Analyzing Constitutional Law in Breach of Contract Claims: Damages and First Amendment Principles

2. Constitutional Law

CCDH’s second argument about damages relies on constitutional law—specifically, the principle that the First Amendment bars plaintiffs from using non-defamation causes of action “to avoid the strict requirements for establishing a . . . defamation claim.” MTD&S at 17 (citing cases, including Cohen, 501 U.S. at 671). That principle arose out of the Supreme Court’s holding in Hustler Magazine, Inc. v. Falwell, 485 U.S. 46, 56 (1988), that a public figure could not recover publication damages on a non-defamation claim without showing actual malice. This order will discuss some of the relevant cases before applying their holdings to this case.

a. Relevant Case Law

i. Cohen

In Cohen, decided just a few years after Hustler Magazine, a confidential source brought suit for breach of contract and misrepresentation against newspaper publishers after the publishers—having promised the source confidentiality—published his name. 501 U.S. at 665–66. “The same day the stories appeared, Cohen was fired by his employer.” Id. at 666. The Supreme Court concluded that Cohen had not brought his contract claim “to avoid the strict requirements for establishing a libel or defamation claim.” Id. at 671. Cohen could not have brought a defamation claim because the information the publishers had disclosed was true. Id.[17] The Court also rejected the idea that Cohen was “seeking damages for injury to his reputation or his state of mind,” holding that he was seeking damages for “breach of a promise that caused him to lose his job and lowered his earning capacity.” Id. (distinguishing Hustler Magazine).

ii. Food Lion

The Fourth Circuit wrestled with both Hustler Magazine and Cohen in Food Lion, Inc. v. Capital Cities/ABC, Inc., 194 F.3d 505, 522 (4th Cir. 1999). In that case, Food Lion, a grocery store, had been the subject of an undercover investigation about its food handling practices. Id. at 510–11. Food Lion brought suit against the news network that aired the video. Id. at 511. It sought to recover “broadcast (publication) damages for matters such as loss of good will, lost sales and profits, and diminished stock value.” Id. The Fourth Circuit recognized that “an overriding (and settled) First Amendment principle precludes the award of publication damages in this case.” Id. at 522. It held that Food Lion had “attempted to avoid the First Amendment limitations on defamation claims by seeking publication damages under non-reputational tort claims, while holding to the normal state law proof standards for these torts” but that “[t]his is precluded by [Hustler Magazine].” Id. It further explained that “What Food Lion sought to do . . . was to recover defamation-type damages under non-reputational tort claims, without satisfying the stricter (First Amendment) standards of a defamation claim,” which was “an end-run around First Amendment strictures.” Id.

iii. Planned Parenthood and National Abortion Federation

Two recent cases decided by Judge Orrick, Planned Parenthood and National Abortion Federation, illustrate a district court’s conscientious analysis of this same issue.

In Planned Parenthood, 402 F. Supp. 3d at 632–33, defendants, who were part of a group called the Human Capital Project (HCP), infiltrated Planned Parenthood conferences and facilities “to surreptitiously record conversations with the conference attendees” and staff. Judge Orrick, at summary judgment,[18] assessed defendants’ argument that “the First Amendment . . . precludes any award of . . . damages . . . because plaintiffs’ damages flow solely from the actual or feared response of third parties to the publication of the HCP videos.” Id. at 641–42. He then noted that the defendants, relying on Food Lion, argued that the damages the plaintiffs were seeking also “stem[med] from the public’s reaction (or feared or expected reaction) to the contents of the HCP videos and should have been sought through a defamation claim.” Id. at 642. Judge Orrick recognized that it was “difficult” given the lack of a defamation claim “to draw the line between impermissible defamation-like publication damages that were caused by the actions and reactions of third parties to the HCP videos and permissible damages that were caused by [defendants’] breaches of contract” and other acts. Id. at 643 (emphasis in original). He concluded that some of the damages the plaintiffs were seeking were “more akin to publication or reputational damages that would be barred by the First Amendment” but that others were “economic damages that are not categorically barred.” Id. at 644. He also explained that “[t]hose that fall in the latter category”—the permissible damages—“result not from the acts of third parties who were motivated by the contents of the videos, but from the direct acts of defendants—their intrusions, their misrepresentations, and their targeting and surreptitious recording of plaintiffs’ staff.” Id. at 644–45 (emphasis in original).

The Ninth Circuit later affirmed that decision, stating that “two categories of compensatory damages permitted by the district court, infiltration damages and security damages, were awarded by the jury to reimburse Planned Parenthood for losses caused by Appellants’ violations of generally applicable laws.” Newman, 51 F.4th at 1134. The court deemed Appellants “incorrect in arguing that the infiltration and security damages awarded by the jury are impermissible publication damages.” Id. The court declared that the infiltration and security damages were “for economic harms suffered by Planned Parenthood, not the reputational or emotional damages sought in Hustler Magazine.” Id. It continued by explaining that Planned Parenthood could have recovered its infiltration and security damages “even if Appellants had never published videos of their surreptitious recordings. Regardless of publication, it is probable that Planned Parenthood would have protected its staff who had been secretly recorded and safeguarded its conferences and clinics from future infiltrations.” Id.

In Judge Orrick’s related case, National Abortion Federation, 2018 WL 5879786, at *1, the defendants allegedly “used false identification and a ‘phony’ corporation to” get into National Abortion Federation (NAF) conferences and meetings. The defendants argued in support of a motion to dismiss that “because NAF ha[d] not asserted a defamation claim, its claim for ‘damages’ stemming from all remaining causes of action are barred by the First Amendment.” Id. at *5. Judge Orrick stated that “[t]he line demarking permitted damages from purely reputational damages (that stem only from truthful, non-misleading publication of material), as I noted in the Planned Parenthood case, cannot be determined on a motion to dismiss.” Id. He then commented that the defendants had “mischaracterize[d] the FAC as only seeking damages caused by the publication of the recordings and the resulting actions of third parties.” Id. at *6. And he explained that just because the plaintiff had “only learned of the infiltration after publication began does not mean the damages are from the publication.” Id. He continued: “At least some of the damages pleaded are the result of the infiltration and would have been incurred even if none of the recordings were published and [the plaintiff] learned of the infiltration through some other means.” Id.

The Ninth Circuit also affirmed Judge Orrick’s National Abortion Federation decision, holding that the plaintiff had “frame[d] its theory of damages as compensation for non-reputational harm—namely its increased expenditures on security measures—which is a cognizable theory of damages.” National Abortion Fed’n v. Ctr. for Med. Progress, No. 18-17195, 793 Fed. Appx. 482, 485 (9th Cir. Nov. 15, 2019) (citing Planned Parenthood Fed’n of Am., Inc. v. Ctr. for Med. Progress, 735 F. App’x 241, 247 (9th Cir. 2018)).

b. Takeaways from Relevant Case Law

In both Planned Parenthood and National Abortion Federation, Judge Orrick held that plaintiffs could recover damages based directly on the defendant’s breach (the infiltration and security losses that they suffered from the defendants’ entering and filming in their facilities) without running afoul of Hustler Magazine. See Planned Parenthood, 402 F. Supp. 3d at 644–45; National Abortion Federation, 2018 WL 5879786, at *5–6. Such damages would have existed regardless of the publication of the inflammatory videos. See Newman, 51 F.4th at 1134. Judge Orrick held that the plaintiffs could not recover reputational damages that stemmed from publication—specifically, “acts of third parties who were motivated by the contents of the” publication. See Planned Parenthood, 402 F. Supp. 3d at 644–45.

This is consistent with Food Lion, where the plaintiff was trying to recover damages based on third parties’ reactions to watching the news broadcast, see Food Lion, 194 F.3d at 522, and also with Cohen, although the latter is less obvious. In Cohen, 501 U.S. at 671, even though Cohen’s damages were based in part on the actions of a third party—the employer who fired him after seeing his identity revealed—the Court recognized that a defamation claim was unavailable to Cohen because the speech at issue was undeniably true, and that the damages represented “breach of a promise that caused him to lose his job and lowered his earning capacity.” The conduct that gave rise to the damages in Cohen was the publishers’ speech: that speech is what breached the publishers’ contract with Cohen and so it was not reputational. See id. The conduct that gave rise to the permissible damages in Judge Orrick’s cases was the defendants’ infiltration and security conduct— not the later publication of the videos, which would have given rise to impermissible reputational harm.

Judge Orrick found it “difficult” “to draw the line” in his cases “between impermissible defamation-like publication damages that were caused by the actions and reactions of third parties to the HCP videos and permissible damages that were caused by [defendants’] breaches of contract” in part because there were so many different types of damages claimed in those cases. See Planned Parenthood, 402 F. Supp. 3d at 643–45 (listing the myriad categories of damages plaintiff sought) (emphasis in original). Judge Orrick determined that he was not well-positioned to sort those numerous types of losses into permissible/impermissible buckets on a motion to dismiss. See Planned Parenthood, No. 16-cv-236-WHO (Order on Motions to Dismiss and Strike) at 36; National Abortion Federation, 2018 WL 5879786, at *5.

c. Application Here

Here, X Corp. is not seeking some complicated mix of damages—some caused by the reactions of third parties and some caused directly by the alleged breach. The Court can say, as a matter of law, whether the single type of damages that X Corp. seeks constitutes “impermissible defamation-like publication damages that were caused by the actions and reactions of third parties to” speech or “permissible damages that were caused by [CCDH’s] breaches of contract.” See Planned Parenthood, 402 F. Supp. 3d at 643.

The breach that X Corp. alleges here is CCDH’s scraping of the X platform. FAC ¶ 77. X Corp. does not allege any damages stemming directly from CCDH’s scraping of the X platform.[19] X Corp. seeks only damages based on the reactions of advertisers (third parties) to CCDH’s speech in the Toxic Twitter report, which CCDH created after the scraping. See FAC ¶¶ 70, 78; see also ACLU Br. at 12 (“The damages X Corp. seeks . . . are tied to reputational harm only, with no basis in any direct physical, operational or other harm that CCDH U.S.’s alleged scraping activities inflicted on X Corp.”). That is just what the Fourth Circuit disallowed in Food Lion, 194 F.3d at 522. The speech was not the breach, as it was in Cohen. And X Corp.’s damages would not have existed even if the speech had never occurred, as in Newman, 51 F.4th at 1134. Here, there would be no damages without the subsequent speech. Accordingly, the Court can hold as a matter of law that the damages alleged are impermissible defamation-like publication damages caused by the actions of third parties to CCDH’s report.

X Corp.’s main response to all of this is that it has alleged “tangible, economic losses.” See Opp’n at 18 (citing Cohen, Newman, National Abortion Federation). But that is not the question. See Reply at 8 (“X Corp. never explains why core constitutional protections would turn arbitrarily on whether harm to a plaintiff’s reputation from a defendant’s speech happens to have manifested in a way where the dollars and cents can easily be counted before a complaint is filed.”). The “lost sales” in Food Lion, 194 F.3d 505, could presumably have been quantified. Numerous quantifiable expenses in Planned Parenthood (like “grants for security enhancements to affiliates experiencing increased security threats as a result of CMP’s videos”) were disallowed. See Planned Parenthood, 402 F. Supp. 3d at 645. Judge Orrick properly drew the line not between tangible and intangible losses, but between losses from direct harms and losses from reputational harms. See id. at 644–45. Drawing the same line here leads to the conclusion that the complaint fails to allege recoverable damages for the breach of contract under constitutional law.

X Corp. therefore fails to state a claim for breach of contract.

[17] At the motion hearing, X Corp. seemed to argue that the cases where courts have found that a plaintiff was making an end-run around a libel or defamation claim are “cases where the Court said you couldn’t have brought a defamation claim.” Tr. of 2/29/24 Hearing at 62:13–18. The Court does not know what cases X Corp. had in mind, as it did not cite any, but Cohen is an example of the opposite. One of the reasons the Court held that Cohen was not making an end-run around a defamation claim is that he could not have brought a defamation claim. See Cohen, 501 U.S. at 671.

[18] At the motion to dismiss stage, Judge Orrick had held that “the First Amendment does not impose heightened standards on plaintiffs’ tort claims as long as plaintiffs do not seek reputational damages . . . stemming from the publication conduct of defendants.” Planned Parenthood Fed’n of Am., Inc. v. Ctr. for Med. Progress, No. 16-cv-236-WHO (Order on Motions to Dismiss and Strike, dkt. 124) (Sept. 30, 2016) at 36 (emphasis in original). He concluded that “discovery will shed light on the nature of the damages for which plaintiffs seek recovery” and that the issue “is more appropriately addressed at summary judgment or trial.” Id.

[19] This order will discuss in the following section X Corp.’s proposed amendment to the complaint.