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LAKE HAVASU ESTATES, INC. v. READER'S DIGEST ASSN.

September 30, 1977

LAKE HAVASU ESTATES, INC. (a Colorado Corporation), Plaintiff,
v.
THE READER'S DIGEST ASSOCIATION, INC. and PAUL FRIGGENS, Defendants



The opinion of the court was delivered by: MOTLEY

MEMORANDUM OPINION AND ORDER

 CONSTANCE BAKER MOTLEY, D.J.

 This is a libel action in which jurisdiction in this Court is based upon diversity of citizenship, 28 U.S.C. 1332. Plaintiff, "Lake Havasu Estates, Inc. (a Colorado corporation)", complains that it has been libeled by an article in the May 1973 issue of Reader's Digest entitled "Land Swindles, A Con Game to Beware Of". Plaintiff named as defendants The Reader's Digest Association, Inc. (Reader's Digest), a Delaware corporation, and Paul Friggens, the author of the article. Paul Friggens was never served with process.

 The article describes the fraudulent land sales practices of several companies, among them one in Arizona. Reader's Digest has moved for summary judgment.

 This litigation revolves around the fact that there are three land sales companies in Arizona with substantially similar names. The three companies are Lake Havasu City (hereinafter City), Lake Havasu Estates (hereinafter Estates) and Lake Havasu Estates, Inc., a Colorado corporation (plaintiff). Defendant's article discussed only Estates, but plaintiff alleges that it was defamed because the article would be interpreted by readers to refer to it, a corporation with a similar name.

 The history of the three companies is of some importance in deciding this motion. City is an established development of some ten thousand people situated on a lake, unique in the surrounding Arizona desert. The land development had sold many lots to individual purchasers by 1968. That same year, a nearby land owner, Irving Pearlstein, decided to change the name of the land owned by him to Lake Havasu Estates. He then sold 12,800 acres of this nearby land to a corporation. That corporation then took the name Lake Havasu Estates (Estates). This new company then sold plots to individual purchasers who bought with a view to eventually building residences on this land. Plaintiff then bought 900 acres of land from Pearlstein and took the name Lake Havasu Estates, Inc. *fn1"

 As contained in a portion of defendant's deposition of Jerry J. Mondora, plaintiff's attorney, which is appended as Exhibit B to defendant's Notice of Motion for Summary Judgment, plaintiff admits that it took the name "Lake Havasu Estates, Inc." under an agreement with Estates, Exhibit B, p. 15.

 Plaintiff also admits in the same deposition that it took the name "Lake Havasu Estates, Inc." knowing of the existence of the Lake Havasu City development some forty miles away, Exhibit B, at p. 14. Plaintiff was thus selling desert land as "Lake Havasu Estates, Inc." while it knew that another company was selling land from an adjacent plot under the name Lake Havasu Estates and while it knew that a third company was selling land forty miles away under the name Lake Havasu City. It was against this background that defendant's article appeared.

 Defendant's article focused on the fraudulent practices of Estates, plaintiff's neighbor and the second company of the three to come into existence. Defendant's article was in part based on public testimony given by a William F. Fraccaro at a hearing held by the Office of Interstate Land Sales Registration, a division of HEW, in Chicago on October 11, 1972. Fraccaro testified that he had been swindled by an Estates salesperson who convinced him to buy land from Estates by representing to him that he was buying land from City, the well-known development. Fraccaro then found out that he had been deceived but by the time of the hearing had been unable to obtain any refund from Estates.

 It is not disputed that defendant's article was an accurate description of certain sales practices of Estates. It is also clear that defendant did not mention the name "Lake Havasu Estates, Inc., a Colorado corporation" in its article. Plaintiff bases its claim on the allegation that, given the similarity between the name used by itself and the name used by Estates, readers of the article would be unable to distinguish between the two companies and thus attribute the fraudulent practices of Estates to plaintiff. Plaintiff alleges that the article created confusion in the minds of prospective buyers of land and that its business was damaged.

 Plaintiff claims that defendant knew of plaintiff and maliciously and negligently failed to distinguish between the two companies in its article. Alternatively, plaintiff alleges that defendant should have known of plaintiff and that defendant was negligent in not investigating further before publishing the article.

 It is not disputed that the article was written by Paul Friggens and checked for accuracy by Kathryn V. Powell, a researcher for Reader's Digest. Defendant submitted an affidavit by Ms. Powell as support for its Motion for Summary Judgment. In her affidavit, Ms. Powell stated that she had read the transcript of the hearing of the Office of Interstate Land Sales Registration at which Mr. Fraccaro testified, interviewed Mr. Fraccaro, examined the records of the Office of Interstate Land Sales, and interviewed two officials of that office, John R. McDowell, Deputy Director, and Raymond Eluhow, Investigator. Ms. Powell stated that she had never heard of plaintiff until after the article was published. (Affidavit of Kathryn V. Powell.)

 Plaintiff, in its Memorandum of Law submitted in Opposition to Defendant's Motion for Summary Judgment, says (at p. 3):

 
The evidence suggests that defendant's employees knew of the distinction between the two companies before the article was published . . . the affidavit of Miss Powell . . . is of little probative value, but that the statements of Mr. Bernstein *fn2" and Mr. McDowell, by affidavit or at trial, would be the best evidence of what transpired with respect to ...

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