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November 2, 1979


The opinion of the court was delivered by: NEAHER


This motion to compel discovery arises in a libel action brought by Louis Mazzella, for himself and Sentinel Brokerage Corporation ("Sentinel"), against Philadelphia Newspapers, Inc. ("PNI"), publisher of the Philadelphia Inquirer, and William Lambert, an Inquirer reporter. The action was originally commenced in Supreme Court, Nassau County, and later removed to this court by defendants on the ground of diversity of citizenship, pursuant to 28 U.S.C. § 1441. The question presented is whether Lambert can be compelled to divulge certain allegedly confidential information upon which one of his news stories was based.

 The parties' papers reveal the following facts. Mazzella is an insurance broker licensed by the New York State Insurance Department. He is also the president, chief operating officer and principal shareholder of Sentinel, a New York corporation engaged in the insurance business and headquartered in Nassau County, where Mazzella resides. On May 2, 1976, the Inquirer published under Lambert's byline an article detailing the Pennsylvania Insurance Department's ("PID") operation and eventual sale of the Colonial Assurance Company ("Colonial") to Mazzella at what was supposedly a "bargain-basement price" during the liquidation of Colonial's insolvent parent. According to the allegations of the complaint, the article also states by innuendo that Mazzella "had entered into a corrupt arrangement with officials of the Insurance Department of the Commonwealth of Pennsylvania to secure the said Department's approval of Mazzella's purchase of an insurance company . . . at a price far less than the true worth thereof, thereby defrauding the people of the Commonwealth of Pennsylvania." Complaint at P 11. In answer to Mazzella's charge that the article contains false and defamatory matter and that defendants acted in a "grossly irresponsible (manner) without due consideration for the standards of information-gathering and dissemination ordinarily followed by responsible persons," Complaint at P 13, defendants Inter alia aver that the statements complained of are true or substantially true and that they in any event acted in good faith.

 As part of their discovery in this action, plaintiffs noticed and took Lambert's deposition. During the deposition, Lambert claims he produced "voluminous" documentation requested by plaintiffs. He balked, however, when asked to reveal the names of his confidential sources. Although the relevance of the names of these sources is disputed, defendants resist disclosure upon a claim of privilege created by Pennsylvania statute.

 Under Pennsylvania law confidential communications to news reporters are protected by a "shield." The statute provides in relevant part:

"(a) No person, engaged on, connected with or employed by any newspaper of general circulation as defined by the laws of this Commonwealth . . . for the purpose of gathering, procuring, compiling, editing or publishing news, shall be required to disclose the source of any information procured or obtained by such person, in any legal proceeding, trial or investigation before any court, grand jury, traverse or petit jury, or any officer thereof . . . ." Pa.Stat.Ann. tit. 28 § 330(a).

 Although the quoted law seemingly admits of no exceptions, plaintiffs contend that the statute is inapplicable in a libel action in which the reporter or newspaper is named as a defendant, since a literal application of the statute would have the effect of precluding plaintiffs from discovering evidence sufficient to meet their burden of proving that defendants acted with some degree of fault as required in cases of this kind by Gertz v. Robert Welch, Inc., 418 U.S. 323, 94 S. Ct. 2997, 41 L. Ed. 2d 789 (1974). Plaintiffs' argument, which is not without appeal, is that without access to the identities of Lambert's sources and his notes, they will be unable to meet their concededly difficult burden of proof.

 Plaintiffs' discovery motion squarely presents a conflict between the rights of civil litigants to press their libel claims in federal court and the rights of news reporters and papers to protect their confidential sources and presumably the free flow of information to the public. As a matter of constitutional law, no absolute rule of privilege protects newsmen, and an assertion of privilege under the First Amendment requires a careful balancing of the interests of those seeking disclosure of confidential sources with the interests of those seeking to avoid such disclosure. The Supreme Court in Branzburg v. Hayes, 408 U.S. 665, 92 S. Ct. 2646, 33 L. Ed. 2d 626 (1972), struck the balance in favor of the grand jury's need for information in its investigation of crime. In Matter of Farber and the New York Times, 78 N.J. 259, 394 A.2d 330 (1978), Cert. denied sub nom. New York Times v. New Jersey, 439 U.S. 997, 99 S. Ct. 598, 58 L. Ed. 2d 670 (1978), the Court let stand the balance struck by the New Jersey Supreme Court in favor of a criminal defendant's need for information relevant to his defense over a reporter's claim that the First Amendment and a statutory shield law privilege required a different result. Thus, while a favored amendment, the first amendment does not afford absolute protection and must yield in certain circumstances. Cf. United States v. Hubbard, slip of (D.D.C. Aug. 27., 1979).

 In civil litigation, however, the interests that litigants have in forcing disclosure are typically not as compelling as the considerations that led the Branzburg and Farber Courts to their conclusions. In Baker v. F. & F. Investment, 470 F.2d 778, 785 (2 Cir. 1972), cert. denied, 411 U.S. 966, 93 S. Ct. 2147, 36 L. Ed. 2d 686 (1973), the court noted that:

"If, as Mr. Justice Powell noted in (Branzburg ), instances will arise in which the First Amendment values outweigh the duty of a journalist to testify even in the context of a criminal investigation, surely in civil cases, courts must recognize that the public interest in non-disclosure of journalists' confidential news sources will often be weightier than the private interest in compelled disclosure."

 See Altemose Const. v. Bldg. & Const. Trades Council, 443 F. Supp. 489 (E.D.Pa.1977); Apicella v. McNeil Laboratories, Inc., 66 F.R.D. 78, 83 (E.D.N.Y.1975); Democratic National Committee v. McCord, 356 F. Supp. 1394 (D.D.C.1973).

 While the Supreme Court has recently shed some light on the right of news gatherers to resist disclosure of their editorial thoughts and processes when named as defendants in a libel action, see Herbert v. Lando, 441 U.S. 153, 99 S. Ct. 1635, 60 L. Ed. 2d 115 (1979), it has not ruled on the precise issue presented here, namely whether a newsman's confidential sources are similarly subject to disclosure in a libel action in which the newsman is named a defendant over his claim of statutory shield law privilege. Before addressing that issue, however, a threshold question must be decided, and that is the law applicable to this suit by a New York citizen against a Pennsylvania reporter and newspaper which is also distributed in New York. In that connection it should be noted that New York also has a "shield law," N.Y.Civil Rights Law § 79-h, which was recently construed in Greenberg v. CBS Inc., 69 A.D.2d 693, 419 N.Y.S.2d 988 (2d Dept. 1979).

 Since this is a diversity action and the issue is one of privilege, we must look to the Federal Rules of Evidence for guidance. Rule 501 makes it clear that the question of privilege is governed by State law, *fn1" which means in the first instance the law of the State where the federal court sits. See Samuelson v. Susen, 576 F.2d 546, 549 (3 Cir. 1978); 4 Moore's Federal Practice P 26.60(7) at 259-60 (2d ed.1978). This of course, is the same result that would be reached by application of Erie principles, Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82 L. Ed. 1188 (1938), to a state created privilege conferring substantive rights beyond federal procedural rules, see Republic Gear Co. v. Borg-Warner Corp., 381 F.2d 551, 555-56 n. 2 (2 Cir. 1967), and is consistent with the legislative intent underlying Rule 501. See H.R.Rep.No.650, 93rd Cong., 1st Sess. 9 (1973), U.S.Code Cong. & Admin.News 1974, p. 7051; Samuelson v. Susen, supra, 576 F.2d at 550. Thus, in determining which State's law of privilege applies, the court must look to New York's conflict of law rules. Id. at 550-51. See Klaxon v. Stentor Electric Manufacturing Co., Inc., 313 U.S. 487, 61 S. Ct. 1020, 85 L. Ed. 1477 (1941).

 New York choice of law gives "controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation." Babcock v. Jackson, 12 N.Y.2d 473, 481, 240 N.Y.S.2d 743, 749, 191 N.E.2d 279, 283 (1963). See Loebig v. Larucci, 572 F.2d 81, 84 (2 Cir. 1978); Restatement Second, Conflicts of Law § 145. In this case, although plaintiffs are New York citizens, defendants are citizens of Pennsylvania and, by plaintiffs' admissions, circulate the Inquirer principally in the metropolitan area of Philadelphia, where it is presumably published. Plaintiffs entered into relationships in Pennsylvania when they purchased Colonial. The events ...

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