Libel Award Against Newspaper Set Aside : Courts: Judge rules verdict inconsistent and $7.5-million damage award excessive and orders retrial of businessman’s claim.

A Los Angeles judge ruled Friday that a $7.5-million libel award was excessive and ordered a new trial in a lawsuit by Beverly Hills attorney-businessman Leonard M. Ross against the Santa Barbara News-Press and its owner, the New York Times Co.

Superior Court Judge Harvey A. Schneider also ruled that the jury verdict was flawed by internal inconsistencies.

In his eight-page opinion, Schneider rejected a motion for a defense verdict--refusing to rule that Ross had not been libeled.

Schneider said he agreed with “the jury’s conclusion that the defendants were negligent, in some respects.” But in ordering a new trial, Schneider said that was not “a sufficient basis for upholding a verdict that is inconsistent and excessive.”

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Jurors in October had awarded Ross the damages after a four-week trial involving investigative articles on Ross’ business career. Among other things, Ross contended that the Santa Barbara paper falsely linked him to the misdeeds of his former partner, investment whiz Barry Marlin.

“We’re gratified that the court has reversed the jury’s unjustified verdict,” said Rex Heinke, a lawyer for the News-Press, the New York Times and their co-defendants, reporter Kathleen Sharp and editor David McCumber.

Anthony M. Glassman, Ross’ attorney, said he will file a motion for reconsideration because “we think the judge has made an error.” If Schneider refuses to reinstate the judgment, Glassman said he probably will challenge Friday’s ruling before the state Court of Appeal.

Filed more than four years ago, the lawsuit stems from articles in November, 1988, and February, 1989, that Ross said ruined his efforts to establish a new business and social life in Santa Barbara. The reports described the business career of the man who had become the largest shareholder in Santa Barbara Savings & Loan, then the city’s largest financial institution.

Ross, 49, contended that the articles contained four false statements and had a defamatory “tenor and tone.” After deliberating 3 1/2 days, jurors agreed that three disputed statements were false, and awarded damages of $5 million for harm to Ross’ reputation and $2.5 million for emotional distress.

The heart of Ross’ claim was that the reports falsely linked him to two federal criminal investigations that took place in the 1970s, early in his business career, although in fact he was investigated only once.

He acknowledged that the newspaper correctly stated he was investigated--but not charged--by a federal grand jury, the FBI and the Organized Crime Strike Force in the early 1970s in an alleged extortion attempt against his former partner, Marlin.

But Ross contended--and jurors agreed--that the paper falsely linked him to a subsequent investigation of investor fraud that sent Marlin to prison.

It was here, however, that Schneider found the inconsistencies in the jury’s answers to a series of special-verdict questions. While jurors said Ross had proven that “the tenor and tone” of the first report was that Ross was investigated along with Marlin for investor fraud, they elsewhere said Ross had not proven the falsity of a specific statement that linked him to the probe.

In ruling the award excessive, Schneider noted that jurors awarded $2.5 million for emotional distress, although Ross never sought professional counseling and “there was no testimony . . . that he suffered severe or permanent harm.”

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Moreover, Schneider said, “the court is mindful of the chilling effect that such an award would have on First Amendment rights.”

Jurors also found Ross was libeled by a statement suggesting that he had arranged an auto accident that severely injured his former lawyer, Lynn Boyd Stites, with whom Ross had had a falling out. Coincidentally, Schneider’s ruling in the Ross case came a day after Stites was sentenced in federal court in San Diego to more than 12 years in prison for masterminding an elaborate insurance fraud.