Radio nowhere: no duty to investigate program sponsors

Park v. Korea Radio USA, Inc., 2007 WL 3358139 (Cal. App. 2 Dist.)

Plaintiffs gave money to two investment companies but the companies diverted the funds for their own use. Plaintiffs here sued the two radio stations on which the companies had investment programs, alleging negligent endorsement and promotion of the companies as qualified and trustworthy.

Specificially, plaintiffs alleged that the defendants gave the companies “free radio time during prime commuting hours” to advertise themselves. During the programs, company “hosts” gave financial advice, answered listener questions, and solicited new business. The stations produced content for the companies’ programs, including by providing employees to play the roles of ordinary consumers and provide voice commentary during the programs. When listeners called the stations, defendants referred them to the investment companies. The complaint alleged that the radio stations promoted and endorsed the companies “as licensed experts in the fields of financial planning and investment advice” and that the radio stations knew or should have known that listeners would rely on this endorsement, given that the stations were dominant media with extraordinary influence in the Korean community and understood the expectations of that community.

Thus, the stations allegedly breached their duty to exercise due care “by failing to investigate whether the hosts were licensed, by failing to determine if the hosts were investing plaintiffs' funds as represented, and by failing to warn listeners that defendants took no responsibility for the hosts' actions.” Also, the stations negligently made express and implied misrepresentations about the investment companies’ qualifications and experience.

The court determined that there could be no negligence because the defendants owed no duties to the plaintiffs. A publisher is not liable for simply failing to investigate an advertiser’s product or claim, nor for failing to warn of potentially false advertising. There were no formal endorsements of the investment companies, nor explicit representations that the stations had researched the companies and had faith in them. (I’m not sure this gets at participation in creating program content, but perhaps station employees only did “and now a word from our sponsor”-type statements.) “Because defendants never undertook the task of vetting or recommending the hosts, no duty to plaintiffs arose.”

Moreover, “merely printing an advertisement in a magazine does not constitute an endorsement of the product because there is neither a representation about the product nor a specific effort to promote it. By the same reasoning, the mere fact that defendants engaged the hosts to broadcast financial shows did not equate with an endorsement of their services or a warranty of their integrity.” In fact, the court continued, “no reasonable listener would infer an endorsement simply because a radio station broadcasts a program.” If only courts in right of publicity/trademark cases would be so careful about finding implied endorsements!

Even prominence in a niche market such as the Korean community cannot substitute for an explicit endorsement. (This does raise questions about cultures in which explicit statements are disfavored, but messages nonetheless readily understood. I am reminded of work on patent inventorship disputes that involve claimants other than native-born Americans who argue that cultural norms prevented them from making explicit inventorship claims.)

The court emphasized that this wasn’t a case about money lost because of reliance on bad investment advice or other broadcast contents. Instead, this is about the “patina of legitimacy” conferred on the investment companies by the radio stations. But there’s no duty for the broadcaster to monitor its hosts’ actions to ensure they invested the money as advertised.