RICHMOND, Va. -- A federal appeals court here reversed a 1996 jury verdict last week in which the American Broadcasting Co., New York, was found to have committed fraud in a hidden-camera expose of allegedly unsanitary conditions at stores operated by Food Lion, Salisbury, N.C.
Last week's ruling by the U.S. Court of Appeals for the Fourth Circuit threw out the verdict against ABC, which was handed down almost three years ago by a district court jury in Greensboro, N.C. That verdict ordered the media giant to pay $5.5 million in punitive damages, an amount that was subsequently cut to $315,000 by a federal judge. Last week's ruling ordered ABC to pay only $2 in damages.
Food Lion officials were not available for comment last week.
The original lawsuit was filed in September 1992, two months before ABC-TV's "PrimeTime Live" aired a hidden-camera report in November 1992 that questioned Food Lion's sanitary-handling procedures. The report was based on findings and observations of two ABC producers, who submitted fake resumes and were hired by Food Lion as a meat wrapper trainee and a deli clerk. Food Lion's subsequent lawsuit did not question the accuracy of the TV report but only the methods ABC used in obtaining the information.
As a result of that suit, a district court jury in December 1996 found that ABC and four producers had committed fraud and also determined that the two producers who had worked undercover at Food Lion had committed trespass and breach of loyalty for falsifying their resumes to get hired as store employees.
In addition to the punitive damages, the jury awarded the chain compensatory damages of $1,402 for the money spent training the two producers as Food Lion employees -- the amount that was reduced to $2 by the appellate court last week.
David Westin, president of ABC News, called last week's ruling "a victory for the American tradition of investigative journalism. The court concluded that, despite Food Lion's attempts to impugn our methods, no one at ABC News ever committed fraud or an unfair practice in investigating problems at various Food Lion stores.
"All of us can be reassured that the First Amendment continues to protect investigative journalists from attempts to intimidate them through threats of outlandish damage claims."
Tom Wenning, senior vice president and general counsel for the National Grocers Association, Reston, Va., offered a very different interpretation of the verdict. "While we might be disappointed by the court's ruling on damages," he told SN, "the ruling on case law reinforces two important positions we took when we filed our friend of the court brief for Food Lion. First, the activities of the ABC employees were not entitled to First Amendment protection. Second, as reporters, they committed a tort against Food Lion."
In its ruling last week, the court said Food Lion was not injured by the ABC employees' deception and that the deception did not violate the North Carolina Unfair and Deceptive Trade Practices Act because it did not harm the consuming public.
Accordingly, the court reversed the lower court judgment of compensatory and punitive damages; affirmed that the undercover reporters did breach their duty of loyalty to Food Lion, for which it awarded the retailer $2; and affirmed the district court's ruling that Food Lion was not entitled to prove publication damages on its claims. Food Lion could appeal last week's judgment.
At the time the program aired, SN, a unit of Fairchild Publications, New York, was part of Capital Cities/ABC, parent company of the TV network. The network, along with Fairchild, has since been acquired by Walt Disney Co. It's expected that Fairchild soon will be acquired by Advance Publications.