Thurgood Marshall U.S. Courthouse at 40 Foley Square
Thurgood Marshall U.S. Courthouse at 40 Foley Square (Bjoertvedt/Wikimedia)

Bad news for Bloomberg L.P. and its co-defendants in a libel suit: the U.S. Court of Appeals for the Second Circuit breathed new life back into the case Tuesday.

The panel of Circuit Judges John Walker Jr., Peter Hall and Denny Chin in Friedman v. Bloomberg, 16-1335-cv, largely upheld the decision by U.S. District Judge Alvin Thompson of the District of Connecticut dismissing defamation allegations by the subject of an article by the media company.

Dan Friedman had sued his former employer, Netherlands-based Palladyne International Asset Management, for wrongful termination in 2012. According to Friedman, the hedge fund was in fact a kickback and money laundering operation for former Libyan strongman Muammar Gaddafi. After expressing concerns internally over the legitimacy of the firm, Friedman claims to have been fired without defensible cause.

Friedman then sued the firm, alleging fraudulent inducement among other charges in his complaint, seeking $499,401,000 in damages, plus interest, attorney fees and costs. He also sought additional punitive damages equaling two years of salaries and bonuses.

In March 2014, Bloomberg published an article about the suit that stated that the hedge fund was being sued “for as much as $500 million,” and included a quote from the company that claimed that Friedman had “repeatedly tried to extort money from the company” and was “dismissed for gross misconduct.”

Friedman then sued Bloomberg, as well as Palladyne and a PR firm that was alleged to have provided the reporters on the story with the information, for libel. He alleged that the two key parts of the story—that the suit was for as much as $500 million, and the quote from Palladyne for which Friedman said the news organization did not reach out to him for comment or to check its validity—were false, and caused serious and irreparable harm.

Palladyne sought to dismiss under Connecticut law, while Bloomberg did the same under New York law.

The panel agreed with Thompson’s finding that Connecticut’s long-arm statute didn’t extend far enough to provide for personal jurisdiction over Palladyne, and that neither Friedman’s First or 14th amendment claims were justified as such.

“A state is not required to extend its courts’ jurisdiction over specific foreign defendants and, in the absence of a long-arm statute providing for such jurisdiction, a plaintiff does not have a fundamental right to bring an action against those foreign defendants,” the panel found.

However, the panel noted that the Bloomberg defendants did fall under personal jurisdiction. The panel agreed with the district court that it would be “excessively burdensome for the media” to accept Friedman’s claim that Bloomberg’s reporters should have been sophisticated enough to parse the real-world potential to actually collect the $499,401,000-plus being sought.

But the panel departed with Thompson on the question of potential liability regarding the Palladyne quote. The panel found the statement that Friedman “repeatedly tried to extort money” from the company interpretable by a reader to suggest actual criminal activity on Friedman’s part. Coupled with the claim of being dismissed for gross misconduct—both of which the panel found had the potential to be proven false—Thompson’s holding that the statement was “rhetorical hyperbole” was unavailing, according to the panel.

“Even if Palladyne was asserting an opinion about Friedman’s prior conduct, Palladyne’s statement can still be read as conveying a negative characterization of Friedman without stating sufficient facts to provide the context for that characterization,” the panel said.

On remand, the panel said it would be up to a jury to decide whether the extort claim was understood by readers to mean Friedman engaged in criminal conduct, and whether, in doing so, it defamed Friedman.

Bloomberg’s counsel in the suit, Davis Wright Tremaine partner Sharon Schneier, could not be reached for comment. A company spokesman declined to comment. Hughes Hubbard & Reed partner Derek Adler, counsel for Palladyne, also could not be reached for comment. In a statement, private attorney Alan Kaufman, counsel for Friedman, said while he and his clients were pleased with the outcome, they were considering a writ of certiorari on the constitutional questions dismissed by the court.

“But regardless, this will be going to a jury and we are optimistic about obtaining a favorable result,” Kaufman said.