NEW YORK • Just days after announcing that it was for sale, Rolling Stone learnt that it still faces litigation over its retracted article about a purported gang rape at the University of Virginia, news that may complicate the magazine's efforts to find a buyer.

On Tuesday, the United States Court of Appeals of the Second Circuit in New York ruled that a lower court had erred in dismissing a defamation lawsuit filed by three former members of the fraternity at the centre of the 2014 article.

In the earlier decision, a judge ruled that the three men - George Elias IV, Ross Fowler and Stephen Hadford - had not shown that the article was "of and concerning" them personally, apart from the fraternity. The article was written by Sabrina Rubin Erdely, who was named as a defendant, along with Rolling Stone and its parent company, Wenner Media.

But in their decision, a panel of appellate judges wrote that "while it is a close call", the district judge was incorrect when it came to two of the men, Elias and Fowler, and sent the case back to the district court for further proceedings.

While none of the men were named in the article, details such as the setting of the rape in a room at the top of a staircase and the description of one man as an avid swimmer could have led a reader familiar with the fraternity, Phi Kappa Psi, to identify those men, according to the lawsuit.

The judges upheld the district court's dismissal in the case of Hadford, whose only identifying feature seemed to be that he liked to ride his bike around campus.

The decision by the appellate court comes at an awkward time for Rolling Stone and its founder, Jann S. Wenner, who announced on Sunday that after 50 years he was selling his 51 per cent stake in the magazine. Any uncertainty over liabilities in the case would surely factor into the magazine's selling price and the plans of any prospective buyer.

The case by the three former fraternity members, filed in 2015, was one of three defamation suits filed against Rolling Stone in the aftermath of the article's publication in November 2014.

Another suit, filed by the fraternity itself, was settled by Rolling Stone in June for US$1.65 million (S$2.2 million). And after a trial last year, a jury in Virginia awarded US$3 million in damages to an associate dean at the university.

In a statement on Tuesday, Rolling Stone said: "We are disappointed with the 2nd Circuit's ruling today, but are confident that this case has no merit."

NYTIMES