Venugopal v. Digital Federal Credit Union

Filing 17

ORDER denying 10 Motion to Dismiss. Signed by Judge Edward J. Davila on 3/27/2013. (ejdlc3, COURT STAFF) (Filed on 3/27/2013)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

United States District Court
For the Northern District of California

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MARPU VENUGOPAL,
Plaintiff,

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v.

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DIGITAL FEDERAL CREDIT UNION, an
FDIC insured corporation and DOES 1–100
inclusive,
Defendants.

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S
MOTION TO DISMISS

[Re: Docket No. 10]

Presently before the Court is Defendant Digital Federal Credit Union’s (“Defendant”)

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Motion to Dismiss Plaintiff Marpu Venugopal’s (“Venugopal”) Complaint. The Court found this

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matter appropriate for determination without oral argument pursuant to Civil Local Rule 7–1(b),

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and therefore vacated the associated hearing. Having reviewed the parties’ papers, the Court has

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determined that Defendant’s Motion will be DENIED.

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I.

Background
The factual allegations below have been pleaded by Plaintiff in the Complaint. On March

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18, 2009, Plaintiff filed a voluntary Chapter 7 bankruptcy petition in Bankruptcy Court of the

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Northern District of California which listed an unsecured debt in favor of Defendant in the amount

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of $26,102.00. Compl. ¶ 12–13, Notice of Removal Ex. A, Docket Item No. 1. Throughout the

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ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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petition Plaintiff disputed this debt. Id. ¶¶ 14–15. On June 23, 2009, Plaintiff’s Bankruptcy petition

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was granted; he alleges that this amounted to a discharge of all dischargeable debts including the

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unsecured debt owed to Defendant. Id. ¶ 14. Plaintiff also alleges that the discharge order relates

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back to the date he filed for bankruptcy. Id. ¶ 15. He also claims that Defendant was notified of this

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discharge the following day, on June 24, 2009. Id. ¶ 14.

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Two years later, on May 2, 2011, Plaintiff pulled his Informative Research Credit Report

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from the credit reporting agencies (“CRAs”) Experian, Transunion, and Equifax. Id. ¶ 15. Plaintiff

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alleges that the “report indicates that [Defendant] reported overdue payments on Plaintiff’s credit

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account to all three CRA’s each month from the time Plaintiff filed for bankruptcy up until entry of

United States District Court
For the Northern District of California

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the [Bankruptcy] discharge order.” Id. On May 5, 2011, Plaintiff sent a letter to the CRAs

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requesting investigation of the information Defendant furnished to the CRAs so they could compile

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Plaintiff’s credit report. Id. ¶ 16. Plaintiff disputes the accuracy of Defendant’s reporting and, as

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noted, disputed the debt during the bankruptcy proceedings. Id.

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On May 17, 2011, Plaintiff received his Informative Research credit report, which was a

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compilation of the reports from Equifax, Experian, and Transunion. Id. ¶ 17. Plaintiff alleges that

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Defendant continued to misreport the overdue payments to Experian and did not report that

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Plaintiff disputed the accuracy of this information. Id. ¶¶ 17–19. Plaintiff notes that Defendant

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discontinued reporting this information to Equifax or Transunion. Id. ¶ 17.

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On October 12, 2012, Plaintiff filed his Complaint in Santa Clara County Superior Court in

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which he brought forth three causes of action against Defendant and Does 1–100: (1) violation of

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the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681s-2(b); (2) violation of California

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Consumer Credit Reporting Agencies Act (CCCRAA), Cal. Civ. Code § 1785.25(a); and (3)

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violation of California’s Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200. On

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November 29, 2012, Defendant removed the Complaint to this Court, which has jurisdiction to

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hear the case under 28 U.S.C. §§ 1331, 1367.

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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II.

Legal Standard

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Federal Rule of Civil Procedure 8(a) requires a plaintiff to plead each claim with sufficient

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specificity to “give the defendant fair notice of what the . . . claim is and the grounds upon which it

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rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal quotations omitted). A

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complaint which falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim

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upon which relief can be granted. Fed. R. Civ. P. 12(b)(6). “Dismissal under Rule 12(b)(6) is

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appropriate only where the complaint lacks a cognizable legal theory or sufficient facts to support a

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cognizable legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir.

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2008). Moreover, the factual allegations “must be enough to raise a right to relief above the

United States District Court
For the Northern District of California

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speculative level” such that the claim “is plausible on its face.” Twombly, 550 U.S. at 556–57.

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When deciding whether to grant a motion to dismiss, the court generally “may not consider

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any material beyond the pleadings.” Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d

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1542, 1555 n.19 (9th Cir. 1990). The court must accept as true all “well-pleaded factual

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allegations.” Ashcroft v. Iqbal, 556 U.S. 662 (2009). The court must also construe the alleged facts

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in the light most favorable to the plaintiff. Love v. United States, 915 F.2d 1242, 1245 (9th Cir.

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1988). “[M]aterial which is properly submitted as part of the complaint may be considered.”

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Twombly, 550 U.S. at 555. But “courts are not bound to accept as true a legal conclusion couched

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as a factual allegation.” Id.

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III.

Discussion

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A. Claim 1: Violation of the Fair Credit Reporting Act (FCRA)

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Plaintiff’s first cause of action is that Defendant violated the FCRA by reporting inaccurate

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or incomplete information to at least one of the CRAs. Specifically, Plaintiff contends that

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Defendant inaccurately reported to Experian that Plaintiff owed an unsecured debt (in the amount

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of $26,102.00) to Defendant during the pendency of the bankruptcy proceedings. Compl. ¶ 26.

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Plaintiff asserts that this information was inaccurate “because it suggests that that [Plaintiff’s

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credit] account was still collectable and because the discharge order, which removed Plaintiff’s

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legal obligation to pay [Defendant], relates back to the date Plaintiff filed for bankruptcy.” Id. ¶ 15.

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The FCRA imposes distinct duties on CRAs and furnishers of credit information so as to

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ensure accurate and complete credit reporting. See 15 U.S.C. § 1681 et seq.; Gorman v. Wolpoff &

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Abramson, LLP, 584 F.3d 1147, 1155–56 (9th Cir. 2008) (“[A] primary purpose for the FCRA [is]

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to protect consumers against inaccurate and incomplete credit reporting.”). Subsection 1681i(a)(2)

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requires that CRAs provide notice of a dispute to the corresponding furnisher within five business

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days of receiving the dispute from the consumer. Subsection 1681s–2(b) imposes four duties on

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furnishers of credit information subsequent to receipt of notice from a CRA. Nelson v. Chase

United States District Court
For the Northern District of California

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Manhattan Mortg. Corp., 282 F.3d 1057, 1059 (9th Cir. 2002). Upon receiving notice from a CRA,

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a furnisher must: (1) conduct an investigation; (2) review all relevant information provided by the

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CRA; (3) report the results of the investigation to the CRA; and (4) if inaccurate or incomplete

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information is discovered, report this result “‘to all [nationwide] consumer reporting agencies to

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which the person furnished the information.’” Id. (quoting 15 U.S.C. § 1681s–2(b)). Since a private

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right of action against furnishers exists only for duties imposed by § 1681s–2(b), notice from the

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CRA to the furnisher is an essential allegation for a prima facie case under the FCRA. See Gorman,

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584 F.3d at 1154.

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The Court first notes that Plaintiff has sufficiently pleaded the underlying notice

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requirement of a prima facie FCRA claim. Plaintiff alleges that on May 5, 2011 he submitted

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written notice to the CRAs disputing the accuracy of the overdue payments reported during his

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bankruptcy. Compl. ¶¶ 10, 16, 24. He also alleges that the CRAs contacted Defendant about this

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dispute pursuant to their duties under 15 U.S.C. § 1681i(a)(2). Id. Therefore, these allegations are

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sufficient to conclude that Defendant received the requisite notice about the disputed information

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on Plaintiff’s CRA report. See Montgomery v. Wells Fargo Bank, No. C12-3895 TEH, 2012 WL

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5497950, at *5 (N.D. Cal. Nov. 13, 2012). Accordingly, the Court finds that Plaintiff has

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adequately alleged that Defendant received notice of the dispute.

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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The Court next turns to the question of whether Plaintiff has sufficiently alleged that
Defendant did not meet its investigatory and reporting duties under the FCRA. In support of its

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Motion to Dismiss, Defendant primarily contends that the information it reported was accurate, and

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therefore, Defendant could not have fallen short of its obligations. See Def.’s Mot. to Dismiss 6

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(“Because the information reported to Experian was accurate, the investigation by [Defendant] was

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necessarily reasonable . . . .”); see also id. at 2 (“. . . [T]he information reported to the credit

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bureaus was accurate at the time it was reported . . . [a]nd therefore, [Defendant’s] investigation

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into Plaintiff’s dispute was reasonable, barring any liability under the [FCRA].”). Defendant

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contends that the information was accurate because it was merely reporting on Plaintiff’s credit

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United States District Court
For the Northern District of California

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history; part of Plaintiff’s credit history, Defendant notes, is that at the time of the bankruptcy

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proceedings Plaintiff owed Defendant the unsecured debt of $26,102.00. See id. at 4.

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The Court disagrees with this line of reasoning. The FCRA not only requires that furnishers

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report information that is accurate, but it also requires that the information be complete so as to not

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be misleading. 15 U.S.C. § 1681s-2(b)(1). A claim of a violation of § 1681s-2(b) need not allege

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that the furnished information is “patently incorrect”; a pleading could sufficiently state a claim if

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it alleges that the report is “misleading in such a way and to such an extent that it can be expected

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to adversely affect credit decisions.” Gorman, 584 F.3d at 1163 (finding that a furnisher could be

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held liable under the FCRA where that furnisher accurately reported an account as “delinquent” but

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failed to note that the consumer had disputed the debt); see also Montgomery, No. C12-3895 TEH,

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2012 WL 5497950, at *4–5.

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In this case, while Defendant’s reporting to Experian about the alleged debt may have been

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technically accurate, it still could have been misleading so as to materially alter the understanding

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of the debt. Defendant failed to report to Experian that Plaintiff’s debt had been discharged as a

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result of the bankruptcy petition. Defendant also failed to report that the debt was in dispute. The

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incompleteness of the reporting could be misleading so as to form the basis of a FCRA claim. See

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Gorman, 584 F.3d at 1163. This allegation is indeed contained in the Complaint: “[The information

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Defendant continued to provide Experian] was inaccurate because it suggests that that [Plaintiff’s

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credit] account was still collectable and because the discharge order, which removed Plaintiff’s

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legal obligation to pay [Defendant], relates back to the date Plaintiff filed for bankruptcy.” Compl.

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¶ 26.

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The Court also finds that Plaintiff has sufficiently pleaded the remaining elements of an

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FCRA claim. Plaintiff alleges that after completing its investigation, Defendant did not correct the

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reporting of this information to Experian in violation of the FCRA. Id.; see also 15 U.S.C. § 1681s-

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2(b) (requiring furnishers to report a finding of incomplete or inaccurate information to the CRAs).

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The Complaint also states that after the investigation Defendant withdrew the inaccurate or

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incomplete information from its report to Transunion and Equifax, but not to Experian. Compl.

United States District Court
For the Northern District of California

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¶ 17. This supports Plaintiff’s contention that Defendant did or could have discovered the

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inaccurate or incomplete nature of the original reporting through a reasonable investigation, yet

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failed to rectify that inaccuracy or incompleteness in violation of § 1681s-2(b). See Hanks v.

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Talbots Classics Nat. Bank, No. C 12-2612 SI, 2012 WL 3236323, at *3 (N.D. Cal. Aug. 6, 2012).

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Accordingly, and drawing reasonable inferences in Plaintiff’s favor, the Court finds that the

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Complaint sufficiently states a claim that Defendant breached its duty under the FCRA to conduct

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a reasonable investigation and report to Experian that the information about Plaintiff’s debt was

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inaccurate, incomplete or misleading.

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B. Claim 2: Violation of California Consumer Credit Reporting Agencies Act

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Plaintiff’s second cause of action is for a violation of the CCCRAA, which provides, in

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pertinent part, that “[a] person shall not furnish information on a specific transaction or experience

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to any consumer credit reporting agency if the person knows or should know the information is

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incomplete or inaccurate.” Cal. Civ. Code § 1785.25(a). The statutes also provides for a private

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right of action to enforce this provision. Id. §§ 1785.25(g), 1785.31(a). “[B]ecause the CCRAA ‘is

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substantially based on the Federal Fair Credit Reporting Act, judicial interpretation of the federal

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provisions is persuasive authority and entitled to substantial weight when interpreting the

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ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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California provisions.’” Carvalho v. Equifax Info. Servs. LLC, 629 F.3d 876, 889 (9th Cir. 2010)

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(quoting Olson v. Six Rivers Nat’l Bank, 111 Cal. App. 4th 1, 12 (2003)).

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Defendant’s Motion to Dismiss vis-à-vis Plaintiff’s CCCRAA claim essentially iterates its

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argument with regard to Plaintiff’s FCRA claim: that the information Defendant provided to

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Experian was accurate. Because the Court has already rejected that argument and found that

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Plaintiff has stated a cause of action for a FCRA violation, it also finds that Plaintiff has stated a

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cause of action for a violation of the CCCRAA sufficient to withstand Defendant’s motion.

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United States District Court
For the Northern District of California

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C. Claim 3: Violation of California’s Unfair Competition Law
Plaintiff’s third cause of action is for a violation of the UCL’s unlawful prong predicated

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upon the alleged violation of the CCCRAA. See Cal. Bus. & Prof. Code § 17200 et seq.

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(prohibiting unlawful business acts). The UCL has been found to be a proper mechanism of

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enforcement of the CCCRAA. See Mortimer v. J.P. Morgan Chase Bank, No. C 12-1936 CW,

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2012 WL 3155563, at *6 (N.D. Cal. Aug. 2, 2012); Montgomery, No. C12-3895 TEH, 2012 WL

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5497950, at *3. As this Court has found that Plaintiff has sufficiently alleged a violation of the

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CCCRAA, Plaintiff’s UCL cause of action has been sufficiently pleaded so as to withstand

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Defendant’s motion.

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Defendant raises two arguments in support of its contention that the UCL claim should be

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dismissed. First, Defendant contends that Plaintiff has not met the UCL’s statutory standing

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requirements, under which a plaintiff must allege that he or he “has suffered injury in fact and has

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lost money or property as a result of the unfair competition.” See Cal. Bus. & Prof. Code §§ 17204,

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17535; Cal. Civ. Code § 1780(a). However, Plaintiff alleges that he has suffered, among other

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things, an impediment on his ability to obtain further credit. See Compl. ¶¶ 40–41. Allegations of a

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diminished credit score or impairment of credit have been found to satisfy the UCL’s standing

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requirement. See King v. Bank of Am., N.A., No. C-12-04168 JCS, 2012 WL 4685993, at *8 (N.D.

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Cal. Oct. 1, 2012) (finding that the plaintiff had standing where he alleged “continued impairment”

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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to his credit score). Accordingly, the Court finds that Plaintiff has standing to pursue his UCL

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claim and rejects Defendant’s argument to the contrary.

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Second, Defendant claims that Plaintiff’s UCL claim is preempted by federal law, namely

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the FCRA and the Bankruptcy Code. With regard to the FCRA, the Gorman court held that the

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FCRA preempts state statutes that impose additional legal duties or rules of law. 584 F.3d at 1171–

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72. Here Plaintiff’s claim under the UCL does not seek to hold Defendant liable to any additional

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requirements or duties than would the FCRA; rather, Plaintiff is seeking to utilize the UCL as a

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mechanism of enforcement of same duties Defendant has under the FCRA and CCCRAA. As such,

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Plaintiff’s UCL claim is not preempted by the FCRA. See El-Aheidab v. Citibank (South Dakota),

United States District Court
For the Northern District of California

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N.A., No. C-11-5359 EMC, 2012 WL 506473, at *8 (N.D. Cal. Feb. 15, 2012) (finding that the

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plaintiff’s UCL claim was not preempted by the FCRA since no additional substantive duties

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would be imposed upon Defendant).

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As for the Bankruptcy Code, the Court also disagrees with Defendant. Plaintiff’s UCL

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cause of action seeks to enforce the accuracy and completeness of credit reporting and involves an

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inquiry distinct from whether Plaintiff’s debt was actually discharged during the bankruptcy

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proceedings. See Hanks, No. C 12-2612 SI, 2012 WL 3236323, at *4–5 (finding that the

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Bankruptcy Code would not prelude an FCRA claim in a similar context); King, No. C-12-04168

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JCS, 2012 WL 4685993, at *9 (same). As such, the Court finds that Plaintiff’s UCL claim is not

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precluded by the Bankruptcy Code.

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IV.

Conclusion and Order
For the foregoing reasons, Defendant’s Motion to Dismiss is DENIED. The parties are

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ordered to comply with the schedule set in the Court’s Case Management Order filed on March 4,

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2013. See Docket Item No. 16.

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S MOTION TO DISMISS

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IT IS SO ORDERED.

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Dated: March 27, 2013

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_________________________________
EDWARD J. DAVILA
United States District Judge

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United States District Court
For the Northern District of California

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Case No.: 5:12-CV-06067 EJD
ORDER DENYING DEFENDANT’S MOTION TO DISMISS