The opinion of the court was delivered by: Lowe, District Judge.
Before this Court are the motions of defendants Eli Lilly &
Co. ("Lilly"), PaineWebber, Inc. ("PaineWebber"), and Ronald
Nordmann ("Nordmann") to dismiss the above-captioned action
pursuant to Fed.R.Civ.P. 12(b)(6). For the reasons set forth
below, the motion of Lilly is granted, and the joint motion of
PaineWebber and Nordmann is denied.
This is an action for defamation brought by Church of
Scientology International ("CSI") and Citizens' Commission on
Human Rights ("CCHR"). Plaintiffs are nonprofit corporations
incorporated in California, having their principal places of
business in California. Defendant Lilly is a pharmaceutical
company incorporated in Indiana, having its principal place of
business in Indiana. Defendant PaineWebber is a stock brokerage
and securities firm incorporated in Delaware, having its
principal place of business in New York. Defendant Nordmann is
a market analyst employed by PaineWebber, and a citizen of New
York. Complaint at ¶ 1.
In their Complaint of 10/31/90, plaintiffs allege that
defendants defamed them in the total amount of $40,200,000,
id. ¶ 39, by publishing two false and defamatory statements, of
and concerning plaintiffs, on PaineWebber's database, with
reckless disregard for the truth or falsity of the statements.
On 12/6/90 defendants PaineWebber and Nordmann filed a motion,
pursuant to Fed.R.Civ.P. 12(b)(6), to dismiss the complaint for
failure to state a claim for which relief can be granted.
Memorandum of Defendants PaineWebber and Nordmann in Support of
Their Motion to Dismiss the Complaint ("PaineWebber Memo"). On
the same day, defendant Lilly filed a separate motion to
dismiss, adopting PaineWebber's grounds and also making an
alternate argument of its own. Memorandum of Defendant Lilly in
Support of its Motion to Dismiss the Complaint ("Lilly Memo").
On 12/21/90 this Court referred this action to Magistrate
Judge Nina Gershon pursuant to 28 U.S.C. § 636(b)(1)(B). In her
Report and Recommendation of 3/28/91 ("Report"), Magistrate
Judge Gershon advised dismissal of this action in its entirety.
Report at 9. Plaintiffs CSI and CCHR filed a timely objection,
disputing the reasoning and conclusion of the Magistrate Judge.
These objections, along with defendants' responses, are now
before this Court.
Under the Federal Rules the District Court is required to
make a de novo determination of those issues in the Magistrate
Judge's report to which objections are made in writing. "The
district judge may accept, reject, or modify the recommended
decision, receive further evidence, or recommit the matter to
the magistrate with instructions." Fed.R.Civ.P. 72(b). For the
reasons discussed below, we affirm the Magistrate Judge's
Report with respect to defendant Lilly, but reverse the Report
with respect to defendants PaineWebber and Nordmann.
On July 18, 1990 the Wall Street Journal featured an article
entitled "Prozac Said to Spur Idea of Suicide," describing the
controversy over the anti-depressant medication Prozac, which
is manufactured by Lilly. The subject of the article was a
lawsuit filed against the drug company, alleging that the drug
"caused [a New York woman] to commit acts of self-destruction
and to make attempts at suicide." Ex. A to Complaint. The
article described "a Los Angeles-based consumer organization
associated with the Church of Scientology" which collected the
complaints of patients taking Prozac, and subsequently
identified this group as CCHR. The article described Lilly's
response as "[believing that] some of the complaints are being
drummed up by the Scientology group, which has a history of
criticizing the use of psychiatric drugs." Id.
The following day, Nordmann, a market analyst for PaineWebber
who followed Lilly stock, wrote an Advisory responding to the
Journal article and recommending continued purchase of Lilly
stock, despite the concern of investors. Complaint at ¶ 9.
Plaintiffs allege that Nordmann was acting in the scope of his
employment when he authored the statements, and that "the
Advisory was prepared for, published by and distributed on
PaineWebber's nationwide communications system to PaineWebber's
sales personnel, customers and others, and all of PaineWebber's
branch offices." Id. ¶¶ 7, 15. The advisory described Prozac's
success and Lilly's "highly ethical promotion practices," which
included regular updates of package inserts. Ex. B to
Complaint. In this context Nordmann wrote the statements of
which plaintiffs complain:
"The final addition to Prozac's package insert in
May concerned one case of `violent behavior.' In
this case, a depressed man taking Prozac committed
mass murder. Interestingly, this man, Mr. Wes
Becker (sic), happened to be a member of the Church
of Scientology. The Church and other related
special interest groups have, in our opinion been
on a vendetta to discredit Prozac."*fn1 (Emphasis
According to the Complaint, these statements "were told to
Nordmann by an employee of Lilly within the scope of the
employee's employment" for the purpose of having Nordmann
publish the statements, in order to shore up Lilly's stock in
the wake of the worrisome Journal piece. Id. ¶ 10.
Plaintiffs maintain that both these statements are false:
Wesbecker was never a member of CSI, and neither plaintiffs nor
any other Scientology organization is "on a vendetta" against
Lilly's drug. Id. ¶¶ 12, 13. On ...