among other things, that debtor's claim against a debt collector under
Section 1785.25(f) of the California Consumer Credit Reporting Agencies
Act ("CCRAA"), Cal. Civ. Code § 1785.1 et seq., was preempted by the
federal Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681t(b)(1)(F),
and that a reinvestigation claim made under the CCRAA requires that a
debtor show the alleged inaccurate credit reporting was "patently
incorrect or materially misleading."
A copy of the opinion is available at:
Debtor received medical services for which neither she nor her insurer
paid. Debtor's hospital assigned the debt to Credit Consulting Services
("CCS"), a collection agency, which sent Debtor a series of dunning
letters and eventually notified the three defendant credit reporting
agencies (collectively, "CRA"). Debtor made various requests to CCS and
CRA to verify the debt, to report the debt as disputed, and to provide a
description of how the debt was verified. Debtor made a final demand that
the negative report be removed and CRA, that Debtor receive damages and
attorneys fees, and that another investigation be performed.
Debtor filed a class action complaint in California state court against
CCS and CRA, alleging violations of the CCRAA for the CRA's alleged
failure to properly investigate and respond to Debtor's dispute, and CCS's
alleged reporting of a debt it knew or should have known to be
illegitimate. Debtor sought class certification, an injunction, damages
and fees. CCS filed for a demurrer without leave to amend on the basis
that the FCRA preempted Debtor's CCRAA claims, which the state court
granted. The CRAs removed under the Class Action Fairness Act of 2005
("CAFA"), 28 U.S.C. § 1332(d).
The district court denied Debtor's motion to remand the case to state
court, granted CRA's motion for summary judgment, denied Debtor's motion
for class certification as moot, and denied Debtor's motion to amend as
futile. The Ninth Circuit affirmed on all issues.
The Ninth Circuit first held that CRA's motion for removal of the case to
federal court was timely. As you may recall, under CAFA, district courts
have jurisdiction where, among other things, the amount in controversy
exceeds the sum or value of $5,000,000. The timeliness of removal of CAFA
actions is governed by 28 U.S.C. § 1446(b), which "identifies two
thirty-day periods for removing a case." The first period is triggered
"if the case stated by initial pleading is removable on its face." The
second period is triggered "if the initial pleading does not indicate that
the case is removable, and the defendant receives 'a copy of an amended
pleading, motion, order or other paper' from which removability may be
In this case, Debtor's complaint "lacked any indication of the amount in
controversy" and therefore did not fall under the first period.
Addressing the settlement demand sent prior to the complaint, the Court
held that "any document received prior to receipt of the initial pleading
cannot trigger the second thirty-day removal period." Moreover, a
"pre-complaint document containing a jurisdictional clue can operate in
tandem with an indeterminate initial pleading to trigger some kind of
hybrid between the first and second removal periods." Next, the Court
rejected Debtor's argument that CRA's could have ascertained the amount in
controversy from the civil cover sheet's invocation of "unlimited"
jurisdiction, because the cover sheet did not indicate the amount demanded
by each putative class member. Ultimately, the motion was timely because
CRA removed within thirty days of Debtor's deposition testimony, which
constitutes "other paper" and from which CRA "could reasonably determine
for the first time that the amount in controversy" met CAFA's threshold.
The Ninth Circuit also held that it had jurisdiction to hear Debtor's
appeal of the state court's grant of CCS's demurrer. "After removal, the
federal court takes the case up where the State court left it off" and "an
order entered by a state court 'should be treated as though it had been
validly rendered in the federal proceeding.'" In this case, the state
court's grant of the demurrer is equivalent of a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6). Under federal law, "such a
dismissal as to only one of several defendants is appealable when, as
here, it has merged into the final judgment."
The Court next held that Debtor's claims against CCS under Sections
1785.25(a) and (f) of the CCRAA were waived and preempted, respectively.
The FCRA provides that "no requirement or prohibition may be imposed under
the laws of any State…relating to the responsibilities of persons who
furnish information to consumer." 15 U.S.C. §1681t(b)(1)(F). The FCRA
expressly saves Section 1785.25(a) of the CCRAA, which prohibits knowingly
reporting inaccurate information. However, Debtor failed to defend this
claim in response to CCS's demurrer and therefore abandoned that claim.
In addition, Debtor's claim that CCS did not perform adequate
investigation in violation of Section 1785.25(f) was preempted as "section
1785.25(a) is the only substantive CCRAA furnisher provision specifically
saved by the FCRA." Section 1785.25(f) requires furnishers who receive
notice of a dispute to complete an investigation and to review relevant
The Court also held that Debtor's claims against the CRAs under Section
1785.16 of the CCRAA were properly dismissed. In general, Section 1785.16
requires a CRA to reinvestigate the status of a consumer's credit
information if the completeness or accuracy the information is disputed by
the consumer. Debtor argued that inaccuracy is not a required element of
a reinvestigation claim under the CCRAA, an unresolved issue in California
state courts. However, the CCRAA's reinvestigation provision is
"substantially based upon the FCRA" and, although the FCRA does not have
an "inaccuracy requirement," the Ninth Circuit has previously held that a
claim under the FCRA's reinvestigation provision requires "a prima facie
showing of inaccurate reporting." Based upon these statutory similarities
and Ninth Circuit case law, the Court defined "inaccurate" under the CCRAA
as "patently incorrect or materially misleading."
The Court first held there was no patent error in Debtor's credit report
because Debtor "concedes that 'all the data that shows in my credit report
is correct' on its face." Debtor argued that, even if technically
accurate, the credit report was misleading because she was not legally
obligated to pay the medical bill. The Court rejected this argument
because "reinvestigation claims are not the proper vehicle for
collaterally attacking the legal validity of consumer debts."
Lastly, the Court held that the lower court properly denied Debtor's
motion for leave to amend. Because Debtor "cannot show any inaccuracy as
a matter of law," the Court concluded "that amendment to include other
claims requiring inaccuracy would be futile." Fed. R. Civ. P. 15(a)
(granting judges discretion to deny leave to amend where amendment would
Let me know if you have any questions. Thanks.
Ralph T. Wutscher
Kahrl Wutscher LLP
The Loop Center Building
105 W. Madison Street, Suite 2100
Chicago, Illinois 60602
Direct: (312) 551-9320
Fax: (866) 581-9302
Mobile: (312) 493-0874
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