First Amendment: Liar-Proof?

This week, attorneys for Martha Stewart filed  a motion seeking to dismiss the charge of criminal securities fraud against her. The government claims that when Stewart said in three statements to the press that she had not engaged in insider trading, she was trying to manipulate the market price of her company’s stock, thereby committing fraud. Her lawyers argue that Stewart was professing her innocence on a personal issue “wholly unrelated to the securities of the public company” and that the securities fraud charge thus violates her First Amendment and due process rights. If Martha Stewart was lying, could she really claim that such lies were free speech?

Most likely no, but she may be the beneficiary of heightened free speech protection, as part of her right to due process, since corporations don’t have due process rights, but people do. It depends whether her statements are seen as personal or commercial. Intentional falsehoods designed to elicit money are not protected by free speech law, nor is securities fraud. But Stewart’s case falls in a gray area because her statements can also be viewed outside the securities fraud area as statements about her own personal innocence, and not that of her company, in which case her due process rights come into play.

Her lawyers try to paint her statements of innocence as “personal statements concerning personal conduct.” They emphasize: “Ms Stewart is a person, not a commodity. She has a daughter, she has friends, she has neighbors. … She is entitled, as is anyone, to speak out to defend herself.” The prosecution’s counterargument will be that Stewart is so closely associated with the public image of Omnimedia that her press statements were not simply protests of her innocence, but statements to shareholders defending her stock price.

If Stewart’s statements are viewed solely as communications to the markets, it’s clear she does not have the right to lie. In the 1988 case Basic Inc. v. Levinson, a corporate board, to save an impending merger, stated publicly (and falsely) that no merger discussions were in the works. The Supreme Court held that a board is free to maintain silence or to say no comment but not to lie to the public.

If Stewart’s statements are deemed personal, it’s still unlikely that the First Amendment would protect false speech. It’s probable the courts would apply the “conscious falsehood” test laid out in the 1964 case of New York Times Co. v. Sullivan. Under Sullivan, the government would have to prove either that Stewart knew what she said was false, or that she recklessly disregarded whether it was true or false. If Stewart was found to have stated a “conscious falsehood,” she would not receive First Amendment protection.

However, there is a possibility the court will make an exception to Sullivan. The argument can be made that here First Amendment rights intersect with due process rights such that, regardless of what Stewart knew, she should be allowed to proclaim her innocence. A court may be reluctant to strictly apply Sullivan and want to give Stewart an extra layer of protection because a person’s right to defend her innocence against a criminal prosecution deserves special protection.

Even if we view Stewart’s statements as not personal but commercial, there is one final layer of gray in the law. In last term’s Nike v. Kasky case, the Supreme Court ducked the issue of whether corporations have a First Amendment right to lie to consumers about their human rights and labor records. At issue there were allegedly false statements by Nike denying it was mistreating workers at foreign plants *. The concern was whether such statements were protected by the First Amendment as part of public discussion on issues of public policy. The court did not decide the case, so this issue remains unsettled.

Next question?

Correction, Oct. 10, 2003: The article originally stated that Nike’s statements of denial that it had mistreated workers were proved to be false, but to date Nike has not been found to have lied about the matter. (Return to the corrected sentence.)

Explainer thanks Professor Martin Redish of Northwestern School of Law, Professor Harry First of New York University Law School and Professor Jennifer Arlen of New York University Law School.