Luster v. Retail Credit Co., 77-1634

Decision Date07 June 1978
Docket NumberNo. 77-1634,77-1634
Citation575 F.2d 609
Parties3 Fed. R. Evid. Serv. 277 A. D. LUSTER, Appellee, A's Fishhouses, Inc., v. RETAIL CREDIT COMPANY, Appellant.
CourtU.S. Court of Appeals — Eighth Circuit

Stephen M. Reasoner, of Barrett, Wheatley, Smith & Deacon, Jonesboro, Ark., for appellant; J. C. Deacon, Jonesboro, Ark., on brief.

Bill W. Bristow, of Seay & Bristow, Jonesboro, Ark., for appellee; Donald F. Seay, Jonesboro, Ark., on brief.

Before GIBSON, Chief Judge, STEPHENSON, Circuit Judge, and BECKER, * Senior District Judge.

STEPHENSON, Circuit Judge.

This appeal is from a jury verdict for plaintiff, A. D. Luster, in a libel action arising out of statements in a fire and mercantile report compiled by defendant Retail Credit Company. 1 Jurisdiction rests upon diversity of citizenship and the amount in controversy. We affirm in part and reverse in part.

Plaintiff was engaged in the operation, ownership and management of specialty restaurants known as A's Fishhouses, Inc. 2 On February 26, 1975, one of plaintiff's restaurants located in Jonesboro, Arkansas, was severely damaged by fire. On the date of the fire the restaurant was insured by St. Paul Insurance Company through plaintiff's producing agent, Gatz Insurance Agency of Jonesboro.

After the fire St. Paul Insurance Company requested that the producing agent find other coverage. Robert Davidson of the Gatz Agency was unsuccessful in placing coverage with other standard rate companies. The Gatz Agency contacted the Robert Newell Brokerage firm in Little Rock in an attempt to secure coverage from a surplus line company which insures high risk businesses. Newell in turn contacted Bowes and Company in Dallas, Texas, a surplus line intermediary, who agreed to accept the coverage of the restaurants. Thereafter, Bowes and Company requested a fire and mercantile report from defendant Retail Credit Company concerning plaintiff and his business.

Defendant, through its employee N. J. McMillon, compiled a fire and mercantile report on plaintiff and his business. The report indicated plaintiff had suffered a fire loss at his restaurant in Jonesboro, it was not expected to be reopened, arson was suspected, the author had been unable to locate plaintiff, his business had been on the decline, and he was delinquent on an indebtedness at the bank. (See the full report at note 6, infra.) The report was false in many material respects.

According to McMillon's own testimony the report was compiled solely on the basis of his conversations with three individuals. McMillon talked with an employee at the bank who told McMillon "it was his understanding that they did not plan to reopen the business." McMillon also testified that this source also told him that there had been unusual circumstances surrounding the fire and a search was out for one particular person. The bank employee denied discussing anything with McMillon other than plaintiff's loan with the bank.

McMillon's second source was a postal employee who told him that plaintiff's business was seemingly on the decline and "he had quit eating there because of some deterioration in the food and service." McMillon's final source was a former customer who said "he had quit eating there due to getting some food which was not to his liking," and "that his knowledge and opinion was that the business had been on the decline for some time."

McMillon testified that he tried to contact plaintiff or his wife at their residence but they were not home. He further testified that he did not contact either the fire department or the police department in an effort to confirm the statements made in the report that an investigation was being made concerning the fire, nor was any attempt made to contact plaintiff's C.P.A. to confirm the financial aspects of the report.

The defense of conditional privilege was available to defendant because the report was made by a mercantile agency to a customer having an interest in the matter. The court so instructed. In order to render a verdict for the plaintiff the jury had to find that the report was made with malice. The court, in its instruction to the jury, defined malice as the doing of a wrongful act with actual ill will or evil intent "or in the impersonal sense, as the doing of an act without just cause or excuse, with such a conscious indifference or reckless disregard as to its results or effects upon the rights or feelings of others as to constitute ill will." Defendant does not object to the court's instruction or the jury's finding on this issue. There is ample evidence to support the jury's finding of malice in an impersonal sense. Dun & Bradstreet, Inc. v. Robinson, 233 Ark. 168, 345 S.W.2d 34, 38-39 (1961).

The report was transmitted to defendant's branch office in Memphis, Tennessee, for transcription and subsequently was forwarded to Bowes and Company, plaintiff's insurer. Upon receipt of the report on April 14, 1975, Bowes and Company immediately called Robert Newell of the Newell Agency and advised Newell of the contents of the report and stated that they were mailing notice of cancellation for any coverage extended to plaintiff and his business.

Plaintiff first learned of this report when he was notified by Gatz Insurance Agency that his insurance was going to be cancelled due to the contents of the Retail Credit report. On April 28, 1975, plaintiff contacted defendant's branch office in Memphis and informed defendant that the report was false and very damaging to him and his business. On that same date defendant Retail Credit instituted an immediate reinvestigation. Later the same day new information obtained was conveyed to Bowes and Company by telephone and a written report was sent the following day. As a result, Bowes and Company changed its plan to cancel the insurance, and coverage to A's Fishhouses was continued, but at a rate higher than previously had been agreed upon. Thereafter, plaintiff's business gradually declined until he ceased to do business in January 1976.

Trial was commenced on December 6, 1976. The jury returned a verdict for plaintiff, A. D. Luster, awarding him $50,000 in compensatory damages and $100,000 in punitive damages.

The first issue raised by defendant Retail Credit, which is reasserted in different form throughout its brief and argument, is that the trial court erred in holding that the defendant could be liable for all republications of the report which were reasonably foreseeable. Specifically, defendant objected to the admission of testimony concerning unauthorized republications; to the admission of testimony by plaintiff concerning damages which were the result of unauthorized republications; and the giving of a jury instruction which allowed the jury to find defendant liable for unauthorized republications if they found that such republications were reasonably foreseeable, while refusing defendant's requested jury instruction which stated that defendant could not be liable for unauthorized republications.

Defendant Retail Credit's contract with Bowes and Company provided that the information supplied was to be kept confidential and not released to any third person, except persons that might have a duty to pass upon the risk being insured. 3 The trial court admitted testimony which showed that the contents of the report were revealed to persons who did not have such a duty. The court allowed Davidson from the Gatz Insurance Agency to testify as to statements made by Newell as to the contents of the report and as to Davidson's discussions with the General Adjustment Bureau personnel concerning the contents and interpretation of the report. The court also allowed Bob Carlisle of the General Adjustment Bureau to testify about his discussions with Davidson concerning the contents and interpretation of the report. Finally, Bob Robertson, also of the General Adjustment Bureau, was allowed to testify as to his discussions with Carlisle as to the contents and interpretation of the report.

The courts are divided as to whether one accused of libel is liable for republication if it is shown that the republication was foreseeable as a natural and probable consequence of the original publication. See generally Annot., 96 A.L.R.2d 373 (1964); W. Prosser, Handbook of the Law of Torts § 112, at 762 (4th ed. 1971). In this diversity action we, of course, apply the substantive law of Arkansas.

In Dun & Bradstreet, Inc. v. Robinson, 233 Ark. 168, 345 S.W.2d 34 (1961), the Arkansas Supreme Court specifically refused to decide whether the law of Arkansas permitted recovery for unauthorized republications. The court stated:

We see no need to discuss the issue of republication, i. e., when one may be liable for unauthorized republication of defamatory statements, since the instruction was favorable to the appellants, and appellee has made no complaint, and further, since we take the view that the evidence reflects a sufficient loss of customers and loss of credit from Dun & Bradstreet subscribers to justify the amount awarded.

Id. at 40.

In the absence of a controlling state decision it is the duty of a federal court to apply the rule it believes the state supreme court would follow. Soo Line R.R. v. Fruehauf Corp., 547 F.2d 1365, 1373 (8th Cir. 1977). In the present case the district court implicitly held that the Arkansas Supreme Court, if directly confronted with the issue, would hold that a defendant could be liable for unauthorized republications if such republications were reasonably foreseeable.

"( T)his court will give 'great weight' to the interpretations of state law reached by a trial judge who is familiar with local law." Sherrill v. Royal Industries, Inc., 526 F.2d 507, 510 (8th Cir. 1975); see Melia v. Ford Motor Co., 534 F.2d 795, 799 (8th Cir. 1976); Nodak Oil Co. v. Mobil Oil Co., 533 F.2d 401, 406 (8th Cir. 1...

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    ...statements are the only evidence linking the purportedly slanderous comments to defendants.Plaintiff also relies on Luster v. Retail Credit Co. (8th Cir. 1978) 575 F.2d 609, a diversity case applying Arkansas substantive law. ( Id. at p. 613.) In Luster , the plaintiff sued defendant for de......
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    ...of Appeals will give great weight to interpretation of state law reached by trial judge who is familiar with local law.--Luster v. Retail Credit Co., 575 F.2d 609. C.A.Ark. 1978. On appeal, great weight is given to trial judge's interpretation of local law.--Lide v. Carothers, 570 F.2d C.A.......
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