Law Review: Hampson, Christopher- Defamation, Bankruptcy & the First Amendment

Available at:   https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5156187

Abstract:

In recent years, a series of high-profile defamation cases has wound up in bankruptcy court, involving such colorful characters as Rudy Giuliani, Alex Jones, and Cardi B. As demands and verdicts swell with the rise of social media in a polarized age, defamation defendants are filing bankruptcy more frequently and at earlier stages of litigation. But that doesn't mean bankruptcy is a magic wand for waving away debt. To the contrary, much defamation debt may be nondischargeable as "willful and malicious" under section 523 of the Bankruptcy Code. Of course, consumer bankruptcy attorneys are all too familiar with bankruptcy's discharge exceptions, but some courts are now starting to apply the exceptions to small businesses attempting to reorganize under subchapter V of the Code — a category that includes Alex Jones's InfoWars.

Defamation law is coming to bankruptcy court, and it’s bringing the First Amendment with it. Yet scholars and practitioners have not yet placed these three areas of law — defamation, bankruptcy, and the First Amendment — next to each other. This Article provides both theoretical and practical guidance to litigants and lawyers, showing how bankruptcy’s substantive and procedural rules will process defamation debt, including when the First Amendment protections of New York Times v. Sullivan and related cases are triggered. The ensuing mixture is a cocktail of torts, contracts, civil procedure, federal courts, and constitutional law.

When speech injures others, compensation and punishment are in order. Yet forgiveness and a fresh start have their place as well. As to individuals, defamation debt should cause us to reflect on whether our “fresh start” policy in bankruptcy is too anemic. As to business entities, the defamation cases continue to raise the specter of whether chapter 11 makes it too easy for bad actors to shed debt without compensating victims, suffering consequences, or reforming behavior. Either way, attorneys must be prepared to provide forward-thinking legal advice about bankruptcy whenever insolvency is on the horizon. 

Commentary:

Christopher Hampson's article, Defamation, Bankruptcy & the First Amendment, offers a timely and insightful examination of the intersection between defamation claims, bankruptcy proceedings, and constitutional protections.   Hampson highlights that while bankruptcy is traditionally viewed as a means for debtors to achieve a "fresh start," defamation debts often fall under the "willful and malicious" exception to dischargeability outlined in Section 523 of the Bankruptcy Code. This means that individuals and entities cannot easily escape liability for defamatory actions through bankruptcy. Notably, the article discusses how courts are beginning to apply these discharge exceptions to small businesses reorganizing under Subchapter V, as seen in the case of Alex Jones's InfoWars.
Furthermore, the article brings to light the complex interplay between bankruptcy law and First Amendment protections. It raises critical questions about how constitutional defenses, such as those established in New York Times v. Sullivan, are considered within bankruptcy proceedings. This intersection presents a multifaceted legal landscape involving torts, contracts, civil procedure, federal courts, and constitutional law.

While  high  profile defamation cases,  including the examples of Rudy Guiliani,  Alex Jones and Cardi B,  often have damage awards  ($148 million,  $965 million and $4 million respectively) that vastly exceed Chapter 13 debt limits,  it is always important to remember that the discharge under §1328(a)(4) and §523(a)(6) are subtly different:

These could result in a defamation claim being dischargeable in Chapter 13,  for example if the award was to a corporate entity rather than an individual.  Contrariwise,  while   §523(a)(6)  requires both willful AND  malicious action,  in Chapter 13  a party need only show under §1328(a)(4)  that the action was either willful or malicious.  (As the article discusses,  the willful AND  malicious standard will nearly always be met in a defamation award.)

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