(Updates to add comment from ABC spokesman)
By Jonathan Stempel and P.J. Huffstutter
March 27 (Reuters) - ABC News has failed to persuade a South Dakota state judge to dismiss a $1.2 billion defamation lawsuit by a meat processor complaining about a series of reports that referred to its signature product as "pink slime."
Judge Cheryle Gering of the Union County Circuit Court ruled on Thursday that Beef Products Inc may pursue most of its case against ABC, a unit of Walt Disney Co, and others including news anchor Diane Sawyer and reporter Jim Avila.
BPI claimed that ABC harmed its reputation and cost sales by mischaracterizing its "lean finely textured beef" as "pink slime" in reports aired in March and April 2012.
While not deciding whether defamation occurred, Gering let BPI pursue 22 of its 27 claims, including over alleged product disparagement and interference with business relationships.
"The entirety of the broadcasts can be reasonably interpreted as insinuating that plaintiffs are improperly selling a product that is not nutritious and/or not safe for the public's consumption," the judge wrote.
Gering also said the contexts in which ABC made some of the statements to which BPI objected justified allowing the Dakota Dunes-based company to continue its case.
"For example, the use of the term 'pink slime' with a food product can be reasonably interpreted as implying that the food product is not meat and is not fit to eat, which are objective facts which can be proven," the judge wrote.
ABC News spokesman Jeffrey Schneider said: "We will defend our reporting vigorously on the merits."
In seeking to dismiss the case, ABC had argued that it never said BPI's product was unsafe, and that the case was an attempt to chill media coverage of the industry and inhibit free speech.
BPI sought to recoup $400 million representing projected lost profit, and to triple that sum under South Dakota's Agricultural Food Products Disparagement Act.
"We are pleased with the court's decision, which rejected nearly all of the defendants' arguments," said Erik Connolly, a partner at Winston & Strawn representing BPI, in an email. "We look forward to starting discovery and ultimately presenting our case to a jury."
Lean finely textured beef is a low-fat product made from beef chunks including trimmings, and exposed to tiny bursts of ammonium hydroxide to kill E. coli bacteria and other contaminants.
BPI's beef was once routinely used in fast-food hamburgers and in packaged ground beef sold at grocery stores.
While the U.S. Department of Agriculture and industry experts have called the meat safe, some retailers including Wal-Mart Stores Inc and Safeway Inc stopped selling ground beef that contained the product after the ABC reports.
BPI closed three of its four plants and cut about half of its 1,300-person workforce in the wake of the media coverage.
Other defendants include a former Agriculture Department microbiologist said to have coined "pink slime" in a 2002 email.
The case is Beef Products Inc et al v. American Broadcasting Cos et al, First Judicial Circuit Court of South Dakota, Union County, No. 12-292. (Reporting by Jonathan Stempel in New York and P.J. Huffstutter in Chicago; Editing by Andre Grenon and Stephen Coates)