Appeals Court Upholds Award of Punitive Damages in Online Defamation Case

by Mike Mintz on July 3, 2012 · 0 comments

in martindale.com,Web 2.0

Be careful what you say online-it could come back to bite you. A recent Missouri Supreme Court puts this warning in stark relief.  In a ruling in the case The Fireworks Restoration Co. v. Hosto, ED97181 (Mo. App. Ct. May 9, 2012), it upheld a jury verdict of $150,000 against a former business partner in a defamation case.  The partner’s offense? He had posted fake reviews of his company online.

Background

Two partners, Hosto and Mitchell formed two companies together and eventually had an acrimonious break-up.  Hosto, posing as a disgruntled customer, left three disparaging reviews about Mitchell’s then-current operating company, Fireworks Restoration, on Yahoo! and Google.  Mitchell’s company, Fireworks Restoration, filed a lawsuit against Hosto.  The jury awarded the company $1 in compensatory damages and $150,000 in punitive damages.  Hosto appealed, arguing that Missouri law does not allow the awarding of nominal damages and that the punitive damages were unconstitutionally high in comparison to the compensatory damages.  He also opined that the reputation of Fireworks Restoration was not harmed by his actions.  The appellate court rejected all of Hosto’s arguments.  In a remarkable move, the court did not even place the burden of proving damages on Fireworks Restoration, the plaintiff in the lawsuit.  It pointed to the unique nature of conducting business over the internet and reasoned that imposing such a burden of proof on the plaintiff would be unreasonably burdensome:

We reject [Hosto's] contention that [Fireworks Restoration] needed to produce testimony from potential customers who opted to turn elsewhere due to the web reviews. With the internet, consumers are able to compare businesses and their wares with unprecedented speed. Interpersonal contact is characteristically absent, so if a consumer declines to engage a business it encounters on the internet, that consumer continues his or her search and the business has no knowledge it has been passed by. As such, it would be unreasonably burdensome to impose upon a business plaintiff the requirement that it locate potential customers that it never knew in order to successfully demonstrate actual damage to its reputation. The deleterious impact of such a constraint far outweighs any benefits it would have in proving reputational harm.  (Emphasis added)

The court justified its award of the punitive damages by pointing to Hosto’s bad intentions:

From the outset, Defendant’s conduct evinced a calculated desire to seriously damage Plaintiff’s business reputation and, in doing so, deliver, in Defendant’s words, “the knock-[out] punch [he] had looked forward to delivering for so long.” Defendant admitted that he was “bitter and wanted revenge.”…Even after having time to consider his actions, Defendant did not cease his conduct. Instead, he testified that he went online to post an additional fictitious review because he “felt something satisfying in” posting the initial derogatory reviews. Not until he received notification of Plaintiff’s suit did Defendant demonstrate any contrition, and even then his apologies were couched in a desire to forego litigation.

Hence, even though the court did not find that Fireworks Restoration was harmed in any way by these negative postings, Hosto’s conduct still warranted a punishment amounting to 150,000 times the amount of plaintiff’s actual damages (!)

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