Compuware Corp. v. Moody's Investors Servs., Inc

• Citation: 499 F.3d 520
• Decision Date: 23 August 2007
• Docket Number: No. 05-1851.,05-1851.
• Parties: COMPUWARE CORPORATION, Plaintiff-Appellant, v. MOODY'S INVESTORS SERVICES, INC., Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

499 F.3d 520

COMPUWARE CORPORATION, Plaintiff-Appellant, v. MOODY'S INVESTORS SERVICES, INC., Defendant-Appellee.

No. 05-1851.

United States Court of Appeals, Sixth Circuit.

Argued: December 6, 2006.

Decided and Filed: August 23, 2007.

ARGUED:

Mary Massaron Ross, Plunkett & Cooney, Detroit, Michigan, for Appellant. James J. Coster, Joshua M. Rubins, Satterlee, Stephens, Burke & Burke, New York, New York, for Appellee.

ON BRIEF:

Mary Massaron Ross, Plunkett & Cooney, Detroit, Michigan, for Appellant. James J. Coster, Joshua M. Rubins, Satterlee, Stephens, Burke & Burke, New York, New York, for Appellee.

Before: BATCHELDER, GILMAN, and ROGERS, Circuit Judges.

BATCHELDER, J., delivered the opinion of the court, in which GILMAN, J., joined. ROGERS, J. (pp. 535-37), delivered a separate opinion concurring in part and dissenting in part.

OPINION

ALICE M. BATCHELDER, Circuit Judge.

Plaintiff-Appellant Compuware Corporation ("Compuware") appeals the district court's grant of summary judgment in favor of Defendant-Appellee Moody's Investors Services Inc. ("Moody's") on Compuware's claims of defamation and breach of contract. The district court found that Compuware needed to establish actual malice to succeed on both claims, and that Compuware failed to make the requisite showing of actual malice. On appeal, Compuware argues that it presented sufficient evidence of Moody's actual malice to withstand summary judgment and that, in any event, the actual-malice standard should not apply to its breach of contract claim. After careful consideration, we AFFIRM.

I. Background

Moody's is a financial publisher that analyzes the financial conditions of, and publishes credit ratings for, a variety of companies. A Moody's rating is a predictive opinion of a company's future creditworthiness that is reached through a deliberative process involving a ratings committee. Each ratings analysis considers several objective factors, but is ultimately derived from the subjective weighing of those factors. Prior to publishing a credit rating, Moody's customarily provides the company being rated with the opportunity to review the proposed report to ensure that there are no factual misstatements and that no confidential information has been inadvertently disclosed. Moody's provides at least two different types of ratings: (1) an issuer rating, which reflects the company's overall creditworthiness, and (2) a credit facility rating, which reflects the company's ability to repay funds under a particular source of credit. Often, a company seeking to borrow funds must, as part of the loan process, ask Moody's, or a similar company, to publish its credit rating.

In late 1999, Compuware asked Moody's to rate its ability to repay funds borrowed under a $900 million revolving bank credit facility. On January 31, 2000, Moody's responded to Compuware's request with a letter confirming that it had assigned a rating of "Baa2," which is the second lowest of Moody's ten investment grade ratings, to Compuware's overall creditworthiness (i.e., the issuer rating) and Compuware's ability to satisfy its obligations under the $900 million credit facility (i.e., the credit facility rating). Attached to the letter was Moody's invoice for its ratings services, charging a $25,000 first-time issuer fee and a $200,000 long-term rating fee. There are no other writings memorializing the agreement.

As part of the contracted-for services, Moody's continued to monitor Compuware's financial situation, and in late 2001, Moody's observed downward market shifts, caused in part by the bursting of the "internet bubble," that might negatively impact Compuware's business. Moody's published a statement indicating that Compuware's credit rating was under review for a "possible downgrade." Fearing the backlash of a decreased rating and hoping to improve its financial situation, Compuware reduced the funds available under its revolving credit facility from $900 million to $500 million.

In early 2002, Moody's analyst John Moore began an intensive review of Compuware's financial situation. Moore learned that Compuware had recently filed a lawsuit against International Business Machines Corporation ("IBM"), charging IBM with unlawful copyright infringement and persistent anti-competitive behavior. This lawsuit greatly concerned Moody's because it demonstrated a major rift between Compuware and IBM — one of Compuware's most important business partners as well as one of its largest customers. The potential business risk created by this relational breakdown was significant, such that IBM's continued anti-competitive conduct posed the risk of driving Compuware out of business. Moody's sent a written request to Compuware, seeking more information about this lawsuit and Compuware's relationship with IBM, to which Compuware provided a cursory written response. Moody's was not the only financial publisher concerned with Compuware's situation at this time; other business-oriented publications also printed articles pessimistic about Compuware's prospects.

In July 2002, Moody's ratings committee — comprising Chairman Robert Konefal and Analysts John Moore, Deven Shah, and Richard Lane — convened to make a final decision on Compuware's rating. Compuware's debt situation appeared healthy: it had no outstanding funds under its $500 million credit facility; the credit facility was set to expire in a year; and the committee did not anticipate that Compuware would need to borrow funds during the upcoming year. In addition to its minimal debt, Compuware maintained significant liquid assets — including, among other things, $270 million in cash and $139 million in liquid investments — and $65 million in "other" investments to satisfy any debt obligations that might come due in the upcoming year. Despite the apparently healthy condition of Compuware's balance sheet, the ratings committee remained pessimistic about Compuware's financial future and its ability to meet projected performance. This negative outlook derived largely from the breakdown of Compuware's relationship with IBM, Compuware's declining revenues, and an overall spending decrease in the area of information technology. Even though the ratings committee's prior memorandum recommended a three-level downgrade, the committee voted to impose only a two-level reduction, resulting in both an issuer rating and a credit facility rating of "Ba1," which is the highest of Moody's eleven non-investment grade (i.e., junk) ratings.

The proposed ratings report was ready on August 9, 2002, and John Moore wanted to publish it that day. Learning that Compuware's Chief Financial Officer Laura Fournier was out of town, Moore faxed a copy of the proposed report to Fournier's assistant, Jane Lee, for prepublication review. Lee convinced him to delay publication for three days until Fournier returned to the office. When Fournier returned to the office on August 12, 2002, she contacted Moore to discuss the ratings report, objecting, as a factual matter, to the inclusion of the word "Tivoli" in IBM's name and asking that it be deleted. Fournier also advised Moore that the ratings downgrade was unjustified given Compuware's current financial situation. Emphasizing that Compuware had no plans to borrow under the existing credit facility, she offered to terminate the facility immediately if it would improve the rating. Moore told Fournier that terminating the facility would not impact the rating because the committee had already concluded its assessment and issued its report. On August 13, 2002, Moody's published the ratings report, which was identical to the proposed report submitted for Compuware's review, except for the deletion of the word "Tivoli" as requested by Compuware.

The published report revealed several distressing details about Compuware's future: (1) Compuware's professional services department, which accounted for more than half of its business production, exhibited declining revenues; (2) Compuware's software department faced serious threats from its battle with IBM because more than 80% of its revenues derived from IBM-related products; (3) Compuware's entire business was vulnerable because of the slowdown in the market for information technology and the increase in competition from large software vendors; and (4) Compuware's anticipated capital expenditures would likely consume a majority of its projected free cash flow, leaving inadequate funds for other purposes. The ratings report also disclosed positive facts about Compuware's financial situation: (1) Compuware showed a "good balance sheet" with $270 million in cash, $139 million in liquid investments, and "no funded debt"; (2) Compuware maintained a "$500 million undrawn bank facility"; (3) Moody's expected Compuware to remain in compliance with the financial covenants of that credit facility; and (4) Compuware had been able to "generate solid cash flow from operations even in [a] down market." Two weeks after publication, Compuware reduced the amount available under its credit facility from $500 million to $200 million, and a few months later, Compuware terminated the facility entirely. Because Compuware no longer had any outstanding debt instruments, Compuware requested that Moody's withdraw its credit rating, which Moody's did in December 2002.

On January 21, 2003, Compuware filed suit against Moody's alleging breach of contract, defamation, silent fraud, and a violation of the Investment Adviser's Act. Moody's filed a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state claims upon which relief could be granted. The district court granted Moody's motion in part, dismissing Compuware's silent fraud and Investment Adviser's Act claims, and the parties conducted discovery on the breach of contract and defamation claims. In an order resolving a discovery dispute, the district court stated that Compuware could not succeed on its breach of contract claim unless it showed...