Court Sanctions Defendant Corporation for Issuing a Misleading Press Release

In litigating corporate crisis cases, a public relations strategy is often as an essential component as the litigation itself. That is because the company's reputation may be so adversely affected during the litigation that the survival of the company or its products is at-risk, regardless of the litigation outcome. In these moments of crisis, a company often wants to present its story to the public to preserve confidence in the company.

But what limits, if any, restrict a company's public relations strategy? And, who enforces those limits? In American Science and Engineering, Inc. v. Autoclear, LLC, (E.D. Va. Dec. 16, 2008), the court found that it had the inherent power to sanction a company for its public statements in a press release. The opinion was written by U.S. District Court Judge Raymond A. Jackson and can be found here.

In Autoclear, the defendants issued a November 16, 2008 press release stating that "a Federal District Court has rejected American Science and Engineering, Inc.'s motions for summary relief in their action with Control Screening, LLC, and AutoClear, LLC, its affiliate. Opinion at 9. The District Court also denied AS&E's motion for injunctive and other relief. . . . [T]he Federal Court did not sustain AS&E's objections to proceeding to full fact finding and a jury trial." Id. Further, "'the U.S. Patent and Trademark Office (USPTO) has formally rejected all claims of AS&E's core . . . patent' and those patent claims are now invalid." Id.

The court found that the press release "improperly suggests that the Court has denied Plaintiff's motion for summary judgment or otherwise ruled on the merits of the case. Op. at 10. Plaintiff has not even filed a motion for summary judgment, and the Court has not yet ruled on the merits of the case . . . ." Id. "The Court also finds that that the statements regarding the USPTO's actions are false." Id.

"Accordingly, the Court finds that Defendants' press release contains false, misleading, and damaging statements, and that Defendants have acted improperly." Id.

Plaintiff alleged that "as a publicly traded company, it was damaged by misleading information available on popular financial internet publications, and that some of their investors did read the press release and called the company with concerns. Furthermore, Plaintiff argued that such nationally available information has the potential to influence any potential jury pool in this case." Id.

In response, the defendants "explained that the press release was meant to convey that the Court vacated the entry of default, and that any misleading statements were unintentional and the result of Defendants' oversight." Op. at 11. Defendants' attorney admitted to editing an earlier version of the press release. Id. The court deemed the attorneys "capable of understanding the difference between default judgment and summary judgment . . . ," and found it "difficult to believe that the issuance of this press release was accidental." Id. at 12.

The court rooted its ability to sanction the defendant in the defendant's right to an impartial jury.

The Supreme Court has held that civil litigants have a constitutional right to an impartial jury. Courts may disallow prejudicial extrajudicial statements by litigants that risk tainting or biasing the jury pool. Additionally, false and misleading statements are not protected by the First Amendment. Accordingly, the Court has authority to enjoin false statements, particularly those that could potentially taint the impartiality of a jury. Additionally, the Court has inherent authority to impose sanctions,including attorneys' fees, under its inherent authority.

Op. at 12 (internal citations and quotations omitted).

The court's sanctions included:

(1) Within 24 hours of this Order, Defendants shall cause the removal of the November 16th press release from Business Wire and any other website which Defendants know are displaying the November 16th press release;

(2) Defendants shall issue a corrected press release, in the form of Plaintiff's Exhibit D to its Memorandum in Support of its Motion for Sanctions, and shall disseminate it in the same manner that the November 16th press release was disseminated;

(3) To the extent that Defendants are or become aware of instances of dissemination by any third party of the November 16th press release or any article or publication based on the press release, Defendants will take the necessary steps to provide the corrected release to the publisher within 24 hours of notice;

(4) Within 5 days of this Order, Defendants shall file a statement with the Court stating what steps it has taken to comply with this Order; and

(5) Within 14 days of this Order, Defendants shall pay to AS&E the sum of $10,000 as partial reimbursement for the attorneys' fees incurred by AS&E as a result of the issuance of the November 16th press release.

Finally, the Court orders Defendants to reimburse Plaintiff for all attorneys' fees and costs associated with bringing the second Motion for Sanctions, including any such fees and costs not covered by the $10,000 requested by Plaintiff.

Op. at 13-14.

The court's sanctions should give every litigant pause before publishing any announcement about a pending litigation matter to ensure that it is entirely accurate. And, it is difficult to predict the reach of this opinion. For example, are all public statements by a litigant or its attorney potentially sanctionable? Does the answer depend on how many people did or can see or hear the statement? Or, does it depend on the type of media format in which the statement was published? What would happen if a private statement becomes publicized on the internet?

We are probably safe in predicting that future courts will examine these issues now that Autoclear has provided them with a roadmap on how to deal with misleading press releases. We can also expect that the defendants in Autoclear will appeal the sanctions award to the 4th Circuit Court of Appeals.