This recent case discusses Stationers Corp. v. Dun & Bradstreet, Inc. (Cal. 1965

McDade, J. Michael

English

University of San Diego

San Diego Law Review Volume 3 Issue 1 1966 Article 15 1-1-1966 Libel and Slander - Qualified Privilege - A Mercantile Agency Relying on a Qualified Privilege as Defense to a Charge of Libel Must Reveal Its Sources of Information for the Purpose of Establishing Whether or Not There Was Probable Cause to Believe that the Allegedly Libelous Statement Was True. Stationers Corp. v. Dun & Bradstreet, Inc. (Cal. 1965) J. Michael McDade Follow this and additional works at: https://digital.sandiego.edu/sdlr  Part of the Law Commons Recommended Citation J. M. McDade, Libel and Slander - Qualified Privilege - A Mercantile Agency Relying on a Qualified Privilege as Defense to a Charge of Libel Must Reveal Its Sources of Information for the Purpose of Establishing Whether or Not There Was Probable Cause to Believe that the Allegedly Libelous Statement Was True. Stationers Corp. v. Dun & Bradstreet, Inc. (Cal. 1965), 3 SAN DIEGO L. REV. 127 (1966). Available at: https://digital.sandiego.edu/sdlr/vol3/iss1/15 This Recent Cases is brought to you for free and open access by the Law School Journals at Digital USD. It has been accepted for inclusion in San Diego Law Review by an authorized editor of Digital USD. For more information, please contact digital@sandiego.edu. LIBEL AND SLANDER-QUALIFIED PRIVILEGE-A MER-CANTILE AGENCY RELYING ON A QUALIFIED PRIVILEGE ASDEFENSE TO A CHARGE OF LIBEL MUST REVEAL ITS SOURCESOF INFORMATION FOR THE PURPOSE OF ESTABLISHINGWHETHER OR NOT THERE WAS PROBABLE CAUSE TO BELIEVETHAT THE ALLEGEDLY LIBELOUS STATEMENT WAS TRUE. Sta-tioners Corp. v. Dun & Bradstreet, Inc. (Cal. 1965).Dun & Bradstreet, a mercantile agency, published two reports ata client's request concerning the potential effect of a pending suitfiled against Stationers Corporation and two of its officers. Accord-ing to the reports, the complaint alleged a fraudulent misappro-priation of corporation assets in that two officers of the companyhad set unnecessarily large salaries for themselves. The reports fur-ther stated that Stationers' management had not been available forcomment on the suit and that in outside quarters a "number ofauthorities" were of the opinion that the suit had merit.Stationers Corporation and the two officers filed a complaintagainst Dun & Bradstreet and one of iis employees, alleging defa-mation of business, libel and negligence, asserting that the reportswere false, that the defendants did not have probable cause to be-lieve their statements to be true, and that the publications weremade with actual malice. The defendants moved for summary judg-ment, claiming a qualified privilege for the publications under CivilCode section 47(3), which extends a privilege to publications madeon request, without malice between legitimately interested parties.In support of their motion the defendants filed declarations assert-ing that the reports were made in good faith and without malice.The declarations described the method by which the defendantscompiled and distributed the two reports. Although failing to revealthe identity of the sources relied upon, the declarations did assertthat the informants were believed to be reliable and truthful in theirstatements. In opposition to the defendants' motion the plaintiffsfiled a declaration asserting that they were unable to contravenethe statements contained in the reports because the defendants re-fused to reveal their sources of information. The defendants' motionfor summary judgment was granted by the trial court and affirmedby the district court of appeal.The California Supreme Court reversed the judgment and heldthat: (1) reports of mercantile agencies are accorded the statutory127SAN DIEGO LAW REVIEW[privilege of Civil Code section 47(3) when they meet its require-ments; (2) on a motion for summary judgment a mercantile agencysued for libel cannot rely upon the statutory privilege without dis-closing its sources and information in its possession necessary todetermine whether the statements were without malice and, there-fore, a triable issue of fact was raised as to whether defendants hadprobable cause to believe their published statements to be true and,therefore, whether they acted with malice. Stationers Corp. v. Dun& Bradstreet, Inc., 62 Cal. 2d 412, 398 P.2d 785, 42 Cal. Rptr. 449(1965).Reports of mercantile agencies, when made without malice to onewho has an interest in the subject matter of the communication, havebeen held to be qualifiedly privileged by all American jurisdictions,which have considered the question except Idaho and Georgia.2Idaho followed the English rule as set forth in Maclntosh v. Dun,8which does not allow a privilege for mercantile agencies on thegrounds that they are motivated by self-interest and desire for profitrather than by a sense of duty to the community as a whole and,as a result, should be penalized if they report anything but the truth.4The Georgia case, Johnson v. Bradstreet Co.,5 has been criticizedas poorly reasoned because it based denial of the privilege on some-what questionable moral abhorrence of mercantile agencies ratherthan on the legal issues involved.A negative approach to the function of mercantile agencies andthe downgrading of their contributions to the business communityhave provided a popular theme for law review articles in recentyears, with some writers taking the position that strict liability, orat least a standard of due care, should be imposed on such agenciesfor any false publication, regardless of malice, for social policy1 United States jurisdictions allowing a qualified privilege: Arkansas, California,District of Columbia, Florida, Massachusetts, Michigan, Missouri, New Jersey, NewYork, Ohio, Tennessee, Texas, and Wisconsin. See Annot., 30 A.L.R.2d 776.2 Johnson v. Bradstreet Co., 77 Ga. 172 (1886); Pacific Packing Co. v. BradstreetCo., 25 Idaho 696, 139 Pac. 1007 (1914); see Annot., 30 A.L.R.2d 776, 780 (1953).3 [1908] A.C. 390. In this case, the Judicial Committee of the Privy Council wentagainst the previous weight of authority in British cases by holding that a communica-tion is not privileged if it was made from motives of self-interest by those who for theconvenience of a class trade for profit in the characters of other persons and who offerfor sale information which may have been improperly obtained, even if it was discreetlysought.4 Id. at 400.5 77 Ga. 172 (1886).6 Note, 2 DE PAUL L. REv. 69, 73 (1952-53).[Vol. 3RECENT CASESreasons.7 However, as Professor Jeremiah Smith pointed out in hisauthoritative article on this topic:It might be inferred from some statements adverse to mercantileagencies, that these agencies communicate to inquiring subscribersonly such information as is unfavorable to an applicant for credit.But in fact their answers are frequently, and probably in a decidedmajority of instances, favorable to the applicant .... 8A realization that the principal purpose of these agencies is of posi-tive value rather than sinister in nature is probably the primaryreason why a qualified privilege is afforded in most jurisdictionswhich have considered the issue.The defense of qualified privilege has been codified in California,9but prior to Stationers no California case had considered applicationof the privilege to a mercantile agency.10 The court in Stationersheld that the privilege does extend to such agencies provided therequirements of the code section are met. This aspect of the casealone is of significant importance to California mercantile agencies.In extending the privilege the court was able to rely on an analogoussituation in Pavlovsky v. Board of Trade," where it was held thatCivil Code section 47(3) applied to a merchants' protective asso-ciation whose members reported the names of debtors to it and themembership then jointly refused credit to those whose names hadbeen reported.The plaintiffs in Stationers contended that the defendants did nothave probable cause to believe the statements contained in theirreports to be true and that this lack of probable cause in effect con-7 See Note, 36 N.D.L. REv. 201 (1960) ; Note, 11 S.C.L.Q. 256 (1959) ; Note, 31TEMPLE L.Q. 50 (1957).8 Smith, Conditional Privilege for Mercantile Agencies, 14 COL. L. REv. 187, 198(1914).9 CAL. Cw. CODE § 47(1)-(5) contains the available qualified privileges. Subdivision3 contains the qualified privilege that is pertinent to Stationers: "A privileged publica-tion or broadcast is one made-....3. In a communication, without malice, to a person interested therein, (1) by onewho is also interested, or (2) by one who stands in such relation to the person interestedas to afford a reasonable ground for supposing the motive for the communication in-nocent, or (3) who is requested by the person interested to give the information."10 Mercantile agencies are defined as: "establishments which make a business ofcollecting information relating to the credit, character, responsibility and reputationof merchants, for the purpose of furnishing the information to subscribers." BLACK,LAw DicrioNARY (4th ed. 1951).11 171 Cal. App. 2d 110, 340 P.2d 63 (1959).1966]SAN DIEGO LAW REVIEW [Vol. 3stituted actual, or express, malice- which resulted in a loss of thequalified privilege.13 In the United States there is a split of authorityas to whether want of probable cause for an allegedly libelous pub-lication is sufficient to infer actual malice and hence bar the defenseof a qualified privilege. 4 However, in California it has been heldthat actual malice may be inferred by a court or a jury where prob-able cause is not established by the defendant who relies on a quali-fied privilege.15 Under the California rule, when actual malice isalleged in the complaint the defendant claiming a qualified privi-lege has the burden of proving absence of malice. 16 If he can makea prima facie showing of absence of malice or of existence of prob-able cause, the burden then shifts to the plaintiff. 17 Thus, the de-fendants in Stationers attempted to rebut the inferred malice byestablishing that they had probable cause to believe the informationcontained in their reports was true. The defendants' contention thatthey were not required to reveal the source of their information inorder to rebut the inferred malice and establish their good faith wasrejected by the court. The court was unable to draw upon any civil12 Actual malice requires an adverse or evil intent, as opposed to legal, or constructivemalice, which is imputed to every defamatory charge, irrespective of motive, by virtueof its publication and which is not sufficient to defeat the statutory privilege. SeeSnively v. Record Publishing Co., 185 Cal. 565, 198 Pac. 1 (1921); Davis v. Hearst,160 Cal. 143, 116 Pac. 530 (1911); Taylor v. Hearst, 107 Cal. 262, 40 Pac. 392(1895); Boyich v. Howell, 221 Cal. App. 2d 801, 34 Cal. Rptr. 794 (1963) (actualmalice must be pleaded to defeat qualified privilege).13 A conflict among jurisdictions exists as to what establishes malice sufficient todefeat the qualified privilege extended to a mercantile agency. Generally, mere negli-gence in publication of a defamatory statement is not proof of malice. Douglass v.Daisley, 114 Fed. 628, 629 (1st Cir. 1902); see also 36 Am. JUR. Mercantile Agencies§ 11 (1941). But there have been cases holding that a failure to exercise reasonablecare and diligence to ascertain the truth destroys any conditional privilege. J. Hartman& Co. v. Hyman, 287 Pa. 78, 134 Ad. 486 (1926); Berry v. Moench, 8 Utah 2d 191,331 P.2d 814 (1958); Cossette v. Dun, [1890J 18 Can. Sup. Ct. 222. And in NewYork, while mere negligence is not sufficient to impair the privilege, it has been heldthat where the communication was so carelessly executed as to be wanton or reckless,express malice will be inferred. Peoples v. State, 38 N.Y.S.2d 690, 696 (1942).'4 Barry v. McCollom, 81 Conn. 293, 295, 70 At. 1035, 1037 (1908); Hemmens v.Nelson, 138 N.Y. 517, 519, 34 N.E. 342, 344 (1893). Contra, see cases cited note 15infra.'5 MacLeod v. Tribune Publishing Co., 52 Cal. 2d 536, 343 P.2d 36 (1959);Brewer v. Second Baptist Church, 32 Cal. 2d 791, 197 P.2d 713 (1948);Snively v. Record Publishing Co., 185 Cal. 565, 198 Pac. 1, (1921). Accord,Miller v. Howe, 345 Ky. 568, 53 S.W.2d 938 (1932); Cline v. Holdrege, 122 Neb.151, 239 N.W. 639 (1931); Russell v. Pennsylvania Mutual Life Ins. Co., 118 Pa.Super. 351, 179 Aft. 798 (1935).16 Stevens v. Snow, 191 Cal. 58, 214 Pac. 968 (1923).17 Snively v. Record Publishing Co., 185 Cal. at 578, 198 Pac. at 6; see 30 CAL. JuR.21 Libel and Slander § 176 (1956).RECENT CASESprecedent' 8 in reaching this conclusion. 19 Once again, however, thevehicle of analogy was used, through reliance upon Priestly v.Superior Court,20 a California criminal case decided by the samecourt in 1958.In Priestly, drugs were found in the defendant's apartment whena search without a warrant was made by police officers acting on atip from two informers. The defendant was arrested and, at histrial for illegal possession of narcotics, the prosecution tried to estab-lish probable cause for the search by relying on the information re-ceived from the two informers. When the defendant tried to obtainthe names of the informers for the purpose of rebutting their testi-mony, the prosecution relied upon a special statutory privilege2' andrefused to reveal their identity. The Priestly court held that thedefendant was entitled to know his accusers and have a fair oppor-tunity to rebut them, or the testimony relating to their statementsmust be stricken from the record.The court in Stationers maintained that even though Priestly wasa criminal proceeding the same reasoning and conclusion were ap-plicable in Stationers, perhaps with even more force. The courtstated:In the instant case the party withholding the identification of the in-formers is not a peace officer who is seeking to encourage the freeflow of information helpful to enforcement of the law, but acorporation in the business of supplying credit information forpecuniary gain. It would be grossly unjust to permit a defendant, inthe pursuit of his commercial interests, to rely upon the special privi-lege granted by section 47, subdivision 3, without requiring him to18 Two English cases, applying the common law privilege rather than a statute, haveheld that such sources cannot be protected in this situation. White & Co. v. CreditReform Ass'n & Credit Index, [1905] 1 K.B. 653; South Suburban Co-op. Soc'y v.Orun, [1937] 2 K.B. 690. In White, an action of libel against a trade protectionsociety was involved. When defendant pleaded a qualified privilege for the publication,plaintiff sought to administer to the defendant an interrogatory, asking what inquiriesit made as to the truth of the statements complained of, before publishing them, andfrom whom it obtained the information on which it relied. Defendant objected on thegrounds that knowledge of the identity of the source was immaterial to the issuesinvolved. Held, that such an interrogatory was admissible. It should be noted that sucha holding is in accord with the British rule of strict accountability for mercantileagencies and is not necessarily indicative of American thought on the problem.19 62 Cal. 2d at 419, 398 P.2d at 790, 42 Cal. Rptr. at 454.20 50 Cal. 2d 812, 330 P.2d 39 (1958).21 CAL. CODE CIV. PRO. § 1881(5) provides: "A public officer cannot be examinedas to communications made to him in official confidence, when the public interest wouldsuffer by the disclosure."1966]SAN DIEGO LAW REVIEW[disclose information in his possession necessary to determinewhether the statements were made without malice .... 22It is questionable, however, whether the rationale in Priestly isapplicable to the instant case. There appear to be basic differencesbetween Priestly and Stationers which substantially weaken the for-mer when used as authority for the decision in the latter.2" Applyingthe rule as to revealing sources which was established in Priestlyappears to be not a necessary consequence but a substantial expan-sion of the doctrine. Priestly involved the constitutional questions ofdue process and the right to be confronted by witnesses. 24 In theinstant case, no constitutional guarantee of personal rights was in-volved. The basic problem in the principal case appears to be whatapproach to take in the balancing of public and private interests.On the one hand, the right of an enterprise to freely trade in creditreports and the right of businessmen to benefit from their use. Onthe other, the right of businessmen not to be deprived unjustly oftheir reputations and the co-extensive right to a fair trial on themerits where their reputations have been unjustly damaged. It can-not be denied, as implied by the Stationers court, that to allow de-fendants to establish probable cause without revealing their sourceswould create a potential privileged sanctuary from which maliciousand unwarranted libel could be published with impunity.25 If thiswere the case, there would no doubt be injury to individuals onoccasion.* However, in view of the ever-increasing use made of thesereports by business and their importance in our credit-oriented econ-omy, the risk seems almost justified. Surely an upsurge of false re-ports would not only injure individuals but would threaten theexistence of the agencies themselves, as they are essential to thebusiness community only as long as their reports maintain a highdegree of accuracy and reliability.2"22 62 Cal. 2d at 420, 398 P.2d at 790, 42 Cal. Rptr. at 454.28 Authority of a prior decision is confined to the application of a legal principalto the same, or substantially the same, state of facts. See Sichterman v. R. M. Hollings.head Co., 117 Cal. App. 504, 4 P.2d 181 (1931); State v. J. M. Huber Corp., 193S.W.2d 882, 885 (Tex. Civ. App. 1946); see also 20 Am. Jun. 2D Courts § 190(1965).24 This is noted by Justice Carter in his concurring opinion. 50 Cal. 2d at 822, 330P.2d at 45. It is also indicated by the examination of the authority relied on by themajority opinion. See People v. Lundy, 151 Cal. App. 2d 244, 311 P.2d 601 (1957);People v. Dewson, 150 Cal. App. 2d 119, 310 P.2d 162 (1957); People v. Alaniz, 149Cal. App. 2d 560, 309 P.2d 71 (1957).25 62 Cal. 2d at 420, 398 P.2d at 790, 42 Cal. Rptr. at 454.26 Smith, supra note 8, at 207-08.[Vol. 3RECENT CASESThe court's holding in this case may tend to dry up not onlyunreliable sources but accurate sources of information as well.Valuable reports often come from persons or organizations whohave a close business relationship with the subject of the report. Itis not unlikely that such informants may be reluctant to give evenaccurate information in the future if they know they may be identi-fied to their disadvantage 7However, the supreme court was faced with a choice whichallowed only one reasonable result. The plaintiffs were effectivelyprevented from litigating the existence of malice due to the trialcourt's deference to the defendants' unsupported declarations ofgood faith. In order to uphold the purpose and function of the sum-mary judgment procedure the supreme court found it necessary toafford the plaintiffs an opportunity to challenge the source of thedefendants' alleged defamatory statements. For the court to holdotherwise would have resulted in denying the plaintiffs a cause ofaction under the fallacy that no triable issue of fact existed.J. MICHAEL MCDADE27 By disadvantage the author does not mean to imply that those furnishing informa-tion would be facing legal action. It appears clear that absent malice they would beprotected by the statutory privilege. The disadvantage would most likely be economicand could threaten their business relations with the plaintiff or, in the case of anemployee, could cause him to lose his job.1966]

Libel and Slander - Qualified Privilege - A Mercantile Agency Relying on a Qualified Privilege as Defense to a Charge of Libel Must Reveal Its Sources of Information for the Purpose of Establishing Whether or Not There Was Probable Cause to Believe that the Allegedly Libelous Statement Was True. Stationers Corp. v. Dun & Bradstreet, Inc. (Cal. 1965)

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