Tuesday, April 15, 2008, 10:21 PM

COA Holds That Stock Analyst's Report Isn't Libelous

Today in Nucor Corp. v. Prudential Equity Group, LLC, the Court of Appeals (COA) affirmed the dismissal of a libel per se action brought by Nucor against Prudential and one of its stock analysts, based on a report written by the analyst, which was distributed to investors. Judge Stroud authored the opinion.

Nucor is a steel manufacturer based in Charlotte, and it's publicly traded on the NYSE. The allegedly libelous portion of the analyst's report:

"Alienated customers may encourage Nippon Steel, Brazil's CSN or some of Nucor's sixteen plant managers to build new steel companies in addition to Thyssen, Severcorr, or reborn Weirton Steel adding ten million tons. Alienated customers may file antitrust lawsuits as has been done in the electrode, container board OSB, or other sectors. A clever attorney could make hay from trebled damages on Nucor's $2.6 billion pre-tax earnings. . . ."

Nucor's complaint alleged that the reference to antitrust lawsuits "in the electrode sector" concerned lawsuits filed by steel manufacturers alleging price-fixing by electrode suppliers, and that the reference to antitrust lawsuits in the OSB sector concerned class-action lawsuits filed by consumers alleging price-fixing by OSB producers and suppliers.

The COA held that, as a matter of law, the statement is not libelous per se, because it doesn't assert any illegal or wrongful activity on the part of Nucor. The statement regarding "alienated customers" states the customers "may file antitrust lawsuits," the COA stressed. "Certainly it is true that alienated customers 'may' file antitrust lawsuits, as presumably anyone can 'file' any lawsuit, although the merits of those lawsuits are a different issue." And, while the statement also referenced lawsuits filed in the "electrode, container board OSB, or other sectors," libel per se can't be based on external explanations, the COA emphasized, but instead must be based on the face of the document; "words which need an innuendo are not libelous per se." As for the analyst's statement that "[a] clever attorney could make hay from trebled damages on Nucor's $2.6 billion pre-tax earnings," the COA didn't find any part of this statement to be defamatory, noting that it doesn't allege specific wrongful conduct by Nucor.

Nucor also challenged this statement in the analyst's report as libelous: "Nucor needs to wake up from its monopoly dreams and get back to reality in our view." The COA held that this was "an opinion statement without any alleged facts on which we could find grounds for a claim of libel per se."

Finally, the COA held that, examining the analyst's report as a whole, the "overall import of the document is not derogatory of [Nucor]," because it also states that "We believe Nucor is a fine company, and we are not aware of any 'company-specific' flaw or blemish,” and because it contains a warning that the report reflected his "personal views."

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