Creditors Beware: Choose Your Words Carefully!

In this day of fighting and scraping to collect every dollar owed, it is important to choose your words carefully when describing a customer that is no longer making payments, or is otherwise not living up to what you believe are its obligations. A recent 7th Circuit Court of Appeals case has made it clear that a creditor's slip of the tongue about one of its debtors can amount to a claim for millions of dollars.

In Giant Screen Sports v. Canadian Imperial Bank of Commerce, the defendant-bank told an insurance carrier that a guarantor, Giant Screen Sports, had reneged on its guaranty of a loan. As a result, Giant Screen Sports filed suit against the bank, claiming that the bank's statements to third parties (which included the word "default") constituted defamation.

The trial court ruled that Canadian Imperial Bank did not commit "defamation per se" and dismissed the complaint on that basis. However, on January 9, 2009, the 7th Circuit Court of Appeals issued an opinion reversing that decision, stating that the term "default" means "the willful refusal to pay an obligation," and that "[t]he word alone triggers notions of collection and bankruptcy proceedings."

Illinois Businesses Take Note

In Illinois, "defamation per se" is a statement that is "so obviously and materially harmful" to plaintiffs that their injuries may be presumed and they do not need to prove actual damages to recover, as the defamatory character is apparent on its face. Of the five categories of "defamation per se" in Illinois, two are important for businesses to consider: 1) those imputing an inability to perform or want of integrity in the discharge of one's duties of office or employment; and 2) those that prejudice a party, or impute lack of ability, in his or her trade, profession or business.

In the Giant Screen Sports case, the appellate court went on to state that "[e]xpressing that a party delinquently failed to meet a contractual obligation, particularly that it 'did not pay' or 'refused to pay' or 'remains in default,' is an objectively factual assertion, clearly capable of being verified as a statement of fact, and does not fall within the protective ambit of the Constitution." The court added that making a prefatory statement, such as "in my opinion" or "to my knowledge," does not make the assertion that follows (e.g., "James is a thief" or "Marty lies") non-defamatory.

The Giant Screen Sports court stopped short of finding that such words stated by Canadian Imperial Bank were "defamation per se." It did, however, assert that a reasonable jury could conclude that the creditor who utters these words about a party is liable for "defamation per se," and therefore remanded the case for further proceedings.

In light of this outcome, creditors should beware of the potential ramifications of making statements about their debtors. A claim for "defamation per se" can carry with it the specter of punitive damages, which can amount to millions of dollars with nothing more than a careless slip of the tongue.