This is a real toughie (I'll explain why below). But before I do, I want to make sure you understand something very well: truth is a defense to defamation, and because of that, once you sue for defamation, the defendant has a right to get into every personal detail of your life. If you are a person that values privacy, this is not for you. In order to prove the only defense available (truth), they can do discovery, interrogatories, document demands, depositions, even depose people that know you, subpoenas etc. to prove that you do in fact drink, have gotten drunk, smoke, been verbally abusive etc. I'm not warning you of this because I think you did these things--just that you better have the stomach for it once you get the ball rolling.
Let's get to the specific definition of Defamation: Defamation is a false statement of fact, which a reasonable person would believe to be true, disseminated to a third party, which the disseminator knows is false, or should know is false, and acts in reckless disregard for the truth.
Now, let's take each segment--False statement of fact: truth is a defense, the statement has to be false, and OPINIONS ARE PROTECTED: this is an illustration--"I saw Mr. Smith drinking excessively at which point he became abusive and started beating people"--that is a statement of fact, which if false, is defamation. "In my opinion, Mr. Smith seemed drunk. He is the biggest a**hole I've ever met"--that is an opinion, not a statement of fact, and therefore, totally protected--they don't have to use the word "opinion" if it is borderline, it will probably be deemed an opinion because the law will always err on the side of protecting the first amendment over personal disputes.
"Reasonable person would believe" means that it is not so outlandish that an average reasonable person would think it is true. Without this exception, shows like Saturday Night Live can not exist. Satire falls into this exception. "My boss John Smith is a tyrant and runs the company like it's the Gulag and he's the warden" is protected because a reasonable person would understand that he really didn't run the Gulag. When a minister sued the owner of Hustler for saying he had sex with his mother in an outhouse, he lost the case because a reasonable person would realize that it did not happen.
Dissemination to a third party is exactly what it sounds like, that's easily met. "knows the statement is false, or should know it is false and acts in reckless disregard for the truth" is also self explanatory.
Slander is spoken defamation, and Libel is written defamation. The aggrieved party must also show they suffered damages. There is a pernicious form of defamation called Defamation Per Se where damages are presumed, so all you have to do is put a dollar amount on it: that is 1) imputing a crime to someone 2) saying they're incompetent in their profession 3) saying a woman is unchaste 4) saying someone has a loathsome disease--remember, this is only if these things are false. I don't think any of these apply to you-they didn't say you were incompetent at your job, and none of the things they accuse you of is a crime (other than perhaps public intoxication).
Now that you understand what's at stake and what the definitions are: the reason your case is a toughie (at least based on what you present) is that without seeing the letter, it is not possible to assess. Did they say you were drunk, yelling, smoking, drinking as a statement of fact? or as an opinion? Also, you did not lose your job, so what damages do you want to collect?
You can't just say "my reputation is tarnished, i want damages" You have to prove it. For example, You would have to put your boss on the stand to testify (after he's already been deposed) that you lost wages, got demoted etc.
We do not have an attorney-client relationship. I am not your lawyer. The statements I have made do not constitute legal advice. Any statements I have made are based upon the very limited facts you have presented, and under the premise that you will consult with a local attorney. This is not an attempt to solicit business. This disclaimer is in addition to any disclaimers that this website has made. I am only licensed in California.
Know that defamation lawyers typically want a $5,000 retainer up front, and fees can run up to $30,000, so unless you can prove defamation, and a significant monetary loss, it will likely cost you thousands more than you recover. However, it's your money to spend how you wish.
YOu can bring suit. You should know going in that defamation suits almost never recover even the money spend to bring the suit--i.e. the plaintiff pays out more in fees to attorneys than the plaintiff will recover in damages. You indicated no damages to begin with.
Meet with an attorney in your state, let that attorney review your documents and discuss your best options--unfortunately, you may just have to walk away.
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