Judge Rejects $7.5-Million Damage Award in Libel Case : Lawsuits: A new trial is ordered for Leonard M. Ross in his action against a Santa-Barbara newspaper. The verdict is ruled excessive and flawed by inconsistencies.

A Los Angeles judge Friday set aside a $7.5-million damage award and ordered a new trial for Beverly Hills attorney-businessman Leonard M. Ross against the Santa Barbara News-Press and its owner, the New York Times Co., ruling that the libel verdict was excessive and flawed by inconsistencies.

Jurors in October awarded Ross $7.5 million in damages following a four-week trial stemming from investigative reports on Ross’ turbulent 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.

In his eight-page ruling, Superior Court Judge Harvey A. 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 “is not a sufficient basis for upholding a verdict that is inconsistent and excessive.”

“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, attorney for Ross, 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 will probably challenge Friday’s ruling before the Court of Appeal rather than move immediately for retrial.

Filed more than four years ago, the lawsuit stemmed 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 career of the man who had become the largest shareholder in Santa Barbara Savings and 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 career--when in fact he was investigated only once.

He acknowledged the newspaper correctly stated that he was investigated--but not charged--by a federal grand jury, the FBI and the Organized Crime Strike Force in the early ‘70s in the alleged extortion of his ex-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 inconsistencies in jury 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.

*

“There is another reason why, in the court’s view, a motion for new trial must be granted,” Schneider wrote. “Simply stated, the court finds that the damage award in this case was 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.”

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 he had arranged an auto accident that severely injured his former lawyer, Lynn Boyd Stites, with whom Ross had had a bitter falling out. By coincidence, Schneider’s ruling in the Ross case comes a day after Stites was sentenced in San Diego federal court to more than 12 years in prison for masterminding an elaborate insurance fraud.

The jury award--and Schneider’s ruling Friday--reflect two parallel trends: increasingly large damage awards in jury libel trials that are often modified after trial or on appeal.

*

Most libel suits are dismissed. Of those that go to trial, plaintiffs win roughly two-thirds, and the size of awards is at an all-time high, according to the Libel Defense Resource Center, a New York-based group that monitors libel trends.

In 1990 and 1991, nearly three of every five jury libel awards exceeded $1 million, and more than one in four exceeded $10 million, according to data compiled by the group.