Daniel v. Dow Jones & Co., Inc.

[NOTE: This case has been edited for classroom use by the omission of text and citations. See this alternate source for the full opinion.]

Judge Lewis R. Friedman

With the inexorable march of time has come an age of technology of previously unimagined dimensions. Methods for news delivery have advanced apace with general scientific achievements. While town criers had for centuries informed the local citizenry, general circulation newspapers eventually made criers superfluous. Early in this century, news, transmitted by radio and telephone, became available to subscribers through dedicated news tickers and to the public by "extra" editions of newspapers. Widely available radio and television made news known to the public within minutes of its occurrence. In the last few years, instantaneous news has become available to subscribers with access to a microcomputer and a telephone, even at home.

Do technological advances require rethinking legal principles that have existed for previous modalities? Do modern techniques for delivering the news change the rules applicable to its providers? This case raises the question of whether the providing of a premium service for instantaneous transmission of the news by computer-to-computer linkup places the news service at greater risk to readers than does the providing of the same news by another modality.

The relevant facts in this case are not in dispute. In September 1986, plaintiff, a law student and securities investor, became 1 of the more than 200,000 subscribers to a service, Dow Jones News/Retrieval, offered by defendant. The service provides what it advertises to be "timely", "accurate" news; it can be accessed from a subscriber's computer. The subscriber telephones defendant's computer. Then, by use of a personal computer and modem, a device which converts computer signals for telephone transmission, the subscriber enters the necessary passwords and access codes to set up an instantaneous, continuous, "interactive" "on-line" linkage with defendant's computer, thus allowing access to the Dow Jones News Service. The service is "interactive" in that the subscriber describes his or her requests through a home or business computer; defendant's computer responds and, at a charge of $ 3 per minute, searches for the items the subscriber has requested.

Plaintiff asserts that he received a news report from defendant which was false and misleading in that it omitted a material fact. The news item, datelined Calgary, referred to a transaction involving the restructuring of Husky Oil, a Canadian corporation; it did not mention that the prices referred to were in Canadian, not United States, dollars. Plaintiff claims that he relied on the pricing in the report to his detriment.

Defendant, based on affidavits describing the events, moved to dismiss the complaint for failure to state a cause of action. This court provided written notice to both parties of its intention to treat the motion as one for summary judgment. Additional affidavits have been submitted.

The theory of the complaint is that defendant negligently published false and misleading statements. New York has long recognized such a cause of action. Liability exists "only where there is a duty, if one speaks at all, to give the correct information." (International Prods. Co. v Erie R. R. Co., 244 NY 331, 338 [1927]; see, Ultramares Corp. v Touche, 255 NY 170, 180-185 [1931] [an accountant may be liable for a negligent audit opinion but only to a circumscribed class of potential plaintiffs].) In addition to knowledge of the possibility of detrimental reliance, "the relationship of the parties . . . must be such that in morals and good conscience the one has the right to rely upon the other for information, and the other giving the information owes a duty to give it with care." (International Prods. Co. v Erie R. R. Co., supra, at 338.) The cause of action has been severely limited over the years to avoid impinging on basic rights. Restatement (Second) of Torts § 552 (2) also supports limiting the class of plaintiffs who may sue for negligent misstatements; liability "is limited to loss suffered [a] by the person or one of a limited group of persons for whose benefit and guidance" the speaker acts (emphasis added). That is, as a matter of public policy, the class of potential plaintiffs must be carefully circumscribed to avoid the potential of unlimited liability.

New York long ago held that a news service is not liable to its readers for negligent false statements. (Jaillet v Cashman, 115 Misc 383 [Sup Ct 1921], affd 202 App Div 805 [1st Dept 1922], affd 235 NY 511 [1923].) In Jaillet, the court held that Dow Jones & Company was not liable to a person who saw an erroneous item on its news ticker in a stockbroker's office. Special Term held that "the relation of the defendant association to the public is the same as that of a publisher of a newspaper, and [] its duties and obligations are to be measured by the same standard." (Supra, 115 Misc, at 384.) The Court further concluded that, although there was "moral obligation upon everyone to say nothing that is not true", there is no liability unless there is a breach of a specific duty to the injured party. (Supra, at 384.) The rationale of the holding was that unless the scope of liability was limited, the publisher of news might become liable to an undefined, infinite class of news readers. "If liability had been upheld, the step would have been a short one to the declaration of a like liability on the part of proprietors of newspapers." (Ultramares Corp. v Touche, supra, at 185.)

The rule of Jaillet (supra) has been consistently followed even after International Prods. Co. v Erie R. R. Co. (supra). In Courteen Seed Co. v Hong Kong & Shanghai Banking Corp. (245 NY 377, 381 [1927]) the court articulated the principle that "negligent words are not actionable unless they are uttered directly . . . to one to whom the speaker is bound by some relation of duty, arising out of public calling, contract or otherwise, to act with care if he acts at all." More recently, in Pressler v Dow Jones & Co. (88 AD2d 928 [2d Dept 1982]), the court reversed a refusal to dismiss an action for damages based on a negligent misstatement, since "no special relationship existed between the parties".

The Federal courts have followed the New York rule requiring a "special relationship" between the parties for liability for negligent misstatements. In Demuth Dev. Corp. v Merck & Co. (432 F Supp 990 [ED NY 1977]) the court, after surveying New York law, found no cause of action for publishing 276,500 copies of a manual that negligently stated, incorrectly, that plaintiff's chemical was poisonous. The court reasoned that the defendant had no special duty which " 'in morals and good conscience' " should make it liable to plaintiff. (Supra, at 993.)

The "special relationship" limitation on liability for negligent statements remains despite the weakening of the rule of privity. In White v Guarente (43 NY2d 356, 361 [1977]) the court held that an accountant may be liable to persons of a "known group possessed of vested rights, marked by a definable limit and made up of certain components". Even though the duty to make accurate statements is imposed by law, and not by contract or privity, the number of potential plaintiffs remains limited.

Plaintiff here argues that he had a "special relationship" with defendant because he had contractedn1 for its services and, thereby, came within the permitted, limited class of plaintiffs. He also contends that summary judgment should be denied because a finder of facts must determine whether a "special relationship" exists.

The New York rule in Jaillet (supra) has generally been followed in other jurisdictions.

In Gutter v Dow Jones, (22 Ohio St 3d 286, 490 NE2d 898 [1986]), the court held that Dow Jones was not liable to an investor who read a misstatement in its newspaper. "In this case, we similarly conclude that a complaint alleging that a newspaper reader or subscriber relied to his detriment in making securities investments based on a negligent and inaccurate report in a newspaper does not state a cause of action in tort against the newspapers's publisher for 'negligent misrepresentation.' In such a case, the competing public policy and constitutional concerns tilt decidedly in favor of the press when mere negligence is alleged." (22 Ohio St 3d at 291, 490 NE2d at 902.) Plaintiff asserts that this case is different from one involving a newspaper; however, he provides no reason for treating a person who reads data on a computer screen differently from one who reads it on paper. The potential devastating effects of a holding of liability on the publisher is no different; the potential harm to the free dissemination of news and ideas is the same.

Even though a lesser standard protects advertisements, liability has been denied for negligent publication of mistaken advertisements. The only New York case to the contrary, Blinick v Long Is. Daily News Press Publ. Co. (67 Misc 2d 254), does not correctly follow the cases finding liability for negligent misstatements, incorrectly evaluates the public policies requiring a free press to publish thousands of advertisements daily, and has been "[rejected]" in this State and elsewhere. While there is liability for publishing advertisements with reckless abandon and for malicious or intentionally misleading advertisements, Blinick's holding of liability for negligence is simply wrong.

Plaintiff's case here is also barred by the United States and New York Constitutions. The First Amendment precludes the imposition of liability for nondefamatory, negligently untruthful news. In Time, Inc. v Hill (385 U.S. 374, 387-389 [1967]) the Supreme Court held that a negligence standard opened the press to the "intolerable burden" of trying to satisfy a fact finder that its act had been reasonable in determining the accuracy of the news items portrayed. A free press must operate without the imposition of such "intolerable burdens" on reporting. The First Amendment guarantees that society will be able to receive news limited, if at all, only by the most carefully imposed, narrowly constructed, finely drawn, restraints in areas such as copyright, defamation, unfair competition, incitement and obscenity. "A broadly defined freedom of the press assures the maintenance of our political system and an open society." (Id. at 389.)

The societal right to free and unhampered dissemination of information precludes liability absent proof of knowing falsity or reckless disregard for the truth. (Gertz v Robert Welch, Inc., 418 U.S. 323, 340 [1974].) There is some authority that Gertz does not apply to those who are not "media" defendants such as providers of credit reports to a limited class of subscribers; for them there is a lesser degree of First Amendment protection. However, the Supreme Court's plurality opinion in Dun & Bradstreet v Greenmoss Bldrs., 472 U.S. 749 (1985), avoided the "media"/"nonmedia" analysis; the dissent convincingly demonstrates that the distinction makes little sense since the cost of the service and the degree of its distribution are not related to the importance of the protection needed for the statement at issue. "Owing to transformations in the technological and economic structure of the communications industry, there has been an increasing convergence of what might be labeled 'media' and 'nonmedia.' " (Id. at 783, n 7.) The New York decisions do not appear to have reached the "media"/"nonmedia" issue. Defendant here provides, in essence,a "wire service"; it should, therefore, be treated as a "media" defendant, entitled to the fullest protection of the First Amendment.

Plaintiff argues that at issue here is "a commercial transaction" to which the First Amendment is inapplicable. "Commercial speech" has been held to have a lesser degree of the First Amendment protection than other speech. Yet that restriction applies to "speech which does 'no more than propose a commercial transaction,'" (Posadas de Puerto Rico Assocs., 478 U.S. 328, 340 [1986], quoting Virginia Pharmacy Board v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 762 [1976].) Clearly the news report at issue here is not "commercial speech" (cf., Smith v California, 361 U.S. 147, 150 [1959]). Plaintiff's argument, that the report regarding Husky Oil was not of general concern to large numbers of persons, simply misses the point. News services, whether free to the public, as are television or radio, or more expensive, specialized media, such as defendant's computerized data base, are instruments for the free flow of all forms of information, and should be treated as unquestionably within the First Amendment's guarantee of freedom of the press.

The First Amendment's protection of defendant's news service is particularly appropriate in New York, where the State Constitution provides a broader scope of protection for speech than does the Federal Constitution. The defendant's service is one of the modern, technologically interesting, alternative ways the public may obtain up-to-the-minute news. It is entitled to the same protection as more established means of news distribution.

The court need not pass on the validity of defendant's argument that its report is literally true. Plaintiff argues that the failure to disclose the currency used in the news report made it misleading regardless of the accuracy of the remainder of the report. The Supreme Court stated in Gertz, "The First Amendment requires that we protect some falsehood in order to protect speech that matters" (418 U.S., supra, at 341; see, New York Times Co. v Sullivan, 376 U.S. 254, 279 [1964]).

The defendant's motion to dismiss the action is granted.

1 Even though the exact nature of the "contract" cannot be definitively determined on the record here, that does not effect the disposition. For the terms of the contract plaintiff relies on advertisements for defendant's service. The documents submitted to the court include a formal printed agreement, prepared by defendant, which was received by plaintiff sometime after he commenced using the service. The agreement has unequivocal limitations of liability. It is not established that the agreement formed a part of the contract between the parties. There is also no proof whether plaintiff agreed to a limitation of defendant's liability as a part of the "on-line" signup procedure, as is common with other computerized data base services.