W.D.I.A. Corp. v. Mcgraw-Hill, Inc.

Decision Date18 December 1998
Docket NumberNo. C-1-93-448.,C-1-93-448.
Citation34 F.Supp.2d 612
PartiesW.D.I.A. CORPORATION d/b/a National Credit Information Network and NCI, Plaintiff, v. McGRAW-HILL, INC. and Jeffrey Rothfeder, Defendants.
CourtU.S. District Court — Southern District of Ohio

John Geoffrey Cobey, Michael Harvey Siegler, Cincinnati, OH, Eric H. Kearney, Denise C. Lee, Cohen Todd Kite & Stanford, Cincinnati, OH, for plaintiff.

Richard Michael Goehler, Frost & Jacobs —1, Cincinnati, OH, Floyd Abrams, Anne B Carroll, Cahill Gordon & Reindel, New York City, for McGraw-Hill Inc., Jeffrey Rothfeder, defendants.


HERMAN J. WEBER, District Judge.

This is an action in breach of contract and fraud brought by plaintiff W.D.I.A. Corporation d/b/a National Credit Information Network and NCI (W.D.I.A.) against defendants McGraw-Hill, Inc. (McGraw-Hill) and Jeffrey Rothfeder (Rothfeder). The plaintiff alleges that the defendants engaged in fraud to induce plaintiff to enter into a contract, then willfully and wantonly breached the contract in conscious disregard of plaintiff's rights, resulting in damage to plaintiff.

On or about April 1, 1989, Rothfeder presented to his Editors the idea for an article for Business Week Magazine. The article, entitled "Is Nothing Private?" (the "article"), was published in the September 4, 1989 Business Week.

With the prior approval of his supervisors at McGraw-Hill and McGraw-Hill attorneys Rothfeder executed a test of the system used by the credit reporting industry to comply with the federal Fair Credit Reporting Act (FCRA). The test, as devised by Rothfeder and approved by McGraw-Hill, called for Rothfeder to lie deliberately to consumer reporting agencies in order to induce the agencies to grant McGraw-Hill access to sensitive confidential information protected by federal law. The article reported that Rothfeder told at least one fib and successfully acquired consumer credit information on individuals, including then-Vice President Dan Quayle, from an on-line information reseller. The reseller was not identified in the article.

W.D.I.A. claims Rothfeder, acting with McGraw-Hill's authorization and on behalf of McGraw-Hill, deliberately, willfully and wantonly lied to W.D.I.A. when he inter alia stated that McGraw-Hill had a permissible purpose under the FCRA for obtaining credit reports and when he agreed McGraw-Hill would obtain credit reports only for permissible purposes as defined under the FCRA. The FCRA permits the acquisition of credit information only for permissible purposes as defined in the FCRA and makes it a criminal offense for any person to acquire such information under false pretenses.

Based on the promises of Rothfeder and McGraw-Hill and after processing the McGraw-Hill application through its procedures as required under the FCRA, conducting an on-site visit to McGraw-Hill offices, considering Rothfeder's oral and written representations, and making sure that Rothfeder understood FCRA requirements, W.D.I.A. agreed to release credit information to McGraw-Hill.

After McGraw-Hill's successful execution of the Rothfeder test, the Federal Trade Commission ("FTC") launched an investigation of W.D.I.A. procedures. The McGraw-Hill test also became the focus of Congressional Hearings on the effectiveness of the FCRA before the United States House of Representatives Subcommittee on Consumer Affairs.

Plaintiff alleges that defendants' actions damaged plaintiff by inter alia making it necessary for plaintiff to expend monies for damage control efforts aimed at the credit bureaus from whom plaintiff purchases credit information and to expend monies addressing FTC and congressional concerns. W.D.I.A. seeks compensatory damages in excess of $75,000 and $45 million in punitive damages.

McGraw-Hill and Rothfeder answer W.D.I.A.'s claims arguing that the claims are barred by the First Amendment's prohibition of actions for reputational injury flowing from the publication of truthful information about matters of public concern; this Court lacks subject matter jurisdiction because the amount of damages required to confer subject matter jurisdiction on this Court was not in controversy at the commencement of this action; in the absence of a clearly articulated legislative intention, state law will not be read so as to raise a significant constitutional question; W.D.I.A. cannot prove any cognizable damage was caused by the conduct alleged; W.D.I.A. did not justifiably rely on the claimed misrepresentations; the contract terms with respect to FCRA compliance were not material to the agreement embodied in the W.D.I.A. form contract or to the parties' transaction; W.D.I.A. waived performance of these contract terms and is estopped from enforcing them; and, in any event, its remedies under the contract are limited to the terms of the contract's indemnification clause. Defendants further assert that W.D.I.A. cannot demonstrate by the required standard of clear and convincing evidence that defendants acted with the state of mind necessary to undergird a claim for punitive damages.


The first issue the Court must determine is whether it has subject matter jurisdiction. The plaintiff, W.D.I.A., is an Ohio corporation located in Cincinnati, Ohio. The defendant, Jeffrey Rothfeder, is a citizen of New Jersey. The defendant, McGraw-Hill, Inc., is a corporation incorporated in New York where it maintains its office.

The defendants object to the subject matter jurisdiction of this Court solely on the basis that the claim of the plaintiff does not meet the amount-in-controversy requirement of 28 U.S.C. § 1332(a). The defendants concede this Court has personal jurisdiction of the parties, venue is proper in this Court and the citizenship of the parties is diverse.

In Jones v. Knox Exploration Corp., 2 F.3d 181 (6th Cir.1993), we are instructed that a federal court's jurisdiction ordinarily depends "on the facts as they exist when the complaint is filed." Id. at 182. If a good faith claim of sufficient amount is made in the complaint, subsequent events that reduce the amount below the statutory requirement do not require dismissal. Id. at 182-183. Where an action contains two claims, which together satisfied the jurisdictional amount requirement and one claim is eliminated following discovery, the fact that the only remaining claim is for less than the jurisdictional amount does not require dismissal. Id. at 182. Where three claims for damages in the complaint satisfy the jurisdictional amount requirement in the aggregate, dismissal of two of the claims does not deprive the district court of jurisdiction. Id. at 182.

W.D.I.A.'s third claim in its complaint and amended complaint seeks relief for violations of Ohio Rev.Code Section 2923.34, known as the Ohio Corrupt Practice Act. Under the Act, W.D.I.A. demands, in addition to compensatory damages of $489,241.00 and punitive damages of no less than $45,000,000, that this Court order divestiture of Business Week from McGraw-Hill and revoke McGraw-Hill's license to operate in Ohio.

In their answer, the defendants admit that plaintiff purports to claim damages in excess of $50,000. The defendants make no allegations in their answer that the relief and amounts claimed by W.D.I.A. are made in bad faith.

Subsequent to the initial pleadings, this Court dismissed W.D.I.A.'s third claim. Had the plaintiff prevailed on its claim, the monetary loss to McGraw-Hill caused by the divestiture of Business Week and the loss of the revenues generated by Business Week to McGraw-Hill would far exceed $75,000, the presently required jurisdictional amount. The monetary claims of W.D.I.A. which remain exceed $75,000.

This Court therefore concludes that the amount-in-controversy requirement of 28 U.S.C. § 1332(a) has been met and it has subject matter jurisdiction of this controversy.


1. In the Spring of 1989, the McGraw-Hill Companies, Inc., formerly known as McGraw-Hill, Inc. (McGraw-Hill) and Jeffrey Rothfeder, the defendants, intentionally decided to investigate W.D.I.A. At all times pertinent, Jeffrey Rothfeder was an employee of McGraw-Hill acting within the scope of his employment. The decision to proceed with the plan to investigate W.D.I.A. was made by senior management of McGraw-Hill doing business as Business Week.

2. W.D.I.A. was at the time one of approximately 25 on-line superbureaus in the credit reporting business. Superbureaus provide a service to their clients which allows clients direct instant access through computer linkages to the credit report files of individuals maintained by the big three credit reporting agencies—TRW, Equifax and TransUnion Corporation. These files contain much private information about most of us. W.D.I.A. is regulated by the Federal Trade Commission and is subject to the Fair Credit Reporting Act (FCRA). 15 U.S.C. §§ 1681 to 1681t.

3. Defendants learned of W.D.I.A.'s services through a W.D.I.A. advertisement. Defendants contacted Marty Dunham, a marketing representative of W.D.I.A. Defendants expressed interest in obtaining W.D.I.A.'s services to Dunham. Defendants told Dunham that defendants sought consumer credit reports for use in background checks on potential employees. Defendants at no time intended to use the credit reports for this stated purpose. Defendants, who were very familiar with the Fair Credit Reporting Act, learned from Dunham that which they already knew, which is that by misrepresenting the purpose for which a credit report was sought, defendants could prevent the sending of the notification letter required by law to the subject of a requested credit report. Defendants did not engage in this tactic and, in fact, contacted all persons who were the subject of their requests for credit information, informing them that defendants had obtained their credit reports.

4. Defendants purchased an access package including a subscriber application for W.D.I.A.'s...

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