FYI: 2nd Cir Holds Entity is Not a 'CRA' Unless It 'Intends' to Provide 'Consumer Reports' Under FCRA

The U.S. Court of Appeals for the Second Circuit recently affirmed entry of summary judgment in favor of a prominent media and information firm ("Media Company") against a job seeker's claims that it furnished false information in a purported "consumer report" obtained by a prospective employer in alleged violation of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA")

 

In so ruling, the Court concluded that the Media Company was not a "consumer reporting agency," because it did not intend to furnish "consumer" reports through its services, and thus was not subject to the FCRA.

 

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

 

A job seeker ("Applicant") was subject to a background check as part of an employment application process with the Georgia Department of Health ("Department").  The Department was a subscriber of a prominent multinational mass media and information firm's ("Media Company") online investigation software ("Platform").

 

Notwithstanding the Company's prohibitions against subscribers using the Platform for any purpose covered by the FCRA -- including credit inquires or employment background checks -- the Department used the Platform to conduct a background check into the Applicant. 

 

Of note, such misuses of the platform are rare, with only 46 of the over 144 million searches between 2012 and 2016 were alleged to be for a FCRA purpose.  In this instance, the report included false information that the Applicant had a prior state conviction for theft.  Accordingly, she was not hired by the Department for the open position.  However, this information about the Applicant was not correct.

 

The Applicant filed a putative class action complaint against the Company in the Southern trial of New York alleging that its Platform renders it a "consumer reporting agency" under the FCRA and that it violated several provisions of the FCRA in providing false information to the Department.

 

The Media Company moved for summary judgment, arguing the Media Company did not qualify as "consumer reporting agency" under the FCRA, because it did not intend to furnish "consumer reports" through the Platform.  The trial court agreed and granted summary judgment in the Media Company's favor.  The instant appeal followed.

 

The appeal presented a novel question for the Second Circuit:  whether, to qualify as a "consumer reporting agency" under the FCRA, an entity must specifically intend to furnish a "consumer report." 

 

To answer questions of statutory interpretation, the appellate court first turned to the relevant language of the FCRA.

 

As you may recall, the FCRA defines a "consumer reporting agency" as "any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of furnishing consumer reports to third parties, and which uses any means or facility of interstate commerce for the purpose of preparing or furnishing consumer reports."  15 U.S.C. § 1681a(f). 

 

The Act defines a "consumer report" as:  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 — (A) credit or insurance to be used primarily for personal, family or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 1681b of this title."  15 U.S.C. § 1681a(d)(1).

 

Interpreting the ordinary meaning of the word 'purpose,' the Second Circuit concluded that the meaning of "for the purpose of" in § 1681a(f), a "consumer reporting agency" is an entity that intends the information it furnishes to constitute a "consumer report." See Williams v. Wilmington Trust Co., 345 F.3d 128, 133 (2d Cir. 2003) ("[W]hen Congress uses in a statute a term of art with a long history of judicial interpretation, we must presume that Congress intends to use the word in its technical sense.").

 

The Second Circuit noted that other circuits have concluded that the FCRA includes a specific intent requirement in its definition of a "consumer reporting agency."  See Zabriskie v. Fed. Nat'l Mortg. Assoc., 912 F.3d 1193 (9th Cir. 2019) (government-sponsored enterprise who provided software to allow lenders to evaluate consumer information not a consumer reporting agency under the FCRA because it did not assemble the information to furnish consumer reports to third parties); Tierney v. Advocate Health & Hosps. Corp., 797 F.3d 449 (7th Cir. 2015) (hospital not a consumer reporting agency under the FCRA because patients' information was collected to obtain payments from medical insurers and government agencies, not for the purpose of furnishing consumer reports). 

 

On appeal, the Applicant argued that the Media Company should be deemed a consumer reporting agency subject to the FCRA, because (i) an entity that assembles consumer information to sell reports need not specifically intend to furnish a "consumer report" to qualify as a "consumer reporting agency," and; (ii) the Company's use of disclaimers in its contractual and promotional language should not permit avoidance of liability under the FCRA.

 

As to the first argument, the Second Circuit rejected the Applicant's suggestion that section 1681a(f) imposes a "general intent" requirement that would qualify an entity as a "consumer reporting agency" if it assembles customer information to furnish a report (consumer or otherwise) to qualify as a "consumer reporting agency," because no such language exists in the plain text of the statute. 

 

The Applicant's second argument was also rejected by the Second Circuit.  The purposes of the FCRA, any scienter determination evaluates the totality of a defendant's actions is the determining factor, not the defendant's mere disclaimer of the requisite intent.  Cf., Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-24 (2007) (holding, in the securities fraud context, that courts must consider the total mix of allegations when determining if the defendant had the requisite intent); Ricci v. DeStefano, 557 U.S. 557, 579-80 (2d Cir. 2009) (considering the whole of the defendant's conduct in determining discriminatory intent in the employment discrimination context).   Thus, an entity may not escape regulation as a "consumer reporting agency" by merely disclaiming an intent to furnish "consumer reports."

 

Having concluded that an entity must intend to furnish a "consumer report" to qualify as a "consumer reporting agency" under the FCRA, the Second Circuit next turned to the trial court's finding that the Media Company did not intend for information provided by its Platform to constitute a "consumer report."

 

Here, it was undisputed that the Media Company took numerous, effective measure to prevent the Platform's reports from being utilized as "consumer reports," including (i) explaining in marketing material that the Platform was to be used for law enforcement, fraud prevention, and identity verification (non- FCRA) purposes only; (ii) requiring its users to affirm their understanding that the Platform was not to be used for FCRA purposes, and; (iii) maintaining a compliance office to employ additional measures to prevent misuses of the Platform. 

Notwithstanding those efforts, the Applicant argued that it can infer intent to furnish "consumer reports" because it was aware that its controls did not prevent all misuse of the Platform by its subscribers. 

 

Here, although the Media Company was aware of some instances of misuse of the Platform, the Second Circuit pointed to the minuscule number of such instances in comparison to the number of reports generated, coupled with its extensive efforts to prevent such misuses and investigate and terminate offending subscribers to conclude that it did not intend for information obtained from the Platform to be used as "consumer reports" under the FCRA.

 

Accordingly, the Second Circuit agreed that the trial court was correct in deciding that the Media Company does not qualify as a  "consumer reporting agency" under the FCRA, and affirmed the trial court's judgment in favor of the defendant Media Company.

 

 

 

 

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: DC Cir Rules in Favor of Bank in Deposit Account Loss Claim

The U.S. Court of Appeals for the D.C. Circuit held that plaintiffs failed to offer sufficient evidence to create a genuine dispute of fact as to their accounting and fraudulent concealment claims against a bank based on the disappearance of funds from a savings account that was closed twelve years before the lawsuit was filed.

 

Specifically, the Circuit Court determined that the plaintiffs did not demonstrate the existence of a fiduciary relationship as required for their accounting claim, and they did not establish the detrimental reliance element of their fraudulent concealment claim.

 

Accordingly, the Circuit Court affirmed the trial court order granting summary judgment in favor of the defendant bank.

 

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

 

The bank's ("Bank") customer ("Customer") opened a savings account with the Bank in the mid-1990s.  The Customer deposited over one million dollars into the account and designated his wife and son as its beneficiaries. 

 

The money disappeared under mysterious circumstances sometime between the deaths of the Customer and his wife in 1996, and the Bank's closure of the account in January 2003.

 

The representative of the decedents' estates, and the Customer's son (collectively, "Plaintiffs"), filed a lawsuit against the Bank in 2015 accusing it of stealing the money or allowing others to do so. 

 

The Bank maintained that the deposits were likely withdrawn by the Customer's former assistant, through no fault of the bank.  The Bank had previously discarded the account records in 2010, which was consistent with its record-retention policies.

 

The Plaintiffs' second amended complaint asserted twelve counts, but ten were dismissed for untimeliness or failure to state a claim.  The trial court permitted the claims for an accounting and fraudulent concealment to proceed to discovery.

 

The trial court subsequently granted the Bank's motion for summary judgment, and denied a series of motions for additional discovery, reconsideration, and leave to amend.  The matter was appealed.

 

On appeal, the Circuit Court first analyzed the Plaintiffs' claim for an accounting, which – under Florida law - requires that the Plaintiffs show either: (1) a sufficiently complicated transaction and an inadequate remedy at law, or (2) the existence of a fiduciary relationship.

 

Additionally, under Florida law, "[a] bank and its customers generally deal at arm's-length as creditor and debtor, and a fiduciary relationship is not presumed."  Thus, a plaintiff must show "special circumstances" establishing both "some degree of dependency on one side and some degree of undertaking on the other side to advise, counsel, and protect the weaker party." 

 

The Plaintiffs argued that the required special circumstances were present because the Customer spoke little or no English.  The Circuit Court disagreed, ruling that "even if that were enough to create a genuine dispute regarding dependency, plaintiffs have produced no evidence tending to show that [the Bank] undertook to advise, counsel, and protect [the Customer] or his family."

 

Additionally, the Plaintiffs argued that the disputed transactions were complex enough to warrant an accounting even without a fiduciary relationship, but since these arguments were raised for the first time on appeal, the Circuit Court determined they were forfeited. 

 

Thus, the Circuit Court affirmed the ruling of the trial court on the accounting claim.

 

The Court next reviewed the trial court's ruling granting summary judgment to the Bank on the Plaintiffs' fraudulent concealment claim. 

 

In their second amended complaint, the Plaintiffs alleged that the Bank, during the course of the litigation, concealed relationships with contractors who might have records regarding the disputed funds.  However, the trial court granted summary judgment in favor of the Bank after discovery because the Plaintiffs could not establish the essential element of detrimental reliance after discovery to the contractors failed to yield any relevant records.

 

On appeal, the Plaintiffs did not challenge this aspect of the trial court's ruling, but instead advanced a different concealment theory – that the Bank, in the early 2000s, hid the Customer's unclaimed account in violation of Florida's escheat laws.

 

The appellate court noted that the Plaintiffs never pleaded this theory, but instead raised it for the first time in response to the Bank's motion for summary judgment, at which point the trial court found it was forfeited. 

 

The Circuit Court determined that the trial court did not abuse its discretion in reaching its ruling, as the Plaintiffs' theory reflected a "fundamental change" from the theory that they pleaded, and they "did not raise their new concealment theory until summary-judgment briefing – after the close of an eight-month, twice-extended discovery period."

 

Thus, the Circuit Court affirmed the ruling of the trial court on the fraudulent concealment claim.

 

Finally, the Circuit Court reviewed the trial court's rulings on discovery, reconsideration, and leave to amend, and found no abuse of discretion. 

 

With respect to the additional discovery, the Circuit Court determined that "the trial court permissibly denied plaintiffs' motions to compel further discovery and to defer ruling on summary judgment," because "the proposed additional discovery would not have cured the fatal flaws the court identified in the accounting claim (absence of any fiduciary relationship) and the preserved concealment claim (absence of any contractor records)."

 

The Circuit Court next ruled that the trial court permissibly denied the Plaintiffs' motion to reconsider summary judgment on the concealment claim, because the alleged "new evidence" presented consisted of allegedly false statements made by the Bank to the Customer's family or their agents between 2003 and 2013.  The Circuit Court agreed with the trial court that it was "not justifiable that counsel failed to unearth (or at least plead) these additional allegations during three years of litigation." 

 

Finally, the Circuit Court ruled that the trial court permissibly denied the Plaintiffs' request for leave to file a third amended complaint to expand the concealment claim beyond the alleged misconduct in 2015 and 2016 because "a request for leave to amend must be submitted in the form of a written motion, and . . . must state with particularity the grounds for seeking the order and state the relief sought."  Because Plaintiffs' "surfaced the amendment issue in their brief opposing [the Bank's] motion for summary judgment, which purported to reserve the right to amend," the Circuit Court determined that it was properly denied.

 

Accordingly, the Circuit Court affirmed the rulings of the trial court in their entirety.

 

 

 

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: 11th Cir Rules in Favor of Mortgage Servicer in FCRA Putative Class Action

In an unpublished ruling, the U.S. Court of Appeals for the Eleventh Circuit recently affirmed dismissal of a borrower's putative class action suit filed against a mortgagee alleging violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. ("FCRA") for failing to conduct a reasonable investigation into disputed information reported to the credit reporting agencies ("CRAs").

 

In so ruling, the Court concluded that the borrower failed to demonstrate that a reasonable investigation would have uncovered an inaccuracy in certain information provided by the mortgagee to the CRAs, and the mortgagee had no duty to investigate a separate dispute because the borrower did not allege that it had received notice of the dispute from the CRAs triggering the requirements to investigate under § 1681s-2(b).

 

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

 

After a borrower ("Borrower") defaulted on his mortgage loan (the "Loan"), the mortgagee ("Mortgagee") began reporting the Loan account as 120+ days past due to the CRAs. 

 

Mortgagee filed an action to foreclose the mortgage Loan in Broward County, Florida, and final judgment of foreclosure was entered in its favor in May 2014.  After the Borrower's Loan was transferred to another entity, the Mortgagee closed Borrower's Loan account in March 2015.  The Borrower subsequently paid the foreclosure judgment in full in June 2015 to Mortgagee's successor-in-interest. 

 

Two years later, the Borrower retrieved his credit reports and learned that the Mortgagee had reported his account as 120 days past due between May 2013 and February 2015.  The Borrower sent letters to the CRAs disputing Mortgagee's reporting, who in turn, provided Mortgagee notice that the Borrower disputed its reporting.

 

During the course of its investigations, one of the CRAs asked the Mortgagee to review and verify its furnished information and respond to the Borrower's claims.  The updated credit report attached to the investigation showed that although Mortgagee had stopped furnishing monthly updates of the Borrower's payment status when it closed his account in March 2015, the Loan was nonetheless reported as past due as of July 2017—more than two years it was paid off in the foreclosure judgment amount.

 

After the Mortgagee informed Borrower that its investigation concluded that it had provided accurate information to the CRAs, the Borrower filed a putative class action lawsuit against the Mortgagee alleging that it failed to comply with its duty to conduct an adequate investigation under subsection 1681s-2(b) of the FCRA. 

 

Specifically, the Borrower claimed that Mortgagee (i) "inaccurately" reported to the CRAs that he was 120+ days past due for 22 months beginning in May 2013, because the filing of the foreclosure action relieved him of any obligation to make payments (while not disputing that he failed to make payments), and; (ii) failed to accurately and/or completely report to the CRAs that he fully satisfied his obligations under the Loan after he paid the foreclosure judgment, as the updated credit reports indicated the Loan account was past due as of July 2017. 

 

As you may recall, the FCRA among other things imposes two obligations upon "furnishers" who provide customer information to the CRAs. 

 

First, a furnisher is prohibited from "furnish[ing] any information relating to a consumer to any [CRA] if the person knows or has reasonable cause to believe that the information is inaccurate." 15 U.S.C. § 1681s-2(a)(1)(A).

 

Second, upon notification from a CRA that a consumer disputes the accuracy or completeness of furnished information, a furnisher must "(A) conduct an investigation with respect to the disputed information;" "(B) review all relevant information provided by the [CRA];" and "(C) report the results of the investigation to the [CRA]." Id. § 1681s-2(b)(1). 

 

Notably, the Borrower did not allege that he ever notified the CRAs or Mortgagee that he disputed the Loan's past-due status as of 2017.

 

The Mortgagee moved to dismiss the Borrower's complaint, and the trial court granted the motion to dismiss with prejudice on the basis that (i) Mortgagee correctly reported the status of the Borrower's mortgage Loan between May 2013 to February 2015 in satisfaction of its obligations under the FCRA; (ii) Borrower's allegations that he had no obligation to make monthly payments following acceleration was a "a legal conclusion devoid of factual support," and insufficient to bring a claim under section 1681s-2(b) of the FCRA; (iii) Borrower provided no authority to support his claim that the Mortgagee was obliged to inform the CRAs that the Borrower had satisfied the foreclosure judgment after the Loan account had been transferred, and; (iv) providing leave to amend was futile.  This appeal followed.

 

Noting its recent analysis in Felts v. Wells Fargo Bank, N.A., 893 F. 3d 1305 (11th Cir. 2018), the Eleventh Circuit explained that a consumer's claims under subsection 1681s-2(b) of the FCRA contemplates three possible outcomes of a satisfactory investigation: (1) the information is accurate and complete, (2) the information is inaccurate or incomplete, or (3) the information cannot be verified.  Id. at 1312.  When an investigation concludes that the disputed information was verified as accurate, its obligations to conduct an investigation is evaluated under a reasonableness standard which "will turn on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true."  Id.

 

As to the Borrower's first cause of action regarding Mortgagee's purportedly inaccurate reporting for between May 2013 and February 2015, the Eleventh Circuit noted that neither the Borrower's complaint nor his arguments on appeal allege that he in fact made payments during this time period; thus, the Borrower could not demonstrate that a reasonable investigation would have uncovered an inaccuracy in the information reported, as required.  Felts at 1313 (11th Cir. 2018). 

 

The Eleventh Circuit also rejected the Borrower's argument that the filing of the foreclosure action and acceleration of the Loan relieved him from any obligation to make payments, as his legal theory conflicted with Florida law.  See Deutsche Bank Tr. Co. Americas v. Beauvais, 188 So. 3d 938, 946-47 (Fla. 3d DCA 2016).  Even if he were correct about his legal obligation to pay, the Court noted, the Borrower's FCRA claim would nonetheless fail because a plaintiff must show a factual inaccuracy rather than the existence of disputed legal questions to bring suit against a furnisher under § 1681s-2(b).  Chiang v. Verizon New Eng., Inc., 595 F.3d 26, 35 (1st Cir. 2010).

 

Next, the Court turned to the Borrower's separate claim that the Mortgagee failed to update the CRAs that the foreclosure judgment was paid off, which resulted in his reports continuing to show the Loan as past due as of July 2017.  The Eleventh Circuit concluded that it need not decide whether or not a duty existed to update the CRAs after it had transferred the account to another lender, because even if it had a duty to refresh the previously-furnished information, the Borrower's claims arise under section 1681s-2(b), which only governs a furnisher's investigation duties.

 

Here, the Borrower never alleged that the Mortgagee received notification from the CRAs that the disputed the Loan's past due status as of July 2017 or that the CRAs provided Mortgagee notice of any such dispute, and fails to allege that he even contacted the CRAs to dispute that aspect of his credit reports.  Without receiving notification from the CRAs that the Borrower disputed reports of his Loan as past due as of July 2017, Mortgagee had no obligation to conduct a 1681s-2(b) investigation.  See 15 U.S.C. 1681s-2(b)(1); see also id. 1681i(a)(2)(A).  As such, these claims, too, fail to state a claim under the FCRA.

 

Lastly, because the Borrower could not overcome the factual deficiencies of his purported claims, the appellate court concluded that the district court did not abuse its discretion in dismissing the Borrower's complaint with prejudice because amendment would be futile.

 

Accordingly, dismissal of the Borrower's FCRA claims with prejudice was 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

 

 

 

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

 

 

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.

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