Court denies punitive damages in fraud claim against Business Week

OHIO–A federal judge in Cincinnati, who found in mid-December that a Business Week reporter breached a contract and committed fraud in the pursuit of a story, refused to award punitive damages against the magazine after recognizing the ‘vital public interest’ served by his truthful article about credit-reporting agencies.

U.S. District Judge Herman J. Weber awarded WDIA Corp. of Cincinnati, an online reseller of credit reports, $7,500 in damages for fraud and breach of contract after considering the corporation’s claims for more than $75,000 in compensatory damages and $45 million in punitive damages.

The lawsuit was based on an agreement between WDIA and Business Week reporter Jeffrey Rothfeder, who contracted to obtain credit- reporting services. Rothfeder was researching a story on breaches of regulations in the Fair Credit Reporting Act regarding access to credit histories, and presented false information on an application for WDIA’s services in order to test whether WDIA had adequate safeguards in place to protect individuals’ privacy.

Rothfeder falsely represented his purpose in requesting credit reports throughout his dealings with the corporation, the court found, by stating that he was seeking credit histories of prospective McGraw- Hill employees. Rothfeder subsequently obtained from the corporation a credit report on then-Vice President Dan Quayle and cited the credit report in a September 1989 article describing how easily credit reports on any individual could be obtained. Rothfeder independently got permission from Quayle and the others before the story was published.

WDIA sued Rothfeder and McGraw-Hill, Business Week’s parent company, in federal court in Cincinnati for breach of contract and fraud based on Rothfeder’s deliberate misrepresentations. WDIA was not named in the Business Week article and could not be identified from the text, but the corporation claimed that it had been damaged by the article because it had to make an emergency trip to Chicago to visit the offices of one of the “big three” credit reporting agencies, TransUnion Corporation, to avoid being cut off.

WDIA also claimed that the article provoked scrutiny from the Federal Trade Commission (FTC) and Congress, which was on the verge of holding hearings to address the subject of credit-reporting and privacy when the article was published. WDIA did not assert that the article contained untrue information.

Weber concluded that Rothfeder intentionally misled WDIA in negotiating for its services. He found Rothfeder breached his contract with WDIA by using the credit reports for purposes not authorized in that contract and by not paying the fees provided for, and he also concluded that Rothfeder’s actions had forced an emergency meeting with TransUnion.

Weber held Rothfeder and McGraw-Hill could not escape liability simply because of their status as members of the media and the protections of the First Amendment. He did not find, however, any connection between Rothfeder’s misrepresentations and FTC or Congressional investigations.

Weber consequently ordered McGraw-Hill to pay only for the services rendered by WDIA and the expenses associated with WDIA’s negotiations with TransUnion. He refused to award punitive damages.

Weber noted that Rothfeder’s article was true, and that it informed ‘Congress and the general public about a matter of vital public interest.’ He also noted that Rothfeder had attempted to protect the identity of WDIA by not identifying it by name.

He found no need to punish or McGraw-Hill for Rothfeder’s actions or deter similar actions in the future because he found McGraw-Hill had not engaged in such conduct before this incident and is ‘committed to an enlightened philosophy that they will never again engage in similar conduct and will always publish the truth.’

Both WDIA and McGraw-Hill are considering appealing Weber’s ruling, according to the Wall Street Journal. (WDIA Corp. v. McGraw-Hill, Inc.; Media Counsel: Floyd Abrams, New York)