Conventional wisdom, for the young litigator, is to steer away from cases alleging defamation, particularly in commercial cases where more conventional causes of action like wrongful termination or breach of contract provide more navigated paths to recovery. Older litigators and gruff old retired judges tell you it is a difficult cause of action to try. The logic for this advice is simple. For one, defamation is quite literally usually a “he said, she said” affair–and since truth is a defense, it forces a client to confront whether the alleged statement is true in any way. Moreover, first amendment protection and privilege provide even greater obstacles, immunizing certain statements in certain contexts. For example, the boss who fired you just might be able to hide behind privilege if she makes defamatory remarks about you to your colleagues remaining at the company.
But recent experience has shown us that defamation, if used tactically and where appropriate, is actually a powerful cause of action and should not be taken lightly by insurers or defense counsel considering trial. Recent trial and settlement experience has shown that it is possible to defeat privilege, even in the employment setting, by showing that the employer acted maliciously in making the false remarks, even if the remarks were made in settings that might otherwise be privileged. Recent experience has also shown that triers of fact will still find defamation even if there was some “possibility” of truth in the statement–it seem triers of fact may be inclined to ask was the statement more likely false, and not simply find for a defendant because the statement “could be true” or “might be true.”
In brief, defense counsel should be wary and more cautious when faced with defamation claims in the commercial context. Unless the alleged defamation is clearly spurious and clearly protected by privilege, and unless you can get the claims dismissed on demurrer or other pre-trial motion, there is a decent or stronger chance the claim survives and provides a commercial plaintiff additional grounds for damages and punitives. Moreover, because defamation is a tort, there is also the possibility/likelihood that a defamation verdict with punitives will not be dischargeable debt. On a related note, particularly in startup and private company litigation, high net worth founders named as defendants may face real exposure to their personal assets depending on the facts alleged and the malice at issue.