Proser v. Navient Solutions, Inc. et al

Filing 32

ORDER by Judge Samuel Conti GRANTING IN PART and DENYING IN PART 16 Motion to Dismiss First Amended Complaint, Or, In the Alternative, For Summary Judgment, and DENYING 17 Request for Judicial Notice. (sclc2, COURT STAFF) (Filed on 9/3/2015)

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IN THE UNITED STATES DISTRICT COURT

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FOR THE NORTHERN DISTRICT OF CALIFORNIA

United States District Court

For the Northern District of California

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ZACK D. PROSSER,

)
)
Plaintiff,
)
)
v.
)
)
)
NAVIENT SOLUTIONS, INC.; a
)
Delaware corporation; SLM Corp, )
a Delaware corporation,
)
)
Defendants.
)
)

Case No. 15-cv-01036-SC
ORDER GRANTING IN PART, DENYING
IN PART MOTION TO DISMISS OR
MOTION FOR JUDICIAL NOTICE, AND
MOTION FOR SUMMARY JUDGMENT

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I.

INTRODUCTION
The Court has received Defendants' motion to dismiss or, in

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the alternative, motion for summary judgment.

See ECF No. 16

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("Mot.").

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notice of three exhibits.

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is fully briefed and appropriate for resolution without oral

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argument pursuant to Civil Local Rule 7-1(b).

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("Opp'n"), 21 ("Reply").

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a stipulation dismissing certain parties and claims.

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20.

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dismissed party or claim.

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above, still-pending motions.

The motion is supported by a motion requesting judicial
See ECF No. 17 ("JN Mot.").

The motion

See ECF Nos. 19

The Court has also reviewed and approved
See ECF No.

The Court thus DENIES as moot any argument related only to a
Otherwise, the Court turns now to the

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II.

FACTS
The facts of this case are relatively straightforward, and are

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only made unclear or confusing by a lack of specificity in the

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First Amended Complaint (FAC), ECF No. 15.

liberal arts college in Ohio, from 2000 to 2004, graduating with a

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Bachelor's degree in Philosophy.

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United States District Court

Plaintiff Zack D. Proser attended Kenyon College, a four year

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For the Northern District of California

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Michael Proser (a Maryland resident), promised to pay "all or

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almost all of the college costs."

FAC ¶ 7.

Plaintiff's father,

Id. at ¶ 9.

To do so, Michael

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Proser applied for and received six student loans from a Maryland

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bank under the Federal Family Education Loan program (FFELP).

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at ¶ 10.

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Inc., and eventually assigned to Defendants Navient Solutions, Inc.

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and SLM Corp, commonly known as Sallie Mae or Sallie Mae Servicing.

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Id. at ¶¶ 2, 10, 11.

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"forged [P]laintiff's name on each of the loan applications without

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[P]laintiff's knowledge or consent."

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Id.

The loans were guaranteed by United Student Aid Funds,

The problem was that Michael Proser allegedly

Id. at ¶ 11.

All loans are paid in full, except one which has a balance of

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$5,000.

Id. at ¶ 13.

Defendants made reports to Credit Reporting

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Agencies ("CRAs") that monthly payments on three of the loans were

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up to 90 days late as of July 2011 and monthly payments on two of

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the loans were up to 90 days late in March 2009.

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FAC does not specify when Defendants made these reports.

Id. at ¶ 14.

The

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Plaintiff does not state when he learned of these reports.

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Plaintiff at another unspecified time "paid under protest in an

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attempt to protect his credit standing" and "to mitigate damage to

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his credit standing."

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unspecified times "repeatedly informed Sallie Mae that the loans

Id. at ¶¶ 13, 22.

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Plaintiff also at

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were procured through fraud, forgery[,] and identity theft by his

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father."

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Id. at ¶ 15.

Plaintiff pursued two avenues of investigation.

Plaintiff

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submitted a report to the Maryland State Police in October 2013.

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Id. at ¶ 16.

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police advising that Plaintiff's mother and father admitted they

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had signed Plaintiff's name to the loans.

United States District Court

For the Northern District of California

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In January 2014, Plaintiff received an email from the

Id. at ¶ 18.

Plaintiff, also allegedly in October 2013, provided a theft
affidavit, handwriting samples, and a police report to Defendants.

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Id. at ¶ 17.

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asked Defendants to recognize that Plaintiff had not signed the

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master promissory notes, to thus conclude the loans were illegally

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obtained through fraud and forgery, and to therefore stop reporting

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the loans to the CRAs.

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Defendants wrote to Plaintiff recognizing that Plaintiff's parents

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"did admit to apply[ing] for the loans on [Plaintiff's] behalf."

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Id. at ¶ 21.

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request to cease reporting the loans to the CRAs because Plaintiff

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was the beneficiary of the loan, Plaintiff made certain payments on

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the loan, and Plaintiff received correspondence at the correct

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address and was thus aware of the debt.

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After receiving the email from police, Plaintiff

See id. at ¶¶ 19, 20.

In March 2014,

However, Defendants ultimately denied Plaintiff's

Id. at ¶ 21.

Plaintiff alleges that all correspondence went to the home of

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his parents in Maryland, that Plaintiff therefore did not see it,

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and that his parents did not make him aware of it.

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Plaintiff conceded he made certain payments at an unspecified time

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after learning of the loans.

Id. at ¶ 22.

Id. at ¶ 22.

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Plaintiff sent dispute letters to CRAs in May 2014, who in

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turn (per the law) notified the Defendant, who in turn (per the

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law) conducted an investigation concerning the dispute and decided

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the reports would remain unchanged.

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alleges the investigation was unreasonable.

Id. at ¶ 23.

Plaintiff

Id. at ¶ 23.

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As to damages, Plaintiff alleges only that:

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[P]laintiff has suffered actual damages in the form of
(a) lost credit opportunities, (b) harm to his credit
reputation and credit score, and (c) emotional distress
in the form of mental pain, anguish, humiliation,
embarrassment, anxiety[,] and frustration.
Plaintiff
will continue to suffer the same for an indefinite time
in the future, all to his great detriment and loss.

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United States District Court

For the Northern District of California

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Id. at ¶ 14.
Plaintiff seeks damages pursuant to the Fair Credit Reporting

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Act ("FCRA"), 15 USC § 1681 et seq. and the California Credit

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Reporting Agencies Act ("CCRAA"), Civil Code § 1785.25(a).

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Defendants seeks dismissal for failure to state a claim or else

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summary judgment, and submits documents both with its motion and

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with a separate motion for summary judgment.

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III. LAW

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A.

Motion to Dismiss

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A motion to dismiss under Federal Rule of Civil Procedure

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12(b)(6) "tests the legal sufficiency of a claim."

Navarro v.

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Block, 250 F.3d 729, 732 (9th Cir. 2001).

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on the lack of a cognizable legal theory or the absence of

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sufficient facts alleged under a cognizable legal theory."

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Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir.

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1988).

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should assume their veracity and then determine whether they

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plausibly give rise to an entitlement to relief."

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Iqbal, 556 U.S. 662, 664 (2009).

"Dismissal can be based

"When there are well-pleaded factual allegations, a court

Ashcroft v.

However, "the tenet that a court

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is inapplicable to legal conclusions.

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elements of a cause of action, supported by mere conclusory

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statements, do not suffice."

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Twombly, 550 U.S. 544, 555 (2007)).

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complaint must be "sufficient allegations of underlying facts to

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give fair notice and to enable the opposing party to defend itself

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United States District Court

must accept as true all of the allegations contained in a complaint

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For the Northern District of California

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effectively" and "must plausibly suggest an entitlement to relief"

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such that "it is not unfair to require the opposing party to be

Threadbare recitals of the

Id. at 678 (citing Bell Atl. Corp. v.
The allegations made in a

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subjected to the expense of discovery and continued litigation."

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Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011).

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While normally a Court would be limited to the complaint,

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certain additional documents may be considered.

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referenced in a complaint may be attached to a Rule 12(b)(6) motion

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or incorporated by reference into the complaint by the Court for

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purposes of deciding a 12(b)(6) motion.

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Bank, 613 F.3d 1195, 1199 (9th Cir. 2010) (permitting a court to

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consider a document submitted "'whose contents are alleged in [the]

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complaint and whose authenticity no party questions[.]' Branch v.

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Tunnell, 14 F.3d 449, 454 (9th Cir. 1994), overruled on other

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grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th

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Cir. 2002)."); Davis v. HSBC Bank Nevada, N.A., 691 F.3d 1152,

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1159-60 (9th Cir. 2012) ("the district court may, but is not

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required to incorporate documents by reference," and doing so will

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be reviewed for abuse of discretion).

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the complaint "necessarily relies" on a document, the Court may

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consider that document if: "(1) the complaint refers to the

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document; (2) the document is central to the plaintiff's claim; and

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Documents

See Rubio v. Capital One

Stated more succinctly, if

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(3) no party questions the authenticity of the copy attached to the

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12(b)(6) motion."

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2006) (citations omitted).

Marder v. Lopez, 450 F.3d 445, 448 (9th Cir.

Entry of summary judgment is proper "if the movant shows that

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there is no genuine dispute as to any material fact and the movant

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is entitled to judgment as a matter of law."

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United States District Court

B.

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For the Northern District of California

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Motion for Summary Judgment

56(a).

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require a directed verdict for the moving party.

Fed. R. Civ. P.

Summary judgment should be granted if the evidence would
Anderson v.

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Liberty Lobby, Inc., 477 U.S. 242, 251 (1986).

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without the ultimate burden of persuasion at trial —- usually, but

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not always, a defendant —- has both the initial burden of

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production and the ultimate burden of persuasion on a motion for

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summary judgment."

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Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000).

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"A moving party

Nissan Fire & Marine Ins. Co., Ltd. v. Fritz

"In order to carry its burden of production, the moving party

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must either produce evidence negating an essential element of the

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nonmoving party's claim or defense or show that the nonmoving party

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does not have enough evidence of an essential element to carry its

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ultimate burden of persuasion at trial."

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its ultimate burden of persuasion on the motion, the moving party

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must persuade the court that there is no genuine issue of material

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fact."

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all justifiable inferences are to be drawn in his favor."

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Anderson, 477 U.S. at 255.

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Id.

Id.

"In order to carry

"The evidence of the nonmovant is to be believed, and

Per Fed. R. Civ. P. 12(d), a court may sua sponte convert a

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Rule 12(b)(6) motion to dismiss to a Rule 56 motion for summary

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judgment if "matters outside the pleadings are presented to and not

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excluded by the court."

In re Mortgage Elec. Registration Sys.,

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Inc., 754 F.3d 772, 781 (9th Cir. 2014) (refusing to make the

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conversion where a district court based its dismissal of a case

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entirely on deficiencies in the pleadings).

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C.

The FCRA and CCRAA

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The FCRA was enacted "to ensure fair and accurate credit

United States District Court

reporting, promote efficiency in the banking system, and protect

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For the Northern District of California

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consumer privacy."

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(2007).

Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 52

The FCRA thus "imposes some duties on the sources that

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provide credit information to [CRAs], called 'furnishers' in the

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statute."

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(9th Cir. 2009).

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notifies a furnisher that a consumer has disputed information that

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the furnisher had provided to the CRA.

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2(b)(1).

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investigation with respect to the disputed information, . . .

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review all relevant information provided by the consumer reporting

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agency" about the dispute, and correct any inaccuracies. Id.; see

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also Nelson v. Chase Manhattan Mortg. Corp., 282 F.3d 1057, 1059

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(9th Cir. 2002) (describing furnisher's duties under the FCRA);

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Welsh v. Am. Home Mortgage Assets, LLC, No. 4:13-CV-04750 CW, 2014

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WL 4954144, at *12 (N.D. Cal. Sept. 30, 2014) (discussing and

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applying standards).

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who fails to fulfill these duties.

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F.3d at 1059; Welsh, 2014 WL 4954144, at *12.

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within the earlier of two years from the date of discovery or five

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years from the date of the violation.

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157 Fed. Appx. 23, 25 (2005); see also 15 U.S.C. § 1681p.

Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1162
A furnisher's duties are triggered when a CRA

Id.; 15 U.S.C. § 1681s–

Upon receipt of notice, the furnisher must "conduct an

A consumer may bring suit against a furnisher

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15 U.S.C. § 1681o; Nelson, 282
Suits must be filed

Deaton v. Chevy Chase Bank,

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The CCRAA as related to this case is largely preempted.

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Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 889 (9th Cir

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2010).

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similar in form and substance to the CFRA.

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1785.25(a); Cal. Civ. Code § 1785.33.

Insofar as it is not, the law under the CCRAA is highly
See Cal. Civ. Code §

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United States District Court

For the Northern District of California

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IV.

DISCUSSION
The Court considers, in the following order, the four issues

raised by Defendants: (1) whether and what parts of Plaintiff's

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case are time-barred; (2) whether Plaintiff failed to properly

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allege claims under the FCRA, or if alleged such claims can be

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disposed of on summary judgment; (3) if Plaintiff ratified the

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loans and thus assumed responsibility for them; and (4) do the

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CCRAA claims fail.

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motions to dismiss standard.

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to convert this to a motion for summary judgment, and thus will not

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consider any extrinsic materials except those that can be

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incorporated into the complaint within the bounds of a 12(b)(6)

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motion.

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at 1199; Branch, 14 F.3d at 454; Davis, 691 F.3d at 1159-60;

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Marder, 450 F.3d at 448.

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request for summary judgment separately near the end of this Order.

The Court will consider each argument under the
The Court does not find it necessary

See In re Mortgage Elec., 754 F.3d at 781; Rubio, 613 F.3d

The Court will then address Defendants'

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A.

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Certain claims are not time barred if viewed in the limited

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Whether Claims Are Time-Barred

frame urged by the Plaintiff.
Defendants cite the statute of limitations for fraud, forgery,

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and identity theft.

Mot. at 13, Reply at 7.

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fail to address why these limits should apply to the violations

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However, Defendants

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alleged by Plaintiff, not brought under these statutes.

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Thus the

Court rejects Defendants' argument in this respect.
Plaintiff argues only for violations of the FCRA and CCRAA.

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earlier of" either "(1) 2 years after the date of discovery by the

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plaintiff of the violation that is the basis for such liability; or

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(2) 5 years after the date on which the violation that is the basis

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United States District Court

The FCRA states that a case may be brought not later than "the

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For the Northern District of California

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for such liability occurs."

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States Supreme Court has directly addressed what this means in TRW

15 U.S.C.A. § 1681p.

The United

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Inc. v. Andrews, 534 U.S. 19 (2001).

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almost 17 months after discovery of a third party's fraudulent

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conduct and over two years after the relevant CRA's first

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disclosures of the consumer's information.

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alleged that because credit information was provided based on only

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a partial match of requestor's information (the requestor being a

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fraudulent imposter), the relevant agency had engaged in a willful

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violation of Section 1681e(a), which in turn is governed by Section

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1681p.

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1681p precluded a discovery rule, i.e., that the statute began to

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run when a party knows or had reason to know it was injured.

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at 28.1

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it had not been raised in lower courts) of whether the statutory

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time did not arise until the consumer actually suffered the

Id. at 25-26, 28.

There, a suit was filed

Id. at 24-25.

The suit

The Supreme Court concluded that Section

Id.

The Supreme Court also declined to reach the question (as

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25
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The Ninth Circuit has since cited that the Supreme Court had made
clear that the Ninth Circuit's own, earlier application of the
discovery rule had gone too far, endorsing instead TRW as the
proper standard for the FCRA. See Mangum v. Action Collection
Serv., Inc., 575 F.3d 935, 941 (9th Cir. 2009). The Court here
notes with concern that neither Plaintiff nor Defendants cited any
of these binding authorities to the Court in their briefs.

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emotional distress, missed opportunities, and inconvenience

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catalogued in the complaint.

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in dicta noted that this argument had not been embraced by the

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Ninth Circuit and that the argument (even if valid) would be

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unlikely to aid claims of willful violations.

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Id. at 33-35.

Yet the Supreme Court

Id. at 34-35.

The Court must read the statute in light of TRW.

Thus

United States District Court

Plaintiff's case is time-barred if it was not brought within the

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For the Northern District of California

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earlier of two years of discovery by Plaintiff of the basis for

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liability or five years of the date of the violation itself.

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Here, the FAC is not entirely clear about the date on which

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Plaintiff learned of the violation.

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reasonably dismissed on (in part) this ground.

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4954144, at *12.

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the FAC, the Court can infer the Plaintiff must have learned of the

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loans prior to September 2013, which date may have been within two

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years of the filing dated of the FAC, April 2015.

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(electronically filed on April 16, 2015).

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Some Courts have quite
See Welsh, 2014 WL

But making all reasonable inferences in favor of

See FAC ¶ 13

However, here the Court has additional information it may

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consider.

Where information is referenced in a pleading that would

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be dispositive if the supporting document had been included, the

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Court may look to that referenced document in consideration of a

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motion to dismiss.

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1159-60.

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is a set of correspondence sent to Plaintiff at his Korea address.

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Mot. Ex. 1.

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Ex. 2.

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Hardship Deferment Request - dated 03/26/2009" (including

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Plaintiff's address in Korea) and one page including Plaintiff's

See Rubio, 613 F.3d at 1199; Davis, 691 F.3d at

Here, the Defendants submitted such documents.

The first

The second is two pages of a fax from Plaintiff.

Mot.

The fax pages included are a cover sheet entitled "Economic

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Plaintiff referenced this information in the pleading.

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(the existence of the loan was "unknown to Plaintiff until long

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after he graduated"), 21 (Sallie Mae claimed Plaintiff "had

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received correspondence at the correct address and he was aware of

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the debt"), 22 ("Plaintiff found out about the loans well after he

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graduated from college.

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United States District Court

address in Korea plus a breakdown of Plaintiff's finances.

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For the Northern District of California

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The

[P]laintiff made some payments on the loans in protest and in an

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effort to mitigate damage to his credit standing.").

FAC ¶¶ 10

After learning the loans existed,

These

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references show that Plaintiff at some point received documentation

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learning of the loan and that the address where information was

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sent was somehow verified or made accurate.

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happened is central to the Plaintiff's claims, as otherwise they

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may be time-barred.

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the documents attached to Defendants' motion.

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at 448.2

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standards set out by the Ninth Circuit.

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1199; Davis, 691 F.3d at 1159-60.

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incorporates the documents and considers them in determining

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whether the claims are time-barred.3

No party has questioned the authenticity of
See Marder, 450 F.3d

Thus the Court's incorporation of this document meets the
See Rubio, 613 F.3d at

Accordingly, the Court hereby

The dates on these documents show Plaintiff sent Defendants

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When and how this

correspondence regarding a loan deferral on or about March 26,

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2

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26
27
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Plaintiff disputes their significance but not authenticity.
Opp'n at 9 ("Navient corresponded with [Plaintff] about the student
loans when [Plaintiff] was working in Korea, but that was after the
loans had been extended and after he had graduated from college.").
3
Two other exhibits submitted with and attached to the Defendants'
motion are also incorporated on the same basis. See Mot. Ex. 3 (a
police report referenced at FAC ¶ 16); Mot. Ex. 4 (a letter from
Defendants dated March 7, 2014, refusing Plaintiff's request based
on the results of its investigation, referenced at FAC ¶ 21).

11

same address of origin in South Korea.

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most favorable to the Plaintiff, namely that this date really is

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the earliest that Plaintiff learned of the loan, the date is five

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years prior to the FAC.

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aware when Defendants made reports of loans being late in July 2011

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and March 2009.

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United States District Court

2009, and Defendants thereafter sent regular correspondence to the

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For the Northern District of California

1

is thus two years after the Plaintiff knew of the violation.

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applied, Plaintiff's claims seem to all be clearly time-barred.

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Even making assumptions

The date also suggests that Plaintiff was

The earlier of the relevant statutory limitations
When

Plaintiff's case is saved, however, by its argument that

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"Navient first violated the FCRA in this case when it failed to

12

conduct a reasonable investigation in May 2014 following receipt of

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notices from the CRAs that [P]laintiff was disputing is [sic]

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credit reporting."

15

fraudulent loans earlier, the specific cause of action of which

16

Plaintiff complains is simply failure to conduct a reasonable

17

investigation upon a proper notice from the CRA.

18

within the 2 year period (as is May 2014), the suit is timely.

19

Deaton v. Chevy Chase Bank, 157 F. App'x 23, 24 (9th Cir. 2005).

20

In Deaton, a bank allegedly violated Section 1681s–2(b) by failing

21

to investigate erroneous charges placed on a credit card.

22

panel found that the duty to investigate was triggered when, after

23

the consumer notifies the credit reporting agency of the dispute,

24

the credit reporting agency notifies the funisher.

25

Nelson v. Chase Manhattan Mortgage Corp., 282 F.3d 1057, 1059 (9th

26

Cir. 2002)).

27

they were notified and their duties under the act were triggered,"

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the suit was not time-barred.

Opp'n at 10.

Whereas Plaintiff knew of the

As March 2014 is

Id.

See

The

Id. (citing

As the banks' "liability could not have arisen until

However, this did not save any of

12

failed to investigate are timely, but other claims relating to

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older reports or offenses dating back over two years are untimely.

4

The Court considered and rejects Plaintiff's second argument,

5

that the updates to the CRAs on a monthly basis renews the period.

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Opp'n at 10.

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whether a re-report of allegedly false information resets the

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United States District Court

the other claims in Deaton.

2

For the Northern District of California

1

So, too, the claims that Defendants

statute of limitations.

9

Supp. 3d 1249, 1254 (D. Colo. 2013) (collecting authorities and

The Court is cognizant that there is a split as to

See Maiteki v. Marten Transp. Ltd., 4 F.

10

holding that "each re-report of allegedly false information

11

triggers a new duty to conduct a reasonable investigation, which in

12

turn restarts the limitations period for an FCRA claim based on the

13

failure to conduct a reasonable").

14

not take a side, because there is no allegation by Plaintiff that

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he has actually made a new complaint to the CRAs since the one

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cited in the complaint.

17

Maiteki is correct (a matter the Court does not decide), it would

18

not apply to this case.4

Therefore, even if the view expressed by

Turning to the California Civil Code and Plaintiff's claims

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20

Here, however, the Court need

made pursuant thereto, Section 1785.25(a) is the only substantive

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4

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25
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27
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The Court also considers and rejects Plaintiff's reliance on Hyde
v. Hibernia Nat. Bank in Jefferson Parish, 861 F.2d 446, 449 (5th
Cir. 1988). Therein, the Fifth Circuit -- a persuasive source the
Court is not mandated to accept -- states that "[t]he requirement
that a consumer sustain some injury in order to establish a cause
of action suggests that the statute should be triggered when the
agency issues an erroneous report to an institution with which the
consumer is dealing." This decision, however, was well before the
Supreme Court's dicta in TRW. Moreover, similar to the logic
above, Plaintiff here cites no specific instance of transmission by
the agency to an institution, and therefore this case would fail to
fall under the umbrella of Hyde even if the Court were required to
follow Hyde (which the Court is not).

13

preemption.

3

makes claims under 1785.25(b) and (c), SCA ¶ 42, those claims are

4

preempted.

5

to determine if the remaining CCRAA claim is timely.

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finds it is.

7

two years from the date plaintiff knew or should have known of the

8

United States District Court

CCRAA furnisher provision specifically saved by the FCRA from

2

For the Northern District of California

1

violation, "but not more than seven years from the earliest date on

9

which liability could have arisen."

Carvalho, 629 F.3d at 889.

Insofar as the Plaintiff

The Court must look to the terms of the California law
The Court

Under California law, a case must be brought within

Cal. Civ. Code § 1785.33.

10

Accordingly, the same logic from the FCRA applies, and the claim is

11

timely only as to the claims that investigations were unreasonable.

12

Therefore, the Court DISMISSES as time-barred all claims

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except those related to unreasonable investigations conducted in

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2014.

15

only insofar as Plaintiff includes clear dates to allow the Court

16

to evaluate whether the claims are timely per the analysis above,

17

and such dates comport with those already incorporated by reference

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into prior pleadings by the Court.

Plaintiff is GRANTED LEAVE TO AMEND to include other claims

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B.

FCRA Claims

20

Defendants make three primary arguments that the FCRA claims

21

are not valid.

They argue that the investigation was proper, its

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findings factually accurate, and not misleading.

23

They argue that Plaintiff cannot collaterally attack debt under the

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guise of an FCRA claim.

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actual damages were alleged by Plaintiff.

26

Plaintiff responds that its FCRA claims are valid by virtue of

27

alleging that Defendants' reports to CRAs were inaccurate and

28

misleading thus failing to meet the criteria of a reasonable

See Mot. at 9-10.

14

See Mot. at 6-9.

And they argue that no
See id. at 10-11.

1

investigation, and then Plaintiff attempts to directly refute

2

Defendants' two other arguments.

3

considers each argument in turn.
1.

4

See Opp'n at 5-8.

The Court

Reasonableness of the Investigation

pursue claims pursuant to 15 U.S.C. § 1681s-2(b), under §§ 1681n &

7

o.

8

United States District Court

Parties agree that there is only a private right of action to

6

For the Northern District of California

5

1060 (9th Cir. 2002).

9

investigate when a CRA receives notice directly from a consumer or

See Nelson v. Chase Manhattan Mortgage Corp., 282 F.3d 1057,
Pursuant thereto, there is a duty to

10

reseller that a consumer disputes the accuracy of the reporting.

11

15 U.S.C. § 1681s-2(b).

12

information is "incomplete or inaccurate," those results must be

13

shared with other consumer reporting agencies and compiled.

14

§ 1681s-2(b)(1)(D).

15

incomplete or [it] cannot be verified after any reinvestigation,"

16

the information must be modified or deleted, or reporting of that

17

item must be permanently blocked.

If the investigation finds that the

Id. at

If information is found to be "inaccurate or

Id. at § 1681s-2(b)(1)(E).

An element considered as to the requirement to conduct a

18
19

reasonable investigation is that Plaintiff identifies a factual

20

inaccuracy in Defendants' reporting.

21

890.

22

Thus, the core disagreements between the parties are whether that

23

investigation was not "unreasonable" and whether the information

24

garnered from that investigation showed that there was inaccurate

25

or misleading information being reported.

26

Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009) (a furnisher's

27

investigation per § 1681s-2(b)(1)(A) "may not be unreasonable.").

28

Here, both sides seem to agree that the loan application was made

See Carvalho, 629 F.3d at

Parties both admit Defendants conducted an investigation.

15

See Gorman v. Wolpoff &

1

by Plaintiff's parents, that the loan was made without Plaintiff's

2

express consent, that Plaintiff benefitted from the loans, that

3

Plaintiff at some point learned of the loans, that the loan was not

4

fully paid on time, and that Plaintiff made payments on the loan.

5

Mot. at 2-3, Opp'n at 4-5.

6

the blame -- to Plaintiff or to Plaintiff's parents -- but it is

7

unclear what fact is in error.
Yet even were the Court to assume Plaintiff sufficiently cited

United States District Court

For the Northern District of California

8
9

Parties disagree as to where to assign

a fact in error (a topic discussed below in connection with

10

ratification), Plaintiff still bears the burden of showing the

11

investigation was unreasonable.

12

584 F.3d 1147, 1154 (9th Cir. 2009); O'Connor v. Capital One, N.A.,

13

No. CV 14-00177-KAW, 2014 WL 2215965, at *7 (N.D. Cal. May 29,

14

2014).5

15

action are insufficient to survive a motion to dismiss.

16

550 U.S. at 555.

17

with the legal conclusion reached by Defendants, but that does not

18

belie the reasonableness of the investigation or compliance with

19

the statutory duties at issue.

20

Nat'l Ass'n, No. C13-01153 HRL, 2014 WL 587520, at *4 (N.D. Cal.

21

Feb. 14, 2014).

22

///

23

5

24
25
26
27
28

Gorman v. Wolpoff & Abramson, LLP,

A formulaic recitation of the elements of a cause of
Twombly,

Here, the Court may or may not ultimately agree

See Landini v. FIA Card Servs.,

The Ninth Circuit has summarized this idea:

There are insufficient factual allegations where a plaintiff
alleges only that he reported alleged inaccuracies to the CRAs and
to a defendant, and that defendant did not delete "information
found to be inaccurate and erroneous, and/or failed to properly
investigate Plaintiff's disputes" and failed to conduct a proper
and lawful reinvestigation.
O'Connor, 2014 WL 2215965, at *7;
see also Berberyan v. Asset Acceptance, LLC, CV 12–4417–CAS PLAX,
2013 WL 1136525, at *5 (C.D. Cal. Mar. 18, 2013) (allegations that
a furnisher "fail[ed] to conduct a proper investigation" did not
state a claim under Section 1681s–2(b)).

16

1
2
3
4
5
6
7

United States District Court

For the Northern District of California

8
9
10
11
12
13

As Gorman explains, an FCRA violation is tied to the
reasonableness of an investigation rather than the
accuracy of its results.
In Gorman, over a furnisher's
objection, we held that upon receiving notice of a
dispute from a CRA, a furnisher's investigation must be
"reasonable." 584 F.3d at 1155–57. In so concluding, we
did not hold the furnisher to an impossible standard that
rendered it liable anytime its investigation did not
reach the correct result.
We recognized that factors
beyond
a
furnisher's
control
may
doom
the
most
conscientious investigation to an erroneous result: for
example, we noted that in Gorman, a CRA had provided the
furnisher with "scant information," to carry out the
investigation.
Id.
We therefore concluded that the
furnisher's inaccurate reporting after an investigation
was not dispositive proof that its investigation was
unreasonable, as despite reasonable efforts, it may not
have been given sufficient information to reach the
correct conclusion despite reasonable efforts.
Id. at
1157.
In short, "[a]n investigation is not necessarily
unreasonable
because
it
results
in
a
substantive
conclusion unfavorable to the consumer, even if that
conclusion turns out to be inaccurate."
Id. at 1161.
Thus, Gorman imposes fault, not for an investigation that
produces incorrect results, but for an unreasonable
investigation.

14
15

Drew v. Equifax Info. Servs., LLC, 690 F.3d 1100, 1110 (9th Cir.

16

2012).

17

The idea behind Carvalho and Gorman is to ensure that

18

investigations are real, meaningful tools used by (both

19

investigating agencies and) furnishers, but also to keep legal

20

decisions in the hands of the Court without turning other bodies

21

into courts.

22

1155-57.

23

investigate and in fact found information that confirmed there may

24

have been fraud.

25

its face, looks very much like the proper legal grounds for

26

ratification and assumption of a loan by a third party (a topic the

27

Court addresses further below).

28

into the complaint by reference).

See Carvalho, 629 F.3d at 890-92; Gorman, 584 F.3d at

Here, there is no question that the Defendants tried to

But Defendants also found information that, on

See Mot. Ex. 4 (incorporated above

17

On those grounds, it was not

1

unreasonable for the Defendants to arrive at their conclusion that

2

the Plaintiff was in fact responsible for the loan.

3

be sufficient for a legal ruling on ratification of the loan by a

4

court, but it does show that Defendants engaged in a reasonable

5

investigation pursuant to its responsibilities under the FCRA.

6

As Plaintiff fails to show how the investigation was

This may not

United States District Court

unreasonable, he fails to carry his burden, and his claims

8
For the Northern District of California

7

accordingly fail as a matter of law.

9

DISMISSED WITHOUT PREJUDICE.

The claims are therefore

As there is no remedy requested by

10

Plaintiff to address the potentially fraudulent nature of the loan

11

-- and based on information the Court presently has available such

12

remedies may be time-barred -- the Court does not reach an analysis

13

of whether the loan would be fraudulent if challenged directly.
2.

14
15

Collateral Attack

Defendants' collateral attack arguments point to a valid

16

concern, but as stated are in error.

17

length that CRAs are not equipped to make determinations on legal

18

defenses.

19

valid FCRA claim where a court finds a mortgage invalid yet a CRA

20

continues to report the debt as valid).

21

clarifies that "[t]he proper recourse for the consumer, therefore,

22

was to resolve the issue in a suit against the creditor" and then

23

challenge a CRA under the FCRA if the CRA continued to report a

24

debt the court invalidated.

25

Carvalho makes clear at

Carvalho, 629 F.3d at 891 (explaining that there is a

However, Carvalho also

Id. at 891-92.

Here, the Plaintiff has brought suit against the creditor,

26

negating what Defendants cite as a collateral attack.

27

Court does note that critically the suit does not ask the Court to

28

annul the loan itself as fraudulent, but rather asks for such

18

But the

investigation.

3

the logic seems to be that the reasonableness of the investigation

4

is clearly defeated where there is an obvious defense to a loan

5

(namely, the loan is fraudulently created).

6

is a defense to the defense to the loan, the reasonableness seems

7

less readily attacked by citing a potential error in application of

8

United States District Court

relief as might be available under the FCRA for an unreasonable

2

For the Northern District of California

1

a second-order legal test.

9

cited by Defendants, the Court agrees there is a degree to which

Neither side states it succinctly in its brief, but

However, where there

Thus, for reasons other than those

10

the Court is being invited to address a collateral issue beyond the

11

scope of the pleadings.

12

offered, the Court declines.
3.

13

Insofar as such an invitation is being

Actual Damages

Plaintiff's damages must be limited to harm resulting during

14
15

or after 2014, when the allegedly unreasonable investigation led to

16

harmful credit reporting.

17

facially might seem to satisfy Fed. R. Civ. P. 8(a)(3), there is

18

not enough information provided for the Court to determine if the

19

damages are actual, punitive, supported by true facts, or merely

20

pleading the elements of the offense.

21

555.

22

[Plaintiff] [seeks] in this case, could presumably be awarded at

23

the moment of [Defendants'] alleged wrongdoing, even if 'actual

24

damages' did not accrue at that time."

25

Therefore, the Court does not preclude the possibility of such

26

damages.

27

adequately pleaded here and thus the claims are DISMISSED WITHOUT

28

PREJUDICE.

While the Plaintiff pleads damages that

See Twombly, 550 U.S. at

The Court is mindful that "[p]unitive damages, which

See TRW, 534 U.S. at 35.

The Court does, however, find that they have not been

19

1

In connection with damages arguments, Plaintiff argues that

that Plaintiff's parents (vice Plaintiff himself) signed the loan

4

documents yet still refused to concede Plaintiff was not obligated

5

on the loans.

6

does not act in reckless disregard of [the FCRA] unless the action

7

is not only a violation under a reasonable reading of the statute's

8

United States District Court

Defendants acted in reckless disregard when Defendants recognized

3

For the Northern District of California

2

terms, but shows that the company ran a risk of violating the law

9

substantially greater than the risk associated with a reading that

Opp'n at 8.

However, "a company subject to FCRA

10

was merely careless."

11

69 (2007).

12

considered in light of the Court's analysis above that there was a

13

reasonable potential defense available to the Defendants

14

(ratification) to the Plaintiff's allegation of fraud.

15
16

C.

Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47,

No such showing has been adequately pleaded when

Whether Plaintiff Ratified the Loans

Whether Plaintiff ratified the loans is significant.

But the

17

Court need not reach a final legal conclusion as to ratification to

18

resolve the motion at issue.

19

Generally, "[r]atification requires that the principal,

20

knowing the facts, accepts the benefits of the agent's actions."

21

Mallott & Peterson v. Dir., Office of Workers' Comp. Programs,

22

Dep't of Labor, 98 F.3d 1170, 1174 (9th Cir. 1996) (citing Alvarado

23

Community Hosp. v. Superior Court, 173 Cal. App. 3d 476, 481-82

24

(1985) rev'd on different grounds by Price v. Stevedoring Servs. of

25

Am., Inc., 697 F.3d 820 (9th Cir. 2012)).

26

California defines ratification as follows:

27
28

The longstanding rule in

Ratification is the subsequent adoption by one claiming
the benefits of an act, which without authority, another
has voluntarily done while ostensibly acting as the agent

20

1

of him who affirms the act and who had the power to
confer authority. A principal cannot split an agency
transaction and accept the benefits thereof without the
burdens. . . . Ordinarily, the law requires that a
principal be apprised of all the facts surrounding a
transaction before he will be held to have ratified the
unauthorized acts of an agent. However, where ignorance
of the facts arises from the principal's own failure to
investigate and the circumstances are such as to put a
reasonable man on inquiry notice.

2
3
4
5
6

United States District Court

Reusche v. California Pacific Title Ins. Co., 231 Cal. App. 2d 731,

8
For the Northern District of California

7

737 (1965) (citations omitted).6
An unauthorized signature may also be ratified.

9

See U.C.C.

10

3403(a); see also 4 Witkin, Summary 10th (2005) Neg Inst, § 40, p.

11

400; Estate of Stephens, 28 Cal. 4th 665, 673 (2002) ("Ratification

12

of an 'invalid execution,' however, must itself be in writing where

13

the agent enters into a contract that must be in writing."); Common

14

Wealth Ins. Sys., Inc. v. Kersten, 40 Cal. App. 3d 1014, 1025 (Cal.

15

Ct. App. 1974) ("under Code [S]ection 3404, a forged signature may

16

be ratified even where the forger is not the agent of the purported

17

signer.").7

18

signature is ordinarily a question of fact."

19

3d at 1026.

20

an example where the issue may be resolved on summary judgment.

"Whether there has been ratification of a forged
Kersten, 40 Cal. App.

However, as discussed below, Kersten itself provides

21
6

22
23
24
25
26
27
28

The Court is well satisfied that Reusche remains good law despite
its apparent age, as it continues to be cited by both the Ninth
Circuit and California courts for its definition and discussion of
ratification. See, e.g., In re Cool Fuel, Inc., 117 F. App'x 514,
516 (9th Cir. 2004); Behniwal v. Mix, 133 Cal. App. 4th 1027, 104142 (2005); Peterson v. Bonner, No. A139033, 2015 WL 1855823, at *5
(Cal. Ct. App. Apr. 22, 2015), reh'g denied (May 19, 2015), review
denied (July 8, 2015) (this unpublished decision is cited for the
strictly limited purpose of showing recent reliance on Reusche as
still good law).
7
Kersten also held that Section 3404 permits "a person whose
signature is forged [to] be estopped to deny its validity."
Kersten, 40 Cal. App. 3d at 1026.

21

1

There are numerous examples of where ratification was found to

forged a promissory note and deed of trust and the agent placed the

4

money from the loan into his (the agent's) own account.

5

231 Cal. App. 2d at 735.

6

sending a check from her agent drawing on the proceeds of the loan,

7

by making no offer to return the loan upon learning of the forgery,

8

United States District Court

bind a party to an agent's actions.

3

For the Northern District of California

2

In Reusche, an owner's agent

and by failing to make reasonable inquiries.

9

In Kelley, initialing an implied recognition that one lease had

Reusche,

However, the owner ratified the loan by

Id. at 735, 737-38.

10

been terminated was enough to ratify an unauthorized action by an

11

agent.

12

see also Behniwal v. Mix, 133 Cal. App. 4th 1027, 1041-42 (2005)

13

("If merely keeping a check, or initialing an implied recognition

14

that one lease had been terminated, were sufficient ratifications

15

of an agent's previous acts in, respectively, Reusche and Kelley,

16

then surely the signing of disclosure forms is sufficient here.").

17

See Kelley v. Jones, 272 Cal. App. 2d 113, 120-21 (1969);

Other cases provide contrary examples.

In Rouse, an agent

18

executed a note and signed a mortgage without authority, purporting

19

to bind a defendant.

20

However, there was no ratification -- even where defendant allowed

21

the agent to pay two installments of interest -- because the

22

defendant believed improperly that she was bound.

23

Coal & Fertilizer Co. v. Bleakmore, 81 C.A. 659, 664 (1927), there

24

was no ratification where a purported agent made a deal without

25

defendant's knowledge, where pursuant thereto fertilizer was spread

26

over defendant's land before defendant learned of the deal, and

27

where it was therefore impossible to return the fertilizer.

28

also 3 Witkin, Summary 10th (2005) Agency, § 141, p. 185.

Brown v. Rouse, 104 C. 672, 675 (1894).

22

In Pacific Bone,

See

Courts have also considered whether ratification can be

1
2

achieved through inaction upon discovery.

3

victim of fraud waited three whole years after discovering

4

forgeries (and then only until a law suit was filed against her) to

5

challenge the underlying action, the victim was deemed to have

6

ratified the action.

7

(1972).

United States District Court

For the Northern District of California

8

In Rakestraw, where a

Rakestraw v. Rodrigues, 8 Cal. 3d 67, 74-75

Rakestraw explained:

exoneration by ratification, however, 'is limited, so far
as the agent is concerned, to those cases where there
remains with the principal, after his first complete
knowledge of the transaction, the power to rescind, and
failing so to do he is properly charged with full
acceptance of all the responsibilities of the contract,
even to the exoneration of his agent, because, with the
ability to rescind, if he had rescinded, the transaction
would be at an end and nobody would be injured.' (Pacific
Vinegar etc. Works v. Smith[,] 152 Cal. 507, 511—512
[(1907)].) Here it is clear that Joyce elected not to
rescind at a time when she was fully informed and had
power to do so and had been advised of her rights."

9
10
11
12
13
14
15

Id.

16

repaying a loan of $5,000 based on a forged signature before

17

repudiating it constituted "sufficient evidence to support a

18

finding [by a Court] of ratification based on acquiescence."

19

Kersten, 40 Cal. App. 3d at 1027.

20

In Kersten, drawing a salary for four or five months and

The Court need not resolve exactly whether Plaintiff better

21

resembles one who accrues a benefit that cannot be returned or one

22

who has ratified a loan after-the-fact or one who has by delay

23

ratified a fraudulent action.

24

whether the investigation was reasonable and whether Plaintiff has

25

cited a specific fact that was reported in error by Defendant.

26

to the former, per the Court's explanation above, the Court finds

27

the investigation was reasonable given the facts as pleaded.

28

the latter, the variety of cases on this matter, complexity of the

Instead, the Court need only resolve

23

As

As to

same lines shows that Defendants did not engage in a quick, simple,

3

or purely self-serving analysis.

4

suggest that the only payments made were those necessary for quick-

5

response mitigation rather than a desire to actually take on the

6

loans.

7

permitted discovery, show facts) which would support that he did

8

United States District Court

Court's own analysis, and the progress Defendants made along the

2

For the Northern District of California

1

not ratify the loan despite its delayed response after learning of

9

them.

Even so, Plaintiff's pleadings

The Plaintiff may therefore be able to plead facts (and, if

If so, Plaintiff may be able to support a legal conclusion

10

that the Defendants improperly applied a legal exemption to fraud.

11

However, the key to Plaintiff's success would be somehow

12

transforming these two legal conclusions into a misreported fact

13

that ratification occurred or that the student loans did not belong

14

to the Plaintiff, thereby making the investigation unreasonable.
The Court is agnostic whether the law can support such a

15
16

transformation or the attendant legal conclusions.

However, the

17

Court has been provided with insufficient pleadings, evidence, and

18

briefing by parties to reach a final ruling at this time -- and

19

need not do so to resolve this motion.

20

the pleadings are insufficient as drafted for the above purposes.

21

Therefore, the claims are DISMISSED WITHOUT PREJUDICE.

What is clear now is that

22

D.

The Validity of CCRAA Claims

23

While the Court has recognized, per Carvalho, that Congress

24

saved Section 1785.25(a) from preemption, deducing a violation of

25

that subsection requires substantially similar information as a

26

violation of the FCRA.

27

presented in connection with the Court's decision on the FCRA,

28

///

For the same reasons and on the same logic

24

1

above, the Court DISMISSES WITHOUT PREJUDICE the CCRAA claims not

2

already preempted.

3

E.

Summary Judgment

4

The Court has cited numerous failures by Plaintiff to

Defendants urge the Court to grant summary judgment.

7

given the pleadings and the state of the briefing, the Court is not

8

United States District Court

adequately plead information necessary to state a cognizable claim.

6

For the Northern District of California

5

confident that Plaintiff could not state a claim, making it

9

improper at this juncture to grant a motion to dismiss without

However,

10

leave to amend.

The granting of summary judgment would require the

11

Court to believe that any possible claim would in no way turn on

12

any genuine issue of material fact.

13

replete with allegations that Plaintiff's complaint already

14

contains false information or does (or will) not contain adequate

15

proof.

16

Court that consideration of summary judgment is premature or not

17

warranted at this time.

18

judgment is DENIED WITHOUT PREJUDICE.

See Mot at 2-3, Reply at 9.

Yet Defendants' brief is

Such statements signal to the

Therefore, Defendants' motion for summary

19
20
21

V.

CONCLUSION
Defendants' motion to dismiss is GRANTED and the FAC is

22

DISMISSED WITHOUT PREJUDICE.

Defendants' motion for summary

23

judgment is DENIED WITHOUT PREJUDICE.

24

judicial notice is DENIED WITHOUT PREJUDICE.

25

has incorporated into the complaint and therefore considered

26

Exhibits 1, 2, 3, and 4 attached to Defendants' 12(b)(6) motion.

27

Plaintiff is granted leave to amend within 30 days of the date of

28

this Order to remedy the deficiencies discussed in this Order if

25

Defendants' motion for
The Court notes it

allegations in any prior pleadings or documents incorporated into

3

the FAC.

4

Second Amended Complaint ("SAC"), such documents are already within

5

the possession and control of Plaintiff, such documents are readily

6

available, and such documents tend to prove a date on which an

7

event of relevance occurred, Plaintiff is hereby ORDERED to attach

8

United States District Court

Plaintiff can do so truthfully and without contradicting the

2

For the Northern District of California

1

a true and correct copy of all such documents to the SAC.

If Plaintiff references any additional documents in its

9
10

IT IS SO ORDERED.

11
12
13

Dated: September 3, 2015
UNITED STATES DISTRICT JUDGE

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28

26