American Future v. Better Business Bureau

• Citation: 923 A.2d 389
• Parties: AMERICAN FUTURE SYSTEMS, INC. d/b/a Progressive Business Publications, Appellant v. BETTER BUSINESS BUREAU OF EASTERN PENNSYLVANIA and Better Business Bureau of Metropolitan Washington, Appellee.
• Decision Date: 31 May 2007
• Court: United States State Supreme Court of Pennsylvania

923 A.2d 389

AMERICAN FUTURE SYSTEMS, INC. d/b/a Progressive Business Publications, Appellant v. BETTER BUSINESS BUREAU OF EASTERN PENNSYLVANIA and Better Business Bureau of Metropolitan Washington, Appellee.

Supreme Court of Pennsylvania.

Argued April 3, 2006.

Decided May 31, 2007.

James Howard Steigerwald, Wayne A. Mack, Jr., Duane Morris, L.L.P., Philadelphia, for American Future Systems, Inc. d/b/a Progressive Business Publications, appellant.

Paul D. Weller, Jennifer Beth Jordan, Morgan Lewis & Bockius, L.L.P., Philadelphia, for Better Business Bureau of Eastern Pennsylvania, et al., appellees.

BEFORE: CAPPY, C.J., CASTILLE, NEWMAN, SAYLOR, EAKIN, BAER and BALDWIN, JJ.

OPINION

Justice SAYLOR.

The primary issues for resolution in this defamation case are whether consumer reporting agencies enjoy a conditional privilege that can only be defeated by showing actual malice, and under what circumstances a corporation can become a limited-purpose public figure by virtue of its advertising and solicitation activities.

Appellant, American Future Systems, Inc., doing business as Progressive Business Publications, publishes specialized "fast-read format" newsletters targeted to career-oriented individuals. These newsletters focus on business-related topics such as sales, marketing, advertising, financial management, business management, human resources, and safety and regulatory compliance. Appellant sells its newsletters through direct mail solicitations and a sales force of approximately 500 telemarketers from fifteen separate offices across the nation, and solicits 15,000 new subscriptions each week. The telemarketers call customers at their place of employment during regular business hours to offer them "no-risk" trial subscriptions to the newsletters. If a customer agrees to the trial offer, the telemarketer obtains the customer's date of birth (excluding year) for verification purposes. According to Appellant, it confirms each order by sending a fax or email to its customer within twenty-four hours after the order.

The trial subscription includes two issues of the newsletter free of charge, but to cancel, the customer must write "cancel" on the first invoice. Invoices are sent monthly and, although they request payment, they do not state the cancellation policy and do not contain Appellant's phone number. If the first invoice is not returned to Appellant with "cancel" written upon it and no payment is immediately forthcoming, Appellant sends a second invoice, not to the customer, but to the accounts payable department of the customer's employer. Consistent with the trial offer, Appellant's policy is to terminate, without further obligation, any subscription for which a cancelled invoice is received within six months after the initial phone call. After six months of non-payment, however, past-due accounts are sent to a collection agency. A typical annual subscription price is approximately $300.00, and ninety-two percent of the subscriptions are cancelled. Appellant has its headquarters in Malvern, Pennsylvania, and is owned by Edward Satell ("Satell"), who retains a 98 percent interest in the company. According to Satell, the company's gross revenues have risen every year and totaled $29 million in 2002.

In 2001, the Better Business Bureau published a report concerning Appellant's sales practices. The report covered a three-year period beginning in 1998, and stated:

While this company responds to customer complaints presented to it by this Bureau, this company has an unsatisfactory business performance record due to a pattern of customer complaints alleging billing for unordered merchandise. Some consumers have claimed that they cancelled subscriptions but their cancellations were not honored.

Better Business Bureau Reliability Report, March 2001, at 1. The second page of the report contained the following disclaimer:

As a matter of policy, the Better Business Bureau does not endorse any product, service, or company. The Bureau's reports generally cover a three-year reporting period, and are provided solely to assist you in exercising your own best judgment. Information contained in this report is believed to be reliable but not guaranteed as to accuracy. Reports are subject to change at any time.

Id. at 2.¹

Upon learning of the report in early 2001, Satell wrote to the Bureau contesting the report and seeking its retraction. In particular, Satell explained that Appellant records its telemarketers' calls for training purposes, and, because Appellant collects customers' birthdates, it can disprove claims of unordered merchandise. Satell also noted that, in view of the 15,000 new subscriptions received each week, the number of complaints that the Bureau receives is extremely small by comparison.

As a result, the Better Business Bureau updated the report to state:

While this company responds to customer complaints presented to it by this Bureau, this company has an unsatisfactory business performance record due to a pattern of customer complaints alleging billing for unordered merchandise. Some consumers have claimed that they cancelled subscriptions but their cancellations were not honored. On March 16, 2001, Appellant responded to the the Bureau concerning the company's unsatisfactory business performance report. The company sells its publications through telemarketing solicitations. It claims that it tape records telephone solicitations for quality control purposes. The company states that it obtains the ordering person's birthdate to verify the order at a later date. According to the correspondence, orders are confirmed by fax within 24 hours, giving the orderer an opportunity to respond. The company claims it has a liberal cancellation policy permitting the customer to cancel anytime within the first three months of the telephone order and receiving a refund on all unsent issues. New subscribers receive two free issues with the right to cancel according to the company. The company claims that its Better Business Bureau complaint volume is negligible compared to its volume of business.

Better Business Bureau Reliability Report, April 2001, at 1. The updated report included the same disclaimer contained in the earlier one.

Dissatisfied, and following unsuccessful attempts to resolve the unsatisfactory rating, Appellant filed a defamation action against the Better Business Bureau, seeking compensatory and punitive damages and alleging that the Bureau failed to investigate the statements made in the reliability reports, which it contended were false and defamatory.²

At the seven-day jury trial, Appellant claimed that the Better Business Bureau published the statements negligently because, contrary to the Bureau's operations manual requiring it to thoroughly substantiate customer complaints before relying on them, the Bureau made no effort to determine whether such complaints were true prior to issuing the reliability reports. Further, Appellant alleged that the Bureau failed to determine whether the complaints were representative of the company as a whole, considering the size of its business. Satell testified that Appellant saw a reduction in profits as a result of the report.

The Bureau adduced documentary evidence of over one hundred complaints it received from customers stating that they had been billed by Appellant for unordered merchandise.³ The Bureau additionally presented the testimony of multiple witnesses who had had unsatisfactory dealings with Appellant. One witness testified that she was unable to cancel her subscription by following Appellant's stated procedure of writing "cancel" on the initial invoice and returning it, and that other individuals in her small business had experienced the same difficulty. See N.T. October 9, 2003, at 135-39. Other witnesses stated that Appellant had billed them for newsletters they did not order; the newsletters arrived in an envelope resembling junk mail, as did the invoices; the invoices did not include Appellant's phone number or cancellation policy; after discarding such items believing them to be junk mail, they began receiving calls from a collection agency and were thereafter unable to cancel their subscriptions; and their subscriptions were only cancelled after they either complained to the Better Business Bureau or had an attorney contact Appellant. See id. at 99-106, 118-22, 131.

It was undisputed at trial that Appellant expends half a million dollars per year on marketing, and that at least $2 million in revenue is generated annually through collection agencies. In this regard, one of the Bureau's witnesses testified that she paid the bill after being contacted by a collection agency, not because she believed she had ordered a subscription from Appellant, but solely to ensure that her company's credit rating did not suffer. See N.T. October 9, 2003, at 100-02.

Over Appellant's objection, the trial court charged the jury that the Better Business Bureau enjoyed a conditional privilege in connection with the issuance of reports of consumer complaints. The court further instructed that, to overcome this privilege, Appellant was required to demonstrate that the Bureau published a false and defamatory communication with actual malice, that is, with knowledge that it was false or with reckless disregard as to its truth or falsity. See Masson v. New Yorker Magazine, 501 U.S. 496, 510-11, 111 S.Ct. 2419, 2429-30, 115 L.Ed.2d 447 (1991); New York Times Co. v. Sullivan, 376 U.S. 254, 279-80, 84 S.Ct. 710, 726, 11 L.Ed.2d 686 (1964). Over the Bureau's objection, however (which was renewed after the charge was delivered), the court refused to instruct the jury that Appellant was a public figure. The jury ultimately rendered a verdict in favor of the Better Business Bureau, and completed a verdict form reflecting a finding that the Bureau did not defame Appellant.⁴

Appellant moved for post-trial relief, requesting judgment notwithstanding...