From The Brazil Times:
Q: What are the liability issues for newspapers regarding letters to the editor detailing business disputes?
A: Whether it’s a paid ad, letter to the editor or a story written by a reporter, if you publish something in your newspaper you take ownership of the contents. That doesn’t mean you can’t publish items that are defamatory, but before publishing them the newspaper must assess the risk.
In some cases, the information would be defamatory to the reputation of a business and possibly accuse it of a crime. The basis for that publication would be the word of the disgruntled customer.
We’re not talking about a public official as the target for the defamatory statements so a jury would question what the public interest is in publishing a customer/business dispute. Your defense would be the truth of the allegation, but that would require a trial (at a cost of thousands of dollars). And if you can’t prove the truth of the allegation you’d then have to convince the jury that the publication wasn’t done with malice or reckless disregard of the truth.
If your star witness isn’t from the community and the company is a local business the jury may be prone to support the local businessman and find the newspaper recklessly accepted the allegations of an “outsider” against a fine upstanding member of the community.
Unless you can show a public interest in a customer/business dispute I don’t see a value in taking on the libel lawsuit risk let alone the possible loss of a local advertiser.
I would urge the letter writer to file complaints with the Better Business Bureau and the Indiana Attorney General’s consumer protection division. If the attorney general brings an action against the business you’ve got the foundation for a story on the issue and protection in reporting on the action of a state agency.