Credit reporting agencies maintain positions of great power and responsibility. Their opinions can make or break the ability of any company to conduct business. So what happens when a credit reporting agency provides false information in a business information report and/or attributes, without support, a poor credit rating to a company? Is there any recourse to a company whose business and reputation is injured due to the distribution of an erroneous credit report, even if the report was seemingly put forth in good faith? Many courts have provided a remedy in such instances based on state libel laws.
Usually, libel is not an easy thing to prove where an alleged false statement is made in the public arena (ie. newspapers, magazines, etc.). In actions for libel involving the reporting of public or newsworthy events, freedom of expression under the First Amendment is the paramount issue and, accordingly, a public figure who claims she was defamed cannot recover damages for libel unless it is proven that a false statement was made with “actual malice” – knowledge that the statement was false or was made with reckless disregard of whether it was false or not.1 The courts impose this strict standard to insure that the free flow of public information is not chilled. The “actual malice” standard creates a high burden of proof for slander/libel plaintiffs where statements were made in connection with matters of a public or general interest.
However, the “actual malice” standard is not applicable to matters of purely private concern, including cases where defamatory statements are made by credit reporting agencies. The Supreme Court has held that statements in a credit report which do not concern any public issue constitute speech which is strictly in the individual interest of the speaker and its specific business audience, and is “. ..solely motivated by the desire for profit, which . . .is a force less likely to be deterred than others.”2 Thus, to establish prima facie libel, most states require only that the plaintiff demonstrate that a credit reporting agency acted negligently in making the false statement.3 A successful plaintiff may be entitled to punitive damages.
Libel law differs from state to state. Most states have two classifications of libel: libel per se and libel per quod (by implication or innuendo). Libel per se is generally defined as a statement that is injurious to the plaintiff on its face or in its ordinary plain meaning. One court, interpreting Pennsylvania law, found libel per se where an agency falsely reported that a company had a large judgment entered against it.4 The court explained that statements are per se defamatory if, on their face, they tend to harm “the reputation of another as to lower him in the estimation of the community or to deter third persons from associating or dealing with him.” Furthermore, when such statements concern one’s business, trade, or profession they are per se actionable. Another court, interpreting Georgia law, held that a statement is libelous per se if it concerns one’s trade, office, or profession as well as tends “to injure the reputation of an individual” and exposes the individual to “public hatred, contempt, or ridicule.”5 Under New York law, a statement is libelous per se where the language “as a whole, considered in its ordinary meaning, naturally and proximately was so injurious to the plaintiff that the court will presume, without any proof, that the plaintiff’s reputation or credit has been thereby impaired.”6 However, if a statement is not defamatory in the ordinary meaning of the words or on their face, the plaintiff will have to argue that a libel has been committed “per quod”; that is, by innuendo or implication.
Libel per quod exists where statements are not defamatory on their face; instead, extrinsic facts or circumstances exist which imply or convey a defamatory meaning. For example, in a case governed by Colorado’s libel law, the plaintiff company claimed that credit reports which grossly understated the size and assets of its business were libelous by innuendo.7 One report stated that the company had sales between $500,000 to $950,000, $50,000 in assets, and employed 3 to 10 people. However, its sales were actually near $29.5 million, it held assets close to $16 million, and had upwards of 650 employees. Although the report stipulated that the statements were estimations, the plaintiff charged that if recipients of the report had prior information as to the plaintiff’s true size and assets, they would have misinterpreted the credit report and concluded that the plaintiff’s business was in steep decline. Furthermore, if the recipient had interpreted the report in light of prior knowledge of the plaintiff’s true size and assets, as well as their established position in the industry, the report would insinuate that the plaintiff was in financial distress and was not competent in the running of its business. The court explained that in order for a plaintiff to establish libel per quod, it would have to show the existence of such extrinsic facts, i.e. that recipients of the report had prior knowledge of the plaintiff’s true size and presence in the industry. Additionally, the plaintiff would have to show that the recipients were reasonably capable of interpreting the report in light of those facts and would have imputed a defamatory meaning to the statements. In another case, the plaintiff alleged that two statements in a credit report were injurious to his business. The first, as a result of mistaken identity, stated that the plaintiff had been the subject of two lawsuits, and the second reported that the plaintiff’s working capital was low. The federal Court of Appeals for the 5th Circuit held that the statements were ambiguous and, in their normal and ordinary meaning, did not meet the legal standard to constitute libel per se. However, the court further explained that if recipients of the report had to refer to other circumstances in order to clarify the meaning of the ambiguous statements, this would constitute libel by innuendo.8
Once a company establishes, as a matter of law, that it has been libeled, in most states the credit reporting agency is entitled to defend the claim by asserting a conditional or qualified privilege. A qualified privilege applies to “any communication made in good faith where the parties making and receiving the communication have corresponding, legal, social or moral duties to do so.”9 Credit reporting agencies have been denied this privilege in some courts.10 However, the majority of states (including New York) recognize that a credit reporting agency defendant may argue that the statement was made on an occasion of qualified privilege, raising a presumption of good faith, which the plaintiff will have to overcome by demonstrating that the privilege has been destroyed or lost.11
Courts differ as to the standard that a plaintiff must meet in order to destroy the credit reporting agency’s qualified privilege. Generally, the standard appears to require a lower threshold than that applied under the ‘actual malice’ rule in New York Times. In Greenmoss Builders, a leading Supreme Court case, it was held that the standard necessary to defeat a credit reporting agency’s qualified privilege is less than actual malice.12 In that case a Dun & Bradstreet employee falsely attributed a bankruptcy filing to the plaintiff company. The credit reporting agency, whose normal practice was to verify such reports with the company, failed to do so. The Court considered such action less than ‘actual malice’, but sufficiently reckless to destroy the credit reporting agency’s qualified privilege. In New York, the defendant loses its qualified privilege if “it made the statement with wanton and reckless disregard of the rights of another as is ill-will’s equivalent.”13 The ‘actual malice’ standard equates to knowledge of falsity or reckless disregard for whether the statement is true or false, whereas the standard in credit reporting agency cases is reckless disregard for the consequences the statements may have. Thus, apparently the standard is higher than that of common law negligence but lower than that of ‘actual malice’. Once the plaintiff destroys the qualified privilege, the statement in the credit report will be considered libelous.
Companies which are the victims of false statements appearing in credit reports, therefore, have the ability to exercise significant leverage against credit reporting companies. There is almost always a good chance that a credit reporting company, at the very least, will immediately correct the error upon prompt notification from the subject company. Moreover, the credit agency may very well desire to avoid the risk of litigation, and the possibility of a punitive damages award, and will attempt to meet the requests of an injured company, including an upgrade in the company’s credit rating.
- New York Times Co. v. Sullivan, 376 U.S. 254, 280, 84 S.Ct.710 (1964). The Supreme Court stressed that “…debate on public issues should be uninhibited, robust, and wide-open… in accordance with the First Amendment’s mandate for freedom of expression upon public questions.” Id.,376 U.S. at 269, 84 S.Ct. at 726. ↩
- Dun & Bradstreet, Inc. v. Greenmoss Builders Inc., 472 U.S. 749, 762, 105 S.Ct. 2939 (1985). ↩
- Krauss v. Globe International, Inc., 251 A.D.2d 191, 674 N.Y.S.2d 662, 665 (1st Dept. 1998). ↩
- Altoona Clay Products, Inc. v. Dun & Bradstreet Inc., 367 F.2d 625, 628 (3rd Cir. 1966). ↩
- Hood v. Dun & Bradstreet, Inc., 486 F.2d 25, 28 (5th Cir. 1973). ↩
- Cal-Therm v. Dun & Bradstreet, Inc., 75 F. Supp 541, 542 (D.C.N.Y 1948). Citing O’Conell v. Press 214 N.Y. 352, 358, 108 N.E. 556, 557. ↩
- Sunward Corp. v. Dun & Bradstreet, Inc., 811 F. 2d 511 (10th Cir. 1987). ↩
- See Hood v. Dun & Bradstreet Inc., 486 F.2d at 28. ↩
- Sunward Corp. v. Dun & Bradstreet Inc., 568 F.Supp 602, 607 (1983). ↩
- Johnson v. Bradstreet Co., 77 GA. 172 (1886); Pacific Packing Co. v. Bradstreet Co., 25 Idaho 696, 139 P. 1007 (1914). ↩
- A.B.C. Needle Craft CO., Inc. v. Dun & Bradstreet, Inc., 245 F. 2d 775, 777 (2nd Cir. 1957). ↩
- See Dun & Bradstreet, Inc. v. Greenmoss Builders, Inc., 472 U.S. at 754, 105 S.Ct. at 2942. ↩
- See A.B.C. Needle Craft CO., Inc. v. Dun & Bradstreet, Inc., 245 F. 2d at, 777. Quoting the standard set forth in Pecue v. West 1922, 233 N.Y. 316, 322, 135 N.E. 515, 517. ↩