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Lawyer secures $850K defamation settlement from ex-client

F. Chet Taylor

F. Chet Taylor

A Minneapolis lawyer who sued his former employer for defamation will receive $850,000 under the terms of a settlement that was forged midway through a civil trial in Hennepin County District Court last week.

After the first phase of the trial, the eight jurors agreed that Feltl and Company Inc., a Minneapolis-based investment firm, had defamed F. Chet Taylor, its former general counsel, and awarded Taylor $600,000 in compensatory damages.

The jury was poised to take up punitive damages on Friday morning when the parties agreed to settle the entire claim for $850,000.

Taylor’s attorney, Kevin Hofman of the Minneapolis firm of Peterson Habicht, said the agreement made sense for both sides.

“With a defamation case, there are all kinds of appellate issues. I think they looked at it and said they didn’t want to spend the next year and a half in the appellate courts. And Chet had to make the same decision,” said Hofman.

In a written statement, Feltl’s lawyer, David Marshall of Fredrikson & Byron, opined that Fetlt could have prevailed on appeal but decided to settle because “the amount of the verdict was covered by insurance and resolution avoids the distraction of an appeal and possible second trial.”

The lawsuit focused on a “corrective action statement” (CAS) issued by Feltl after the firm paid a $1 million fine to the Financial Industry Regulatory Authority (FINRA), a nongovernmental corporation which regulates member brokerage houses and exchanges.

In its CAS, Feltl addressed FINRA’s complaints about past violation its penny stock business and said it had replaced its general counsel and three other executives from “the period in question.” The CAS also stated that the new executives “will further enhance a culture of compliance.”

After the Wall Street Journal published an article referencing that CAS, Taylor demanded a correction that would reflect that his departure from firm was voluntary and unrelated to the penny stock investigation.

That demand was ignored. A subsequent story that appeared in the Star Tribune — “Feltl execs out after penalty” — rubbed salt in the wound, proffering an unsourced assertion that the executives were replaced “as a result of the [penny stock] investigation.”

While neither the newspaper stories nor the CAS identified Taylor by name, Taylor thought people in the financial and legal communities would have little trouble deducing his identity. And by using his “innocent departure as a vehicle for touting its alleged renewed emphasis on compliance in an effort to prevent the loss of customers,” he asserted in a court document, he had been defamed.

On the eve of the trial, the legal dynamics of the case changed dramatically because Hennepin County District Court Judge James A. Moore reversed his earlier ruling on a pivotal issue: whether the speech at issue — Feltl’s CAS — should be deemed “a matter of public concern.”

In the end, Moore concluded, it didn’t clear that hurdle, and reversed himself, allowing the jury to presume damages.

“The CAS was issued to put a positive spin on an otherwise damaging settlement,” the judge wrote. “It was self-promotion; an attempt to assure and persuade future customers that… [The firm] had adopted a new ‘culture of compliance.’ In this context, the CAS is properly seen as a matter of private concern. It was Defendant marketing itself. It arguably did so at the expense of Plaintiff.”

In the memorandum, Moore offered “genuine apologies” to both parties for the late-stage reversal but said “at the end of the day, the Court’s duty is to get it right.”

Hofman credited the judge for his willingness to revisit the issue and reverse his ruling from just a month earlier. “Talk about a guy who’s doing his job,” he said.

Mark Anfinson, a media and First Amendment lawyer from Minneapolis, called the reversal “a bit unusual” but, given the complexity of modern libel law, also understandable.

“So many of the key pillars of libel law as imposed on us by the Supreme Court involve very vague terminology and very ambiguous term sets. ‘Speech of public concern’ is one of those. It’s not easily definable,” Anfinson said.

As a practical matter, the ruling was a blow to the defense because it meant that the jury could presume damages under a standard of negligence rather than a harder-to-prove showing of actual malice.

“In defamation case, presumed damages is the gold standard, literally,” said Anfinson. “If you have to prove actual damages, with some measurable evidence, it’s really hard.”

The latter standard was at play in Minnesota Supreme Court’s holding in Richie v. Paramount Pictures (1996), in which a Minnesota couple sued the Maury Povich Show for running a photograph which wrongly identified them as perpetrators of sexual abuse.

“But even though they were horribly defamed and even though 10 million people watched the show, they lost. And they lost because they couldn’t prove any specific harm to their reputation,” Anfinson said.

For his part, Taylor acknowledged the case could have turned out differently if he’d been required to show actual damages.

“That’s the difficult thing with a defamation claim. Nobody ever picks up the phone to call you to say ‘I would have hired you except for the fact that I heard this or read this about you.’ They don’t do that,” Taylor said. “But I do believe that my work flow has been reduced because of this.”

He said he’s happy he can put the matter behind him.

“As you can imagine, suing a former client is a very difficult decision to make and I struggled with it,” he offered. “But at the end of the day, they were unwilling to take any action to correct the misstatements they put out into the universe. Because they were unwilling to correct it, I felt like I had no choice.”

Taylor said he now spends most of his time in Florida, where he moved “to get a fresh start and to get out from under the suspicions that were created with the corrective action statement.”

While he intends to keep his law practice in Minneapolis, he said he hopes to pursue a legal career in Florida. Because the sunshine state doesn’t have reciprocity agreements, he’ll have to take the full bar exam this summer – something he last did, in Minnesota, back in 1988.

 

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