Ippolito v. WNS, Inc.
| Decision Date | 05 December 1988 |
| Docket Number | Nos. 86-2776,86-2777,s. 86-2776 |
| Parties | Vincent J. IPPOLITO, et al., Plaintiffs-Appellees, Cross-Appellants, v. WNS, Inc., Defendant-Appellant, and Equifax Services, Inc., Defendant-Cross-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Paul S. Turner, McCullough Campbell & Lane, Chicago, Ill., for Equifax Services, Inc.
Wayne B. Giampietro, Poltrock & Giampietro, for Ippolito et al. Richard G. Lione, Willian, Brinks, Olds, Hofer, Gilson & Lione, Ltd., Chicago, Ill., for WNS, Inc.
Before RIPPLE and MANION, Circuit Judges, and REYNOLDS, Senior District Judge. *
Plaintiffs sued WNS, Inc. (WNS) and Equifax Services, Inc. (Equifax), alleging violations of the Fair Credit Reporting Act (FCRA), 15 U.S.C. Secs. 1681-1681t. A jury found for plaintiffs on their claims against WNS and against plaintiffs on their claims against Equifax. WNS appeals, claiming that the jury's verdict was not supported by substantial evidence. Plaintiffs have filed a cross-appeal, claiming that the district court abused its discretion by denying them leave to amend their complaint to assert an additional ground of liability against Equifax. We reverse the judgment against WNS and affirm the district court's decision to deny plaintiffs leave to amend.
Defendant WNS is a Texas corporation in the business of, among other things, franchising picture frame and print stores under the name "Deck The Walls." WNS adopted the trademark "Deck The Walls" in May, 1982, after its trademark counsel conducted a search and advised WNS that it was free to use the mark. By the end of the summer of 1983, WNS had approximately fifty "Deck The Walls" franchises throughout the country.
Defendant Equifax is in the credit reporting business. It supplies credit information for use in both business and consumer transactions. In 1980, an Equifax sales representative, Jerrold White, had discussions with a WNS vice-president, William Boschma, concerning the use of Equifax's services by WNS. At that time, White was selling a particular category of what he described as "business credit type reports" called "Financial Control Services." Boschma told White that WNS was interested in obtaining a service that would assist WNS in screening prospective franchisees. White advised Boschma that the Equifax service suited to his needs was the "Special Service Character/Financial Report (Special Service Report)." 1 Equifax's Special Service Report is a standardized service that includes information about a person's credit standing, credit capacity, character, and reputation in the community. White testified at trial that a typical user of the Special Service Report is "looking at doing business in some capacity or At that same meeting, White also informed Boschma of other services that Equifax sold. One of the services White mentioned was the "Personnel Selection Report." This Equifax service is designed for use in screening prospective employees. When Boschma expressed interest in this service, White advised Boschma that the "Personnel Selection Report" was a "consumer report" covered by the FCRA. White told Boschma that WNS would have to comply with the FCRA when ordering those reports and gave Boschma a brochure outlining the FCRA's requirements.
being associated with in some capacity from a business standpoint with the individual" who is the subject of the report. White also testified that he did not mention the FCRA regarding the Special Service Reports because the reports were being used for business purposes as opposed to consumer purposes.
Before accepting WNS as a customer, Equifax required WNS to sign a certification agreement that provided in part that "consumer reports, as defined by the Fair Credit Reporting Act, will be ordered only when intended to be used as a factor in establishing a consumer's eligibility for new or continued credit, collection of an account, insurance, licensing, employment purposes, or otherwise in connection with a legitimate business transaction involving the consumer." Boschma signed this certification agreement on WNS's behalf.
After WNS signed the certification agreement, Equifax assigned WNS an account number. Thereafter, WNS's Franchise Development Department regularly requested Special Service Reports on prospective franchisees. For example, from January, 1984 through May, 1984, WNS ordered approximately 30 to 40 Special Service Reports.
Plaintiffs are three sisters and their husbands. The sisters, Judy Ippolito, Nancy Gerenstein, and Peggy Goodman, own and operate Deck The Walls, Inc. (DTW). DTW is incorporated in Illinois and is wholly owned by the three sisters. The company, operated out of the Gerenstein's residence, is in the business of custom framing, wall decorations, wall groupings, wall hangings, and millinery productions. The sisters' husbands, Vincent Ippolito, Wayne Gerenstein, and Michael Goodman, are not actively involved in the operation of the business and do not own any of the stock.
In the latter half of 1983, DTW became aware of WNS's use of the trademark "Deck The Walls." DTW then contacted WNS and charged WNS with infringement of DTW's rights in that mark. DTW claimed that it had exclusive, nationwide rights to use that mark on picture frame products and services. DTW then offered to relinquish its rights to the mark for $100,000 but no settlement was ever reached. On January 4th, 1984, DTW filed a Notice of Opposition in the Patent & Trademark Office challenging WNS's application for registration of that mark.
As a result of the trademark dispute, WNS began an investigation of DTW and plaintiffs. WNS initially learned that Judy Ippolito, Nancy Gerenstein, and Peggy Goodman were involved in the business. WNS then ordered Special Service Reports on them. The Special Service Report on Judy Ippolito also contained information on her husband, Vincent, and stated that the Ippolitos had been in business together. Thereafter, WNS ordered Special Service Reports on Wayne Gerenstein and Michael Goodman.
Two of WNS's in-house attorneys testified that they ordered the Special Service Reports to find out more about the individuals behind a small, closely-held family corporation that was claiming exclusive, nationwide rights to the trademark "Deck the Walls." One of these attorneys instructed the administrative assistant in WNS's Franchise Development Department responsible for ordering Special Service Reports on prospective franchisees to order the reports on plaintiffs. Neither attorney inquired into WNS's relationship with Equifax or reviewed the requirements of the Amelia Specht, an Equifax employee who prepared some of the Special Service Reports on plaintiffs, testified for plaintiffs as an adverse witness. Specht testified that when a customer calls in to request a report on a particular individual she only asks for the customer's account number, the name of the person requesting the report, and the type of report the customer would like prepared. According to Specht, she prepares different types of reports for Equifax's customers. For example, she prepares "Personnel Reports" for employers who want information on prospective employees as well as "Individual Reports" which apparently may be used for any purpose. She stated that the Special Service Reports are like the "Personnel Reports" and the "Individual Reports" except they delve deeper into information about the subject of the report, including the person's reputation in the community. She also testified that she does not ask why the customer wants a Special Service Report, and that, because it is a standardized service, the purpose for which the report is requested does not affect the way she prepares a report.
FCRA. The administrative assistant who ordered the reports testified that she did not know why the reports were requested and that she did not give a reason to Equifax why the reports were requested.
The Special Service Reports prepared about plaintiffs contained information about plaintiffs' employment status, reputation in the community, credit history, and credit capacity. The reports also indicated that plaintiffs' neighbors had been questioned. Besides plaintiffs' neighbors, sources for the Equifax reports included banks, legal reporting services, and a credit bureau. In addition, the reports showed that Equifax conducted a check of its own files for information on the plaintiffs. Neither WNS nor Equifax notified plaintiffs that the reports had been requested.
On January 30th, 1986, the three couples sued WNS and Equifax alleging that the defendants violated the FCRA. Plaintiffs' complaint 2 contained three counts against WNS and two counts against Equifax. Plaintiffs alleged that WNS violated the FCRA: by requesting "consumer reports" for a purpose not authorized under 15 U.S.C. Sec. 1681b; 3 by procuring an "investigative consumer report" without notifying plaintiffs in violation of 15 U.S.C. Sec. 1681d(a); 4 and by obtaining the reports Equifax moved to dismiss both plaintiffs' claims against it. Equifax contended that it did not violate 15 U.S.C. Sec. 1681b because WNS requested the Special Service Reports for purposes not covered by the FCRA. Equifax moved to dismiss plaintiffs' Sec. 1681d(a) claim on the ground that Sec. 1681d(a) only requires the user of an "investigative consumer report," not the consumer reporting agency who prepared the report, to notify the subjects of the report that the report was requested.
under false pretenses in violation of 15 U.S.C. Sec. 1681q. 5 Plaintiffs contended that Equifax violated the FCRA: by preparing a "consumer report" on plaintiffs for a purpose not permitted under 15 U.S.C. Sec. 1681b; and by
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