2017, Brent and Laurel Nelson sent
correspondence to KARE 11 informing KARE 11 that its published story
was false because it claimed Nelson Auto Center, Inc. was being charged
criminally. KARE 11 responded by correcting the story . . . .
***
18.
An early November 2017 story published by KARE 11 on its
website contained a reference to KARE 11’s July 24 story . . . despite the
fact [KARE 11] had previously acknowledged that this version of the story
was false.
8

(Pl.’s Opp. at 12-13; Am. Compl. ¶¶ 12, 14-15, 18.) In short, Nelson Auto alleges that
KARE 11 knew that Nelson Auto was not being charged with a crime, but nonetheless
stated that it was.
First, the Court considers the parties’ dispute over the word “vendor” in KARE
11’s stories. Nelson Auto argues that KARE 11’s use of the word “vendor” implied that
Nelson Auto, and not Mr. Worner, had been charged with a crime. KARE 11 responds
that “vendor” in common parlance could refer to Mr. Worner, and is therefore not a false
statement. KARE 11 argues that, “[a]t most, the word ‘vendor’ could be considered
legally imprecise,” but does not constitute actual malice. (Doc. No. 18 at 11 (citing
Jadwin v. Minneapolis Star & Tribune Co., 390 N.W.2d 437, 442 n.2 (Minn. Ct. App.
1986) (“Courts allow reporters some leeway in accuracy when describing legal issues to
the public.”).) In the body of the July 24, 2017 article, KARE 11 specifies that the
swindling charges were filed against Mr. Worner, not Nelson Auto. There are no
allegations in the Amended Complaint, nor any facts in the materials embraced by the
Amended Complaint, that suggest that KARE 11 believed its use of the word “vendor”
was intentionally or recklessly false. Even making all reasonable inferences in favor of
Nelson Auto, none of the allegations plausibly show that KARE 11 acted with actual
malice in using the word “vendor” in its reporting headlines.
Second, the Court considers whether Nelson Auto’s allegations regarding
KARE 11’s Facebook post or hyperlink in the November 2017 story show actual malice.
Nelson Auto alleges that although KARE 11 stated it would correct its reporting, it never
9

deleted or corrected the Facebook post. (Am. Compl. ¶¶ 16-17.) Nelson Auto further
alleges that the November 2017 story contained a hyperlink to the July 2017 story that
KARE 11 already acknowledged as inaccurate. (Id. ¶ 18.) Nelson Auto argues that these
facts show that KARE 11 posted the stories with knowledge that they were false. The
Court disagrees. The Facebook post expressly states that the “former Fleet Manager” at
Nelson Auto is facing swindling charges. (Eckert Decl. ¶ 1, Ex. B.) The Facebook post
is therefore accurate and does not show KARE 11 acted with actual malice. Regarding
the hyperlink in the November 2017 story, Nelson Auto’s allegations show nothing more
than oversight on KARE 11’s part, which does not constitute actual malice. Nowhere
does Nelson Auto plausibly allege that KARE 11 knew the web address was false or
recklessly disregarded its truth or falsity in posting the hyperlink in the November 2017
story.
The Court concludes that Nelson Auto has failed to adequately allege facts that
would support a finding of actual malice, and Nelson Auto’s defamation claim therefore
fails.
ORDER
Based on the files, record, and proceedings herein, IT IS HEREBY ORDERED
that Defendants’ Motion to Dismiss (Doc. No. [15]) is GRANTED and Plaintiff’s
Amended Complaint (Doc. No [13]) is DISMISSED WITH PREJUDICE.
LET JUDGMENT BE ENTERED ACCORDINGLY.
Dated: September 12, 2018

s/Donovan W. Frank
DONOVAN W. FRANK
United States District Judge
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