The U.S. Court of Appeals for the Second Circuit recently affirmed a trial court's judgment in favor of a consumer reporting agency (CRA). In so ruling, the Second Circuit held that the trial court correctly determined that:
(1) the CRA's credit report stating that a judgment against the plaintiff was "satisfied" was accurate, even though the plaintiff claimed the judgment was "vacated"; and
(2) the plaintiff could not establish damages arising from the CRA's allegedly negligent conduct; and
(3) the CRA did not need to prove it actually interpreted the FCRA in line with its claimed reasonable interpretation to rely on the reasonable-interpretation defense established by Safeco Insurance Company of America v. Burr, 551 U.S. 47, 57 (2007).
A copy of the opinion is available at: Link to Opinion
After a debt collector obtained a default judgment against the plaintiff in a debt collection action, the collector began garnishing the plaintiff's wages. The plaintiff then appeared in the action, eventually entering into a stipulation of settlement.
When the plaintiff learned that the defendant, a consumer reporting agency, was including the 2013 default judgment on his credit report, he filed suit, alleging that, in reporting the judgment as "satisfied" and in its subsequent dealings with the plaintiff, the CRA willfully and negligently violated the source-disclosure, accurate reporting, and reinvestigation provisions of the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681g(a)(2), 1681e(b), 1681i(a)(6)-(7).
The trial court dismissed one of the plaintiff's FCRA claims under Fed. R. Civ. P. 12(b)(6), denied leave to amend that claim, and granted summary judgment to the CRA on the plaintiff's remaining FCRA claims. In its ruling on the CRA's summary judgment motion, the trial court found that the description of the judgment as "satisfied" was accurate. The plaintiff timely appealed.
The Second Circuit noted that the overwhelming weight of authority in the Circuit "holds that a credit report is inaccurate [under § 1681e(b)] either when it is patently incorrect or when it is misleading in such a way and to such an extent that it can be expected to have an adverse effect." Khan v. Equifax Information Services, LLC, No. 18-cv-6367 (MKB), 2019 WL 2492762, at *3 (E.D.N.Y. June 14, 2019).
The plaintiff acknowledged that the court in the debt collection action reported that the case against him was "settled." The plaintiff also did not dispute that the CRA was following a standard practice in the credit reporting industry by reporting a settled debt-collection judgment as "satisfied."
The plaintiff however argued that, when the court in the debt collection action ordered the stipulation, it also implicitly vacated the judgment. Thus, he maintained that the defendant was obligated to report the judgment as "vacated." The plaintiff also contended that, by denoting the judgment as "satisfied," the CRA misled its readers because it implied that a judgment remained.
However, the Second Circuit observed that the court docket did not reflect a vacatur. Also, the Court held that describing a judgment as "satisfied" does not imply that it "remains;" if anything, according to the Court, it implies the opposite.
The Second Circuit therefore held that the accuracy of the plaintiff's credit report was fatal to his § 1681e(b) claims that the CRA engaged in willful or negligently inaccurate reporting. Therefore, the Court affirmed the trial court's judgment dismissing those claims.
Furthermore, the trial court granted summary judgment to the CRA on the plaintiff's § 1681g source-disclosure negligence claim based upon its conclusion that, even if the CRA should have disclosed LexisNexis as a "source" of information on the judgment, the plaintiff presented no evidence that he suffered any actual damages resulting from the failure. On appeal, the CRA adopted the trial court's "no-actual-damages" approach to argue for affirming the trial court's judgment with regard to the plaintiff's § 1681i reinvestigation negligence claim as well as the § 1681g source-disclosure claim.
The Second Circuit agreed with the CRA that the plaintiff had failed to present any evidence for concluding that he suffered actual damages as a result of the CRA not disclosing or treating the judgment reporting service as a "source" or "furnisher" of information to it about the judgment.
Because the Court held that the credit report was accurate, the Court also concluded that the plaintiff's learning that the judgment reporting service was the intermediary source of the CRA's information would not have enabled the plaintiff to avoid the emotional damages that he claimed to have suffered. Nor would he have avoided any of the costs he claimed to have incurred in disputing the credit report.
Accordingly, the Court held that the CRA was entitled to summary judgment on the plaintiff's § 1681g and § 1681i negligence claims.
The trial court also dismissed the plaintiff's § 1681g willfulness claim after concluding that the CRA reasonably interpreted "source" not to include a contractor-intermediary doing what the judgment reporting service did in this case. In responding to the plaintiff's arguments on appeal, the CRA also contended that its position that the judgment reporting service did not constitute a "furnisher of information" under § 1681i was reasonable, despite the trial court's determination otherwise (and despite the trial court's award to the CRA of summary judgment on the claim on a different basis).
As you may recall, in Safeco Insurance Company of America v. Burr, the Supreme Court of the United States held that a credit reporting agency may "willfully" violate the FCRA by acting in "reckless disregard of statutory duty." 551 U.S. 47, 57 (2007). The SCOTUS explained that a company does not act in "reckless disregard" of the FCRA, however, if its "reading of the statute . . . was not objectively unreasonable." Id. at 69.
The FCRA's reinvestigation provision requires that, under certain circumstances, consumer reporting agencies provide information about "any furnisher of information contacted in connection with such information, and also that consumer reporting agencies provide notice of consumer disputes to "furnisher[s] of information." Id. § 1681i(a)(6). It defines "furnisher" to include "any person who provided any item of information in dispute." Id. § 1681i(a)(2). The defendant argued that it is reasonable for an agency to construe this provision to exclude its own contractor charged with gathering public records on the agency's behalf.
Additionally, the FCRA's source-disclosure rule requires consumer reporting agencies to disclose to the consumer, on request, the "sources of the information" in the consumer's file. Id. § 1681g(a)(2). The defendant argued that it is a reasonable construction of the statute to interpret "sources of information" as referring to the original source of the reported information, as opposed to any contractors that gathered the information on an agency's behalf.
The Second Circuit agreed with the CRA and held that it was an objectively reasonable reading of these provisions to exclude from "furnisher" and "sources" a contractor such as LexisNexis working on the reporting agency's behalf when the information in question was contained in a particular set of files, the consumer reporting agency identified the court and its files as the "furnisher" or "source" of the information, and the function of the undisclosed contractor was to check those files to determine the accuracy of the report.
Moreover, the Second Circuit rejected the plaintiff's argument that the CRA needed to show that it actually and contemporaneously adopted this statutory interpretation to avail itself of the Safeco defense. The Court noted that the Safeco court emphasized that whether a company committed a willful violation of the FCRA is an objective inquiry and dismissed arguments that "evidence of subjective bad faith" could create liability in the face of objectively reasonable interpretations. Safeco, 551 U.S. at 70 n.20
Accordingly, the Second Circuit held that when the CRA advised its customers that the judgment against the plaintiff was "satisfied," it gave an accurate report. Also, the Court purposefully did not decide whether the FCRA might be read to obligate the CRA to respond to the plaintiff's source disclosure and reinvestigation requests by informing him of the judgment reporting service's role because (1) § 1681g and § 1681i can reasonably be interpreted to not require such a disclosure; and (2) even if the CRA was negligent in determining its obligations under those provisions, the plaintiff pointed to no harm he suffered as a result.
Therefore, the Second Circuit affirmed the trial court's judgment.
Ralph T. Wutscher
Maurice Wutscher LLP
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