Basconcello v. Experian Information Solutions, Inc. et al

Filing 55

ORDER by Judge Phyllis J. Hamilton granting 30 Motion to Dismiss with Leave to Amend; granting 34 Motion to Dismiss with Leave to Amend; administratively terminating 52 Motion to Dismiss. (pjhlc2S, COURT STAFF) (Filed on 3/20/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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FRESIA BASCONCELLO,

v.

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Case No. 16-cv-06307-PJH

Plaintiff,

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ORDER GRANTING MOTIONS TO
DISMISS WITH LEAVE TO AMEND

EXPERIAN INFORMATION
SOLUTIONS, INC., et al.,

Re: Dkt. Nos. 30, 34, 52

Defendants.
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United States District Court
Northern District of California

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Defendants Chase Bank USA, N.A. and Equifax, Inc.’s motions to dismiss came

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on for hearing before this court on March 1, 2017. Plaintiff Fresia Basconcello appeared

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through her counsel, Elliot Gale. Defendant Chase Bank USA, N.A. appeared through its

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counsel, Andrew Soukup and Megan Rodgers. Defendant Equifax, Inc. appeared

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through its counsel, Thomas Quinn. Non-moving defendant Experian Information

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Solutions, Inc. appeared through its counsel, Ben Lee. Non-moving defendant Keypoint

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Credit Union did not appear. Having read the papers filed by the parties and carefully

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considered their arguments and the relevant legal authority, and good cause appearing,

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the court hereby rules as follows.
BACKGROUND

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A.

Chapter 13 Bankruptcy

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Chapter 13 bankruptcy allows debtors with regular income to “repay creditors in

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part, or in whole, over the course of a three-to-five-year period.” In re Blendheim, 803

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F.3d 477, 485 (9th Cir. 2015). Under Chapter 13, the debtor proposes a debt repayment

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plan that must comply with a number of statutory requirements. Id. at 485–86. “A

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Chapter 13 debtor seeking a discharge typically proposes a plan in which the discharge

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is granted at the end of the proceeding, after the debtor completes all required payments

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under the plan.” Id. at 486. If the Chapter 13 plan satisfies all of the statutory

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requirements, the bankruptcy court approves or “confirms” the plan. 11 U.S.C. § 1325(a);

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In re Flores, 735 F.3d 855, 857 (9th Cir. 2013).
If the debtor makes the payments under the confirmed plan, the bankruptcy court

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will grant a discharge of the debts, which “releases debtors from personal liability on

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claims and enjoins creditors from taking any action against the debtor.” Blendheim, 803

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F.3d at 486–87. “Many debtors, however, fail to complete a Chapter 13 plan

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successfully.” Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015). If the debtor fails to

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make the required payments, he may either “convert [the] Chapter 13 case to a
[bankruptcy] case under a different chapter,” or dismiss the action. Blendheim, 803 F.3d

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Northern District of California

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at 487. The effect of dismissal is to restore the legal status quo prior to the Chapter 13

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filing: “dismissal returns to the creditor all the property rights he held at the

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commencement of the Chapter 13 proceeding and renders him free to exercise any

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nonbankruptcy collection remedies.” Id. at 487.

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B.

The Complaint

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The complaint in this case is one of more than two hundred similar actions in this

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district filed by the Sagaria Law, P.C. firm against consumer credit reporting agencies in

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late 2016. All of these cases employ the same form complaint, with about a dozen

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paragraphs individualized for each plaintiff. The remainder of the complaint, including the

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causes of action, is copied nearly verbatim in each case.

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Plaintiffs in these cases are individuals who filed for Chapter 13 bankruptcy and

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allege that their debts were reported inaccurately in light of their confirmed Chapter 13

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plan. Experian Information Solutions, Inc. (“Experian”), Equifax, Inc. (“Equifax”), or both

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credit reporting agencies (“CRAs”) are named as defendants. Also named as defendants

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in most of the cases are “furnishers” of credit information, such as Chase Bank USA, N.A.

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(“Chase”) and Bank of America, N.A. (“BANA”).

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The complaint accuses CRAs and furnishers of “ignor[ing] credit reporting industry
standards for accurately reporting bankruptcies.” Compl. ¶ 7. Allegedly, this inaccurate
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reporting is an effort to perpetuate the “myth” that filing for bankruptcy ruins consumers’

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credit scores for years. Compl. ¶¶ 3–7.

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The complaint explains in some detail how a consumer’s FICO credit score is

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calculated, and how the score derives from information that furnishers report to CRAs.

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Compl. ¶¶ 20–36. Plaintiff then describes the Metro 2 credit reporting standards

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promulgated by the Consumer Data Industry Association (the “Metro 2 standards” or

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“CDIA guidelines”), which plaintiff alleges is the “industry standard for accurate credit

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reporting.” Compl. ¶¶ 37–52. The Metro 2 standards have different “CII indicator” codes

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that are used to note the filing and discharge of Chapter 7 and 13 petitions. Compl.
¶¶ 55–62. Plaintiff alleges that the CII indictor “D” is used when a Chapter 13 petition has

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Northern District of California

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been filed, but no discharge yet entered. Compl. ¶ 59.

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The complaint alleges that, prior to the confirmation of a Chapter 13 plan, the

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“accepted credit reporting standard” is to “report the outstanding balance amount as of

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the date of filing” of the bankruptcy petition, and to note the bankruptcy filing with CII

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indicator code D. Compl. ¶¶ 73, 75, 76–77. Post-confirmation, however, plaintiff alleges

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that the balances should be updated to reflect the confirmed Chapter 13 plan. Reporting

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ongoing past due amounts and late payments, instead of only indicator D, is “not

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generally accepted as accurate by the credit reporting industry.” Compl. ¶ 84. Plaintiff

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alleges that the industry standard is to “report the balance owed under the Chapter 13

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plan terms,” which is typically lower than the original amount, and to “report a $0.00

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balance” if the confirmed plan does not call for any payments on that particular debt.

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Compl. ¶¶ 80–81.

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Basconcello filed for Chapter 13 bankruptcy protection on November 26, 2014.

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Compl. ¶ 93. Plaintiff’s Chapter 13 plan was confirmed on January 28, 2015. See No.

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14-54752 Dkt. 18 (Bankr. N.D. Cal.). Notably, however, Basconcello is currently in

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default on her Chapter 13 plan. Id. Dkt. 22.

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Plaintiff ordered credit reports from the CRAs on March 30, 2016, and filed a
dispute letter with the CRAs alleging inaccuracies. Compl. ¶¶ 111, 113–114. On
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September 12, 2016, she ordered a second set of credit reports, but found that the

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inaccuracies remained and that her credit score had improved only slightly. Compl.

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¶¶ 116–117.

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Plaintiff asserts two claims, one under the Fair Credit Reporting Act (“FCRA”) and

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one under the California Consumer Credit Reporting Agencies Act (“CCRAA”). The first

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cause of action alleges that the furnishers and CRAs violated FCRA “by failing to conduct

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a reasonable investigation and re-reporting misleading and inaccurate information.” This

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cause of action relies repeatedly on the alleged failure of the CRAs and furnishers to

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“comport with industry standards.” The second cause of action under CCRAA is made
only against the furnishers, alleging that they “intentionally and knowingly reported

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Northern District of California

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misleading and inaccurate account information to the CRAs that did not comport with

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well-established industry standards.”
DISCUSSION

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A.

Legal Standard
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the

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legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d

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1191, 1199–1200 (9th Cir. 2003). To survive a motion to dismiss for failure to state a

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claim, a complaint generally must satisfy the requirements of Federal Rule of Civil

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Procedure 8, which requires that a complaint include a “short and plain statement of the

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claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).

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A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the

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plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to

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support a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699

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(9th Cir. 1990). The court is to “accept all factual allegations in the complaint as true and

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construe the pleadings in the light most favorable to the nonmoving party.” Outdoor

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Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899–900 (9th Cir. 2007).

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Legally conclusory statements, not supported by actual factual allegations, need
not be accepted by the court. Ashcroft v. Iqbal, 556 U.S. 662, 678–79 (2009). The
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allegations in the complaint “must be enough to raise a right to relief above the

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speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations

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and quotations omitted). “A claim has facial plausibility when the plaintiff pleads factual

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content that allows the court to draw the reasonable inference that the defendant is liable

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for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well-

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pleaded facts do not permit the court to infer more than the mere possibility of

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misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is

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entitled to relief.’” Id. at 679. In the event dismissal is warranted, it is generally without

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prejudice, unless it is clear the complaint cannot be saved by any amendment. See
Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 2005).

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Northern District of California

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B.

Legal Analysis

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Defendants seek dismissal on three different grounds. First, they argue that

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plaintiff is judicially estopped from asserting her claims because she failed to disclose the

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claims as a contingent asset in the bankruptcy court. Second, they argue that the

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complaint fails to plead an “inaccuracy” in reporting that is actionable under FCRA as a

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matter of law. Third, they argue that the complaint fails to sufficiently allege either actual

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or statutory damages.

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1.

Judicial Estoppel

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“Judicial estoppel is an equitable doctrine that precludes a party from gaining an

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advantage by asserting one position, and then later seeking an advantage by taking a

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clearly inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782

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(9th Cir. 2001). The Supreme Court has articulated three factors to guide the court’s

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discretion: (1) whether a party’s later position is “clearly inconsistent”’ with its earlier

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position; (2) whether that party has succeeded in persuading a court to accept its earlier

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position; and (3) whether the party seeking to assert an inconsistent position would derive

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an unfair advantage or impose an unfair detriment on the opposing party if not estopped.

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New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001).

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In the bankruptcy context, the Ninth Circuit has adopted “a basic default rule: If a

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plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy

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schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the

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action.” Ah Quin v. Cnty. of Kauai Dep’t of Transp., 733 F.3d 267, 271 (9th Cir. 2013).

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The logic is straightforward: by not listing the lawsuit in the bankruptcy schedules, the

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debtor represented that the asset did not exist. The bankruptcy court accepted that

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position in its confirmation or discharge order, and the claim was hidden from the

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bankruptcy estate to the detriment of the creditors and advantage of the debtor. Id.

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Thus, “a party is judicially estopped from asserting a cause of action not raised in
a reorganization plan or otherwise mentioned in the debtor’s schedules or disclosure

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Northern District of California

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statements.” Hamilton, 270 F.3d at 783. If a cause of action is not known at the time of

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the bankruptcy filing, judicial estoppel “will be imposed when the debtor has knowledge of

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enough facts to know that a potential cause of action exists during the pendency of the

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bankruptcy, but fails to amend his schedules or disclosure statements to identify the

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cause of action as a contingent asset.” Id. at 784.

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In this case, the court declines to exercise its discretion to estop plaintiff because

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only two of the three New Hampshire factors have been established. There is little doubt

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that plaintiff’s positions in this court and the bankruptcy court—“a claim does not exist”

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versus “a claim does exist”—are inconsistent. See Ah Quin, 733 F.3d at 271. Moreover,

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should plaintiff ultimately obtain a discharge, she would have (at least arguably) obtained

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an “unfair advantage.” See Benetatos v. Hellenic Republic, 371 F. App’x 770, 771 (9th

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Cir. 2010) (affirming estoppel ruling based on Chapter 13 discharge). However,

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defendants have not established that the bankruptcy court ever “accepted” the plaintiff’s

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position. Typically, acceptance is accomplished either through a confirmation order or a

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discharge order. See In re An-Tze Cheng, 308 B.R. 448, 453 (B.A.P. 9th Cir. 2004)

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(“Among other possibilities, the grant of a discharge (even if later revoked) or the

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confirmation of a plan may constitute sufficient ‘acceptance’ of the accuracy of schedules

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so as to permit judicial estoppel.”).
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Here, by definition, the claims did not accrue until after confirmation. Thus, plaintiff

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could not possibly have listed the claims as a contingent asset when she initially filed for

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Chapter 13 bankruptcy. Arguably, plaintiff should have supplemented or amended her

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schedules to disclose her FCRA and CCRAA claims to the bankruptcy court as a

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contingent asset. See Fed. R. Bankr. P. 1007(h) (debtor’s duty to file a supplemental

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schedule within 14 days of acquisition of an interest in property); see also 11 U.S.C.

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§ 512(a)(1). Nonetheless, plaintiff has not received a discharge, so there has been no

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acceptance of the plaintiff’s position by the bankruptcy court. See Stewart v. Bank of

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Am., N.A., No. 16-CV-05322-JST, 2016 WL 7475613, at *8 (N.D. Cal. Dec. 28, 2016)
(estoppel inappropriate when “[t]here has been no confirmation of a modified plan,

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United States District Court
Northern District of California

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issuance of a new scheduling order, or discharge of Plaintiffs’ debts on reliance of the

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[non-disclosed claims.]”); Keller v. Experian Info. Sols., Inc., No. 16-CV-04643-LHK, 2017

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WL 130285, at *9 (N.D. Cal. Jan. 13, 2017) (declining to estop plaintiff because “at this

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time, the Court does not have enough information to know whether the bankruptcy court

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has ‘accepted’ Plaintiff’s position”). Moreover, it is not clear that plaintiff’s failure to

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amend the schedules disadvantaged the creditors in a significant way, given that the

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potential damages here are likely nominal.

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The facts of Hamilton, upon which defendants rely, are readily distinguishable.

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The debtor in Hamilton was aware of the claims at issue prior to filing for bankruptcy,

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knowingly failed to report them, and ultimately received a Chapter 7 discharge. 270 F.3d

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at 781. More on point is the recent decision in Momoh v. Wells Fargo Bank NA, which

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addressed a claim under the Telephone Consumer Protection Act that arose post-

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confirmation. See No. 15-cv-04729-HSG, 2016 U.S. Dist. LEXIS 86276, at *2–3 (N.D.

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Cal. July 1, 2016). Momoh held that estoppel was inappropriate because “the bankruptcy

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court has not taken any formal action since Plaintiff’s plan was confirmed . . . and thus

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never acted in reliance upon Plaintiff’s omission of these claims.” Id. at *11.

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For these reasons, the court finds that the application of judicial estoppel is
inappropriate and declines to estop plaintiff from asserting her claims.
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2.

Actual Inaccuracy under FCRA

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Defendants’ primary basis for dismissal is that the complaint fails to allege any

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“inaccuracy” under FCRA. Plaintiff’s FCRA claims are made pursuant to 15 U.S.C.

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§§ 1618s-2(b) and 1618i-a(1). Under § 1618i-a(1), after receiving notice of a dispute

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from a consumer, a CRA must “conduct a reasonable reinvestigation to determine

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whether the disputed information is inaccurate and record the current status of the

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disputed information.” 15 U.S.C. § 1618i-a(1). Under § 1618s-2(b), after receiving a

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notice of dispute from a CRA, a furnisher must conduct a reasonable investigation with

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respect to the disputed information and report the results to the CRA. Gorman v. Wolpoff
& Abramson, LLP, 584 F.3d 1147, 1154, 1157 (9th Cir. 2009). FCRA creates a private

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United States District Court
Northern District of California

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right of action for willful or negligent noncompliance with these requirements. Id. at 1154.

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To state an FCRA reinvestigation claim, a plaintiff must show that: (1) he found an

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inaccuracy in his credit report; (2) he notified a CRA; (3) the CRA notified the furnisher of

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the information about the dispute; and (4) the furnisher and/or CRA failed to reasonably

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investigate the inaccuracies. Biggs v. Experian Info. Sols., Inc., No. 5:16-CV-01507-EJD,

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2016 WL 5235043, at *1 (N.D. Cal. Sept. 22, 2016); Gorman, 584 F.3d at 1154–57.

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Although the complaint does not allege specific facts about the furnishers’ and/or CRAs’

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investigations, plaintiff does allege generally that any reasonable investigation would

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have revealed that the reporting was not in compliance with industry standards.

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Inaccuracy is a required element of these FCRA claims. Carvalho v. Equifax Info.

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Servs., LLC, 629 F.3d 876, 890 (9th Cir. 2010) (“Although the FCRA’s reinvestigation

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provision, 15 U.S.C. § 1681i, does not on its face require that an actual inaccuracy exist

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for a plaintiff to state a claim, many courts, including our own, have imposed such a

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requirement.”); Gorman, 584 F.3d at 1163 (“[A] furnisher does not report ‘incomplete or

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inaccurate’ information within the meaning of § 1681s–2(b) simply by failing to report a

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meritless dispute.”). To be inaccurate, information must be either “patently incorrect” or

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“misleading in such a way and to such an extent that it can be expected to adversely

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affect credit decisions.” Gorman, 584 F.3d at 1163.
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The complaint alleges several different types of inaccuracies. Plaintiff’s primary

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legal theory is that, after a Chapter 13 plan is confirmed, it is inaccurate to report that an

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account is delinquent or to report the loan balance per the original loan terms. Rather,

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the lower amount owed per the confirmed Chapter 13 plan must be reported instead.

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Second, plaintiff alleges that credit reporting that fails to comply with the Metro 2

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standards is necessarily inaccurate. Finally, plaintiff alleges various other inaccuracies,

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such as failing to report a CII D indicator, reporting a debt as “in collections” or “charged

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off” despite the confirmed plan, and/or the failure to report that an account is being

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disputed.

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United States District Court
Northern District of California

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i.

Reporting Pre-confirmation Account Balances and
Delinquencies During the Pendency of Bankruptcy

Plaintiff’s primary theory of inaccuracy is premised on the effect that the confirmed

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Chapter 13 plan has on plaintiff’s debts. Plaintiff argues that, prior to confirmation, the

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industry standard is to report the outstanding balance on the loan at the time the

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bankruptcy petition was filed, and to note the bankruptcy filing with the CII D indicator.

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After a Chapter 13 plan is confirmed, however, plaintiff argues that because the

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confirmation order is a binding “final judgment” that modifies the status of the debt, it is

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inaccurate to continue reporting the outstanding balance per the original loan terms.

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Rather, the amount required to be paid to obtain a discharge under the Chapter 13 plan

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must be reported, with a loan balance of $0.00 reported if the confirmed plan does not

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call for any payments on that debt.

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Plaintiff’s legal theory of inaccuracy is not a novel issue in this district. The

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unanimous view of the judges in this district that have considered the matter is that, at

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least prior to discharge, reporting a loan balance and delinquent status per the original

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terms—as opposed to the modified terms of the confirmed Chapter 13 plan—is neither

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inaccurate nor misleading under FCRA. See, e.g., Doster v. Experian Info. Sols., Inc.,

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No. 16-CV-04629-LHK, 2017 WL 264401, at *4–*5 (N.D. Cal. Jan. 20, 2017) (“[A]lthough

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reporting delinquent payments may be misleading if the debts have been discharged in
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bankruptcy, ‘it is not misleading or inaccurate to report delinquent debts that have not

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been discharged’ . . . . [because] the legal status of a debt does not change until the

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debtor is discharged from bankruptcy.”) (collecting cases); Biggs, 2016 WL 5235043, at

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*2 (“Courts in this district have held that the FCRA does not prohibit the accurate

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reporting of debts that were delinquent during the pendency of a bankruptcy action . . . so

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long as the bankruptcy discharge is also reported if and when it occurs.”); Blakeney v.

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Experian Info. Sols., Inc., No. 15-CV-05544-LHK, 2016 WL 4270244, at *5 (N.D. Cal.

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Aug. 15, 2016) (“[C]ourts in this district have consistently held that it is not misleading or

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inaccurate to report delinquent debts that have not been discharged.”); Mortimer v. JP
Morgan Chase Bank, N.A., No. C 12-1936 CW, 2012 WL 3155563, at *3 (N.D. Cal. Aug.

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United States District Court
Northern District of California

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2, 2012) (“While it might be good policy in light of the goals of bankruptcy protection to

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bar reporting of late payments while a bankruptcy petition is pending, neither the

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bankruptcy code nor the FCRA does so.”); Harrold v. Experian Info. Sols., Inc., 2012 WL

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4097708, at *4 (N.D. Cal. Sept. 17, 2012) (“[R]eports of delinquencies in payment while

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bankruptcy proceedings are still ongoing is not ‘incomplete or inaccurate’ information.”).

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These decisions, of course, are not binding on this court. Nonetheless, the court

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finds their reasoning to be persuasive. Although the Chapter 13 plan and the bankruptcy

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petition may limit the collection activities of creditors, it does not mean that an “individual

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is not obliged to make timely payments on his accounts while his petition for bankruptcy

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is pending.” Mortimer, 2012 WL 3155563 at *3. Because “the debt and its delinquent

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status still exist . . . it is not inaccurate or misleading to report that information to a CRA.”

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Biggs, 2016 WL 5235043 at *2. The court therefore finds that, at least when the

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bankruptcy filing and the account’s disputed nature are noted, reporting balances and

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delinquencies per the original loan terms is neither “patently incorrect” nor “misleading.”

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See Gorman, 584 at 1163.

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Plaintiff’s contrary arguments miss the mark. Plaintiff’s repeated themes that the

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confirmed plan is a “final judgment” with “res judicata effect” or a “new contract” obscure

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the issues. To be sure, a confirmed plan may have res judicata effects on some creditor
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claims that could have been brought in the bankruptcy proceeding. See, e.g., In re

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Brawders, 503 F.3d 856, 867 (9th Cir. 2007) (res judicata precludes collateral attack on

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confirmation order). The fact that a confirmed plan may have res judicata effects,

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however, does not imply that reporting the debts per their original terms is therefore

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“misleading” under FCRA. See Jaras v. Experian Info. Sols., Inc., No. 16-CV-03336-

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LHK, 2016 WL 7337540, at *4 (N.D. Cal. Dec. 19, 2016) (“[E]ven if a confirmation order

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constitutes a final judgment, it constitutes a final judgment only as to the manner in which

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the debtor will discharge his financial obligations, not the legal validity of the debt.”)

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(quotations omitted). Similarly, although a Ninth Circuit bankruptcy appeals panel has

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analogized a confirmed Chapter 13 plan to a “contract,” In re Than, 215 B.R. 430, 435

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Northern District of California

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(B.A.P. 9th Cir. 1997), that does not mean that this “contract’s” promises govern how

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credit information must be reported under FCRA. A more natural understanding of the

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terms of the new contract is that it sets the conditions by which debtors may obtain a

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discharge. Jaras, 2016 WL 7337540, at *4. In short, a confirmed plan does not dictate

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how historical credit information must be reported under FCRA.

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Plaintiff also relies on a statutory argument based on the effect of 11 U.S.C.

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sections 1332(b)(2) and 1337(a) and a “critical distinction” between the terms “debt” and

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“claim” as used in the Bankruptcy Code. Section 1332(b)(2) provides that a confirmed

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plan may “modify the rights of . . . holders of unsecured claims,” and section 1137(a)

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establishes that a confirmed plan “bind[s] the debtor and each creditor.” 11 U.S.C.

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§§ 1332(b), 1337(a). Plaintiff asserts, without citation to authority, that “claims” constitute

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a creditor’s calculation of the balance due prior to litigation, whereas a “debt” constitutes

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the balance owed post-litigation. This claim/debt distinction is significant because

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furnishers do not report debts per se, but only claims. And it is the claim, not the debt,

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that is modified in a confirmed Chapter 13 plan by operation of sections 1332(b)(2) and

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1337(a). Thus, because creditors are reporting “claims” and the confirmed plan has

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“modified” those claims, reporting must change post-confirmation.

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This argument can be quickly dismissed because it relies so heavily on a

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purported distinction between “claims” and “debts.” However, Congress intended that

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“the meanings of ‘debt’ and ‘claim’ be coextensive.” Penn. Dep’t of Pub. Welfare v.

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Davenport, 495 U.S. 552, 558 (1990); accord In re Davis, 778 F.3d 809, 813 (9th Cir.

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2015). Plaintiff is correct that a Chapter 13 plan may “modify” the claims of creditors, 11

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U.S.C. § 1332(b)(2), and that, upon confirmation, the plan binds debtor and creditor, 11

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U.S.C. § 1327(a). While these sections may prevent creditors from collecting on a loan

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pursuant to the original terms while the bankruptcy petition is pending, it does not follow

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that reporting those terms is necessarily “misleading” under FCRA. “[T]he debt and its

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United States District Court
Northern District of California

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delinquent status still exist” prior to discharge. Biggs, 2016 WL 5235043 at *2.
For the foregoing reasons, the court finds that, as a matter of law, the complaint

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fails to state a claim under FCRA to the extent that the alleged “inaccuracy” is premised

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on either (i) reporting the accurate outstanding balance as per the original terms, instead

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of the loan balance as modified by a Chapter 13 plan; or (ii) reporting a balance as

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delinquent or past due, if delinquency is factually accurate per the original loan terms.

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ii.

Whether Noncompliance with Metro 2 Standards Necessarily
Renders Reporting “Misleading”

Plaintiff also alleges that the reporting is inaccurate because it does not comport
with the credit reporting industry’s Metro 2 standards.
Again, this issue is not a novel one in this district. Other courts have found that

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noncompliance with Metro 2 standards, standing alone, does not make otherwise

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factually accurate reporting “misleading.” Giovanni v. Bank of Am., Nat. Ass’n, No. C 12-

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02530 LB, 2013 WL 1663335, at *6 (N.D. Cal. Apr. 17, 2013) (failure to comply with

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Metro 2 standards is not misleading because the complaint “does not allege that [the

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furnisher] was required to follow the Metro 2 Format . . . or that deviation from those

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instructions constitutes an inaccurate or misleading statement.”); Mortimer, 2013 WL

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1501452, at *12 (N.D. Cal. Apr. 10, 2013) (“[A]lleged noncompliance with the Metro 2

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Format is an insufficient basis to state a claim under the FCRA.”); cf. Nissou-Rabban v.
12

1

Capital One Bank (USA), N.A., 2016 WL 4508241, at *5 (S.D. Cal. June 6, 2016)

2

(“[D]eviation from Metro 2, the industry standard and its chosen method of reporting, may

3

be misleading in such a way and to such an extent that it can be expected to adversely

4

affect credit decisions.”) (quotation omitted) (emphasis added).
This court finds that noncompliance with Metro 2 standards does not, in and of

5
6

itself, render reporting misleading. FCRA does not mandate compliance with Metro 2 or

7

any other particular set of industry standards. Rather, the test is whether a reasonable

8

potential creditor would find the reporting “misleading in such a way and to such an

9

extent that it can be expected to adversely affect credit decisions.” Gorman, 584 F.3d at
1163. This requires something more than the mere fact of noncompliance with an

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United States District Court
Northern District of California

10

industry standard, although noncompliance may be relevant to whether reporting is

12

“misleading.” The context of the reporting must be considered.

13

For example, Judge Chen recently observed that “reporting of the bankruptcy filing

14

substantially diminishes the argument that failure to comply with Metro 2 reporting format

15

could be misleading.” Mestayer v. Experian Info. Sols., Inc., No. 15-CV-03645-EMC,

16

2016 WL 3383961, at *2 (N.D. Cal. June 20, 2016). If the bankruptcy filing is noted on

17

the credit report, and it is clear to a reasonable potential creditor that the balances

18

reported are the original loan terms (not the balances as modified by the Chapter 13

19

plan), then there is nothing inherently misleading about the reporting. See id. Even

20

accepting plaintiff’s allegation that Metro 2 is the generally-accepted industry standard,

21

noncompliance does not necessarily make reporting “misleading” if a reasonable creditor

22

is able to accurately interpret the reporting in context.
Thus, to the extent that the complaint seeks to allege inaccuracies based only on

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24

the fact of noncompliance with Metro 2, the motions to dismiss must be granted.

25

However, because additional allegations could save the Metro 2 theory, the court will

26

provide plaintiff leave to amend to plead additional facts that explain why the

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noncompliance with Metro 2 guidelines would be actually misleading in context.

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///
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1
2

iii.

Other Alleged Inaccuracies

Several of plaintiff’s allegations seek to assert inaccuracies that do not fall into

3

either of the two categories described above. In particular, plaintiff alleges that

4

defendants’ failure to report a CII D indicator, failure to note that an account is being

5

disputed, and/or reporting a debt as “in collections”/“charged off” are inaccurate. The

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court finds that several of these inaccuracies may state a claim under FCRA, but that the

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complaint’s allegations are too conclusory as currently pleaded.

8
9

The first issue is whether the failure to report to a CII D indicator, or to otherwise
note that a bankruptcy petition has been filed, makes reporting “inaccurate” under FCRA.
The court finds that the complaint could state a claim on this basis. If the fact of the

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Northern District of California

10

bankruptcy is not noted, the reporting may be misleading, because the existence of a

12

bankruptcy filing is information that could affect the decision-making of potential creditors.

13

See, e.g., Doster, 2017 WL 264401, at *6 (granting leave to amend to support allegations

14

that the credit report “contained no indication at all that the debts were the subject of a

15

pending bankruptcy”). Moreover, the omission of the bankruptcy filing from a credit

16

report may render other aspects of the reporting misleading. For example, if a creditor

17

sees that an account is “in collections,” but no bankruptcy filing is noted, the creditor may

18

believe that the account is being actively collected upon even though collection efforts

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have been stayed by the bankruptcy. The same is true regarding the alleged failure to

20

report that an account is being disputed. This is information that could also adversely

21

influence credit decisions if omitted.

22

As to the allegations that accounts were reported as “in collections” or “charged

23

off,” the complaint does not contain enough detail to determine whether this inaccuracy

24

could state a claim under FCRA. Without more context, it is not clear whether plaintiff

25

claims that the furnishers are reporting that the account is currently in collections (which

26

is potentially misleading in light of the bankruptcy stay) or simply that the account was in

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collections at some point in the past. The latter would not be misleading, assuming that it

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is factually accurate and that the bankruptcy filing is noted.
14

1

In summary, although the court finds that these alleged inaccuracies could state a

2

claim under FCRA, the complaint as pleaded is too conclusory to tell. With only a few

3

sentences devoted to each disputed account, it is not clear whether a reasonable

4

potential creditor could actually be misled. It is not clear, for example, if there is any

5

other information in the credit report that discloses the existence of the bankruptcy filing.

6

Thus, the court will provide plaintiff leave to amend to plead additional factual detail to

7

state a plausible claim that these alleged inaccuracies were misleading in context.

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9
10

iv.

Whether the Effect of Confirmation Is a Nonactionable Dispute
over the “Legal Validity” of a Debt

In the alternative, defendants argue that FCRA only permits claims based on

United States District Court
Northern District of California

11

inaccuracies that are factual in nature, but all of plaintiff’s alleged inaccuracies are

12

disputes about the “legal status” of the debt. Defendants rely on the Ninth Circuit’s

13

decision in Carvalho v. Equifax, which held that “reinvestigation claims are not the proper

14

vehicle for collaterally attacking the legal validity of consumer debts.” Carvalho v. Equifax

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Info. Servs., LLC, 629 F.3d 876, 892 (9th Cir. 2010); see also Chiang v. Verizon New

16

England Inc., 595 F.3d 26, 38 (1st Cir. 2010) (“[Under FCRA,] a plaintiff’s required

17

showing is factual inaccuracy, rather than the existence of disputed legal questions.”).

18

Defendants argue that the complaint here relies entirely on the impact that a confirmed

19

Chapter 13 plan has upon the legal status of the debt, and that this sort of dispute is not

20

actionable as an FCRA reinvestigation claim.

21

Defendants’ argument appears to be directed primarily at plaintiff’s first theory of

22

inaccuracy: the effect of a confirmed Chapter 13 plan upon loan balances and

23

delinquencies. Whatever merit this argument might have in that context, the court need

24

not reach the issue because it has already held that this alleged “inaccuracy” does not

25

state a claim as a matter of law.

26

To the extent that defendants seek to characterize other alleged inaccuracies in

27

this case as disputes about the “legal validity” of a debt, their argument fails. Carvalho’s

28

holding is premised on the idea that CRAs are “not tribunals,” and “are ill equipped to
15

1

adjudicate contract disputes.” 629 F.3d at 891. Reporting that a debtor has filed for

2

bankruptcy protection on a credit report does not require furnishers and CRAs to engage

3

in a “tribunal”-like legal analysis. Either the debtor has filed for bankruptcy protection, or

4

he has not, as a matter of fact. The same logic applies to the alleged failure to note that

5

an account was disputed. The court therefore declines to dismiss the complaint on this

6

ground.
v.

7
8

Application to Inaccuracies Alleged in the Complaint

In this case, plaintiff alleges inaccuracies concerning two accounts. Chase is
reporting a $3,546 balance, even though $0 is owed per the confirmed Chapter 13 plan.

10

Compl. ¶ 119. This account is also inaccurately reported as “in collections [and] charged

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United States District Court
Northern District of California

9

off” and Chase fails to list the “correct CII D indicator.” Id. Keypoint Credit Union is

12

reporting a balance of $14,209, which should be lowered to $5,700.37 pursuant to the

13

terms of the Chapter 13 plan; moreover, Keypoint Credit Union “fails to note that the

14

account is being disputed.” Compl. ¶ 120. The CRAs failed to conduct a reasonable

15

investigation and to delete the allegedly inaccurate information on these accounts.

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Compl. ¶¶ 134, 126, 143.

17

As the court has explained, the alleged “inaccuracies” relying on the effect of the

18

confirmed Chapter 13 plan on the account balances are not actionable if the amount

19

reported is factually accurate per the original loan terms. However, plaintiff also alleges

20

that the CII D indicator is not listed on her Chase account, and that no dispute is noted

21

concerning the Keypoint Credit Union account. Compl. ¶¶ 119–120. These inaccuracies

22

may state a claim, if supplemented with additional factual detail as to why this reporting

23

was misleading in context.

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3.

Whether Damages Have Been Sufficiently Pleaded

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Defendants’ final basis for dismissal is that the complaint does not sufficiently

26

plead either actual or statutory damages. While the court ultimately agrees with

27

defendants on this point, it will provide plaintiff leave to amend to supplement her

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damages allegations.
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1

i.

Statutory Damages

2

Statutory and punitive damages are only available under FCRA when a defendant

3

“willfully fails to comply with” the law. 15 U.S.C. § 1681n(a)(1)(A); Syed v. M-I, LLC, No.

4

14-17186, 2017 WL 242559, at *7 (9th Cir. Jan. 20, 2017). If a defendant’s

5

noncompliance is merely negligent, plaintiff is entitled only to “any actual damages

6

sustained by the consumer as a result [of noncompliance].” 15 U.S.C. § 1681o(a)(1).

7

To support her claim for statutory damages, plaintiff alleges that the furnishers
“intentionally and knowingly reported misleading and inaccurate account information to

9

the CRAs that did not comport with well-established industry standards.” Both the CRAs

10

and furnishers “failed to conduct a reasonable investigation” and “would have known” that

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United States District Court
Northern District of California

8

their reporting did not comport with industry standards.

12

In Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007), the

13

Supreme Court held that “willfully,” as used in FCRA, encompasses knowing violations or

14

a “reckless disregard of statutory duty.” Id. at 57. However, Safeco further held that a

15

violation of FCRA was neither willful nor reckless when it relied on an interpretation of law

16

that “albeit erroneous, was not objectively unreasonable.” Id. at 69. Defendants claim

17

that this “safe harbor” precludes statutory damages here, arguing that their understanding

18

of what FCRA required in this context is objectively reasonable and has been

19

unanimously adopted by courts in this district.

20

Plaintiff appears to concede that statutory damages are not available by not

21

responding to the defendants’ “willfulness” argument in the briefing. The court finds that

22

statutory damages are not available as to plaintiff’s first theory of inaccuracy—the effect

23

of the confirmed Chapter 13 plan on account balances and delinquencies. Given the

24

body of law in this district against plaintiff’s primary theory of liability, defendants’

25

understanding of their FCRA obligations was not “objectively unreasonable” on this point.

26

Safeco, 551 U.S. at 69.

27

Plaintiff’s willfulness allegations appear to derive from the noncompliance with

28

Metro 2 standards. The ostensible argument is that statutory damages are available
17

1

because defendants knew about the industry standards and intentionally chose not to

2

follow them. However, the fact that defendants were aware of the industry standards

3

does not mean that they were aware that compliance with industry standards was

4

mandated by FCRA (indeed, it is not). Thus, defendants could be knowledgeable about

5

Metro 2 standards, but choose not follow them, which would not render their violations

6

willful.

7

The court therefore concludes that the complaint as pleaded does not sufficiently
allege statutory damages. It is not clear to the court, however, that amendment would be

9

futile, especially with respect to the inaccuracies that this court has found are potentially

10

actionable. The court will therefore provide plaintiff leave to amend to attempt to plead

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United States District Court
Northern District of California

8

facts showing that defendants acted “willfully” as to these inaccuracies.
ii.

12
13

Actual Damages

FCRA does not require allegations of a “denial of credit or transmission of the

14

report to third parties” to establish actual damages. Guimond v. Trans Union Credit Info.

15

Co., 45 F.3d 1329, 1333 (9th Cir. 1995). However, the law does require that plaintiff

16

suffered some actual harm as a result of defendants’ alleged FCRA violations.

17

Here, plaintiff alleges that as “a direct and proximate result of Defendants’ willful

18

and untrue communications,” she “suffered actual damage including but not limited to

19

inability to properly reorganize under Chapter 13, reviewing credit reports from all three

20

consumer reporting agencies, time reviewing reports with counsel, sending demand

21

letters, diminished credit score, and such further expenses in an amount later to be

22

determined at trial.” It is not clear what plaintiff means by “inability to property reorganize

23

under Chapter 13.” Plaintiff does not allege that defendants’ reporting somehow

24

interfered with the bankruptcy process. Thus, whether actual damages have been

25

pleaded hinges on whether a “diminished credit score,” prelitigation attorneys’ fees, or

26

costs in reviewing credit reports and sending demand letters are recoverable as “actual

27

damages.”

28
18

1

There is persuasive authority suggesting that a diminished credit score, standing

2

alone, does not represent actual damages. King v. Bank of Am., N.A., No. C-12-04168

3

JCS, 2012 WL 4685993, at *6 (N.D. Cal. Oct. 1, 2012) (“[A] mere drop in Plaintiff’s credit

4

score without any damages actually incurred would likely not satisfy the actual damages

5

requirement.”) (citations omitted); Duarte v. J.P. Morgan Chase Bank, No.

6

CV131105GHKMANX, 2014 WL 12561052, at *4 (C.D. Cal. Apr. 7, 2014) (“Plaintiff

7

asserts that . . . the inevitable consequence of Defendant’s alleged negative reporting—

8

impaired credit—constitutes actual damage for purposes of the CCRAA. This is

9

incorrect.”). This is logical because, absent an allegation that plaintiff “was denied credit,
lost credit, had his credit limits lowered, or was required to pay a higher interest rate for

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United States District Court
Northern District of California

10

credit,” the negative effects of a lowered credit score did not cause “actual” harm. See

12

Young v. Harbor Motor Works, Inc., No. 2:07CV0031JVB, 2009 WL 187793, at *5 (N.D.

13

Ind. Jan. 27, 2009).

14

Moreover, plaintiff appears to concede that the costs associated with requesting a

15

credit report, discovering the alleged inaccuracies, and sending a dispute letter are not

16

recoverable. The Ninth Circuit has not addressed this issue, but the Second Circuit has

17

held that “actual damages” may include “out-of-pocket expenses for attorney’s fees

18

incurred by a plaintiff prior to litigation of his FCRA claims.” Casella v. Equifax Credit

19

Info. Servs., 56 F.3d 469, 474 (2d Cir. 1995). However, “expenses incurred merely to

20

notify [CRAs] of inaccurate credit information, and not to force their compliance with any

21

specific provision of the statute, cannot be compensable as ‘actual damages’ for a

22

violation of the FCRA.” Id. Applying this distinction, plaintiff’s current damages

23

allegations amount to no more than expenses to notify furnishers and CRAs of the

24

alleged inaccuracies. This is a process that FCRA contemplates, 15 U.S.C. § 1681s-

25

2(a)(1)(B)(i), and is thus not itself a source of damages resulting from an FCRA violation.

26

The court therefore finds that the complaint as pleaded does not sufficiently allege

27

actual damages. However, although the complaint currently does not allege emotional

28

distress damages, plaintiff’s counsel represented at the hearing that he intended to
19

1

amend the complaint to add allegations of emotional distress. Damages for “emotional

2

distress and humiliation” as a result of an FCRA violation are recoverable as actual

3

damages in the Ninth Circuit. Guimond, 45 F.3d at 1333. Thus, the court will grant

4

plaintiff leave to amend to plead facts showing actual damages.

5

4.

The CCRAA Claim

6

California Civil Code § 1785.25(a) provides that “[a] person shall not furnish

7

information on a specific transaction or experience to any consumer credit reporting

8

agency if the person knows or should know the information is incomplete or inaccurate.”

9

Just as in FCRA, inaccuracy is a required element as the statutory language explicitly
requires that “the information is incomplete or inaccurate.” Cal. Civ. Code § 1785.25(a).

11
United States District Court
Northern District of California

10

In general, CCRAA “mirrors” FCRA, such that the CCRAA claim survives only to the

12

extent that the FCRA claim survives. Guimond, 45 F.3d at 1335; Olson v. Six Rivers

13

Nat’l Bank, 111 Cal. App. 4th 1, 12 (2003) (“Because [CCRAA] is substantially based on

14

[FCRA], judicial interpretation of the federal provisions is persuasive authority and entitled

15

to substantial weight when interpreting the California provisions.”). Because the court

16

has concluded that the FCRA claim must be dismissed for failure to sufficiently plead an

17

actual inaccuracy and damages, the CCRAA claim must be dismissed as well, with leave

18

to amend, for the same reasons.

19
20

CONCLUSION
For the foregoing reasons, defendants’ motions to dismiss are GRANTED.

21

Plaintiff is granted leave to file an amended complaint within 21 days of the date of this

22

order. The amended complaint must sufficiently plead actual inaccuracies based upon,

23

e.g., (i) a failure to report the fact of the bankruptcy filing or to use the correct CII D

24

indicator; or (ii) a failure to report that an account is being disputed. Plaintiff may not rely

25

on a failure to update account balances to reflect the confirmed Chapter 13 plan, and

26

may not rely on the failure to comply with Metro 2 standards—except as those standards

27

pertain to actual inaccuracies, such as a failure to note the bankruptcy filing or the

28

disputed nature of the account. The amended complaint must also sufficiently allege
20

1

either statutory or actual damages. The amended complaint may not add new claims or

2

parties without leave of court or the consent of defendants.

3

Following the hearing, Experian also filed a motion to dismiss the complaint

4

making the same arguments, among others, as the moving defendants. See Dkt. 52.

5

Should this motion be fully briefed, the court would undoubtedly rule the same way on the

6

same issues. In order to avoid the expenditure of resources by the parties and the court,

7

the court administratively TERMINATES Experian’s motion and VACATES the May 10,

8

2017 hearing date. After the amended complaint is filed, Experian may file a new motion

9

to dismiss directed to the amended factual allegations, or it may notify the court that it

10

United States District Court
Northern District of California

11
12

wishes to reactivate its administratively terminated motion.
IT IS SO ORDERED.
Dated: March 20, 2017

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__________________________________
PHYLLIS J. HAMILTON
United States District Judge

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