kind of money, shop here instead. We are the real Fendi." (C.
Montalbano Decl. ¶ 4.)
3. In December 1990, a salesperson in Fendi's New York store
allegedly told customer Jerry Ring that "[i]f [he] bought [his
briefcase] at the Fendi in Short Hills, it is not the real Fendi
line." She went on to explain that Fashion Boutique sold an
inferior line of goods. (Ring Decl. ¶¶ 3-6.)
4. Near Easter of 1991, a salesperson in Fendi's New York store
allegedly told customer Valda Green that Fashion Boutique sold a
"lesser line" of Fendi products. (Green Decl. ¶¶ 2-4.)
5. In the spring of 1991, Francesco Gittardi, a salesman in
Fendi's New York store, allegedly told customer Philip Scheer
that Fashion Boutique sold an inferior line of Fendi merchandise.
(Scheer Decl. ¶¶ 2-3.)
6. In June 1991, the customer service manager in Fendi's New
York store, Joan Vernocchi, allegedly told customer Carmela Amore
"[Fashion Boutique] carried a completely different (and inferior)
line of Fendi merchandise than the New York store." (Amore Decl.
¶¶ 2, 4.)
Three of the customers identified above testified that they
repeated the statements to others. Green, to whom a statement was
made near Easter of 1991, testified that she "was upset about
buying something that was not authentic" and "made mention to
others . . . that [the merchandise] was not good quality." (Green
Dep. at 37:11-13, 22-23.) Marano testified that she told her
friends, with whom she was shopping when she heard the
disparaging remarks in March of 1991, that "the Short Hills store
is going out of business." (Marano Dep. at 47:21-22.) Carmen
Montalbano testified that he told "co-workers" and "friends"
about his December 1990 conversation with the New York Fendi
store in which he was allegedly told that Fashion Boutique sold
inferior merchandise. (C. Montalbano Dep. at 29:20.)
None of the statements complained about were in writing. Only
isolated oral statements have been shown by admissible evidence.
Fashion Boutique contends that these statements coupled with
other circumstantial evidence, including the decline in its sales
between December 1989 and July 1991 when it closed (Def.Mem.Ex. A
at 22-23.), are sufficient proof that a campaign of disparagement
caused the loss of Fashion Boutique's entire business. But
evidence of declining sales is not a substitute for proof of
causation in a case in which there is no evidence that statements
were widely disseminated by the defendant.
Fashion Boutique has proffered other evidence as circumstantial
evidence of causation. It offers the testimony of Caroline
Clarke, the former Executive Director of Store Operations for
Fendi Stores, Inc., to show that Fendi "wanted to put [Fashion
Boutique] out of business." (Pl.Supp. Opp'n at 9.) Clarke
testified in her deposition that sometime in 1990 Bruno D'Angelo,
the executive vice president of Fendi USA, Inc., instructed her
to keep a file on Fashion Boutique "in case the company ever
moved to dissolve the . . . franchise agreement." (Clarke Dep. at
110:10-14, 130:19-24.) Clarke stated that it was Fendi's policy
to encourage Fashion Boutique customers to document their
complaints and that complaint letters were collected for the
Fashion Boutique file. (Clarke Dep. at 245:14-18, 369:2-4.)
Clarke testified that in her opinion "[defendant] Fendi USA was
not seeking to resolve the alleged problems with [Fashion
Boutique] in a positive constructive manner" by informing "the
franchise of the complaint[s]." (Clarke Dep. at 162:3-43, 14-21.)
Clarke testified that "the general consensus of all of the
management of Fendi Stores at the time" was to "get rid" of
Fashion Boutique. (Clarke Dep. at 246:15-17.) These statements,
even if admissible, do not show that Fendi widely disseminated
defamatory statements or that statements by Fendi caused Fashion
Boutique to close.
As evidence that disparaging statements were disseminated
widely by Fendi, Fashion Boutique also offers reports of four
private investigators who went separately to the New York store
posing as dissatisfied Fashion Boutique customers or Fashion
Boutique customers seeking repair for defective merchandise. I
have previously ruled that the responses to the investigators'
statements are not actionable as defamation or disparagement.
Fashion Boutique, 1998 WL 259942, at *5. However, Fashion
Boutique argues that such statements are "relevant in
establishing the extent to which Fendi's statements were
disseminated." (Pl.Supp. Opp'n at 10 n. 4.) Oral statements made
on four isolated occasions are not evidence of wide dissemination
of those statements even when added to the other statements.
In order for evidence of the lost value of Fashion Boutique
entire business to be relevant, Fashion Boutique must show that
Fendi's isolated defamatory statements caused it to lose its
entire business. The circumstantial evidence described combined
with evidence of declining sales beginning in December 1989 is
not sufficient to support a rational inference that the oral
statements made by employees of Fendi's New York store between
December 1990, a full year after sales began to decline, and June
1991, two months after Fashion Boutique held a going out of
business sale, destroyed Fashion Boutique's business.
DR. FRISHBERG'S PROPOSED TESTIMONY
Dr. Frishberg is Director of Economic Services at Deloitte &
Touche, LLP. Dr. Frishberg's report contains his opinion
regarding the value of Fashion Boutique's business. Dr. Frishberg
explains that he has "analyzed the impact of certain allegations
. . . regarding actions by the Defendants to destroy the business
of Fashion Boutique." (Def.Mem.Ex. A at 1.) He then explains that
"[h]aving analyzed these allegations, [he] has proceeded to
quantify certain categories of damages to Fashion Boutique."
Dr. Frishberg assumes, for the purposes of his calculation of
damages, that "but for the alleged campaign of disparagement"
Fashion Boutique's growth, from January 1991 on, "would equal the
Specialty Retail stores' sector growth rate." (Id.) Dr.
Frishberg concludes that "$11,421,242 represents . . . the
minimum Plaintiffs are entitled to for economic damages
sustained." (Def.Mem.Ex. A at 1.) In accounting for the time
value of money through September 1999, Dr. Frishberg's revised
report increases this estimate to $15,444,437. (Rev. Report at
10.) This figure also includes Dr. Frishberg's calculation of
"lost profits from lost sales that Fashion Boutique suffered from
the Defendants' alleged actions during 1989 and 1990."
(Def.Mem.Ex. A at 5.) Dr. Frishberg assumes that Fendi's oral
statements to four Fashion Boutique customers in December 1990
and to five other customers in the spring of 1991 caused the
sharp decline in sales beginning in December 1989.
I. Dr. Frishberg's Testimony Would Not Assist the Trier of
Federal Rule of Evidence 702 provides that expert testimony may
be admitted when it "will assist the trier of fact." Dr.
Frishberg's testimony would in any event be limited by his
expertise, which is in economics and not in causation. Any
opinions regarding causation based on what Dr. Frishberg was told
by Fashion Boutique are outside of his expertise. Plaintiff is
not proffering Dr. Frishberg as an expert in causation, but
rather as an expert on damages. However, Dr. Frishberg's
expertise in valuation is only helpful to the trier of fact if it
is applicable to the facts of this case. His expertise is not
helpful to the extent that it is based upon a causation
assumption that plaintiff cannot prove.
The evidence Fashion Boutique proffers to prove that defamatory
statements caused its business to fail suffers from a serious
flaw. The sharp decline in sales beginning in December 1989 that
Fashion Boutique points to pre-dates any of the defamatory
statements. While wide dissemination
by a defendant of defamatory statements followed immediately by a
decline in sales may provide some circumstantial evidence that
the first caused the second, without that temporal sequence a
decline in sales is not circumstantial evidence of causation.
Although plaintiff argues that a decline in sales in this case is
circumstantial evidence of widespread dissemination by defendant,
there is no evidence that the defamation of which plaintiff
complains began before Fashion Boutique's sales began to decline
sharply. Moreover, there is no evidence that the isolated oral
statements to which plaintiff points were disseminated to so many
of plaintiff's 8,000 customers that a reasonable inference could
be drawn that those statements caused the demise of plaintiff's
Dr. Frishberg's testimony is premised on his assumption that
the sharp decline in plaintiff's sales beginning in December 1989
was caused by a "campaign of disparagement" by defendants.
Without proof of the causation that Dr. Frishberg assumes, his
estimate of the value of Fashion Boutique's business is not the
measure of damages for the defamatory statements that plaintiff
can prove. Thus, since those statements post-date the sharp
decline in plaintiff's sales and, in any event, were not
disseminated widely enough to provide circumstantial evidence
that they totally destroyed plaintiff's business, Dr. Frishberg's
testimony is inadmissible. It is based on an irrational
assumption and accordingly would not assist the jury in this
Plaintiff argues that because Fendi's New York store opened at
the end of October 1989, it must have caused the sharp decline in
plaintiff's sales in December of 1989. But plaintiff is not suing
defendants for opening a New York store which, theoretically,
could have caused a decline in plaintiff's sales. Plaintiff is
arguing, rather, that the sharp decline in its sales in December
1989 was caused by a campaign of disparagement by defendants
before December 1989, and for that plaintiff has no evidence. To
the extent that temporal sequence may sometimes provide
circumstantial evidence that one event causes an event that
follows it shortly in time, the causal event to which plaintiff
points is the opening of the store and not disparagement of
plaintiff's goods. Dr. Frishberg's testimony would only confuse
and distract the jury. Thus, Dr. Frishberg's testimony is
precluded under Fed. R.Evid. 403 as well as Fed.R.Evid. 702.
II. Dr. Frishberg's Testimony Is Not Applicable to Plaintiff's
Claim for Disparagement of Goods.
Although the reasoning discussed in Section I is sufficient to
exclude Dr. Frishberg's testimony, the parties have raised and
briefed the issue of the relevance of his testimony in light of
the New York law of special damages. This issue warrants
Under New York law, Fashion Boutique must establish four
essential elements to prevail on its claim of disparagement of
goods: (1) the falsity of the alleged statements; (2) publication
to a third person; (3) malice; and (4) special damages. See,
e.g., Kirby v. Wildenstein, 784 F. Supp. 1112, 1115 (S.D.N Y
1992) (applying New York law). The parties' focus is on the
fourth element, special damages.
The New York courts define special damages "as the loss of
something having economic or pecuniary value." Hogan v. Herald
Co., 84 A.D.2d 470, 480, 446 N.Y.S.2d 836, 843 (4th Dep't 1982),
aff'd Hogan v. Herald Co., 58 N.Y.2d 630, 458 N.Y.S.2d 538,
444 N.E.2d 1002 (1982). See also Restatement (Second) of Torts §
575 cmt. b (1977). The loss of customers for which Fashion
Boutique seeks to recover falls into this category. See, e.g.,
Drug Research Corp. v. Curtis Publ'g Co., 7 N.Y.2d 435, 440-41,
199 N.Y.S.2d 33, 166 N.E.2d 319 (1960).
New York imposes very strict requirements for proof of special
damages in the form of lost customers. Drug Research sets out
the rule: "if the special
damage was a loss of customers, . . . the persons who ceased to
be customers, or who refused to purchase, must be named." 7
N Y2d at 441, 199 N.Y.S.2d 33, 166 N.E.2d 319 (ellipses in
original) (citation omitted). This rule is well settled in New
York. See, e.g., Matherson v. Marchello, 100 A.D.2d 233, 235,
473 N.Y.S.2d 998, 1000-01 (2d Dep't 1984); Continental Air
Ticketing Agency, Inc. v. Empire Int'l Travel, Inc., 51 A.D.2d 104,
108, 380 N.Y.S.2d 369, 372 (2d Dep't 1976); Kirby, 784
F. Supp. at 1117.
Judge Goettel has questioned the strict requirement that a
plaintiff seeking to recover for lost sales identify the lost
customers with particularity. See Charles Atlas, Ltd. v.
Time-Life Books, Inc., 570 F. Supp. 150 (S.D.N.Y. 1983) (applying
New York law). In Atlas, the plaintiff brought a claim for
product disparagement against the defendant publisher of a book
which criticized plaintiff's exercise program. The court held
that requiring lost customers to be named would be "grossly
unfair" because the plaintiff sold only through mail orders.
Id. at 156. The court concluded that it would be "virtually
impossible to identify those who did not order the plaintiff's
product because of the" defendant's widely published statements.
The Atlas court held that to prove special damages for
defamation, a plaintiff is required to specifically identify lost
customers only "where it is reasonable to expect him to do so."
Id. (citations omitted). Fashion Boutique submits that it is
"exactly the type of plaintiff that [Atlas] protects" because
it is "impossible [for Fashion Boutique] to identify all of the
customers who did not purchase products due to" Fendi's
allegedly disparaging remarks to nine of its customers. (Pl.
Opp'n at 16.)
Plaintiff is seeking to apply this narrow exception to the New
York law of special damages without meeting the threshold
requirement of the exception, evidence of widespread
dissemination of the disparaging statements by defendant. It was
not only the nature of the business, but also the extent of the
publication of the disparagement that made it impossible for the
Atlas plaintiff to identify its lost customers. In Atlas, the
disparaging comments were published by the defendant in a book.
The defamation was therefore disseminated to the public at large,
and it was not possible to identify all those whom it reached.
The Restatement (Second) of Torts describes the exception
articulated in Atlas and emphasizes that the exception applies
only in a case in which the defendant has disseminated the
Widely disseminated injurious falsehood may,
however, cause serious and genuine pecuniary loss by
affecting the product of a number of persons whom the
plaintiff is unable to identify and so depriving him
of a market that he would otherwise have found. When
this can be shown with reasonable certainty the rule
requiring the identification of specific purchasers
is relaxed and recovery is permitted for the loss of
Restatement (Second) of Torts § 633 cmt. h (1977) (emphasis
added). In this case, the alleged defamatory statements
attributable to Fendi were made to nine identifiable customers.
It is, therefore, possible for Fashion Boutique to identify those
customers who stopped patronizing the store because of Fendi's
allegedly disparaging comments.
Additionally, unlike the Atlas plaintiff whose business was
entirely mail order, Fashion Boutique maintained a customer list
with the names and addresses of more than 8,000 customers.
(Def.Mot. for Summ.J., March 15, 1996, Skulnik Reply Aff.Ex. NN.)
Fashion Boutique has had many years in which to interview lost
customers who had made purchases before December 1989 to
determine why they stopped shopping at the store. Thus, Fashion
Boutique's reliance on Atlas is misplaced.
Fashion Boutique cites several cases in support of its argument
that it need not identify lost customers in order to meet its
burden of proving special damages. However, like the Atlas
case, the cited cases were all cases of defamatory statements
that were widely disseminated by the defendant. See Securitron
Magnalock Corp. v. Schnabolk, 65 F.3d 256, 258-62 (2d Cir. 1995)
(defamation included speeches before industry professional
society, letters to relevant professional magazine, letters to
independent sales representatives, and letters to city agency
with jurisdiction to approve materials for city construction
projects); Wolf Street Supermarkets, Inc. v. McPartland,
108 A.D.2d 25, 487 N.Y.S.2d 442 (4th Dep't 1985) (defamation was
"libelous handbilling" outside of store and court remanded case
for a new trial on damages so jury could find portion of lost
profits directly attributable to the libel); Stevenson v. Hearst
Consol. Publications, Inc., 214 F.2d 902 (2d Cir. 1954)
(defamatory statements in newspaper); Bose Corp. v. Consumers
Union of U.S., Inc., 529 F. Supp. 357, 361 (D.Mass. 1981)
(defamatory statements in Consumer Reports article), rev. on
other grounds, 692 F.2d 189 (1st Cir. 1982). Based on the
evidence proffered by plaintiff, the narrow exception to the New
York law of special damages articulated in the Atlas case does
Plaintiff's proposed expert testimony values Fashion Boutique's
entire business as recoverable damages. The law of New York
requires Fashion Boutique to prove special damages which, in this
case, requires it to identify the customers who stopped
patronizing the store after hearing the alleged defamatory
statements. This plaintiff is able to do, and, in fact, has done.
Since plaintiff cannot show either that the statements were
widely disseminated or that it is unable to identify its lost
customers, loss of the market is not the measure of damages under
New York law.
III. Dr. Frishberg's Testimony Is Not Applicable to Plaintiff's
Claim for Slander of a Business.
Plaintiff's remaining claim is for slander of a business. As
discussed in an earlier opinion in this case, Fashion Boutique,
1998 WL 259942, at *1, when the integrity or credit of a business
is directly attacked, slander of a business is slander per se.
See, e.g., Ruder & Finn, Inc. v. Seaboard Surety Co., 52 N.Y.2d 663,
670, 439 N.Y.S.2d 858, 422 N.E.2d 518 (1981). Some damages,
although they may be nominal, are presumed for slander per se.
Wood v. Lee,