Blue Ridge Bank v. Veribanc, Inc.

• Decision Date: 20 January 1989
• Docket Number: 87-2223,Nos. 87-2213,s. 87-2213
• Citation: 866 F.2d 681
• Parties: 16 Media L. Rep. 1122 BLUE RIDGE BANK, Plaintiff-Appellee, v. VERIBANC, INC., Defendant-Appellant. BLUE RIDGE BANK, Plaintiff-Appellant, v. VERIBANC, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 681

866 F.2d 681

16 Media L. Rep. 1122

BLUE RIDGE BANK, Plaintiff-Appellee, v. VERIBANC, INC., Defendant-Appellant.

BLUE RIDGE BANK, Plaintiff-Appellant, v. VERIBANC, INC., Defendant-Appellee.

Nos. 87-2213, 87-2223.

United States Court of Appeals, Fourth Circuit.

Argued Oct. 6, 1988.

Decided Jan. 20, 1989.

L. Thompson Hanes (John L. Cooley, Fox, Wooten & Hart, P.C., Roanoke, Va., on brief), for defendant-appellant.

James W. Haskins (Robert L. Bushnell, Young, Haskins, Mann & Gregory, P.C., Martinsville, Va., on brief), for plaintiff-appellee.

(Ronald L. Plesser, Robert G. Berger, Nash, Railsback & Plesser, Washington, D.C., Henry R. Kaufman, Robert D. Sack, Gibson, Dunn & Crutcher, on brief), for amici curiae Information Industry Ass'n and Dow Jones & Co., Inc.

Before WINTER, Chief Judge, SPROUSE and WILKINS, Circuit Judges.

HARRISON L. WINTER, Chief Judge:

This is a diversity action arising from the alleged libel of Blue Ridge Bank by Veribanc, Inc. Blue Ridge Bank is a full-service banking institution located in Floyd County, Virginia, and Veribanc is a Massachusetts corporation engaged in the generation and dissemination of information concerning financial institutions based on data submitted to federal regulatory agencies. Following a jury trial, the district court entered judgment for plaintiff in the amount of $600,000. Defendant appeals the liability determination and the assessment of damages, and plaintiff cross-appeals the district court's ruling that it is a "public figure" required to prove actual malice or recklessness on the part of the defendant. Because we conclude that Blue Ridge Bank was not a public figure and was therefore only required to prove negligence on the part of Veribanc, we affirm.

I.

Blue Ridge Bank is one of two banks located in Floyd County, Virginia. It was chartered on November 18, 1982, and is the successor to Blue Ridge Savings & Loan which had operated in Floyd County since 1978. After November 18, 1982, Blue Ridge was required to file "call reports" each quarter with the Federal Reserve Board (FRB) which, in turn, creates a unified data base covering the nation's banks. Call reports contain a variety of financial data reflecting both the bank's operating performance and capital structure.

Veribanc is a gatherer, processor, and distributor of information concerning a variety of financial institutions including banks, savings and loan associations, and credit unions. Under the Freedom of Information Act, Veribanc obtains "tightly packed" magnetic tapes containing the call report data for approximately 35,000 financial institutions each quarter of the year. Veribanc typically receives the magnetic tapes approximately four months after the close of the quarter for which the call report is submitted.

Veribanc then decodes the tape and loads the information into its own data base. Once in its data base, Veribanc is able to retrieve and manipulate the data to generate various standardized and customized reports for its customers. One of the thirty-five standard reports generated by Veribanc is titled "Federally Insured U.S. Commercial Banks Which Could Reach Zero Equity Within One Year" (hereafter "List Series Report"). This List Series Report was available to the general public for about $30.00 in 1983. ¹

In early 1983, Veribanc was contacted by Dan Dorfman, a nationally syndicated newspaper columnist, who inquired about the number and location of the banks projected to reach zero equity within the year. Dorfman had written one previous article based on a Veribanc report regarding the growing number of insolvent banks, and was doing an update on that story. Veribanc supplied Dorfman with a copy of its most recent List Series Report on May 18, 1983 without charge. In exchange, Veribanc expected to be cited as the source of information. By separate cover letter, Veribanc stressed the need for balanced reporting and the need to include various caveats regarding proper interpretation of the report. These caveats are also printed on the back of each page of the List Series Report itself.

The List Series Report furnished to Dorfman identified Blue Ridge Bank as one of 126 banks "which could reach zero equity within one year." The article Dorfman sent to the syndicated newspapers was edited substantially by the Richmond Times Dispatch (RTD ), which published it on May 22, 1983. The article published by the RTD was titled "Possible bank flops listed," and included Blue Ridge Bank as one of five banks in an accompanying table denominated "A partial list of troubled banks." The five banks included in the table were apparently considered to be of local interest by the RTD editors. No other reference to Blue Ridge Bank was made.

It is undisputed that Blue Ridge Bank was mistakenly included in the List Series Report. In order to generate its report, Veribanc "annualizes" the net income for the most recently reported quarter for each bank and then compares the projected per-month loss with each bank's reported equity. If the projected per-month rate of loss would consume the bank's reported equity within twelve months from the time of publication, then the bank is included in the report.

A more detailed explanation of these calculations is necessary to understand the nature of Veribanc's error and our disposition of the case. Banks themselves calculate their net gain or loss as part of the information supplied the FRB in the quarterly call reports. The net gain or loss is listed as a year-to-date figure. In order for Veribanc to annualize a bank's most recent quarterly performance, it is first necessary to calculate the bank's net income for the most recently reported quarter. This is accomplished by comparing the most recently reported year-to-date net income figure with that listed in the previous quarter's call report. Once a quarterly net loss is established, that loss is multiplied by four ("annualized net income") and then divided by twelve to obtain a projected monthly rate of loss if the bank's performance in the reported quarter were to continue. Finally, Veribanc divides the bank's reported equity by the projected monthly rate of loss to determine the number of months before the bank would reach zero equity. This number is, in turn, reduced by four to reflect the time lag between the close of the reported quarter and the generation of data by Veribanc.

This methodology produced the following figures for Blue Ridge Bank based on its call report for the fourth quarter of 1982. First, Veribanc's computer correctly identified the reported year-to-date loss as $119,000. Because Blue Ridge Bank had never sent a call report to the FRB, there was no previously reported quarterly data with which to compare this figure and Blue Ridge was perceived to have sustained the $119,000 loss entirely in the fourth quarter. The annualized net loss was then calculated as $476,000 leading to a projected monthly rate of loss of $38,167. At that rate, the reported equity of $558,000 would be consumed within 15 months. Reduction of this period by four months to account for the delay in access to the information resulted in a projection that Blue Ridge Bank's equity would be consumed within one year from the date of publication.

The source of error underlying Blue Ridge Bank's inclusion is now clear. The year-to-date net loss figure reported by Blue Ridge Bank included its operating performance as a savings and loan institution prior to November 18, 1982. ² Accordingly, the "annualized net loss" and other calculations (including the "projected months until zero equity") painted a picture of financial health significantly more bleak than the reality. Although conversions from savings and loan associations to banks are now more common, Blue Ridge was the first such conversion in Virginia, and apparently only the third or fourth in the country since 1966.

Testimony at trial established that neither the call report filed with the FRB nor the magnetic tapes received by Veribanc explicitly identified Blue Ridge Bank as a recently converted institution. However, there was also testimony indicating that portions of the call report data received by Veribanc were illogical and unreasonable absent some operations predating the fourth quarter of 1982. Veribanc made no inquiries of Blue Ridge Bank at any time prior to publishing the List Series Report.

Fortunately, publication of the RTD article indicating that Blue Ridge Bank was possibly on the road to insolvency did not lead to a run on the bank, but it did result in a great deal of concern in Floyd County about the financial health of the institution. Blue Ridge Bank sued Veribanc for libel seeking a total of $3,000,000 in compensatory and punitive damages. Following a jury trial, it was awarded $600,000 in compensatory damages with no punitive damages. On appeal, Veribanc attacks the legal basis for both the judgment and the award of damages.

II.

Blue Ridge Bank claims to have been libeled by Veribanc's inclusion of it in the List Series Report. Specifically, Blue Ridge identifies the figures for "annualized net income" and "projected months until zero equity" as factually incorrect, and argues that Veribanc's representation that these figures are "based on Federal Reserve Reports of Condition and Reports of Income" is deliberately misleading and contrary to fact. Blue Ridge Bank contends that the concepts of "annualization" and "months until zero equity" as well as the reported figures are entirely the creation of Veribanc and are not derived from the call report.

Initially, we must decide whether Blue Ridge Bank may properly maintain an action for libel under the circumstances: "[h]owever pernicious an opinion may seem, we depend for its correction not on the conscience of judges and juries but on the competition of other ideas." Gertz v. Welch, 418 U.S. 323, 339-40, 94 S.Ct. 2997, 3007, 41 L.Ed.2d 789 (1974). Thus, if the...