Petition for Writ of Certiorari — Hovater v. Equifax Services, Inc.

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Case No.

nal

)

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1987

ROGER D. HOVATER, Petitioner,

EQUIFAX SERVICES, INC., Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

PETITION OF PETITIONER

| Ralph M. Young

Mary Anne Westbrook

GONCE, YOUNG & WESTBROOK

| 109 North Court Street

Florence, Alabama 35630

(205) 767-7411

QUESTIONS PRESENTED FOR REVIEW

1. Whether an insurance claims

report issued by a credit reporting agency

to an insurer, which is used by insurer to

deny insurance benefits to its insured,

is a “consumer report" under the Fair

Credit Reporting Act ("FCRA"), 15 U.S.C.

§1681 et seg.

2. Whether 15 U.S.C. §168lg

disclosure rsquirements apply to reports

which are not "consumer reports".

3. Whether the application of a

statute of limitation to bar a claimant's

cause of action, where claimant could not

by exercise of reasonable diligence have

discovered the existence of his claim

within the limitation period, violates the

claimant's right to Due Process of law.

4. Whether the court below

misapplied Alabama law which allows

tolling of a statute of limitation where a

third party has concealed the existence of

facts giving rise to the claim.

5. Whether this Court's

interpretation of the Racketeer Influenced

and Corrupt Organization Act ("RICO"), 18

U.S.C. §1961 et seq., was disregarded by

the court below.

PARTIES TO THE PROCEEDING BELOW

Petitioner Roger D. Hovater,

Appellee/Cross-Appellant below, was the

plaintiff in the district court.

Respondents Equifax, Inc., and Equifax

Services, Inc., were the Appellants/

Cross-Appellees below and the defendants

in district court.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW. .... i

PARTIES TO THE PROCEEDING BELOW... . ii

TABLE OF AUTHORITIES. ......... =V

REFERENCE TO THE OPINION BELOW. ... . ix

STATEMENT OF JURISDICTION. ...... ix

CONSTITUTIONAL AND STATUTORY PROVISIONS

INVOLVED a7 - * . = * o * . . 7 . * * * . ix

STATEMENT OF THE CASE . . «ee eves &

ARGUMENT FOR ISSUING THE WRIT .... .

I. The Decision Below Conflicts in

Principle with a Decision from the

Court of Appeals for the Ninth

Circuit and Directly Conflicts with

A District Court Case from Another

Civ@Gat «2 6s 6 6 2 se he ee Se Be

II. The Court Below Violated Rules of

Statutory Construction Enunciated by

this Court and thereby gave the FCRA

a Meaning which Contravenes the

Plain Lanuage of the Statute and

Frustates Congressional Intent. . 22

III. The Disclosure Requirements Mandated

by §168lg are not Restricted to

Consumer Reporte ..«s++s2ss 2s Ss

IV. The Application of the Statute of

Limitation to Bar Petitioner's

Cause of Action for Libel and

Slander, Where Petitioner could not

by Exercise of Reasonable Diligence

have Discovered the Existence of the

iii

Claim until after the Statute had

Run Violates Petitioner's Right to

Due Process of Law ....... 33

V. The Decision Below Completely

Ignores Established Alabama Law

Regarding Concealment of a Claim by

a Third Party as Tolling the

Statute of Limitation ...... 46

VI. The Decision Below on RICO Ignores

this Court's Ruling in Sedima,

S.P.R.L. V. Imrex Co., Inc. ...- 30

CONCLUS ION . . . . . . >. . . . .

APPENDIX . . . . >. . *. * *. >. .

TABLE OF AUTHORITIES

CASES PAGE

Adickes of S. H. Kress & Co.,

398 U.S. 144 (1970) 51

American Pipe and Construction Co. v. Utah

414 U.S. 538 (1974) 41

American Tobacco Co. v. Patterson,

456 U.S. 63 (1982) 25

Atchafalaya Land Co. v. F. B. Williams

Cypress Co.,

258 U.S. 190 (1922) 38

Ayers v. Morgan,

397 Pa. 282, 154 A.2d 788 (1959), 43

Beresh v. Retail Credit Co., Inc.,

358 F. Supp. 260 (C.D. Cal. 1973) passim

Blum v. Stenson,

465 U.S. 886 (1984) 25

Bodie v. Connecticut,

401 U.S. 371 (1971) 27, 3

Bowling v. Founders Title Co.,

773 F.2d 1175 (llth Cir. 1985) 38

Bradley v. Irwin, 166 Pa. 548, 31 A. 261

(1895) 43

Campbell v. City of Haverhill,

155 U.S. 610 (1895) 39

Colautti v. Franklin,

439 U.S. 379 (1979) 27

Franklin v. Albert,

381 Mass. 611, 411 N.E.2d 458 (1980) 44

Garrett v. Raytheon Co., Inc.,

368 So. 2d 516 (Ala. 1979) 33, 35, 43

Greenway v. Information Dynamics, Ltd.,

399 F. Supp. 1092 (D. Ariz. 1974), aff'd

per curiam

524 F.2a@ 1145 (9th Cir. 1975), cert.

dismissed

424 U.S. 936 (1976) 5, i6, 24

Greenway v. Information Dynamics, Ltd.,

§24 F.2d 1145 (9th Cir. 1975) cert.

dismissed

424 U.S. 936 (1976) 14, 15, 16

Heath v. Credit Bureau of Sheridan, Inc.,

618 F.2d 693 (10th Cir. 1980) 3a

Holdbrooks v. Central Bank of Alabama,

435°60. 24 1250 (Ala. 1983) 34

Holmberg v. Armbrecht,

327 U.S. 392 (1946) 39, 40

Houghton v. New Jersey Manuf. Ins. Co.,

795 F.2d 1144 (3rd Cir. 1986) 12

Hovater v. Equifax, Inc.,

823 F.2d 413 (llth Cir. 1987) 10, 50

Kiblen v. Pickle,

653 P.2d 1338 (Wash. App. 1982) 32

tankford v. Sullivan, Long & Haggerty,

416 So. 2d 996 (Ala. 1982) 43

Logan v. Zimmerman Brush Co.,

435 U.8. 422 (i96Zz} 36, 3/7

Nelson v. Krusen,

678 S.W.2d 918 (Tex. 1984) 43

Raymond v. Eli Lilly & Co.,

371 A.2d 170 (N.H. 1977) 44

Reiter v. Sonotone Corp.,

442 U.S. 330 (1979) 23

Rubin v. United States,

449 U.S. 424 (1981) 24

Sedima, S.P.R.L. v. Imrex & Co.,

473 U.S. 479 (1985) ane 26, Sl, 52, 56

Tonsmeire v. Tonsmeire,

285 Ala. 454, 233 So. 2d 465 (1970) 34

Tucker v. Nichols,

431 So. 2d 1262 (Ala. 1983) 43

United States v. Locke, |

ooo ms Ge. L785 (1985) 28

United States v. Price,

361 U.S. 276 (1960) 27

United States v. Turkette,

452 U.S. 576 (1981) 24

Urie v. Thompson,

337 U.S. 163 (1949) 39, 40

Vandegrift v. Lagrone,

477 So. 2d 292 (Ala. 1985) 46, 47

CONSTITUTIONAL PROVISIONS

U.S. Const. amend. XIV passim

UNITED STATES STATUTES

Fair Credit Reporting Act,

15 U.S.C. §1681 et seq. passim

18 U.S.C. §1341 55

Vil

is U.S.C. $4343 54

Racketeer Influenced and Corrupt

Organization Act,

18 U.S.C. §$§1961-1968 passim

28 U.S.C. §1332 8

ALABAMA STATUTES

Ala. Code §6-2-3 (1975) 9

Ala. Code §6-2-39 (1975) 33

1987 Ala. Acts 87-164, 87-181 to 189 33

MISCELLANEOUS

"Compliance with Fair Credit Reporting

Act.”

5 CONSUMER CRED. GUIDE (CCH) gil,307 at

59,829 (1977) 28

Annot., 4 A.L.R. 3d 821 (1965 & Supp.

1987) 44

Annot., 70 A.L.R. 3d 7

(1976 & Supp. 1987) 44

Annot. 80 A.L.R. 2d 368 (1961 & Supp.

1987) 34, 35

res, 2. Ca¥, Pa 5

viii

REFERENCE TO THE OPINION BELOW

The opinion below is reported as

Hovater v. Equifax, Inc., 823 F.2d 413

(llth Cir. 1987). A copy of the opinion

appears in the appendix.

STATEMENT OF JURISDICTION

The decision below was entered on

July 30, 1987. Jurisdiction is granted to

this Court by 28 U.S.C. §1254(1) to review

that decision by Writ of Certiorari.

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

U.S. Const. amend. XIV, §1 reads as

follows:

Citizens of the United States

All persons born or naturalized

in the United States, and

subject to the jurisdiction

thereof, are citizens of the

United States and of the State

wherein they reside. No State

Shall make or enforce any law

which shall abridge the

privileges or immunities of

citizens of the United States;

nor shall any State deprive any

person of life, liberty, or

proverty, without due process of

law; nor deny to any person

within its jurisdiction the

equal protection of the laws.

15 U.S.C. §1681 et seq. is known as

The Fair Credit Reporting Act. (FCRA). 15

U.S.C. §1681 reads as follows:

§1681. Congressional findings

and statement of purpose

(a) The Congress makes the

following findings:

(1) The banking system is

dependent upon fair and accurate

credit reporting. Inaccurate

credit reports directly impair

the efficiency of the banking

system, and unfair credit

reporting methods undermine the

public confidence which is

essential to the continued

functioning of the banking

system.

(2) An elaborate mechanism

has been developed for

investigating and evaluating the

credit worthiness, credit

standing, credit capacity,

character, and general

reputation of consumers.

(3) Consumer reporting

agencies have assumed a vital

role in assembling and

evaluating consumer credit and

other information on consumers.

(4) There is a need to

insure that consumer reporting

agencies exercise their grave

responsibilities with fairness,

impartiality, and a respect for

the consumer's right to privacy.

(b) It is the purpose of this

title [15 U.S.C. §§1681 et seq.]

to require that consumer

reporting agencies adopt

reasonable procedures for

meeting the needs of commerce

for consumer credit, personnel,

insurance, and other information

in a manner which is fair and

equitable to the consumer, with

regard to confidentiality,

accuracy, relevancy, and proper

utilization of such information

in accordance with the

requirements of this title [15

U.S.C. §§1681 et seq.].

15 U.S.C. § 168la(d) reads as

follows:

(d) The term “consumer report"

means any written, oral, or

other communication of any

information by a consumer

reporting agency bearing on a

consumer's credit worthiness,

credit standing, credit

Capacity, character, general

reputation, personal

characteristics, or mode of

living which is used or expected

to be used or collected in whole

or in part for the purpose of

serving as a factor in

establishing the consumer's

eligibility for (1) credit or

insurance to be used primarily

for personal, family or

household purposes, or (2)

employment purposes, or (3)

other purposes authorized under

section 604 [15 U.S.C. §1681lb].

The term does not include (A)

any report containing

information solely as to

transactions or experiences

between the consumer and the

person making the report; (B)

any authorization or approval of

a specific extension of credit

directly or indirectly by the

issuer of a credit card of

Similar device; or (C) any

report in which a person who has

been requested by a third party

to make a specific extension of

credit directly or indirectly to

a consumer conveys his decision

with respect to such request, if

the third party advises the

consumer of the name and address

of the person to whom the

request was made and such person

makes the disclosures to the

consumer required under section

615 [16 U.S.C. §1681lm].

15 U.S.C. §168lb reads as follows:

§$168lb. Permissible purposes of

consumer reports

A consumer reporting agency may

furnish a consumer report under

the following circumstances and

no other:

(1) In response to the

order of a court having

jurisdiction to issue such an

order.

X17

(2) In accordance with the

written instructions of the

consumer to whom it relates.

(3) To a person which it

has reason to believe-

(A) intends to use the

information in connection with a

credit transaction involving the

consumer on whom the information

is to be furnished and involving

the extension of credit to, or

review or collection of an

account of, the consumer; or

(B) intends to use the

information for employment

purposes; or

information in connection with

the underwriting of insurance

involving the consumer; or

(D) intends to use the

information in connection with a

determination of the consumer's

eligibility for a license or

other benefit granted by a

governmental instrumentality

required by law to consider in

applicant's financial

responsibility or status; or

(E) otherwise has a

legitimate business need for the

information in connection with a

business transaction involving

the consumer.

15 U.S.C. § 168lg reads as follows:

§168lg. Disclosures to consumers

X171

(a) Every consumer reporting

agency shall, upon request and

prover identification of any

consumer, clearly and accurately

disclose to the consumer:

(1) The nature and

Substance of all information

(except medical information) in

its files on the consumer at the

time of the request.

(2) The sources of the

information; except that the

sources of information acquired

solely for use in preparing an

investigative consumer report

and actually used for no other

purpose need not be disclosed:

Provided, that in the event an

action is broueht under this

title [15 U.S.C. §§ 1681 et

seg.], such sources shall be

available to the plaintiff under

appropriate discovery procedures

in the court in which the action

is brought.

(3) The recipients of any

consumer report on the consumer

which it has furnished-

(A) for employment purposes

within the two-year period

preceding the request, and

(B) for any other purpose

within the six-month period

preceding the request.

(b) The requirements of

Subsection (a) respecting the

disclosure of sources of

XivV

‘ .

information and the recipients

of consumer reports do not apply

to information received or

consumer reports furnished prior

to the effective date of this

title [180 days following Oct.

16, 1970; see effective date

note to 15 U.S.C. § 1681] except

to the extent that the matter

involved is contained in the

Files of the consumer reporting

agency on that date.

18 U.S.C. §1961 et seg is known as

the Racketeer Influenced and Corrupt

Organizations Act. (RICO). 18 U.S.C.

§1961 reads in pertinent part as follows:

§1961. Definitions

As used in this chapter [18 U.S.C. §§1961l

et seq. ]

(1) "racketeering activity"

means (A) any act or threat

involving murder, kidnapping,

gambling, arson, robbery,

bribery, extortion, or dealing

in narcotic or other dangerous

drugs, which is chargeable under

State law and punishable by

imprisonment for more than on

year; (B) any act which is

indictable under any of the

following provisions of title

18, United States Code: Section

201 (relating to bribery),

section 224 (relating to sports

bribery), sections 471, 472, and

473 (relating to

counterfeiting), section 659

(relating to theft from

interstate shipment) if the act

indictable under section 659 is

felonious, section 664 (relating

to embezzlement from pension and

welfare funds), sections 891-894

(relating to extortionate credit

transactions), section 1084

(relating to the transmission of

gambling information), section

1341 (relating to mail fraud),

section 1343 (relating to wire

fraud), section 1503 (relating

to obstruction of justice),

section 1510 (relating to

obstruction of criminal

investigations), section 151ll

(relating to the obstruction of

State or local law enforcement),

section 1951 (relating to

interference with commerce,

robbery, or extortion), section

1952 (relating to racketeering),

section 1953 (relating to

interstate transportation of

wagering paraphernalia), section

1954 (relating to unlawful

welfare fund payments), section

1955 (relating to the

prohibition of illegal gambling

businesses), section 2314 and

2315 (relating to interstate

transportation of stolen

property), sections 2341-2346

(relating to trafficking in

contraband cigarettes), section

2421-24 (relating to white slave

traffic), (C) any act which is

indictable under title 29,

United States Code, section 186

(29 U.S.C. §186] (dealing with

restrictions on payments and

loans to labor organizations) or

XVi

section 50l(c) [29 U.S.C.

§50l(c)] (relating to

embezzlement from union funds),

or (D) any offense involving

bankruptcy fraud, fraud in the

sale of securities, or the

felonious manufacture,

importation, receiving,

concealment, buying, selling, or

otherwise dealing in narcotic or

other dangerous drugs,

punishable under any law of the

United States:

x &k-*

(3) "person" includes any

individual or entity capable of

holding a legal or beneficial

interest in property;

(4) “enterprise" includes any

individual, partnership,

corporation, association, or

other legal entity, and any

union or group of individuals

associated in fact although not

a legal entity;

(5) "pattern of racketeering

activity" requires at least two

acts of racketeering activity,

one of which occurred after the

effective date of this chapter

[enacted Oct. 15, 1970] and the

last of which occurred within

ten years (excluding any period

of imprisonment) after the

commission of a prior act of

racketeering activity;

a: 2 2

XV17

18 U.S.C. §1962 reads as follows:

§1962. Prohibited Activities

(a) It shall be unlawful for any

person who has received any

income derived, directly or

indirectly, from a pattern of

racketeering activity or through

collection of an unlawful debt

in which such person has

participated as a principal

within the meaning of section 2,

title 18 United States Code [18

U.S.C. §2], to use or invest,

directly or indirectly, any part

of such income, or the proceeds

of such income, in acquisition

of any interest in, or the

establishment or operation of,

any enterprise which is engages

in, or the activities of which

affect, interstate or foreign

commerce. A purchase of

securities on the open market

for purposes of investment, and

without the intention of

controlling or participating in

the control of the issuer, or of

assisting another to do so,

shall not be unlawful under this

subsection if the securities of

the issuer held by the

purchaser, the members of his

immediate family, and his or

their accomplices in any pattern

or racketeering activity or the

collection of any unlawful debt

after such purchase do not

amount in the aggregate to one

percent of the outstanding

securities of any one class, and

do not confer, either in law or

XViii

in fact, the power to elect one

or more directors of the issuer.

(b) It shall be unlawful for any

person through a pattern of

racketeering activity or through

collection of an unlawful debt

to acquire or maintain, directly

or indirectly, any interest in

or control of any enterprise

which is engaged in, or the

activities of which affect,

interstate or foreign commerce.

person employed by or associated

with any enterprise engaged in,

or the activities of which

affect, interstate or foreign

commerce, to conduct or

participate, directly or

indirectly, in the conduct of

such enterprise's affairs

through a pattern of

racketeering activity or

collection of unlawful debt.

18 U.S.C. §1964 reads in part as follows:

§1964. Civil remedies

x kk k

business or property by reason

of a violation of section 1962

of this chapter [18 U.S.C.

§1962] may sue therefor in any

appropriate United States

district court and shall recover

threefold the damages he

Sustains and the cost of the

Suit, including a reasonable

attorney's fee.

x1X

Ala. Code §6-2-3 (1975) reads as follows:

§6-2-3. Accrual of claim - Fraud.

In actions seeking relief on

the ground of fraud where the

statute has created a bar, the

claim must not be considered as

having accrued until the

discovery by the aggrieved party

of the fact constituting the

fraud, after which he must have

one year within which to

prosecute his action.

Ala. Code §6-5-102 reads as follows:

§6-5-102. Suppression of

material facts.

Suppression of a material fact

which the party is under an

obligation to communicate

constitutes fraud. The

obligation to communicate may

arise from the confidential

relations of the parties or from

the particular circumstances of

the case.

STATEMENT OF THE CASE

Petitioner Roger Hovater was the owner

of a house in the Colbert Heights

Community of Colbert County, Alabama

[R4-177]. The house was insured against

fire loss by Pennsylvania National Mutual

Casualty Company (hereinafter "Penn

National") [Plaintiff's Exhibits 4 and 5;

R4-184 to 185]. In the early morning

hours of September 1, 1982, the house and

its contents were totally destroyed by

fire. [R4-196].

On November 15, 1982, through its

attorney Braxton Ashe, Penn National hired

Respondent Equifax Services, Inc.,

(hereinafter "Respondent" or "Equifax") to

conduct an investigation of Petitioner.

The case was assigned to Equifax

investigator Greg Rowe who undertook the

investigation on November 15 and 16, 1982.

[R7-69 to 70]. During the course of his

work Mr. Rowe orally briefed Lt. Ronnie

May of the Colbert County Sheriff's

Department and Attorney Ashe as to all the

significant information in the subject

report. [Plaintiff's Exhibit l, p. 9].

On November 18, 1982, copies of the

subject written report were sent to James

Goad of Penn National, Attorney Ashe, and

to the Colbert County Sheriff's

Department. [R7-71].

The Equifax report of November 18,

1982 accused Petitioner of the arson of

the insured property, tax evasion,

fraudulent conveyances, heavy illegal

gambling debts, implication in other arson

investigations, mental illness, consorting

with known criminals, and being capable of

retaliation-against any informant or

witness. [Plaintiff's Exhibit 1].

Although a defense of truth to

Petitioner's libel and slander claims was

originally asserted, that defense was

withdrawn at trial [R10-130]. Respondent

admitted that many portions of the report

were libelous and slanderous.

[Plaintiff's Exhibit 25; R6-19 to 45].

A copy of the Equifax report was

mailed to Atlanta, Georgia where on

November 23, 1982, it was reviewed by

Richard Romard, special fire investigation

Supervisor. Mr. Romard recognized that

the report was defamatory and determined

that the copies which had been published

should be destroyed. [R5-157, 171 to 172].

On November 24, 1982, Romard contacted

Jerry Bredeson of the Huntsville, Alabama

Equifax office and instructed him to

retrieve the disseminated reports, delete

the defamatory portions, and prepare a new

report. [R6-87]. No instructions were

given to inform the recipients that the

original report was erroneous. [R6-91l to

93]. No new investigation was undertaken

to either verify the old inforaation or to

produce new data. On November 30, 1982,

R. F. Whiting, an Atlanta supervisor,

agreed that the Romard plan was "very

necessary" and noted that Equifax would be

very fortunate if it could "escape

Significant litigation" as a result of the

Hovater investigation. (emphasis in

original) [Plaintiff's Exhibit 25].

Bredeson requested that the

recipients of the original report return

their copies to Equifax, but did not

inform them that it was erroneous.

(R7-74, 76 to 81]. Penn National and

Attorney Ashe retained copies of the

Original report. [R8-26, R10-37]. The

entire Hovater file from Huntsville was

mailed to Romard in Atlanta.

The original reports were destroyed

by Romard. [R6-ll]. Those employees of

Equifax who reviewed the report considered

it to be defamatory. [Plaintiff's Exhibit

25]. The document was characterized by

R. F. Whiting (division manager of claims

in Atlanta), by Romard, and by Eugene

Merrigan (the President of Equifax) as the

worst report they had ever seen.

[Plaintiff's Exhibit 25; R6-67; R9-139].

On December 22, 1982, Penn National

instituted a Declaratory Judgment action

against Hovater, alleging arson and

misrepresentation. On August l, 1983,

Petitioner's attorney filed Requests for

Production directed to Penn National

seeking each and every document in its

file including those related to

independent investigations. A response to

that request'was due within 30 days, Fed.

R. Civ. P. 34, well within the one year

statute of limitations. Upon Penn

National's failure to comply, Hovater

filed a Motion to Compel on November 25,

1983, and the court entered an order on

December 8, 1983, compelling production.

A limited production was made by Penn

National and a further Request for

Production was filed by Hovater on April

14, 1984, seeking the entire investigative

file. The court made an in camera

inspection of the materials sought, and on

July 3, 1984, ordered Penn National to

produce them. On June 27, 1984, Penn

National sent Hovater only the file

material of independent insurance adjuster

R. C. Oldham. On December 17, 1984, a

pretrial conference was held at which time

Penn National was again ordered to produce

the requested file material.

On January 18, 1985, almost one and a

half years after Hovater's original

Request for Production, the Equifax report

of November 18, 1982, was finally produced.

Prior to January 18, 1985 Hovater had no

knowledge of the existence of the report

or that he had even been investigated by

Equifax. [R4-216].

On February 19, 1985, Hovater

personally delivered a written request for

disclosure to the Equifax office in

Florence, Alabama. [Plaintiff's Exhibit

18; R5-4]. Hovater was instructed at that

time to telephone the Equifax office in

Birmingham, Alabama for disclosure.

[R5-55]. Upon telephoning Birmingham,

Hovater was told that the file was lost

and that they therefore could not disclose

it to him. [R5-56]. Hovater's attorney

wrote a letter to the Birmingham office

confirming Hovater's efforts to obtain

disclosure, forwarded a copy of the

written disclosure request and again

stated Hovater's desire for full

disclosure. [Plaintiff's Exhibit 20;

R5-62]. That afternoon, Hovater received

a telephone call at his home from an

unidentified Equifax employee, inquiring

as to whether he was the person who had

requested disclosure. When he asked the

caller's name, the caller hung up.

([R5-63]. Hovater's attorney received a

letter from Equifax dated February 20,

1985, acknowledging receipt of the

disclosure request. [Plaintiff's Exhibit

21).

No FCRA disclosure was ever made by

Equifax to Hovater. The present suit was

instituted on March 1, 1985 alleging libel

and slander, violations of Fair Credit

Reporting Act, 15 U.S.C. §1681 et seq.

(FCRA), violations of Racketeer Influenced

and Corrupt Organizations Act (RICO), 18

U.S.C. §1961-1968, and several other

causes of action. All of these claims

revolved around the false Equifax report

of November 18, 1982 and the subsequent

attempts to cover it up. Jurisdiction was

rested upon 28 U.S.C. §1332, and also upon

15 U.S.C. §168lp in regard to the FCRA

claim.

After suit was filed a Request for

Production was directed to Equifax.

Copies of the subject report and of a

Lr UG

subsequent, unrelated report were produced

from the Equifax files. No background

source information was ever provided as

required by §168lg(a)(2).

The statute of limitation in Alabama

for libel and slander was one year from

the date of publication. The trial court

held that the statute was tolled pursuant

to Alabama's fraudulent tolling statute,

Ala. Code §6-2-3 (1975). The FCRA statute

of limitations was held to have been

tolled pursuant to 15 U.S.C. §168lp.

Summary judgment was granted to Equifax on

Petitioner's RICO claims. The jury

returned verdicts of $50,000.00 for

violation of the FCRA and $450,000.00 on

the libel and slander claims.

The Eleventh Circuit Court of Appeals

held that the statute of limitations for

libel and slander was not tolled, that the

FCRA did not apply to the subject report,

and that the trial court properly granted

summary judgment on the RICO counts.

Hovater v. Equifax, Inc., 823 F.2d 413

(llth Cir. 1987). The case was remanded

with instructions to enter judgment for

Respondent Equifax.

ARGUMENT FOR ISSUING THE WRIT

I. THE DECISION BELOW CONFLICTS IN

PRINCIPLE WITH A DECISION FROM THE COURT

OF APPEALS FOR THE NINTH CIRCUIT AND

DIRECTLY CONFLICTS WITH A DISTRICT

COURT CASE FROM ANOTHER CIRCUIT

The Fair Credit Reporting Act, 15

U.S.C. §1681 et seq., was enacted, in

part, to govern credit reporting agencies

in regard to their preparation and

dissemination of “consumer reports." A

conflict has hiieknued between the

circuits as to the proper definition of

"consumer reports" and the role of

§1681b(3)(E) in that definition. The

issue for this Court to determine would be

whether this section is to be read

literally thus making the FCRA applicable

to all reports prepared for "legitimate

business need[s] ... in connection with a

business transaction concerning the

consumer,” §1681b(3)(E), or whether only

those reports which meet the specific

definitions in §168la(d) and §1681b are

covered by the Act.

The Petitioner was the subject of a

"claims report" rendered by Equifax to aid

his insurance company in deciding whether

to pay or to deny his claim for insurance

benefits. The court below held that an

insurance claims report is not a "consumer

report™ under the FCRA, thus aligning the

Eleventh Circuit with the Third Circuit's

decision in Houghton v. New Jersey Manuf.

Ins. Co., 795 F.2d 1144 (3rd Cir. 1986).

In reaching that result those two circuits

held that the general provision in

§1681b(3)(E) ("legitimate business need

for the information") applied only to

reports which met one of the specifically

enumerated definitions of §168la(d) and

§1681b(3)(A-D). Each court thereby

rendered §1681b(3)(E) meaningless and

effectively excised it from the Act.

Those holdings directly conflict with

the Statement of Purpose set out at

§1681(b) which states that "[i]t is the

purpose of this title to require that

consumer reporting agencies adopt

reasonable procedures for meeting the

needs of commerce for consumer credit,

personnel, insurance, and other

information ..." The “other information"

referred to in this section finds its

operative provision in §1681b(3)(E) which

extends the mandate of the FCRA to all

reports involving a “legitimate business

need for the information." Therefore,

based upon both the stated purpose of the

Act and its operative provisions, it is

clear that the courts below improperly

limited the FCRA in holding that the

protective provisions did not extend to an

insurance claims report.

Apparently there are no federal

appellate cases which directly conflict

with those decisions (i.e. none hold that

insurance claims reports per se are

"Consumer reports"). However, the

interpretation given by the Eleventh and

Third Circuits to the sections of the FCRA

at issue, §168la(d) and §1681b(3)(E),

conflict with the interpretation rendered

in Greenway v. Information Dynamics Ltd.,

524 F.2d 1145 (9th Cir.),cert. dismissed

424 U.S. 936 (1976). The Greenway

decision leaves no doubt but that in the

Ninth Circuit insurance claims reports

would be covered by the FCRA.

In Greenway defendant provided

reports to its subscribers which contained

information concerning persons who had had

checks returned by their banks. The issue

was whether such reports were “consumer

reports" subject to the FCRA. Just as in

}

the present case, those reports were not

iz i

a ‘

‘

’

' '

included in the express definition of

"consumer reports." Nevertheless the

court determined that they were included

in the general provision found at

§1681b(3)(E), and thus did meet the

definitional criteria.

The Greenway court affirmed and fully

adopted the "careful reasoning" of the

district court. 524 F.2d at 1146. The

district courts’ decision, Greenway v.

Information Dynamics, Ltd., 399 F.Supp.

1092 (D.Ariz. 1974), interpreted the plain

and unambiguous language of §1681b(3)(£)

exactly as Petitioner urged the court

below in the present case. The Greenway

court gave literal meaning to the words of

§1681b(3)(E), read those words back into

§168la(d) as mandated by that section, and

construed the meaning as follows:

When these two sections of the

Act, §168la(d) and §1681b(3)(E),

are read together, as the Act

indicates they must be, the

result is clear: when an agency

disseminates information bearing

on any of the seven

characteristics of a consumer

listed in §168la(d) to a third

party, and the agency knows or

expects that it will be used "in

connection with a business

transaction involving the

consumer," then that information

is a "consumer report" and its

originator is a "consumer

reporting agency."

399 F.Supp. at 1095.

If the Ninth Circuit's interpretation

was applied to the present case, it is

obvious that the Eleventh Circuit would

have found that insurance claims reports

were covered by the FCRA. The subject

report related to the seven

characteristics listed in §168la(d), and

it was used in the determination of

whether to pay insurance benefits to an

insured, obviously a “business transaction

involving the consumer." In fact, the

Greenway court found accord and full

Support for its reasoning in Beresh v.

Retail Credit Co., Inc., 358 F.Supp. 260

(C.D. Cal. 1973), a case which did

specifically hold that insurance claims

reports are "consumer reports" under the

FCRA.

The difference in the way <he courts

have interpreted the definition of

"Consumer reports" apparently lies in

different approaches taken to statutory

construction generally. The Fleventh

Circuit chose to ignore the plain and

unambiguous language of the FCRA in order

to limit its reach. It relied upon

obscure canons of statutory construction

which should not have come into play in

light of the clear statutory language

employed by Congress. It further looked

to “legislative history" when there was no

ambiguity in the Act itself which needed

to be resolved.

The Ninth Circuit, on the other hand,

determined that literal meaning should be

given to the words which Congress chose,

and that the broad remedial purpose behind

the FCRA prevented the courts from taking

it upon themselves to limit its reach.

More is said on this point in the next

section of this Petition, but it should be

evident from the present discussion that

more than the precise issue of defining

"Consumer reports" is at stake here. The

circuits are divided as to their overall

approach to statutory construction.

The Eleventh and Third Circuits seem

less willing to read Congressional

enactments literally, and are apparently

concerned more with limiting federal

remedies than with providing the broad

consumer protection envisioned by Congress.

The Ninth Circuit has just the opposite

approach, and such differences could lead

to other federal statutes being given

conflicting interpretations by the various

circuits. This gives more urgency to the

present Petition, and indicates that

certiorari should be granted in order to

promote uniformity among the circuits in

their basic approaches to statutory

construction, as well as in regard to the

definition of “consumer reports."

As mentioned above, Beresh v. Retail

Credit Co., Inc. 358 F.Supp. 260 (C.D.

Cal. 1973), explicitly held that insurance

claims reports are FCRA "consumer reports."

The Beresh court held “that the broad

language of §1681b(3)(E) embraces the

insurance claims investigative reports in

question." 358 F.Supp. at 262. Speaking

to the fact that the report was used to

determine whether an insurance claim

should be paid on a policy already in

effect, the court said that there was "no

doubt that Retail Credit and Information

Research were procured by Sovereign Life

to prepare these reports ‘in connection

with a business transaction' involving the

insurance company and its insured Beresh,

a consumer." Id.

The FCRA was enacted to assure that

reasonable and fair procedures are

utilized by agencies which investigate

consumers for consumer credit, personnel,

insurance, and other legitimate purposes.

15 U.S.C. §1681. As federal legislation,

its effect is obviously intended to be

nationwide. The issue urged upon the

Court is not a minor or esoteric point

within the FCRA, but rather is a threshold

matter as to what type reports will be

governed by the Act. In light of the

broad language of §1681b(3)(E) this is an

issue likely to arise repeatedly in the

future, and one which will have a profound

impact on the extent to which consumers

are protected. Unless this Court settles

the basic issue of the meaning and reach

of §1681b(3)(E), there cannot be national

uniformity in the application of the FCRA.

The Court is urged to settle the law

now, because if the decision below is

allowed to stand, countless reports on

consumers will be performed without FCRA

compliance. Tf the decision below is

incorrect on the merits, then those

reports will have been made in

contravention of Congressional mandate,

with disastrous impact on the lives of

many consumers such as Petitioner.

. Zs eal al ar is See ae a te ener Rial ial SD saaiadineiall

II. THE COURT BELOW VIOLATED

RULES OF STATUTORY CONSTRUCTION ENUNCIATED

BY THIS COURT, AND THEREBY

GAVE THE FCRA A MEANING WHICH CONTRAVENES

THE PLAIN LANGUAGE OF THE STATUTE AND

FRUSTRATES CONGRESSIONAL INTENT.

By holding that the subject report

was not a "consumer caaece* under the

FCRA, the court below misapplied canons of

statutory construction laid down by this

Court in a manner which completely

frustrates the broad Congressional purpose

behind the Act. See §1681. In so doing,

the Court of Appeals ignored the plain

language of §1681b(3)(E) and rendered it

totally meaningless. :

The court first correctly determined

that insurance claims reports were not

expressly included in the definition of

“consumer reports." Next, §1681b(3)(#)

was considered, and it was in the

construction of this catch-all provision

that the court erred. The court stated

that §168la is the preeminent definitional

section, and that §168lb must therefore be

conformed to its bounds. 823 F.2d at 419.

This construction ignores the fact that

§168la expressly incorporates §1681b into

the definition. This does not mean that

§168lb would be limited by §168la, but

rather means that the breadth and scope of

§168la is extended to include the purposes

enumerated in §1681b.

The three purposes listed in

§168la(d) (eligibility for (1) credit or

personal insurance, or (2) employment

purposes, or (3) other purposes under

§1681b) are all separated by the word "or."

As this Court has stated, terms connected

by a disjunctive should ordinarily be

given separate meanings. Reiter v.

Sonotone Corp., 442 U.S. 330, 339 (1979).

This canon of construction is violated by

limiting the third purpose in §168la(d) to

the parameters expressed in the first two.

= SS a7 >

The court alternatively applied the

rule of ejusdem generis, and thereby

violated this Court's enunciation that

ejusdem generis is merely an aid to

construction which comes into play if, and

only if, the language of the statute is

ambiguous or its meaning uncertain.

United States v. Turkette, 452 U.S. 576

(1981). The court should have instead

followed the primary rule of construction

that where the words of the statute are

unambiguous, as they certainly are here,

judicial inquiry is complete. Rubin v.

United States, 449 U.S. 424, 430 (1981).

For a "plain meaning" interpretation of

§1681b(3)(E), see Greenway v. Information

Dynamics, Ltd, 399 F. Supp. 1092 (D. Ariz.

1974) aff'd per curiam 524 F.2d 1145 (9th

Cir.), cert. dismissed 424 U.S. 936

(1976), and Beresh v. Retail Credit Co.,

Inc., 358 F.Supp 260 (C.D. Cal. 1973),

which are discussed in the previous

section of this Petition.

In further support of its conclusion,

the Court of Appeals relied upon the

legislative history of the FCRA. 823 F.2d

at 419-20. This was an improper step in

the construction process, for it is

inappropriate to look at legislative

history where the language in the statute

is unambiguous. Blum v. Stenson, 465 U.S.

886, 896 (1984). It is the actual words

used in the statute itself, rather than

pronouncements by committees and

legislators, which are to be taken as the

final expression of Congressional intent.

American Tobacco Co. v. Patterson, 456

0.8. -63;5 74 - 43982).

Nevertheless, even if it is assumed

arguendo that it was proper to look at the

legislative history, the conclusions

reached by the court cannot be reconciled

with the purpose of the FCRA expressed in

§1681. This expression of purpose leaves

little doubt that Congress wanted broad

protection for consumers who were being

harmed by shoddy reports and reporting

procedures. A consumer whose insurance

application is accepted, who pays a

premium, and is later denied benefits due

to a false report is certainly harmed more

than one who is simply denied insurance in

the first place and thus pays no premium.

The court read too much into the

absence of insurance claims reports being

expressly mentioned and ignored the broad

and explicit language of §1681b(3)(E),

which undoubtedly would include insurance

Claims reports. This rendered

§1681b(3)(E) meaningless because it was

left with no field of operation beyond

that expressed in the previous sections.

This violated the\)canonh of construction

that a statute is not to be interpreted so

as to render one part inoperative.

Colautti v. Franklin, 439 U.S. 379, 392

(1979).

The court also read too much meaning

into the fact that a later Congress

refused to amend the FCRA to expressly

include insurance claims reports. As this

Court has said, it is dubious to take

Congressional inaction as a basis for

construction. United States v. Price, 36l

U.S. 276 (1960). It is equally as likely

that Congress considered insurance claims

reports as being already covered by the

FCRA and that amendment was therefore

unnecessary, or that Congress desired the

courts to flesh out §1681b(3)(E) in light

of actual cases.

Further, in that portion of the

court's opinion where deference was given

to the FTC's interpretation of “consumer

reports", the court cited the FTC opinion

that says insurance claims reports are not

included in the definition at the time

they are obtained. The court failed to

cite the next paragraph which states that

if such reports are later used to deny a

claim, as in the present case, then they

become “consumer reports" subject to the

FCRA. 5 CONSUMER CRED. GUIDE (CCH).

g11,307 at 59,829 (1977)

The law is clear that the statutory

words employed by Congress are generally

to be given a literal reading. United

States v. Locke, 105 S. Ct. 1785, 1792

(1985), Sedima, S.P.R.L. v. Imrex Co.,

Inc., 473 U.S. 479 (1985). A literal

interpretation of the definition of

"consumer report" found in §168la(d) and

§1681b(3)(E) would include the insurance

claims report at issue. It certainly bore

on the seven characteristics in §168la(d),

and was used to deny insurance benefits to

an insured, obviously "a business

transaction involving the consumer."

§1681b(3)(E).

It is apparent that the Eleventh

Circuit was reluctant to extend a broad

interpretation to §1681b(3)(E), as it was

thought that this would diminish the

raison d'etre of the specific definitions.

Yet, there would be nothing incongruous

with Congress svecifically enumerating as

"consumer reports" particular types of

reports which it did not want left to

judicial decision, §168la(d) and

§1681b(3)(A-D), and thereafter to include

in the definition a catch-all provision,

§1681b(3)(E), to assure that all other

reports involving a legitimate business

need in a transaction with the consumer

would be included. See, for example,

§168lc(a)(6), another catch-all provision

which could not possibly be construed to

limit its application to the specific

instances there enumerated.

The only conclusion that can be drawn

is that those types of reports which are

specifically enumerated are "consumer

reports," and that all other reports, such

as the one in this case, which meet the

literal definition of §1681b(3)(E) are

also "consumer reports." Because of the

importance of settling the construction to

be given §1681b(3)(E) and the importance

of supervising lower courts which have

flagrantly disregarded this Court's rules

of construction, certiorari should be

granted.

III. THE DISCLOSURE REQUIREMENTS

MANDATED BY §168lg

ARE NOT RESTRICTED TO

CONSUMER REPORTS

The Eleventh Circuit also erred in

reversing Petitioner's FCRA claim in

regard to Equifax's failure to comply with

his disclosure request made pursuant to

§168lg on February 19, 1985. Equifax

first told Hovater that it could not

comply because his file had been lost

although in fact it had been destroyed.

[R5-56, R6-11]. §168lg requires that

reporting agencies disclose all

information in their "files" (defined in

§168la(g) as all information on the

consumer, regardless of how stored) upon

request of the consumer. Since the

disclosure of all information is mandated

this would apply whether or not a

"consumer report" had been issued by the

agency. Heath v. Credit Bureau of

Sheridan, Inc., 618 F.2d 693 (10th Cir.

1980); Kiblen v. Pickle, 653 P.2d 1338

(Wash. App. 1982).

The evidence is uncontroverted that

Equifax did not provide the report in

question until mid-April of 1985, pursuant

to discovery requests made by Petitioner

in the lawsuit filed March 1, 1985. 823

F.2d at 414. Further, the Equifax files

contained an unrelated report which was

not disclosed. The failure to comply with

the disclosure request of February 19,

1985 was a clear violation of §168lg. The

Eleventh Circuit apparently did not

address this issue because it mistakenly

assumed that the FCRA would apply only if

the report in question was a “consumer

report.” If the Eleventh Circuit's

holding on the other FCRA violations is

upheld, then this Court should direct a

new trial to determine solely the issue of

Petitioner's claimed violation of §168lg.

IV. THE APPLICATION OF THE STATUTE OF

LIMITATION TO BAR PETITIONER'S CAUSE OF

ACTION FOR LIBEL AND SLANDER, WHERE

PETITIONER COULD NOT BY EXERCISE OF

REASONABLE DILIGENCE HAVE DISCOVERED THE

EXISTENCE OF HIS CLAIM UNTIL AFTER THE

STATUTE HAD RUN, VIOLATES

PETITIONER'S RIGHT TO DUE PROCESS OF LAW.

The report prepared by Equifax

contained numerous defamatory assertions

about Hovater. He first learned about

that report on January 18, 1985, 2 years

and 2 months after its publication. The

record is absolutely clear that Petitioner

could not have discovered the existence of

the report any sooner. Suit was filed

only 41 days after discovery of the report.

The statute of limitation was one year

after publication. Ala. Code §6-2-39

(1975).

The Alabama Supreme Court has

explicitly rejected a “discovery rule" for

determining when the statute of limitation

begins to run. Garrett v. Raytheon Co.,

In. ., 368 So. 2d 516 (Ala. 1979). There

the Alabama court conceded that "Alabama's

rejection of the ‘Discovery Rule' [may be]

contrary to the weight of opinion

generally," 368 So. 2d at 521, but

nevertheless refused to usurp what it

deemed to be the exclusive province of the

legislature to establish statutes of

limitation. Id. Thus, in Alabama

plaintiffs who are unfortunate enough to

have been injured in a way where they

could not possibly have known of their

claim within the limitation period are

afforded no remedy under the law. This is

also true in all other states which have

declined to follow a discovery rule. See

generally Annot., 80 A.L.R. 2d 368,

§7{b,c] (1961). In Alabama, only a

fraudulent concealment of the cause of

action serves to toll the statute.

Yonsmeire v. Tonsmeire, 285 Ala. 454, 233

So. 2d 465 (1970); Holdbrooks v. Central

Bank of Alabama, N.A., 435 So. 2d 1250

(Ala. 1983). Petitioner maintains that

this limited rule of discovery is

inadequate to meet Due Process

requirements.

The Alabama Supreme Court's deference

to the state legislature to "abrogate this

rule and adopt a more equitable one," 368

So. 2d at 521, perhaps shows a misplaced

confidence that the legislature will take

Such action. The legislature has not done

so since Garrett v. Raytheon was decided

in 1979. Further, Alabama has recently

passed "tort reform" legislation which

greatly constricts plaintiffs' rights

rather than expanding them. 1987 Ala. Acts

87-164, 87-181 to 189. The Alabama

legislature cannot be relied upon to enact

a discovery rule which would comply with

Due Process. Petitioner maintains that

Due Process requires that a discovery rule

be applied to the facts of this and

similar cases and this cannot be left to

the whim of the state legislature.

Petitioner is fully aware that a

decision in his favor on this issue would

have far-reaching effects on civil

litigation throughout the nation.

However, it is asserted that the

fundamental unfairness of applying a

Statute of limitation to bar a claim which

a reasonably diligent plaintiff could not

have known about in time to institute a

Civil action violates the Due Process

Clause. An issue as important as this

certainly should be passed upon by this

Court.

There is strong support to be found

for Petitioner's position. This Court has

already held that a cause of action is a

property interest protected by the Due

Process Clause. Logan v. Zimmerman Brush

Co., 455 U.S. 422, 428 (1982). In Logan,

this Court further noted that "the

Fourteenth Amendment's Due Process Clause

has been interpreted as preventing States

from denying potential litigants use of

established adjudicatory procedures, when

such an action would be 'the equivalent of

denying them an opportunity to be heard

upon their claimed right[s]'. Boddie v.

Connecticut, 401 0.8. 371, 380, 931i 8.Ct.

780, 787, 28 L.Ed. 2d 113 (1971)." 455

U.S. at 429-30 (footnote omitted).

Applying this concept to the present

case, it becomes apparent that the barring

of Petitioner's claim before he could have

discovered its existence is "the

equivalent of denying [him] an opportunity

to be heard on [his] claimed right." Id.

Unless Due Process demands a discovery

rule for the time when a cause of action

accrues, then numerous litigants will

never have an opportunity for redress of

wrongs done to them, regardless of how

terrible or severe. A discovery rule

applies generally to federal causes of

action, Bowling v. Founders Title Co., 773

F.2d 1175, 1178 (llth Cir. 1985), and the

same protection should be extended to

govern state causes of action.

Further, in decisions regarding a

legislative shortening of the statute of

limitation, the law is clear that failure

to provide a reasonable time thereafter

for plaintiffs with an existing claim to

bring suit is a Due Process violation.

Atchafalaya Land Co. v. F.B. Williams

Cypress Co., 258 U.S. 190, 196-97 (1922).

As this Court has stated: "So, too, it

has been held that statutes of limitations

must give a party a reasonable time to

sue, and if a particular statute should

fail to do so it would be within the

competency of the courts to declare the

Same unconstitutional and void." Campbell

v. City of Haverhill, 155 U.S. 610, 615

(1895). On the merits of his claim,

Petitioner would argue that, as applied in

this and similar situations, the Alabama

statute of limitations for libel and

slander has not provided a reasonable time

in which to sue. See Boddie v.

Connecticut, 401 U.S. at 379 (a generally

valid statute may be unconstitutional as

applied).

This Court has recognized the

inequity of applying a statute of

limitation to bar a claim which the

Plaintiff could not by exercising

reasonable diligence have discovered in

time. Urie v.Thompson, 337 U.S. 163

(1949); Holmberg v. Armbrecht, 327 U.S.

392 (1946). In neither of these cases was

the Due Process Clause relied upon, but

the statements and reasoning indicates the

Court's awareness of the fundamental

unfairness in time-barring a claim before

Plaintiff could have discovered it. For

instance, in Urie, the Court said:

We do not think the humane

legislative plan intended such

consequences to attach to

blameless ignorance. Nor do we

think those consequences can be

reconciled with the traditional

purposes of statutes of

limitations, which

conventionally require the

assertion of claims within a

specified period of time after

notice of the invasion of legal

rights.

337 U.S. at 170.

The Court said that to rule otherwise

would afford Plaintiff only a "“delusive

remedy." 337 U.S. at 169. And in

Holmberg, the Court said in regard to a

fraudulent concealment of a cause of

action:

Equity will not lend itself to

such fraud and historically has

relieved from it. It bars a

defendant from setting up such a

fraudulent defense, as it

interposes against other forms

of fraud. And so this Court

long ago adopted as its own the

old chancery rule that where a

plaintiff has been injured by

fraud and remains in ignorance

of it without any fault or want

of diligence or care on his

part, the bar of the statute

does not begin to run until the

fraud is discovered, though

there be no special

circumstances or efforts on the

part of the party committing the

fraud to conceal it from the

knowledge of the other party.

327 U.S. at 396-97.

Admittedly the state does have a

legitimate interest in limiting the time

in which actions may be brought, but such

purposes are not served by applying the

statute in this and similar cases. The

traditional purpose of statutes of

limitation is to prevent surprise, to keep

memories and evidence intact, and to bar

plaintiffs who have slept on their rights.

See American Pipe and Construction Co. v.

Utah, 414 U.S. 538, 554-55 (1974). There

is no element of surprise here as Equifax

expected significant litigation and

affirmatively tried to avoid it by

covering up the original report.

[Plaintiff's Exhibit 1; R5-157, 171, 172;

R6-87; R6-11]. Evidence and memories are

fully intact as most of the proof lies in

written documents and there is no

indication that Equifax was put to any

disadvantage by the passage of time. And

it certainly could not be argued that

Petitioner slept on his rights; he could

not possibly have known about the report

until Penn National finally produced it

after almost one and a half years of

ignoring its duty to do so. If his

Request for Production had been timely

honored by Penn National, he would have

known about the report in time. His

timely use of Federal discovery procedure

most certainly establishes due diligence

by Petitioner.

Judicial pronouncements from other

courts or individual judges have suggested

that the concept of Due Process does

require a discovery rule. E.g., Nelson v.

Krusen, 678 S.W. 2d 918 (Tex. 1984); Ayers

v. Morgan, 397 Pa. 282, 154 A.2d 788

(1959) (McBride, J., concurring in the

result); Garrett v. Raytheon, 368 So. 2d

516, 524 (Ala. 1979) (Faulkner, J.,

dissenting); Bradley v. Irwin, 166 Pa.

548, 31 A. 261 (1895); see also Lankford

v. Sullivan, 416 So. 2d 996, 1003 (Ala.

1982) (10 year statute of repose violates

due process partly because it does not

provide for an extension of time to bring

suit for someone who is injured shortly

before the 10 year period expires, and

this is arbitrary) (per Almon, J., with

three Justices concurring specially and

one Justice concurring in the result);

Tucker v. Nichols, 431 So. 2d 1262 (Ala.

1983) (Medical Malpractice Act construed

so as to provide equal application to one

who discovers his claim just before two

year limitation but does not file suit

within two years of the accrual of his

claim, and one who discovers claim more

than two years after accrual but sues

within six months of discovery, where face

of Act would bar the former but not the

latter).

Other courts have recognized the

inequity of Petitioner's predicament and

have adopted a discovery rule through

their inherent power to determine when a

cause of action accrues. E.g., Franklin

v. Albert, 381 Mass. 611, 411 N.E.2d 458

(1980); Raymond v. Eli Lilly & Co., 371

A.2d 170 (N.H. 1977). For an extensive

list of cases applying discovery rules,

see the following: Annot., 70 A.L.R. 3d

7, §5 (1976 & Supp. 1987); Annot., 4

A.L.R. 3d 821, §9 (1965 & Supp. 1987);

Annot., 80 A.L.R. 2d 368, §7 (1961 & Supp.

1987).

Whatever the ultimate decision on the

merits of Petitioner's Due Process claim,

the importance, wide spread effect, and

fundamental unfairness of applying |

statutes of limitation to bar claims which

a reasonably diligent Plaintiff could not

have discovered in time, indicates that

this Court should pass upon the issue.

-45

V. THE DECISION BELOW COMPLETELY

IGNORES ESTABLISHED ALABAMA LAW REGARDING

CONCEALMENT OF A CLAIM BY A THIRD PARTY AS

TOLLING THE STATUTE OF LIMITATIONS

As stated above, Penn National, a

third party to the present action, avoided

complying with discovery requests and

orders in its Declaratory Judgment action

against Petitioner for almost one and a

half years. It is undisputed that had

Penn National timely complied with its

discovery obligation, Petitioner would

have known about his cause of action

within the limitation period.

Nevertheless, the court below held that

under Alabama law the concealment of a

cause of action by a third party did not

serve to toll the statute. [In so doing,

the court relied upon two Alabama cases

which are distinguishable from the present

case, and ignored the more recent case of

Vandegrift v. Lagrone, 477 So. 2d 292

(Ala. 1985) which held that the fraudulent

concealment of the existence of a will by

a third party tolls the statute of

limitation for submitting the will to

probate. The clear implications of

applying Vandegrift to the present case

were not discussed by the Eleventh Circuit

and were apparently ignored by it.

In Vandegrift, the Alabama Court

said:

If the existence of the will

is fraudulently concealed from

the proponent, he is effectively

precluded from filing a petition

for probate, whether it is the

contestant or some third party

who is guilty of concealing the

will's existence. The proponent

should not be deprived of the

opportunity to establish his

right to the property by the

fraudulent concealment of the

will by an heir at law of the

deceased who, by concealing the

existence of the will, seeks to

obtain property rights to which

he is not entitled.

477 So. 2d at 294. (Emphasis added).

Clearly then Alabama's fraudulent

tolling statute can be applicable whether

it is the defendant or some third party

who has concealed facts which would have

led the Plaintiff to discover his cause of

action. In the present case, the

Original suit by Petitioner against Penn

National contained requests for production

of documents to Penn National which

certainly included the subject report.

The original request for production was

required to be responded to well within

the time when Petitioner could have

brought his claim against Respondent

Equifax. However, by stonewalling for

almost one and a half years, Penn National

was able to conceal the subject report

from Petitioner until after the one year

statute had expired.

It is this concealment by Penn

National, when it was under a duty to

disclose the report as per the Federal

Rules of Civil Procedure, that resulted in

Petitioner's complaint against Equifax to

be delayed beyond the time allowed by the

applicable statute of limitations. Since

the proper application of state law by the

federal courts is a necessary part of the

comity existing between state and federal

government, this Court should grant

certiorari in order to exercise its

Supervisor responsibility in this regard,

and to assure that federal courts

interpret state law in accordance with

decisions from the state's highest court.

VI. THE DECISION BELOW ON RICO

IGNORES THIS COURT'S

RULING IN SEDIMA S.P.R.L. v.

IMREX CO., INC.

Summary Judgment was granted for

Defendant in the trial court on

Petitioner's RICO claim, and that ruling

was affirmed below with only the following

discussion: "As we find that Hovater's

contentions for establishing violations of

civil RICO are completely without merit,

we affirm the district court's grant of

summary judgment on that issue." 823 F.2d

at 421.

This treatment of Petitioner's RICO

claim makes it difficult to ascertain the

basis of the court of appeals' ruling, but

Petitioner submits that the decision

disregards both the record before the

trial court upon submission of summary

judgment,and this Court's interpretation

of RICO in Sedima, S.P.R.L. v. Imrex Co.,

Inc., 473 U.S. 479 (1985).

— Ta Bi aaa mE ElCcETTlllllCUCETClCU ECO Ol ETTZCOlCLTTCOCUlC LETC ETT ETT.

A defendant who moves for summary

judgment has the burden of showing the

absence of any material fact. Adickes v.

S. H. Kress & Co., 398 U.S. 144, 157

(1970). For this reason, the evidence

before the court upon submission of the

motion must be viewed in the light most

favorable to the non-moving party. Id.

When the evidence which was before the

district court in the present case is

viewed under this standard, it is apparent

that summary judgment was erroneously

granted to Respondent Equifax on

Petitioner's RICO count.

The Sedima decision indicates that

the RICO statute should be read literally,

and that the lower courts had incorrectly

attempted to limit its reach by reading

into the statute requirements not

expressed by Congress. The elements of

RICO as set out in Sedima are (1) conduct,

(2) of an enterprise, (3) through a

pattern, (4) of racketeering activity. An

application of RICO, as interpreted in

Sedima, to the record in the present case

would reveal that the Petitioner has

presented sufficient facts to sustain his

RICO count. The ruling of both the

district and the circuit court would

indicate that they were applying a

pre-Sedima interpretation of RICO to this

case.

Briefly stated, the facts set out in

Petitioner's complaint which were not

controverted by Equifax or which were

before the Court as a part of the record

by affidavit or deposition were as

follows: The subject report contained

numerous gross inaccuracies which were not

verified in accordance with Equifax's own

policies and procedures, contained

assertions of criminality totally

unsupported by fact, and Equifax knew or

should have known of the falsity of the

report thereby rendering them fraudulent

misrepresentations. A device, artifice or

scheme to defraud was instituted by

Equifax through numerous mailings and

telephone conversations transmitting those

false statements with the intent of

inducing those to whom the information was

conveyed to believe that they were true.

The report was mailed on November 22,

1982, to at least four separate entities:

(1) Penn National, (2) Attorney Braxton

Ashe, (3) Doug Hargett, and (4) Dick

Romard. Each of these four mailings

violated 18 U.S.C. §1341, and thereby were

predicate offenses under 18 U.S.C. §1962.

Equifax determined that the subject

report contained defamatory statements and

decided to undertake a "cover-up" by

destroying the reports which were

outstanding. The reason for those actions

was "to escape significant litigation."

[Plaintiff's Exhibit 25]. On or about

November 24, 1982, Equifax telephoned Penn

National, Attorney Ashe, and Doug Hargett,

in an effort to obtain the reports which

had been published to them. Those calls

were in furtherance of a fraudulent scheme

to cover-up the defamation contained in

the original reports, violated 18 U.S.C.

§1343, and thereby were further predicate

offenses under 18 U.S.C. §1962.

Thereafter, on December 6, 1982,

Equifax mailed to each of the above

mentioned entities copies of the amended

report, which implied that Equifax had

conducted further investigations and that

the new report reflected such

re-investigation. In fact, no further

investigation had been conducted. Due to

the false statements contained therein,

these mailings violated 18 U.S.C. §134l,

and thereby constituted four more

predicate offenses under 18 U.S.C. §1962.

The above activities clearly establish the

required pattern of racketeering activity.

There can be little doubt but that

Petitioner was injured "by reason of" the

above recited "pattern" of mail and wire

Fraud. At trial Equifax conceded the

falsity of the subject report. Because of

the denial of coverage by Penn National,

based in part upon the fraudulent

misrepresentations outlined above,

Petitioner was caused to incur legal and

other expenses of $61,229.35 in obtaining

the insurance proceeds to which he was

entitled.

As mentioned above, it is impossible

to know the basis of the decision below.

It seems clear, however, that the court of

appeals did not attempt to give RICO the

broad interpretation mandated by this

Court in Sedima. Whatever the ultimate

decision on the merits of Petitioner's

RICO claim, the Court should grant

certiorari in order to assure that its

Sedima decision is being followed by the

lower courts, and that pre-Sedima attempts

to narrow the scope of RICO are not still

the actual practice.

Bae

CONCLUSION

For these reasons, a writ of

certiorari should issue to review the

judgment and opinion of the Eleventh

Circuit.

Respectfully submitted,

GONCE, YOUNG & WESTBROOK

109 Court Street

——, 35630

WVonse hou dod.

Mary Anne Westbrook

Attorneys for Petitioner

CERTIFICATE OF SERVICE

I hereby certify that I have served a

copy of the foregoing on all attorneys of

record by mailing a copy of the same to

them by United States mail, properly

addressed and postage prepaid this the 287

day of October, 1987.

lph Young

APPENDIX

Opinion of the court below:

Hovater v. Equifax, Inc.,

Sas V.ae S413 (hRGR Cit. 1987)

Judgment of the court below,

entered July 30, 1987.

Roger D. Hovater, Plaintiff-Appellee,

Cross-Appellant,

EQUIFAX, INC., Equifax Services, Inc.,

and Equifax Services, Ltd.,

Defendants-Appellants, Cross-Appellees.

No. 86-7419.

United States Court of Appeals,

Eleventh Circuit.

July 30, 1987.

Appeals from the United States District

Court for the Northern District of

Alabama.

Before HATCHETT and ANDERSON, Circuit

Judges, and TUTTLE, Senior Circuit Judge.

TUTTLE, Senior Circuit Judge:

This case comes before the Court on

cross appeals. Equifax Services, Inc.

(Equifax) appeals from a jury verdict and

awards of compensatory and punitive

damages for defamation and for violations

of the Fair Credit Reporting Act, (FCRA),

15 U.S.C. § 1681 et seq. Concurrently,

EBEERBEE SE

Roger Hovater (Hovater) appeals from the

district court's grant of summary judgment

for Equifax on his civil RICO claims. 18

U.S.C. §§ 1961-68. As we find that

Hovater's state law claims for libel and

Slander were time barred and that the FCRA

does not apply in this case, we reverse

the decision of the district court and

remand this case for entry of a judgment

for Equifax. The district court's summary

judgment order on the RICO claims is

affirmed.

II. FACTS

At the center of this controversy is a

report on an investigation about Hovater

that Equifax prepared and provided to

Pennsylvania National Mutual Casualty

Insurance Co. (Penn National), a

non-party, and certain others. The

circumstances surrounding the preparation

and dissemination of this report are as

follows.

On September 1, 1982, the old Hovater

homeplace, located in Colbert County,

Alabama, was destroyed by fire. At the

time, the-Hovater family resided elsewhere.

It is undisputed that arson caused the

blaze. After the fire, Hovater filed a

proof of loss with his insurer, Penn

National. In light of the circumstances,

Penn National's attorney, Braxton Ashe,

sought to obtain background information

about Hovater for use in evaluating the

claim. Towards that end, Penn National

hired Equifax.

Equifax assigned the task of

investigating Hovater to Greg Rowe, a

claims investigator in its Huntsville,

Alabama, office. Mr. Rowe performed his

investigation on November 15 and 16, 1982.

Rowe conveyed the results of the

investigation orally to Braxton Ashe, Penn

National's attorney, and to the Colbert

county Sheritf's Department. Rowe also

summarized his results in writing in a

report dated November 18, 1982 and sent

copies to: 1) Braxton Ashe, Penn

National's Attorney; 2) James Goad, Penn

National's Claims Manager; 3) Richard

Romard, Equifax's Fire Investigation

Supervisor in Atlanta; and 4) the Colbert

County Sheriff's Department. Rowe's

report accused Hovater, inter alia, of

associating with Known arsonists and of

having accumulated large gambling debts.

Upon reviewing the report on November

23, 1982, in Equifax's Atlanta office,

supervisor Romard recognized that the

report was extremely shoddy and that its

dissemination to the authorities violated

company policy. Romard concluded that the

copies of the report should be retrieved

and destroyed and that a revised report

should be provided only to Penn National.

The report was retrieved and revised and

the new report was sent to Penn National.

On December 22, 1982, Penn National

contested Hovater's fire insurance claim

by filing suit for declaratory relief to

determine its liability under the policy.

Penn National alleged arson and

misrepresentation in terms of the contents

of the house, its lien holders, and its

occupancy, as grounds for not paying

Hovater on the policy. While Penn

National initiated the suit, it was less

than cooperative in complying with

Hovater's requests for discovery or with

the court's orders compelling

the production of evidence. Ultimately,

on January 18, 1985, Penn National did

produce a number of documents including a

copy of Equifax's initial 1982 report. It

seems that while Penn National had

returned the original report to Equifax as

requested, it had retained a copy in its

files. On February 4, 1985, Penn National

settled its dispute with Hovater for

$129,000.

On February 19, 1985, Hovater requested

Equifax's Florence, Alabama, office to

disclose to him any information it had

about him. Hovater was referred to the

Birmingham office where upon initial

investigation his file was not located.

It appears that his file had been

transferred to Atlanta when the 1982

report was revised and reissued. Equifax

informed Hovater that it would be back in

touch with him but before it did so

Hovater filed suit. This Hovater did on

March 1, 1985, less than two weeks after

he first contacted the agency. Pursuant

to discovery, by mid-April of 1985,

Equifax provided Hovater with a copy of

the initial 1982 report. Equifax had also

retained a copy of the report which it

placed in investigator Rowe's personnel

file.

BEBEBBEHEEEREEESBEER RE ERE

Hovater sued Equifax for its weasaxar tie

and dissemination of the 1982 report under

various legal theories. The portions of

Hovater's complaint which are pertinent to

this appeal include his claims for libel

and slander under Alabama law, violations

of the Fair Credit Reporting Act, and

civil RICO. The trial judge let the _

claims for defamation and violation of the

FCRA go to the jury, which found for

Hovater, but granted summary judgment for

Equifax on the claims for civil RICO.

Both parties have appealed.

III. DEFAMATION

Equifax argues that Hovater's claims for

libel and slander were barred by the

applicable statue ot limitations. It is

uncontested that the applicable limitation

period was one year. Ala. Code

§ 6-2-39(a)(4) (1975); see, e.g.,

Holdbrooks v. Central Bank of Alabama,

H.A., 435 So.26 i250, 1251 (1963).

FREER SE EERE ERE RERRERSE

Further, it is uncontested that Hovater

did not file suit until more than two

years from the date of publication of the

alleged defamation, the event giving rise

to a cause of action under Alabama law and

causing the statute to commence running.

The district court held that the

limitations period had tolled until

Hovater discovered the existence of his

cause of action. Accordingly, the court

held that Hovater's action was not time

barred.

The basis for the district court's

decision that the Limitations period had

tolled is Ala.Code § 6-2-3 (1975). On its

face, this statute provides for the

tolling of the Limitations period in

actions involving fraud until such time as

the aggrieved party discovers or should

have discovered the cause of action.

Significantly, the Alabama courts have

construed the tolling provision of § 6-2-3

to apply not only to causes of action for

fraud but also to the concealment of the

existence of other types of causes of

action where a party has a duty to

disclose the information upon which the

cause of action is based because of the

existence of a confidential relationship

between the parties or due to the presence

of some special circumstance. Holdbrooks,

435 So.2d at 125l; Tonsmeire v. Tonsmeire,

285 Ala. 454, 233 So.2d 465, 468 (1970);

Ala.Code § 6-5-102 (1975). The district

court found that the statute had tolled in

this case. On the basis of Alabama law,

however, we must disagree. Under the

applicable precedents no confidential ;

relationship or special circumstances

existed which required Equifax or Penn

National to divulge the existence of a

potential cause of action for defamation

to Hovater. As there was no requirement

BEREERE EERE REE ERR REE

of disclosure, no grounds for tolling the

statute was present.

The Alabama Supreme Court's decision in

Tonsmeire, 233 So.2d 465 (1970), is

illustrative. A wife sued her estranged

husband for libel. The suit was dismissed

because she filed it more than a year

after the date the alleged libel was .

published. She appealed on the ground

that the Limitation period was tolled due

to the parties' confidential relationship

as husband and wife. The Alabama Supreme

Court held that while the parties were.

Still legally married at the time of the

publication of the alleged libel, the

deterioration of their marriage and its

impending dissolution ended its status as

a confidential relationship. Id. at 467.

The court then stated that:

In the absence of a confidential

relationship, we Know of no duty

imposed by law obligating an alleged

tort feasor to make known to one

. possibly injured by his acts the

existence of a possible cause of

action. Nor was there any duty on the

part of those to whom the libel was

published to inform the plaintiff of

the alleged libel.

Since no duty to inform the

plaintiff was cast either upon the

defendant or those to whom he

allegedly published the libel,

plaintiff's reason for delay in filing

her suit in realty resulted from

ignorance of her alleged cause of

action.

Id. at 468. The court noted that

ignorance of a cause of action does not

typically toll the Limitations period for

to do so would be to undermine the

valuable policy consideration behind such

statutes.

Tonsmeire is frequently cited for the

proposition that absent a confidential

relationship no duty to disclose a

potential cause of action for defamation

arises. Cases decided on the basis of

Tonsmeire elaborate this concept as well

as provide illustrations as to what are

confidential relationships under Alabama

law. Holdbrooks v. Central Bank of

Alabama, N.A., supra, iS such a case.

In Holdbrooks, the Alabama Supreme Court

held that a bank did not have a duty to

inform a guarantor of an allegedly |

libelous statement it made about the

guarantor in a report to a credit agency.

The court held that the parties did not

occupy the type of confidential

relationship requiring disclosure,

especially in light of the bank's

expressed intent to foreclose on the loan.

Id. 435 So.2d at 1252. Similarly, in Clay.

v. Equifax, 762 F.2d 952, 961 (llth

Cir.1985), this Court held on the basis of

Alabama law that an insurance company was

not required to disclose to an insured

allegedly libelous statements contained in

a report the insurer received from

Equifax.

Although we recognize that insurers

Owe a duty of good faith to their

insureds, we do not believe that duty

is equivalent to the confidential

relationship envisioned by the Alabama

courts [so as to require the insurance

company to divulge a potential cause

ines

of action for defamation to an

insured].

Id. at 961. Accordingly, the Clay court

held that disclosure was not required.

Thus, in Tonsmeire, neither a husband

nor the persons he made the allegedly

defamatory statements to were required to

disclose the event to the man's estranged

wife. In Holdbrooks, a bank was not

required to inform a guarantor that it may

have made libelous statements about him to

a credit agency. Furthermore, we read the

court's silence on the issue in

Holdbrooks to also mean that the credit

agency was not required to disclose the

bank's statements to the guarantor.

Lastly, in Clay, this Court held that an

insurance company was not required to

divulge to its insured an allegedly

libelous statement in a report it received

from Equifax for use in evaluating a claim

for benefits. Furthermore, the Clay court

impliedly determined that Equifax and was

[sic] not required to divulge its

statements to the insured.

On the basis of Alabama law, as

illustrated by the preceding cases, we

hold that no confidential relationship

existed between Hovater and either Equifax

or Penn National requiring either of the

latter entities to divulge the existence

of a potential cause of action for

defamation to Hovater. In the absence of

such a confidential relationship, there

was no grounds for tolling the statute.

Furthermore, we hold that no "particular

circumstances" existed under the facts of

this case as an alternate ground upon

which to toll the statute. See Ala.Code §

6-5-102 (1975). While the district court

found otherwise, our holding see infra,

part IV, that the Fair Credit Reporting

Act does not apply in this case removes

from consideration the FCRA's notice and

disclosure provisions as circumstances

BPEREERERE RRR REGRESS

upon which to base a tolling of the

Statute. Absent a confidential

relationship or particular circumstances

upon which to base a tolling Hovater's

claims for defamation were time barred and

the district court erred in ruling

otherwise.

IV. FRCA [sic]

The district court found that Equifax's

1982 report to Penn National was a

“consumer report" governed by the Fair

Credit Reporting Act. 15 U.S.C. § 1681.

In accordance with this finding, the jury

awarded Hovater damages for Equifax's

negligent noncompliance with the Act. 15

U.S.C. § 168lo. As we hold that the 1982

report was not covered by the FCRA, we

find that the question of compliance was

improperly before the jury. The district

court's decision on this issue is reversed

and the case is remanded for entry of a

judgment for Equifax on this issue as

well. |

In 1970, Congress passed the Fair Credit

Reporting Act. 15 U.S.C. § 1681 et seq.

Recognizing the necessity of credit

reporting agencies in our modern economy,

Congress sought through the FCRA to curb

some of the abuses inherent in the

industry.1! To that end, Congress

enacted the FCRA which seeks to establish

credit reporting practices that utilize

accurate, relevant, and current

information in a confidential and

responsible manner. See 15 U.S.C. §

1681(b).

The FCRA focuses on the rights of

consumers by regulating the practices of

credit agencies and the recipients of

their reports. 15 U.S.c. § 1681.

Typically, the Act's safeguards are ‘

invoked when a consumer applies for

credit, insurance or employment. 15

FPRPRBREREERERE EERE EEE ET

U.S.C. § 168l(a). In many instances, the

Act requires an entity dealing with a

consumer under one of the above-mentioned

circumstances to disclose to the consumer

that the party is going to make an

investigation or procure information from

a credit reporting agency about the

consumer for use in considering the

individual's application. 15 U.S.C. §

168ld. Significantly, the Act requires

that whenever credit, insurance, or

employment is denied a consumer or an

adverse decision is made concerning a

consumer's existing status on the basis of

information contained in a credit report,

the party that relies on the report must

inform the consumer that the denial of

his application, or the adverse action,

resulted in whole or in part from the

information contained in the report. The

party relying on the report must also

supply the consumer with the name and

~RPEREBRERERREBERERBERRESE EE

address of the reporting agency that

provided the information. 15 U.S.C.

§168ln. Upon request and identification,

the reporting agency is required to

divulge the information in its files

concerning the interested consumer. 15

U.S.C. § 168lg. If a consumer reasonably

disputes the completeness or accuracy of

the information contained in his or her

file, the consumer may communicate this

disagreement to the reporting agency

thereby invoking the agency's statutory

duty to reinvestigate. 15 U.S.c. § 1681li.

If such an investigation fails to resolve

the dispute, the consumer may file a

statement contesting the information which

is incorporated into the consumer's file.

Id. In addition to the aforementioned

safeguard, the Act protects the consumer

generally by requiring that obsolete

information not be included in consumer

reports, § 168lc, that reporting agencies

follow reasonable procedures -intended to

assure the maximum possible accuracy of

the information contained in reports,

§ 168le, and that the confidentiality of

the information be maintained by limiting

the parties with access to reports to

those with a legitimate interest in

obtaining the information. § 1681b.

Finally, to assure enforcement, the Act

provides for both penal and civil

remedies, including attorney's fees, for

various forms of noncompliance. S§§ 168ln,

168lp, 1681lq.

While oversimplified, the foregoing

description of the FCRA sets the stage for

the narrow issue that this Court is faced

with today. Generally stated, that issue

is whether the FCRA governs information

given by a consumer reporting agency to an

insurance company for the insurer's use in

considering an insured's claim for

benefits under an existing policy. Stated

EEEGEEEEEEELELG

tc (<iiti‘; z;3232 3 Wh.”

more specifically and in light of the fact

that the FCRA expressly regulates

“consumer reports", the question may be

phrased as whether Equifax's 1982 report

to Penn National was a “consumer report"

governed by the FCRA. On the basis of the

express language of the FCRA, the

Congress' intent as drawn from the Act's

legislative history, and the weight of

existing authority on the issue, we hold

that a report which an insurer procures

from a credit reporting agency solely for

use in evaluating an insured's claim for

benefits under an existing policy is not a

"consumer report" subject to the

regulatory provision of the FCRA.

A. Statutory Language

As indicated, the provisions of the FCRA

govern "consumer reports" and also

"investigative consumer reports." Reports

that do not fall within either of these

SEEEELILELEEEEE:

definitional categories are outside the

coverage of the Act. Under the statute:

The term “consumer report" means any

written, oral, or other communication

of any information by a consumer

reporting agency bearing on a

consumer's credit worthiness, credit

standing, credit capacity, character,

general reputation, personal

characteristics, or mode of living

which is used or expected to be used

Or collected in whole or in part for

the purpose of serving as a factor in

establishing the consumer's

eligibility for (1) credit or

insurance to be used primarily for

personal, family, or household

purposes, or (2) employment purposes,

or (3) other purposes authorized under

section 168lb of this title.

§ 168la(d). Summarized, the preceding

section describes a “consumer report" as

information from a credit reporting agency

about a consumer for use in making

eligibility determinations about credit,

insurance, or employment. Section 1681b

seems to add licensing and certain other

governmental benefits to the list of

eligibility determinations covered by the

Act. § 1681b(3)(D). In addition, § 1681lb

limits the dissemination of consumer

reports. Section 1681lb reads:

§ 168lb. Permissible purposes of

consumer reports

A consumer reporting agency may

furnish a consumer report under the

following circumstances and no other:

(1) In response to the order of a

court having jurisdiction to issue

such an order.

(2) In accordance with the written

instructions of the consumer to whom

it relates.

(3) To a person which it has reason

to believe--

(A) intends to use information

in connection with a credit

transaction involving the consumer on

whom the information is to be

furnished and involving the extension

of credit to, or review or collection

of an account of, the consumer; or

(B) intends to use the

information for employment purposes;

information in connection with the

underwriting of insurance involving

the consumer; or

(D) intends to use the

information in connection with a

determination of the consumer's

eligibility for a license or other

benefit granted by a governmental

instrumentality required by law to

consider an applicant's financial

responsibility or status; or

(E) otherwise has a legitimate

business need for the information in

connection with a business transaction

involving the consumer.

In conjunction §§ 168la and 1681lb

provide the definition of a “consumer

report." An “investigative consumer

report," which is merely a special breed

of “consumer report", is wholly defined by

§ 168la(e). That section provides:

The term “investigative consumer report"

means a consumer report or portion thereof

in which information on a consumer's

character, general reputation, personal

characteristics, or mode of living is

obtained through personal interviews with

neighbors, friends, or associates of the

consumer reported on or with others with

whom he is acquainted or who may have

Knowledge concerning any such items of

information.

Considering the Act's definitional

sections, it is clear that a transference

of information by a credit reporting

agency to an insurance company for the

sole intended purpose of evaluating a

claim for insurance benefits under an

existing policy is not a “consumer report"

nor an "investigative consumer report"

under the Act. In terms of the insurance

industry, § 168la speaks of a consumer

SEGRE EE RHHHHHHza

report as a “communication of any

information by a consumer reporting agency

--- Which is used ... in establishing the

consumer's eligibility for ...

insurance...." § 168la(d) (emphasis

added). Section 1681b(3)(C) describes the

consumer report “in connection with the

underwriting of insurance." (emphasis

added). The language in these sections

refers unequivocally to the inception and

maintenance of the insurance contract.

The phrases speak in terms of information

concerning a consumer's ability to get and

keep insurance, they does [sic] not relate

to information that is collected or

transferred for the purpose of evaluating

evaluating an insured's claim for benefits

under an existing policy. The express

language of the Act does not reach reports

for the purpose of evaluating claims for

benefits, accordingly, we hold that such

reports are not governed by the FCRA.

PERE ERRRERREGEEE

While the express language of the Act

does not include insurance claims reports,

the argument is made that such reports

fall under the Act's catch-all provision.

Section 1681b(3)(E), the Act's final

comprehensive enumeration of the

permissible circumstances for the

dissemination of consumer reports provides

that in addition to the court, a consumer,

and persons who intend to use reports for

purposes of credit, employment, the

underwriting of insurance, or licensing, a

report may be provided to a person who a

credit agency has reason to believe

“otherwise has a legitimate business need

for the information in connection with a

business transaction involving the

consumer." The argument goes that

insurance claims reports fall within this

provision.

Courts addressing this argument have

tackled the perceived overinclusiveness of

Section 1681b(3)(E) in a predictable

Manner. Canons of Statutory Construction

have been invoked to resolve the conflict.

Typically, the courts have recognized the

preeminence of § 168la and conformed the

breadth of § 168lb to its bounds.

Examples include Cochran v. Metropolitan

Life Ins. Co., 472 F.Supp. 827

(N.D.Ga.1979), where the court relied on

the canon which seeks to preserve the

substance and effect of all sections of an

enactment in finding that § 168la controls

the breadth of § 168l1b(3)(E). "Not to do

this would render unnecessarily

meaningless the § 168la restrictive

language ..." while "[c]Jonforming §1681b

to 168la preserves the integrity of both

sections, while promoting the underlying

purpose of the entire subchapter." Id.

831. In Houghton v. New Jersey Mfrs. Ins.

Co., 795 F.2d 1144 (3rd Cir.1986), the

Third Circuit agreed with Cochran, but

also relied alternatively on the rule of

ejusdem generis--when general words follow

an enumeration of specific terms the

‘general words are construed to embrace

only objects similar in nature to those

objects enumerated by the preceding

specific words--in limiting §1681b(3)(E).

Id. at 1150. And in Fernandez v. Retail

Credit Company, 349 F.Supp. 652

(E.D.La.1972),in deciding a related issue,

the court found that Section 168la was the

Act's "primary" definitional section while

Section 1681b was only supplementary in

that it served the purpose of helping to

interpret the former section. Id. at 654.

In sum, Section 1681b(3)(E) has not been

given an expansive interpretation. On the

other hand, thoughtful reasons against

giving Section 1681b(3)(E) too narrow of

an interpretation have also been

articulated. See Houghton, supra, at 1150

(Sloviter, J. concurring).

Whatever the proper interpretation of

Section 1681b(3)(E), we hold that that

provision does not reach insurance claims

reports. Congress expressly discussed

insurance in both definitional sections of

the Act. See §§ 168la and 168lb. In so

doing, Congress spoke in terms of

information relating specifically to the

inception and maintenance of the insurance

contract. As Congress declined in its

explicit treatment of the subject of

insurance to regulate insurance claims

reports, we decline the opportunity to do

so by reading the catch-all provision of

Section 1681b(3)(E) to effectuate that

end.

B. Legislative History

The legislative history of the FCRA

evidences Congress did not intend to

regulate insurance claims reports. The

lengthy transcripts of the Senate

Subcommittee hearings on S. 823, 9lst

Cong., lst Sess. (1969), which

substantially became the Act, do not

reflect any inclination to extend the

statute's reach beyond reports prepared in

connection with insurance applications.

See generally, Hearings Before the

Subcommittee on Financial Institutions of

the Comm. on Banking and Currency, 9lst

Cong., lst Sess. (1969). The same is true

of the hearing transcripts of the House

Subcommittee, which considered a more

protective bill. See generally, Hearings

on H.R. 16340 Before the Subcommittee on

Consumer Affairs of the Comm. on Banking

and Currency, 9lst Cog., 2d Sess. (1970.)

That Congress envisioned the Act as

having a limited reach is also made plain

by events subsequent to the bill's

enactment. During Senate Subcommittee

hearings in 1973, Senator Proxmire, who

authored the Senate Version of the FCRA,

chaired the Senate Subcommittee

considering it, and guided the legislation

through the House-Senate conference,

considered whether the Act should be

broadened to include insurance claims

reports. See Hearings on S. 2360 Before

the Subcommittee on Banking, Housing and

Urban Affairs, 93rd Cong., lst Sess.

61-612 (1973). Two years later, Senator

Proxmire proposed legislation which would

have expanded the Act to cover “general

investigative reports." See S. 1840, 94th

Cong. lst Sess., § 5(a) (1975). When that

legislation failed, Senator Proxmire

renewed his effort to expand the Act in

1979, seeking specifically to include

insurance claim reports in the definition

of “consumer reports." S. 1928 96th

Cong., lst Sess. § 2(a) 1324-25 (1979).

However, like the amendment proposed in

1975, the 1979 amendment never became law.

The inference that springs form [sic] this

chain of events is that Congress did not

SERRE REEEE EERE GG

believe that insurance claims reports were

governed by the FCRA. Congress' refusal

to revise the law indicates that it was

content with that interpretation of the

Act.

The Federal Trade Commission ("FTC") was

designated by Congress to enforce the Act.

In 1971 the FTC issued a question and

answer pamphlet addressing a number of

issues that had arisen soon after the Act

had taken effect. One of the questions

was:

Are “CLAIMS REPORTS", “ADJUSTMENTS

REPORTS" or other reports obtained by

an insurer in connection with an

insurance claim a consumer report?

The FTC's answer was:

No, not at the time obtained. A

report on a consumer, obtained by an

insurance company in connection with a

claim against it, is not used to

determine a consumer's “eligibility”

for insurance (Section 603(d)(1)

{15 U.S.C. § 168la(d)(1)] or in

connection with the “underwriting of

insurance involving the consumer"

(Section 604(3)(C) (15 U.S.c. §

1681b(3)(E)). Further such report is

not obtained in connection with a

“business transaction involving the

| | |

—

consumer" (Section 604(3)(E)

(15 U.S.C. § 1681b(3)(E)] at the

time it is obtained. Accordingly,

such a claims report is not a

“consumer report."

“Compliance with the Fair Credit Reporting

Act",: 5 CONSUMER CRED.GUIDE (CCH) 4

11,307 at 59,828 (1977).

This FTC interpretation is signigicant

in light of the fact that Congress, aware

of the published rulings cited above, has

not seen fit to amend the Act to cover

what the FTC has said the Act excluded.

In 1978, Congress revisited § 168lc,

amending it in certain particulars. That

Section restricts the sort of information

a “consumer report" may contain. By

re-enacting the FCRA without changing the

relevant statutory definition of a

“consumer report", even though the FTC had

given it a restricted interpretation,

Congress gave an indication that it

approved the agency's position.

Congress is presumed to be aware of an

Pree oes |

eee

———— bn

administrative or judicial interpretation

of a statute and to adopt that

interpretation when it re-enacts a statute

without change .'" Merill Lynch, Pierce,

Fenner & Smith, Inc. v. Curran, 456 U.S.

353, 382 n. 66, 102 S.Ct. 1825, 1841 n.

66, 72 L.ED.2d 182 (1982); NLRB v. Gullet

Gin Co., 340 U.S. 361, 366, 71 8.Ct. 337,

340, 95 L.ED. 337 (1951) (By re-enacting

provision without pertinent modification,

Congress accepted enforcement agency's

interpretation). |

In light of the Act's legislative and

subsequent history, we conclude that

Congress did not intend for the Act to

govern claims reports.

C. Existing Precedent

The majority of courts

addressed the issue have

insurance claims reports

by the FCRA.

that have

held that

are not governed

PEER EER EERE EERE

The leading case in the area is Cochran

v. Metropolitan Life Insurance Co, 472

F.Supp. 827 (N.D.Ga.1979). Cochran is a

well reasoned and thorough opinion firmly

Supporting its conclusion that the FCRA

does not reach insurance claim reports.

Cochran's reasoning was recently adopted

by the Third Circuit in Houghton v. New

Jersey Manufacturers Insurance Co., 795

F.2d 1144 (3rd Cir.1986). A lower court

decision in accord with the

Cochran-Houghton line of authority is

Kiblen v. Pickle, 33 Wash.App. 387, 395,

653 P.2d 1338, 1342 (1982).

Beresh v. Retail Credit Co., 358 F.Supp.

260 (C.D.Cal.1973), is apparently the sole

authority for the proposition that

insurance claims reports are governed by

the FCRA. Beresh held that claims reports

fall under the catch-all provision of

Section 1681b(3)(E) of the Act, discussed

supra. We find Beresh unpersuasive and

choose instead to align ourselves with the

Cochran-Houghton line of cases.

In folloiwng Cochran, a 1979 decision

from a district court in this Circuit, we

feel compelled to distinguish this Court's

decision in Clay v. Equifax, 762 F.2d 952

(llth Cir.1985), discussed supra. In

Clay, this Court was faced with somewhat

identical claims as those arising in this

case. Without mentioning Cochran or

Beresh, the Clay Court apparently assumed,

for the sake of argument, that the FCRA

applies to insurance claims reports. The

court's assumption that the Act applies

may be inferred from the Court's reliance

on the substantive portions of the Act to

find that each of the plaintiff's claims,

lacked merit. We read Clay as having

assumed, arguendo, that the FCRA applied

to insurance claims reports. Clay did not

address the underlying issue, however,

because it believed that even if the Act

SBeBEERE RE RERRESESESB Ee

applied the plaintiff was not entitled to

relief. Clay did not discuss the merits

of this issue but left for another day the

underlying question of whether the FCRA

applies to insurance claims reports.

Distinguishing Clay in this manner and

facing squarely the merits of this issue,

we hold that insurance claims reports are

not governed by the Act.

Finally and further in support of our

holding, we recognize a host of cases,

analogous to our decision today, which

Similarly refuse to expand the scope of

the FCRA. See Henry v. Forbes, 433

F.Supp. 5 (D.Minn.1976) (lobbyist's

request for information on adversary's

aide is not a “consumer report"); Ley v.

Boron Oil Co., 419 F.Supp. 1240

(E.D.Pa.1976) (report to establish

identity of attorney for potential

litigants is not a "consumer report");

Sizemore v. Bambi Leasing Corp., 360

F.Supp. 252, 254 n. 3 (N.D.Ga.1973), ("key

man" insurance policy investigation serves

business not personal purpose and is thus

not a “consumer report"); Peller v. Retail

Credit Co., 359 F.Supp. 1235

(N.D.Ga.1973), aff'd 505 F.2d 733 (5th

Cir.1974) (employee's lie detector test

results are not part of a “consumer

report"); Porter v. Talbot Perkins

Children's Services, 355 F.Supp. 174

(S.D.N.Y¥.1973) (adoption agency report on

prospective adoptive parents is not a

“consumer report"); Soto v. Industrial

Commission, 18 Ariz.App.53, 500 P.2d 313

(1972) (report on workmen's compensation

claimant's physical activities is not a

“consumer report").

V. CONCLUSION

Finding that Hovater's claims for

defamation were time barred under Alabama

law and that the FCRA does not apply in

this case, we reverse the decision of the

SRR RRERRERR EEE EEE

district court on these issues. As we

find that Hovater's contentions for

establishing violations of civil RICO are

completely without merit, we affirm the

district court's grant of summary judgment

on that issue.

Accordingly, this case is REVERSED in

part, AFFIRMED in part and REMANDED for

entry of a judgment for Equifax.

lFor a concise history of the FCRA, see

McNamara, The Fair Credit Reporting Act:

A Legislative Overview, 22 Emory J.Pub.L.

67 (1973).

UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

No. 86-7419

D.C. Docket No. 85-5136

ROGER D. HOVATER,

Plaintiff-Appellee,

versus Cross-Appellant,

EQUIFAX, INC.,

EQUIFAX SERVICES, INC., and

EQUIFAX SERVICES, LTD.,

De fendants-Appellants,

Cross-Appellees.

Appeals from the United States District

Court for the Northern District of Alabama

Before HATCHETT AND ANDERSON, Circuit

Judges, and TUTTLE, Senior Circuit Judge.

JUDGMENT

This cause came on to be heard on the

transcript of the record from the United

States District Court for the Northern

District of Alabama, and was argued by

counsel;

ON CONSIDERATION WHEREOF, it is now

here ordered and adjudged by this Court

HBHEEEE ERE EREEE SEE

that the judgment of the said District

Court in this cause be and the same is

hereby, AFFIRMED in part and REVERSED in

part; and that this cause be and the same

is hereby, REMANDED to said District Court

with instructions for entry of judgment

for the defendants;

It is further ordered that plaintiff-

appellee pay to defendants-appellants, the

costs on appeal to be taxed by the Clerk

of thie Court.

Entered: July 30, 1987

For the Court: Miguel J. Cortez, Clerk

s/David Malaud

Deputy Clerk

ISSUED AS MANDATE: August 26, 1987

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.