FYI: 8th Cir Holds Deficiency Claim Time-Barred Despite Intervening Bankruptcy

The U.S. Court of Appeal for the Eighth Circuit recently affirmed a bankruptcy court's rejection of a proof of claim filed by a creditor where the claim was based upon a debt which was time barred by the creditor's failure to comply with the applicable state law deadline for pursuing a deficiency judgment following a non-judicial foreclosure. 

 

A copy of the opinion is available at:  Link to Opinion

 

The underlying debt at issue arose from a commercial loan from the creditor to a company owned by the debtors which was secured by a mortgage against certain real property located in Arizona.  The debtors were guarantors on the loan from the creditor.  Following the default on the loan, the creditor filed an action in the state court of Arizona to recover the balance of the note or alternatively, the deficiency balance due following a trustee's sale of the property. 

 

Shortly after the creditor filed the state court action, the debtors filed a petition for relief pursuant to Chapter 11 of the Bankruptcy Code - effectively preventing the creditor from affecting service on the debtors in that action.  The state court dismissed the creditor's complaint for its failure to perfect service.  In a parallel non-judicial foreclosure, the trustee's sale of the property proceeded on October 9, 2012. 

 

The creditor then proceeded to file a proof of claim in the debtors' Chapter 11 proceeding based upon their guarantee of the loan which the debtors objected to because it allegedly failed to reflect the market value of the property.  The Chapter 11 plan was approved and the bankruptcy case closed as fully administered on November 14, 2013.  Due to various delays, the hearing on the debtors' objection to the proof of claim was not heard until several months after the close of the bankruptcy matter in April of 2014.

 

In support of their objection, the debtors argued that the creditor's claim was barred by Arizona law because the creditor failed to maintain a deficiency action within 90 days of the trustee's sale. In opposition to the objection, the creditor argued that the Arizona law was preempted by various provisions of the Bankruptcy Code. 

 

The bankruptcy court determined that automatic stay provisions of Section 362 of the Bankruptcy Code impliedly preempted the state law concerning the 90 day deadline - by preventing the creditor from perfecting service on the debtors - but, Section 108(c) provided for the resumption of any state limitations following the expiration of the automatic stay. Under this legal framework, the bankruptcy court determined that the creditor was required to proceed with its deficiency action per Arizona state law no later than December 16, 2013 which it failed to do so.  Thus, the bankruptcy court concluded that the creditor's claim was barred.

 

The creditor appealed to the district court which upheld the bankruptcy court's ruling, and subsequently, this appeal was brought to the Eighth Circuit.

 

On appeal the creditor raised four primary arguments: 1) the Bankruptcy Code broadly preempts the Arizona law such that the creditor was not required to comply with the statutory deadlines due to the bankruptcy; 2) the mere filing of its state court action was sufficient to comply with the Arizona law; 3) the bankruptcy court had exclusive jurisdiction over the claim which obviate the need for a separate state court action for the deficiency; and 4) the limitations imposed by the Arizona law never lapsed.

 

The Eighth Circuit began its analysis by explaining the extent of implied preemption of state law by the Bankruptcy Code.

 

As explained by the Court, preemption may be "implied, for example, when federal and state laws directly conflict, when state law stands as an obstacle to accomplishing the purpose of federal law, or when federal law is so pervasive that it reflects an intent to occupy the regulatory field." Symens v. SmithKline Beecham Corp., 152 F.3d 1050, 1053 (8th Cir. 1998).  Absent clear congressional intent, there is a general presumption against implied preemption.

 

The creditor argued that the mandatory language of Section 502 of the Bankruptcy Code concerning the adjudication of claims precluded the need to comply with the Arizona time limits for deficiency judgments. 

 

Section 502 states that the bankruptcy court "shall determine the amount of [a] claim" following a hearing. The Court disagreed, and explained that the right to a claim arises in the first instance from the underlying substantive law creating the debtor's obligation, and thus, the bankruptcy courts must "consult state law in determining the validity of most claims."  Travelers Cas. & Surety Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 450 (2007). 

 

The applicable Arizona statute provides that "[W]ithin ninety days after the date of [a trustee's sale], an action may be maintained to recover a deficiency judgment] against any person obligated - directly or indirectly - under the contract secured by the deed of trust.  Ariz. Rev. Stat. s. 33-814(A) ("Section 33-814").  If no action is brought within that timeline the statute provides that "the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and not right to recover a deficiency in any action shall exist." Id. at s. 33-814(D).  Per the courts in Arizona, this provision has been deemed a statute of repose.

 

The Court determined that Section 502 did not impliedly preempt Section 33-814 of the Arizona Statute. Consequently, the Eighth Circuit held, the bankruptcy court correctly looked to the Arizona statute to determine the validity of the creditor's proof of claim.

 

Similarly, the Court rejected the creditor's argument that Section 362 of the Bankruptcy Code impliedly preempted Section 33-814 because it made it impossible to comply with the 90 day deadline in Section 33-814. The Court declined to directly address whether or not the automatic stay of Section 362 preempted state law, because it held that Section 108 of the Bankruptcy Code governed this situation. 

 

As you may recall, Section 108 of the Bankruptcy Code provides that if a non-bankruptcy law fixes a time period for commencing a civil action against a debtor "and such period has not expired before the date of the filing of the petition" then the period does not expire until the later of: 1) the end of the period provided by the non-bankruptcy law or 2) "30 days after notice of termination or expiration of the stay under Section 363." 

 

Pursuant to Section 33-814, the 90 day period at hand expired on January 7, 2013 - i.e. 90 days after the trustee's sale on October 9, 2012.  However, the automatic stay in the bankruptcy did not expire until November 14, 2013 when the Chapter 11 case was closed.  Accordingly, the Court found that the bankruptcy court correctly concluded that pursuant to Section 108(c)(2) the operative deadline for the creditor to seek a deficiency judgment under Section 33-814 lapsed on December 16, 2013.

 

The Eighth Circuit quickly rejected the creditor's argument that a motion filed by a co-creditor after the close of the Chapter 11 was effective in extending the automatic stay.  As explained by the Court, these types of motions in reopening a Chapter 11 by creditors is typically ministerial in nature and lacks independent legal significance. 

 

The Court found no merit to the creditor's argument that its state court complaint was sufficient to comply with Section 33-814.  In reliance on a state court opinion applying Section 33-814, the Court agreed that the state court action would have been sufficient but determined that the creditor's failure to continue or preserve its state court action after the trustee's sale was dispositive.  See Valley Nat'l Bank of Ariz. v. Kohlhase, 897 P.2d 738, 741 (Ariz. Ct. App. 1995).

 

The creditor's argument that the bankruptcy court had exclusive jurisdiction was also unavailing.  As explained by the Eighth Circuit, regardless of the exclusive jurisdiction provided to the bankruptcy court to determine the validity of the claim under Section 502 of the Bankruptcy Code, it was still required pursuant to the Bankruptcy Code and Supreme Court precedent to apply the underlying state law framework - which the Eighth Circuit held the bankruptcy court correctly did in this matter.

 

Accordingly, the Eighth Circuit affirmed the bankruptcy court's rejection of the creditor's claim.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Ill App Ct (1st Dist) Holds 7-Month Delay in Paying Overdue HOA Assessments May Not Extinguish HOA Lien

The Appellate Court of Illinois, First District, recently reversed a trial court order granting summary judgment in favor of a mortgage servicer and against a condominium association (COA) holding that a material question of fact existed regarding whether the servicer promptly paid assessments that accrued after the foreclosure sale, as required under section 9(g)(3) of the Illinois Condominium Property Act (Act) (765 ILCS 605/9(g)(3)) to extinguish the COA's lien for pre-foreclosure sale assessments.

 

A copy of the opinion is available at:  Link to Opinion

 

In November 2014, a mortgage servicer purchased a condominium unit through a foreclosure sale.  At this time the unit had almost $14,000 in unpaid monthly assessments to the COA. Initially, the servicer refused to pay any assessments, past or present.

 

In April 2015, the COA sued the servicer under the Illinois Forcible Entry and Detainer Act (735 ILCS 5/9-101 et seq) seeking possession and $18,659.26 in unpaid assessments.  Almost two months after the COA filed the lawsuit, and seven months after the servicer purchased the unit, the servicer paid the amount of assessments that accrued after the foreclosure sale.

 

The servicer filed a summary judgment motion arguing that under section 9(g)(3) of the Illinois Condominium Property Act (765 ILCS 605/9(g)), paying the assessments owed after the foreclosure sale extinguished the COA's lien for pre-foreclosure sale assessments.

 

The trial court granted partial summary judgment to the servicer as to the pre-sale assessments and certified this issue for appeal.  This appeal followed.

 

On appeal, the COA argued that under 1010 Lake Shore Association v. Deutsche Bank National Trust Co., 2015 IL 118372, a foreclosure buyer must promptly pay current assessments to extinguish an association's lien for any outstanding pre-sale assessments.

 

As you may recall, Section 9(g) of the Illinois Condominium Property Act states that:

 

"(1) If any unit owner shall fail or refuse to make any payment of the common expenses or the amount of any unpaid fine when due, the amount thereof shall constitute a lien on the interest of the unit owner in the property.

 

3) The purchaser of a condominium unit at a judicial foreclosure sale shall have the duty to pay the unit's proportionate share of the common expenses for the unit assessed from and after the first day of the month after the date of the judicial foreclosure sale. Such payment confirms the extinguishment of any lien created pursuant to paragraph (1) or (2) of this subsection (g) by virtue of the failure or refusal of a prior unit owner to make payment of common expenses."

 

765 ILCS 605/9(g).

 

The Appellate Court observed that a foreclosure buyer's duty to pay monthly assessments clearly starts on "the first day of the month after the date of the judicial foreclosure sale." Id. However, section 9(g)(3) does not contain a time limit to extinguish an association's lien. Thus, the Appellate Court looked beyond the statute's language to determine the legislature's intent.

 

The Appellate Court noted that section 9(g)'s legislative history does not contain any debate regarding the extinguishment clause.  However, on separate occasions the legislature expressed concern about the difficulties condominium associations face when a unit owner does not pay their assessments and the unit then goes into foreclosure. The Appellate Court found these concerns "pertinent to the interpretation of section 9(g)(3)." For example, in this case the former unit owner had not paid assessments since 2011, "thus exposing the Associations other unit owners to the obligation to pay more than their share of common expenses to cover the shortfall."

 

The servicer argued that paying post foreclosure assessments, regardless of the timing, extinguished the COA's lien for pre-sale delinquent assessments. The Appellate Court disagreed because the Illinois Supreme Court in the 1010 Lake Shore case held that "[t]he first sentence of section 9(g)(3) plainly requires a foreclosure sale purchaser to pay common expense assessments beginning in the month following the foreclosure sale. The second sentence provides an incentive for prompt payment of those post foreclosure sale assessments."

 

The servicer further argued that that even with no time limit to extinguish an association's lien, the statute still incentivizes prompt payment of assessments when they become due, because foreclosure buyers normally want to quickly unencumber and sell their new asset.

 

However, the Appellate Court concluded that the servicer's seventh month delay in paying the assessments in this case belied this argument.

 

The servicer also argued that 1010 Lake Shore is distinguishable because the foreclosure buyer there did not pay any assessments making the court's "prompt payment" discussion dictum. The Appellate Court rejected this distinction because it cannot ignore the Supreme Court's dicta.  See Exelon Corp. v. Department of Revenue, 234 Ill. 2d 266, 282 (2009)

 

Thus, the Appellate Court held that "to extinguish an association's lien for pre-foreclosure-sale assessments, a foreclosure buyer must make 'prompt' payment of current assessments."  As a mortgage foreclosure is a proceeding in equity, "whether a particular payment is 'prompt' is fact-based, taking the particular circumstances and the equities of the situation into account."

 

The Appellate Court next examined whether the servicer promptly paid the assessments here. The Appellate Court found that absent any extenuating circumstances, assessments should be tendered the month after purchase because to "permit indefinite delay on the part of foreclosure buyers would impose unacceptable hardship upon the buyer's fellow unit owners, who in many instances are already losing thousands of dollars in unpaid assessments as a result of the unit's foreclosure."

 

The Appellate Court rejected the servicer's argument that this case is analogous to Pembrook Condominium Association-One v. North Shore Trust & Savings, 2013 IL App (2d) 130288, and 5510 Sheridan Road Condominium Association v. U.S. Bank, 2017 IL App (1st) 160279, where a foreclosure buyer's payment of post-sale assessments extinguished the condominium association's lien for presale assessments.

 

In the Appellate Court's view, Pembrook did not hold that a foreclosure buyer that fails to promptly pay post-foreclosure assessments may still claim the benefit of section 9(g)(3). Instead, the Pembrook court held only that payment made about a month and a half after the first payment became due, was sufficient under the circumstances.  Further, the Court noted, there is "a material distinction between a seven-week delay and a seven-month delay in payment."

 

The Sheridan Road court held that the phrase "the first day of the month after the date of the judicial foreclosure sale" set the time when the obligation to pay post sale assessments begins. Id. However, this did not set a payment deadline.  Thus, the Appellate Court found Sheridan Road distinguishable and held "that payment must be prompt under the circumstances (though not necessarily strictly by the first of the month after the sale) to extinguish an association's lien."

 

Moreover, to the extent that Pembrook or Sheridan Road impose no time deadline on foreclosure buyers, the Appellate Court rejected that conclusion because it is inconsistent with 1010 Lake Shore.

 

The servicer next argued that even if 1010 Lake Shore requires prompt payment, it should not apply retroactively to this case. The Appellate Court disagreed finding that "1010 Lake Shore did not create a requirement of promptness; it merely articulated the requirement that was already implicit in the purpose underlying section 9(g)(3)."

 

Finally, the Appellate Court considered whether the servicer promptly paid the assessments here.  However, the record did not contain the reasons why the servicer may have delayed payment so the Appellate Court could not say that the servicer's "tender was not prompt as a matter of law."

 

Accordingly, the Appellate Court reversed the trial court's summary judgment order and remanded the case for further proceedings consistent with its opinion.

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: 1st Cir Rejects Borrowers' Attempt to Void Loan Using MA's "Obsolete Mortgage" Statute

The U.S. Court of Appeals for the First Circuit recently affirmed the dismissal of a lawsuit by borrowers seeking to enjoin a mortgage foreclosure sale, holding that:

 

a) the original lender's nominee, MERS, could validly assign the mortgage without holding beneficial title to the underlying property and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust's pooling and servicing agreement; and

 

b) the mortgage was not void under Massachusetts's "obsolete mortgage" statute, under which a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage, as acceleration of the note did not trigger the subject limitations period.

 

A copy of the opinion is available at:  Link to Opinion

 

Husband and wife took out an $800,000 purchase money loan secured by a mortgage on their home in 2007. The mortgage identified Mortgage Electronic Registration Systems, Inc. (MERS) as the mortgagee, acting solely as nominee for the lender and the lender's successors and assigns. The mortgage also gave MERS a power of sale over the property in the event of default.

 

MERS assigned the loan in 2008 to a new mortgagee. The borrowers also defaulted on the loan in 2008. In 2010, the mortgagee "reassigned the mortgage to itself as trustee for [another trust]."

 

The borrower "filed several bankruptcy petitions and requested injunctive relief, thereby delaying foreclosure until 2016."   The mortgagee gave the borrowers notice of a foreclosure sale in June of 2016 and, in response, the borrowers sued the mortgagee and the loan servicer to enjoin the sale.

 

The trial court denied the borrower's request for a preliminary injunction and granted the defendants' motion to dismiss for failure to state a claim, holding that the mortgagee had the right to foreclose under Massachusetts law and the mortgage was not rendered "obsolete" or void under Massachusetts law, Mass. Gen. Laws ch. 260, § 33.  The borrowers appealed to the First Circuit.

 

On appeal, the First Circuit rejected the borrower's argument that the mortgage could not foreclose because the first assignment by MERS was invalid, finding that the trial court correctly rejected this argument because "this claim is foreclosed by precedent, which holds that MERS can validly assign a mortgage without holding beneficial title to the underlying property, … and that borrowers do not have standing to challenge a mortgage assignment based on an alleged violation of a trust's pooling and servicing agreement."

 

The Court also concluded that the district court "properly dismissed [the borrower's'] obsolete mortgage claim, which has no basis in the plain text of the statute or in precedent. Under Massachusetts's obsolete mortgage statute … a mortgage becomes obsolete and is automatically discharged five years after the expiration of the stated term or maturity date of the mortgage."

 

The Court reasoned that there was no textual support in the statute at issue --  Mass. Gen. Laws ch. 260, § 33 -- for the borrower's argument "that the acceleration of the maturity date of a note affects the five-year limitations period for the related mortgage." It found inapposite a 2015 Massachusetts Supreme Judicial Court decision because "it makes no mention of the impact of the accelerated note on the obsolete mortgage statute's limitations period."

 

Accordingly, the trial court's ruling was summarily affirmed. 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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FYI: Spokeo Redux - 9th Cir Again Holds Plaintiff Alleged Enough to Have Standing

After remand from the Supreme Court of the United States, the U.S. Court of Appeals for the Ninth Circuit in Spokeo recently reversed the trial court's dismissal of a consumer's lawsuit alleging that the operator of a website that compiles consumer data and provides consumer information profiles willfully violated the federal Fair Credit Reporting Act (FCRA), holding that the injury to the plaintiff's statutory rights were sufficiently concrete and particularized to satisfy the injury-in-fact requirement of Article III of the United States Constitution and the plaintiff thus had standing to sue.

 

A copy of the opinion is available at:  Link to Opinion

 

As you may recall, Spokeo "operate[d] a website that compiles consumer data and builds individual consumer-information profiles. At no cost, consumers can use  [the website] to view a report containing an array of details about a person's life, such as the person's age, contact information, marital status, occupation, hobbies, economic health, and wealth. More detailed information is available for users who pay subscription fees. [Defendant] market[ed] its services to businesses, claiming that its reports provide a good way to learn more about prospective business associates and employees."

 

The plaintiff viewed his profile on the defendant Spokeo's website and sued for willfully violating the FCRA, "which imposes a number of procedural requirements on consumer reporting agencies to regulate their creation and use of consumer reports. The statute gives consumers affected by a violation of such requirements a right to sue the responsible party, including the right to sue (and to recover statutory damages) for willful violations even if the consumer cannot show that the violation caused him to sustain any actual damages."

 

The plaintiff alleged that Spokeo violated the FCRA at section 1681e(b) by failing to "'follow reasonable procedures to assure maximum possible accuracy' of the information in [plaintiff's] consumer report" because his report "falsely stated his age, marital status, wealth, education level, and profession, and [also] included a photo of a different person." The plaintiff alleged that these inaccuracies "harmed his employment prospects at a time when has was out of work and that he continues to be unemployed and suffers emotional distress as a consequence."

 

The trial court dismissed the first amended complaint holding that the plaintiff "lacked standing to sue under Article III of the United States Constitution[,]" reasoning that plaintiff had "alleged only a bare violation of the statute and did not adequately plead such violation caused him to suffer an actual injury-in-fact."

 

The plaintiff appealed to the Ninth Circuit, which reversed ("Spokeo I"), holding that plaintiff's "allegations established a sufficient injury-in-fact—that is, that he allegedly suffered a concrete and particularized injury—because [he] alleged that [defendant] violated specifically his statutory rights, which Congress established to protect against individual rather than collective harms."  The Ninth Circuit also held that the harm to the plaintiff's statutory rights was "caused" by defendant's FCRA violations and that "statutory damages could redress such injury" and "remanded to the district court for further proceedings."

 

Spokeo filed a petition for writ of certiorari to the Supreme Court, which reversed and vacated the Ninth Circuit's opinion ("Spokeo II"), holding that its "standing analysis was incomplete" because while it did address whether the injury was particularized, it "did not devote appropriate attention to whether the alleged injury is sufficiently concrete as well."

 

On remand, the Ninth Circuit's inquiry was limited to whether the plaintiff "sufficiently pled a concrete injury under" the Supreme Court's Spokeo II rationale.

 

The Ninth Circuit again agreed with plaintiff's argument that Spokeo's failure to reasonably ensure the accuracy of his consumer report was itself sufficient to show concrete injury because the purpose of the FCRA is to protect a consumer's right to accurate credit and other information.

 

The Court summarized the Supreme Court's decision as requiring a "'real' and not 'abstract' or merely 'procedural' [injury]. … In other words, even when a statute has allegedly been violated, Article III requires such violation to have caused some real — as opposed to purely legal — harm to the plaintiff."

 

The Ninth Circuit then reasoned that Congressional intent "plays an important role in the concreteness inquiry, especially in cases — like this one — in which the plaintiff alleges that he suffered an intangible harm." Although such injuries "are often harder to recognize, intangible injuries — for example restrictions on First Amendment freedoms or harm to one's reputation — may be sufficient for Article III standing."

 

Citing the Supreme Court ruling in Spokeo II, the Ninth Circuit reasoned that "Congress may 'elevate to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate at law … [and, in addition,] Congress has the power to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before."  Finally, "Congress may likewise enact procedural rights to guard against a 'risk of real harm,' the violation of which may 'be sufficient in some circumstances to constitute injury in fact.'"

 

Thus, the Ninth Circuit held, while a plaintiff cannot establish injury-in-fact simply by alleging a statutory violation, "the Supreme Court also recognized that some statutory violations, alone, do establish concrete harm."

 

The Ninth Circuit adopted the Second Circuit's articulation of the Spokeo II concreteness requirement, which explained that Spokeo II "instruct[s] that an alleged procedural violation [of a statute] can by itself manifest concrete injury where Congress conferred the procedural right to protect a plaintiff's concrete interests and where the procedural violation presents 'a risk of real harm' to that concrete interest."

 

Thus framed, the Ninth Circuit's inquiry became: "(1) whether the statutory provisions at issue were established to protect [plaintiff's] concrete interests (as opposed to purely procedural rights), and if so, (2) whether the specific procedural violations alleged in this case actually harm, or present a material risk of harm to, such interests."

 

The Court answered both questions affirmatively.

 

First, the Ninth Circuit found "that Congress established the FCRA provisions at issue to protect consumers' concrete interests" in ensuring the accuracy of reported information about them and to protect their privacy.  Section 1681e(b) of the FCRA does this by requiring "reporting agencies to 'follow reasonable procedures to assure maximum possible accuracy' of the information contained in an individual's consumer report."

 

The Court concluded that "these interests protected by the FCRA's procedural requirements are 'real,' rather than purely legal creations" because material inaccuracies on a consumer's report have "real-world implications" given the "ubiquity and importance of consumer reports in modern life—in employment decisions, in loan applications, in home purchases, and much more…."

 

The Ninth Circuit then likened the interests protected by the FCRA to "other reputational and privacy interests that have long been protected in the law. … For example, the common law provided remedies for a variety of defamatory statements, including those which falsely attributed characteristics 'incompatible with the proper exercise of [an individual's] lawful business, trade, profession or office."  Thus, the Court reasoned that "[j]ust as Congress's judgment about an intangible harm is important to our concreteness analysis, so is the fact that the interest Congress identified is similar to others that traditionally have been protected."

 

Because it found that the alleged harm resulting from inaccurate consumer reports that Congress intended to protect against is similar to the harm resulting from traditional common law causes of action like defamation, the Ninth Circuit concluded that "the FCRA procedures at issue in this case were crafted to protect consumers' (like [the plaintiff's]) concrete interest in accurate credit reporting about themselves."

 

The Ninth Circuit also concluded that the violations at issue actually caused the plaintiff real harm or created a material risk of harm to his concrete interest in accurate reporting about himself.

 

Unlike the Supreme Court's example in Spokeo II of the dissemination of a wrong zip code as an example of a bare procedural violation without any real harm or risk thereof to a concrete interest protected by the FCRA, the Ninth Circuit held that even though the plaintiff alleged that Spokeo falsely reported his marital status, age, employment, educational level and wealth as higher than they really were, "[e]nsuring the accuracy of this sort of information … seems directly and substantially related to the FCRA's goals."

 

This was so even though on the surface it may appear this would actually help rather hurt the plaintiff because, as pointed out by the Consumer Financial Protection Bureau in an amicus brief on the plaintiff's behalf, "even seemingly flattering inaccuracies can hurt an individual's employment prospects as they may cause a prospective employer to question the applicant's truthfulness or to determine that he is overqualified for the position sought."

 

Thus, according to the Ninth Circuit, the violations at issue were more than "mere technical violation[s] which are too insignificant to present a sincere risk of harm to real-world interests that Congress chose to protect with FCRA." The plaintiff's complaint thus "sufficiently alleg[ed] that he suffered a concrete injury."

 

Finally, the Court rejected the defendant's argument, based on the Supreme Court's 2013 decision in Clapper v. Amnesty International USA, that plaintiff's "allegations of harm are too speculative to establish a concrete injury" because he only alleged that the subject "inaccuracies might hurt his employment prospects, but not that they present a material or impending risk of doing so."

 

The Ninth Circuit reasoned that Spokeo's "reliance on Clapper is misplaced" because in that case, "the plaintiffs sought to establish standing on the basis of harm they would supposedly suffer from threatened conduct that had not happened yet but which they believed was reasonably likely to occur…."  The "Supreme Court  explained that a plaintiff cannot show injury-in-fact unless the 'threatened injury [is] certainly impending' as opposed to merely speculative." By contrast, in the case at bar, "both the challenged conduct and the attendant injury have already occurred" because the defendant "published a materially inaccurate consumer report about [the plaintiff]."  Likewise, the intangible but concrete injury to his interest in accurate information about himself had also already occurred and "[i]t is of no consequence how likely [the plaintiff] is to suffer additional concrete harm as well (such as the loss of a specific job opportunity)."

 

In sum, the Ninth Circuit found that the plaintiff "alleged injuries that are sufficiently concrete for the purposes of Article III[,] … the alleged injuries were also sufficiently particularized to [plaintiff] and … they were caused by [defendant's] alleged FCRA violation and are redressable in court".  Accordingly, the Court concluded that plaintiff had standing to sue, and reversed and remanded.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

Alabama   |   California   |   Florida   |   Georgia  |   Illinois   |   Indiana   |   Maryland   |   Massachusetts   |   Michigan   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC   |   Wisconsin

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.

Our updates and webinar presentations are available on the internet, in searchable format, at:

 

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and

 

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