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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1 2 UNITED STATES DISTRICT COURT 3 NORTHERN DISTRICT OF CALIFORNIA 4 5 FRESIA BASCONCELLO, v. 7 8 9 Case No. 16-cv-06307-PJH Plaintiff, 6 ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND EXPERIAN INFORMATION SOLUTIONS, INC., et al., Re: Dkt. Nos. 30, 34, 52 Defendants. 10 United States District Court Northern District of California 11 Defendants Chase Bank USA, N.A. and Equifax, Inc.’s motions to dismiss came 12 13 on for hearing before this court on March 1, 2017. Plaintiff Fresia Basconcello appeared 14 through her counsel, Elliot Gale. Defendant Chase Bank USA, N.A. appeared through its 15 counsel, Andrew Soukup and Megan Rodgers. Defendant Equifax, Inc. appeared 16 through its counsel, Thomas Quinn. Non-moving defendant Experian Information 17 Solutions, Inc. appeared through its counsel, Ben Lee. Non-moving defendant Keypoint 18 Credit Union did not appear. Having read the papers filed by the parties and carefully 19 considered their arguments and the relevant legal authority, and good cause appearing, 20 the court hereby rules as follows. BACKGROUND 21 22 A. Chapter 13 Bankruptcy 23 Chapter 13 bankruptcy allows debtors with regular income to “repay creditors in 24 part, or in whole, over the course of a three-to-five-year period.” In re Blendheim, 803 25 F.3d 477, 485 (9th Cir. 2015). Under Chapter 13, the debtor proposes a debt repayment 26 plan that must comply with a number of statutory requirements. Id. at 485–86. “A 27 Chapter 13 debtor seeking a discharge typically proposes a plan in which the discharge 28 is granted at the end of the proceeding, after the debtor completes all required payments 1 under the plan.” Id. at 486. If the Chapter 13 plan satisfies all of the statutory 2 requirements, the bankruptcy court approves or “confirms” the plan. 11 U.S.C. § 1325(a); 3 In re Flores, 735 F.3d 855, 857 (9th Cir. 2013). If the debtor makes the payments under the confirmed plan, the bankruptcy court 4 5 will grant a discharge of the debts, which “releases debtors from personal liability on 6 claims and enjoins creditors from taking any action against the debtor.” Blendheim, 803 7 F.3d at 486–87. “Many debtors, however, fail to complete a Chapter 13 plan 8 successfully.” Harris v. Viegelahn, 135 S. Ct. 1829, 1835 (2015). If the debtor fails to 9 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 11 United States District Court Northern District of California 10 at 487. The effect of dismissal is to restore the legal status quo prior to the Chapter 13 12 filing: “dismissal returns to the creditor all the property rights he held at the 13 commencement of the Chapter 13 proceeding and renders him free to exercise any 14 nonbankruptcy collection remedies.” Id. at 487. 15 B. The Complaint 16 The complaint in this case is one of more than two hundred similar actions in this 17 district filed by the Sagaria Law, P.C. firm against consumer credit reporting agencies in 18 late 2016. All of these cases employ the same form complaint, with about a dozen 19 paragraphs individualized for each plaintiff. The remainder of the complaint, including the 20 causes of action, is copied nearly verbatim in each case. 21 Plaintiffs in these cases are individuals who filed for Chapter 13 bankruptcy and 22 allege that their debts were reported inaccurately in light of their confirmed Chapter 13 23 plan. Experian Information Solutions, Inc. (“Experian”), Equifax, Inc. (“Equifax”), or both 24 credit reporting agencies (“CRAs”) are named as defendants. Also named as defendants 25 in most of the cases are “furnishers” of credit information, such as Chase Bank USA, N.A. 26 (“Chase”) and Bank of America, N.A. (“BANA”). 27 28 The complaint accuses CRAs and furnishers of “ignor[ing] credit reporting industry standards for accurately reporting bankruptcies.” Compl. ¶ 7. Allegedly, this inaccurate 2 1 reporting is an effort to perpetuate the “myth” that filing for bankruptcy ruins consumers’ 2 credit scores for years. Compl. ¶¶ 3–7. 3 The complaint explains in some detail how a consumer’s FICO credit score is 4 calculated, and how the score derives from information that furnishers report to CRAs. 5 Compl. ¶¶ 20–36. Plaintiff then describes the Metro 2 credit reporting standards 6 promulgated by the Consumer Data Industry Association (the “Metro 2 standards” or 7 “CDIA guidelines”), which plaintiff alleges is the “industry standard for accurate credit 8 reporting.” Compl. ¶¶ 37–52. The Metro 2 standards have different “CII indicator” codes 9 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 11 United States District Court Northern District of California 10 been filed, but no discharge yet entered. Compl. ¶ 59. 12 The complaint alleges that, prior to the confirmation of a Chapter 13 plan, the 13 “accepted credit reporting standard” is to “report the outstanding balance amount as of 14 the date of filing” of the bankruptcy petition, and to note the bankruptcy filing with CII 15 indicator code D. Compl. ¶¶ 73, 75, 76–77. Post-confirmation, however, plaintiff alleges 16 that the balances should be updated to reflect the confirmed Chapter 13 plan. Reporting 17 ongoing past due amounts and late payments, instead of only indicator D, is “not 18 generally accepted as accurate by the credit reporting industry.” Compl. ¶ 84. Plaintiff 19 alleges that the industry standard is to “report the balance owed under the Chapter 13 20 plan terms,” which is typically lower than the original amount, and to “report a $0.00 21 balance” if the confirmed plan does not call for any payments on that particular debt. 22 Compl. ¶¶ 80–81. 23 Basconcello filed for Chapter 13 bankruptcy protection on November 26, 2014. 24 Compl. ¶ 93. Plaintiff’s Chapter 13 plan was confirmed on January 28, 2015. See No. 25 14-54752 Dkt. 18 (Bankr. N.D. Cal.). Notably, however, Basconcello is currently in 26 default on her Chapter 13 plan. Id. Dkt. 22. 27 28 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 3 1 September 12, 2016, she ordered a second set of credit reports, but found that the 2 inaccuracies remained and that her credit score had improved only slightly. Compl. 3 ¶¶ 116–117. 4 Plaintiff asserts two claims, one under the Fair Credit Reporting Act (“FCRA”) and 5 one under the California Consumer Credit Reporting Agencies Act (“CCRAA”). The first 6 cause of action alleges that the furnishers and CRAs violated FCRA “by failing to conduct 7 a reasonable investigation and re-reporting misleading and inaccurate information.” This 8 cause of action relies repeatedly on the alleged failure of the CRAs and furnishers to 9 “comport with industry standards.” The second cause of action under CCRAA is made only against the furnishers, alleging that they “intentionally and knowingly reported 11 United States District Court Northern District of California 10 misleading and inaccurate account information to the CRAs that did not comport with 12 well-established industry standards.” DISCUSSION 13 14 15 A. Legal Standard A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the 16 legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 17 1191, 1199–1200 (9th Cir. 2003). To survive a motion to dismiss for failure to state a 18 claim, a complaint generally must satisfy the requirements of Federal Rule of Civil 19 Procedure 8, which requires that a complaint include a “short and plain statement of the 20 claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). 21 A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the 22 plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to 23 support a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 24 (9th Cir. 1990). The court is to “accept all factual allegations in the complaint as true and 25 construe the pleadings in the light most favorable to the nonmoving party.” Outdoor 26 Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899–900 (9th Cir. 2007). 27 28 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 4 1 allegations in the complaint “must be enough to raise a right to relief above the 2 speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations 3 and quotations omitted). “A claim has facial plausibility when the plaintiff pleads factual 4 content that allows the court to draw the reasonable inference that the defendant is liable 5 for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citation omitted). “[W]here the well- 6 pleaded facts do not permit the court to infer more than the mere possibility of 7 misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is 8 entitled to relief.’” Id. at 679. In the event dismissal is warranted, it is generally without 9 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). 11 United States District Court Northern District of California 10 B. Legal Analysis 12 Defendants seek dismissal on three different grounds. First, they argue that 13 plaintiff is judicially estopped from asserting her claims because she failed to disclose the 14 claims as a contingent asset in the bankruptcy court. Second, they argue that the 15 complaint fails to plead an “inaccuracy” in reporting that is actionable under FCRA as a 16 matter of law. Third, they argue that the complaint fails to sufficiently allege either actual 17 or statutory damages. 18 1. Judicial Estoppel 19 “Judicial estoppel is an equitable doctrine that precludes a party from gaining an 20 advantage by asserting one position, and then later seeking an advantage by taking a 21 clearly inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 22 (9th Cir. 2001). The Supreme Court has articulated three factors to guide the court’s 23 discretion: (1) whether a party’s later position is “clearly inconsistent”’ with its earlier 24 position; (2) whether that party has succeeded in persuading a court to accept its earlier 25 position; and (3) whether the party seeking to assert an inconsistent position would derive 26 an unfair advantage or impose an unfair detriment on the opposing party if not estopped. 27 New Hampshire v. Maine, 532 U.S. 742, 750–51 (2001). 28 5 1 In the bankruptcy context, the Ninth Circuit has adopted “a basic default rule: If a 2 plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy 3 schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the 4 action.” Ah Quin v. Cnty. of Kauai Dep’t of Transp., 733 F.3d 267, 271 (9th Cir. 2013). 5 The logic is straightforward: by not listing the lawsuit in the bankruptcy schedules, the 6 debtor represented that the asset did not exist. The bankruptcy court accepted that 7 position in its confirmation or discharge order, and the claim was hidden from the 8 bankruptcy estate to the detriment of the creditors and advantage of the debtor. Id. 9 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 11 United States District Court Northern District of California 10 statements.” Hamilton, 270 F.3d at 783. If a cause of action is not known at the time of 12 the bankruptcy filing, judicial estoppel “will be imposed when the debtor has knowledge of 13 enough facts to know that a potential cause of action exists during the pendency of the 14 bankruptcy, but fails to amend his schedules or disclosure statements to identify the 15 cause of action as a contingent asset.” Id. at 784. 16 In this case, the court declines to exercise its discretion to estop plaintiff because 17 only two of the three New Hampshire factors have been established. There is little doubt 18 that plaintiff’s positions in this court and the bankruptcy court—“a claim does not exist” 19 versus “a claim does exist”—are inconsistent. See Ah Quin, 733 F.3d at 271. Moreover, 20 should plaintiff ultimately obtain a discharge, she would have (at least arguably) obtained 21 an “unfair advantage.” See Benetatos v. Hellenic Republic, 371 F. App’x 770, 771 (9th 22 Cir. 2010) (affirming estoppel ruling based on Chapter 13 discharge). However, 23 defendants have not established that the bankruptcy court ever “accepted” the plaintiff’s 24 position. Typically, acceptance is accomplished either through a confirmation order or a 25 discharge order. See In re An-Tze Cheng, 308 B.R. 448, 453 (B.A.P. 9th Cir. 2004) 26 (“Among other possibilities, the grant of a discharge (even if later revoked) or the 27 confirmation of a plan may constitute sufficient ‘acceptance’ of the accuracy of schedules 28 so as to permit judicial estoppel.”). 6 1 Here, by definition, the claims did not accrue until after confirmation. Thus, plaintiff 2 could not possibly have listed the claims as a contingent asset when she initially filed for 3 Chapter 13 bankruptcy. Arguably, plaintiff should have supplemented or amended her 4 schedules to disclose her FCRA and CCRAA claims to the bankruptcy court as a 5 contingent asset. See Fed. R. Bankr. P. 1007(h) (debtor’s duty to file a supplemental 6 schedule within 14 days of acquisition of an interest in property); see also 11 U.S.C. 7 § 512(a)(1). Nonetheless, plaintiff has not received a discharge, so there has been no 8 acceptance of the plaintiff’s position by the bankruptcy court. See Stewart v. Bank of 9 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, 11 United States District Court Northern District of California 10 issuance of a new scheduling order, or discharge of Plaintiffs’ debts on reliance of the 12 [non-disclosed claims.]”); Keller v. Experian Info. Sols., Inc., No. 16-CV-04643-LHK, 2017 13 WL 130285, at *9 (N.D. Cal. Jan. 13, 2017) (declining to estop plaintiff because “at this 14 time, the Court does not have enough information to know whether the bankruptcy court 15 has ‘accepted’ Plaintiff’s position”). Moreover, it is not clear that plaintiff’s failure to 16 amend the schedules disadvantaged the creditors in a significant way, given that the 17 potential damages here are likely nominal. 18 The facts of Hamilton, upon which defendants rely, are readily distinguishable. 19 The debtor in Hamilton was aware of the claims at issue prior to filing for bankruptcy, 20 knowingly failed to report them, and ultimately received a Chapter 7 discharge. 270 F.3d 21 at 781. More on point is the recent decision in Momoh v. Wells Fargo Bank NA, which 22 addressed a claim under the Telephone Consumer Protection Act that arose post- 23 confirmation. See No. 15-cv-04729-HSG, 2016 U.S. Dist. LEXIS 86276, at *2–3 (N.D. 24 Cal. July 1, 2016). Momoh held that estoppel was inappropriate because “the bankruptcy 25 court has not taken any formal action since Plaintiff’s plan was confirmed . . . and thus 26 never acted in reliance upon Plaintiff’s omission of these claims.” Id. at *11. 27 28 For these reasons, the court finds that the application of judicial estoppel is inappropriate and declines to estop plaintiff from asserting her claims. 7 1 2. Actual Inaccuracy under FCRA 2 Defendants’ primary basis for dismissal is that the complaint fails to allege any 3 “inaccuracy” under FCRA. Plaintiff’s FCRA claims are made pursuant to 15 U.S.C. 4 §§ 1618s-2(b) and 1618i-a(1). Under § 1618i-a(1), after receiving notice of a dispute 5 from a consumer, a CRA must “conduct a reasonable reinvestigation to determine 6 whether the disputed information is inaccurate and record the current status of the 7 disputed information.” 15 U.S.C. § 1618i-a(1). Under § 1618s-2(b), after receiving a 8 notice of dispute from a CRA, a furnisher must conduct a reasonable investigation with 9 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 11 United States District Court Northern District of California 10 right of action for willful or negligent noncompliance with these requirements. Id. at 1154. 12 To state an FCRA reinvestigation claim, a plaintiff must show that: (1) he found an 13 inaccuracy in his credit report; (2) he notified a CRA; (3) the CRA notified the furnisher of 14 the information about the dispute; and (4) the furnisher and/or CRA failed to reasonably 15 investigate the inaccuracies. Biggs v. Experian Info. Sols., Inc., No. 5:16-CV-01507-EJD, 16 2016 WL 5235043, at *1 (N.D. Cal. Sept. 22, 2016); Gorman, 584 F.3d at 1154–57. 17 Although the complaint does not allege specific facts about the furnishers’ and/or CRAs’ 18 investigations, plaintiff does allege generally that any reasonable investigation would 19 have revealed that the reporting was not in compliance with industry standards. 20 Inaccuracy is a required element of these FCRA claims. Carvalho v. Equifax Info. 21 Servs., LLC, 629 F.3d 876, 890 (9th Cir. 2010) (“Although the FCRA’s reinvestigation 22 provision, 15 U.S.C. § 1681i, does not on its face require that an actual inaccuracy exist 23 for a plaintiff to state a claim, many courts, including our own, have imposed such a 24 requirement.”); Gorman, 584 F.3d at 1163 (“[A] furnisher does not report ‘incomplete or 25 inaccurate’ information within the meaning of § 1681s–2(b) simply by failing to report a 26 meritless dispute.”). To be inaccurate, information must be either “patently incorrect” or 27 “misleading in such a way and to such an extent that it can be expected to adversely 28 affect credit decisions.” Gorman, 584 F.3d at 1163. 8 1 The complaint alleges several different types of inaccuracies. Plaintiff’s primary 2 legal theory is that, after a Chapter 13 plan is confirmed, it is inaccurate to report that an 3 account is delinquent or to report the loan balance per the original loan terms. Rather, 4 the lower amount owed per the confirmed Chapter 13 plan must be reported instead. 5 Second, plaintiff alleges that credit reporting that fails to comply with the Metro 2 6 standards is necessarily inaccurate. Finally, plaintiff alleges various other inaccuracies, 7 such as failing to report a CII D indicator, reporting a debt as “in collections” or “charged 8 off” despite the confirmed plan, and/or the failure to report that an account is being 9 disputed. 10 United States District Court Northern District of California 11 12 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 13 Chapter 13 plan has on plaintiff’s debts. Plaintiff argues that, prior to confirmation, the 14 industry standard is to report the outstanding balance on the loan at the time the 15 bankruptcy petition was filed, and to note the bankruptcy filing with the CII D indicator. 16 After a Chapter 13 plan is confirmed, however, plaintiff argues that because the 17 confirmation order is a binding “final judgment” that modifies the status of the debt, it is 18 inaccurate to continue reporting the outstanding balance per the original loan terms. 19 Rather, the amount required to be paid to obtain a discharge under the Chapter 13 plan 20 must be reported, with a loan balance of $0.00 reported if the confirmed plan does not 21 call for any payments on that debt. 22 Plaintiff’s legal theory of inaccuracy is not a novel issue in this district. The 23 unanimous view of the judges in this district that have considered the matter is that, at 24 least prior to discharge, reporting a loan balance and delinquent status per the original 25 terms—as opposed to the modified terms of the confirmed Chapter 13 plan—is neither 26 inaccurate nor misleading under FCRA. See, e.g., Doster v. Experian Info. Sols., Inc., 27 No. 16-CV-04629-LHK, 2017 WL 264401, at *4–*5 (N.D. Cal. Jan. 20, 2017) (“[A]lthough 28 reporting delinquent payments may be misleading if the debts have been discharged in 9 1 bankruptcy, ‘it is not misleading or inaccurate to report delinquent debts that have not 2 been discharged’ . . . . [because] the legal status of a debt does not change until the 3 debtor is discharged from bankruptcy.”) (collecting cases); Biggs, 2016 WL 5235043, at 4 *2 (“Courts in this district have held that the FCRA does not prohibit the accurate 5 reporting of debts that were delinquent during the pendency of a bankruptcy action . . . so 6 long as the bankruptcy discharge is also reported if and when it occurs.”); Blakeney v. 7 Experian Info. Sols., Inc., No. 15-CV-05544-LHK, 2016 WL 4270244, at *5 (N.D. Cal. 8 Aug. 15, 2016) (“[C]ourts in this district have consistently held that it is not misleading or 9 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. 11 United States District Court Northern District of California 10 2, 2012) (“While it might be good policy in light of the goals of bankruptcy protection to 12 bar reporting of late payments while a bankruptcy petition is pending, neither the 13 bankruptcy code nor the FCRA does so.”); Harrold v. Experian Info. Sols., Inc., 2012 WL 14 4097708, at *4 (N.D. Cal. Sept. 17, 2012) (“[R]eports of delinquencies in payment while 15 bankruptcy proceedings are still ongoing is not ‘incomplete or inaccurate’ information.”). 16 These decisions, of course, are not binding on this court. Nonetheless, the court 17 finds their reasoning to be persuasive. Although the Chapter 13 plan and the bankruptcy 18 petition may limit the collection activities of creditors, it does not mean that an “individual 19 is not obliged to make timely payments on his accounts while his petition for bankruptcy 20 is pending.” Mortimer, 2012 WL 3155563 at *3. Because “the debt and its delinquent 21 status still exist . . . it is not inaccurate or misleading to report that information to a CRA.” 22 Biggs, 2016 WL 5235043 at *2. The court therefore finds that, at least when the 23 bankruptcy filing and the account’s disputed nature are noted, reporting balances and 24 delinquencies per the original loan terms is neither “patently incorrect” nor “misleading.” 25 See Gorman, 584 at 1163. 26 Plaintiff’s contrary arguments miss the mark. Plaintiff’s repeated themes that the 27 confirmed plan is a “final judgment” with “res judicata effect” or a “new contract” obscure 28 the issues. To be sure, a confirmed plan may have res judicata effects on some creditor 10 claims that could have been brought in the bankruptcy proceeding. See, e.g., In re 2 Brawders, 503 F.3d 856, 867 (9th Cir. 2007) (res judicata precludes collateral attack on 3 confirmation order). The fact that a confirmed plan may have res judicata effects, 4 however, does not imply that reporting the debts per their original terms is therefore 5 “misleading” under FCRA. See Jaras v. Experian Info. Sols., Inc., No. 16-CV-03336- 6 LHK, 2016 WL 7337540, at *4 (N.D. Cal. Dec. 19, 2016) (“[E]ven if a confirmation order 7 constitutes a final judgment, it constitutes a final judgment only as to the manner in which 8 the debtor will discharge his financial obligations, not the legal validity of the debt.”) 9 (quotations omitted). Similarly, although a Ninth Circuit bankruptcy appeals panel has 10 analogized a confirmed Chapter 13 plan to a “contract,” In re Than, 215 B.R. 430, 435 11 United States District Court Northern District of California 1 (B.A.P. 9th Cir. 1997), that does not mean that this “contract’s” promises govern how 12 credit information must be reported under FCRA. A more natural understanding of the 13 terms of the new contract is that it sets the conditions by which debtors may obtain a 14 discharge. Jaras, 2016 WL 7337540, at *4. In short, a confirmed plan does not dictate 15 how historical credit information must be reported under FCRA. 16 Plaintiff also relies on a statutory argument based on the effect of 11 U.S.C. 17 sections 1332(b)(2) and 1337(a) and a “critical distinction” between the terms “debt” and 18 “claim” as used in the Bankruptcy Code. Section 1332(b)(2) provides that a confirmed 19 plan may “modify the rights of . . . holders of unsecured claims,” and section 1137(a) 20 establishes that a confirmed plan “bind[s] the debtor and each creditor.” 11 U.S.C. 21 §§ 1332(b), 1337(a). Plaintiff asserts, without citation to authority, that “claims” constitute 22 a creditor’s calculation of the balance due prior to litigation, whereas a “debt” constitutes 23 the balance owed post-litigation. This claim/debt distinction is significant because 24 furnishers do not report debts per se, but only claims. And it is the claim, not the debt, 25 that is modified in a confirmed Chapter 13 plan by operation of sections 1332(b)(2) and 26 1337(a). Thus, because creditors are reporting “claims” and the confirmed plan has 27 “modified” those claims, reporting must change post-confirmation. 28 11 1 This argument can be quickly dismissed because it relies so heavily on a 2 purported distinction between “claims” and “debts.” However, Congress intended that 3 “the meanings of ‘debt’ and ‘claim’ be coextensive.” Penn. Dep’t of Pub. Welfare v. 4 Davenport, 495 U.S. 552, 558 (1990); accord In re Davis, 778 F.3d 809, 813 (9th Cir. 5 2015). Plaintiff is correct that a Chapter 13 plan may “modify” the claims of creditors, 11 6 U.S.C. § 1332(b)(2), and that, upon confirmation, the plan binds debtor and creditor, 11 7 U.S.C. § 1327(a). While these sections may prevent creditors from collecting on a loan 8 pursuant to the original terms while the bankruptcy petition is pending, it does not follow 9 that reporting those terms is necessarily “misleading” under FCRA. “[T]he debt and its 10 United States District Court Northern District of California 11 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 12 fails to state a claim under FCRA to the extent that the alleged “inaccuracy” is premised 13 on either (i) reporting the accurate outstanding balance as per the original terms, instead 14 of the loan balance as modified by a Chapter 13 plan; or (ii) reporting a balance as 15 delinquent or past due, if delinquency is factually accurate per the original loan terms. 16 17 18 19 20 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 21 noncompliance with Metro 2 standards, standing alone, does not make otherwise 22 factually accurate reporting “misleading.” Giovanni v. Bank of Am., Nat. Ass’n, No. C 12- 23 02530 LB, 2013 WL 1663335, at *6 (N.D. Cal. Apr. 17, 2013) (failure to comply with 24 Metro 2 standards is not misleading because the complaint “does not allege that [the 25 furnisher] was required to follow the Metro 2 Format . . . or that deviation from those 26 instructions constitutes an inaccurate or misleading statement.”); Mortimer, 2013 WL 27 1501452, at *12 (N.D. Cal. Apr. 10, 2013) (“[A]lleged noncompliance with the Metro 2 28 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 11 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 23 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 27 noncompliance with Metro 2 guidelines would be actually misleading in context. 28 /// 13 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 6 court finds that several of these inaccuracies may state a claim under FCRA, but that the 7 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 11 United States District Court 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 19 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 27 collections at some point in the past. The latter would not be misleading, assuming that it 28 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. 8 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 15 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 11 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. 16 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. 24 3. Whether Damages Have Been Sufficiently Pleaded 25 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 28 damages allegations. 16 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 11 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 11 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 11 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 13 14 15 __________________________________ PHYLLIS J. HAMILTON United States District Judge 16 17 18 19 20 21 22 23 24 25 26 27 28 21

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