Franco v. Experian Information Solutions, Inc. et al

Filing 94

ORDER GRANTING 59 , 66 MOTIONS TO DISMISS FIRST AMENDED COMPLAINT WITH LEAVE TO AMEND. Amended Pleadings due by 5/9/2017. Signed by Judge Beth Labson Freeman on 4/18/2017. (blflc1S, COURT STAFF) (Filed on 4/18/2017)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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SAN JOSE DIVISION

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RON FRANCO,

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Plaintiff,

United States District Court
Northern District of California

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v.

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EXPERIAN INFORMATION SOLUTIONS,
INC., et al.,

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Case No. 16-cv-03335-BLF
ORDER GRANTING MOTIONS TO
DISMISS FIRST AMENDED
COMPLAINT WITH LEAVE TO
AMEND
[RE: ECF 59, 66]

Defendants.
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Defendants CIG Financial, LLC (“CIG”) and Wells Fargo Bank, N.A. (“Wells Fargo”)

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move to dismiss Plaintiff Ron Franco’s claims against them for violations of the Fair Credit

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Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq., and the California Consumer Credit Reporting

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Agencies Act (“CCRAA”), California Civil Code § 1785.25(a). For reasons discussed below, the

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motions are GRANTED WITH LEAVE TO AMEND.

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I.

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BACKGROUND1
Plaintiff filed for Chapter 13 bankruptcy protection on September 5, 2013 and his plan was

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confirmed on January 7, 2014. First Am’d Compl. (“FAC”) ¶¶ 93, 97, ECF 55. On August 11,

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2015, Plaintiff “ordered a three bureau report from Equifax, Inc. to ensure proper reporting by

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Plaintiff’s Creditors.” Id. ¶ 98. He alleges that this report (“August 2015 Credit Report”)

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included thirteen different trade lines containing inaccurate, misleading, or incomplete

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information. Id. ¶ 99. Plaintiff neither attaches a copy of the August 2015 Credit Report nor

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Plaintiff’s well-pled factual allegations are accepted as true for purposes of the motion to
dismiss. See Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011).

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provides specifics regarding the alleged inaccuracies contained therein. Id. He asserts only that

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“multiple trade lines continued to report Plaintiff’s accounts with past due balances, inaccurate

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balances, in collections, and/or charged off. Some accounts even failed to register that Plaintiff

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was making payments on the account through Plaintiff’s Chapter 13 plan.” Id.
Plaintiff disputed the inaccurate trade lines via certified mail sent to three different credit

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reporting agencies (“CRAs”), Experian, Equifax, Inc., and TransUnion, LLC on February 11,

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2016. Id. ¶ 100. Each CRA received Plaintiff’s dispute letter and in turn notified the entities that

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had furnished the disputed information (“furnishers”) by means of automated credit dispute

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verifications (“ACDVs”). Id. ¶ 102.
Plaintiff ordered a second three bureau report from Equifax, Inc. on April 11, 2016 (“April

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United States District Court
Northern District of California

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2016 Credit Report”). Id. ¶ 103. Plaintiff alleges that at that time a number of furnishers,

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including CIG and Wells Fargo, improperly were reporting Plaintiff’s accounts as having balances

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and past due balances, which was inconsistent with Plaintiff’s confirmed Chapter 13 plan. FAC ¶¶

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103-13.
Plaintiff filed this action on June 15, 2016, asserting violations of the FCRA and CCRAA

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against multiple CRAs and furnishers. Compl., ECF 1. CIG moved to dismiss Plaintiff’s

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complaint and instead of opposing CIG’s motion, Plaintiff filed the operative FAC. CIG and

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Wells Fargo now move to dismiss the FAC under Federal Rule of Civil Procedure 12(b)(6).

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II.

LEGAL STANDARD
“A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) for failure to state a

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claim upon which relief can be granted ‘tests the legal sufficiency of a claim.’” Conservation

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Force v. Salazar, 646 F.3d 1240, 1241-42 (9th Cir. 2011) (quoting Navarro v. Block, 250 F.3d

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729, 732 (9th Cir. 2001)). When determining whether a claim has been stated, the Court accepts

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as true all well-pled factual allegations and construes them in the light most favorable to the

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plaintiff. Reese v. BP Exploration (Alaska) Inc., 643 F.3d 681, 690 (9th Cir. 2011). However, the

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Court need not “accept as true allegations that contradict matters properly subject to judicial

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notice” or “allegations that are merely conclusory, unwarranted deductions of fact, or

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unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 F.3d 1049, 1055 (9th Cir. 2008)
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(internal quotation marks and citations omitted). While a complaint need not contain detailed

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factual allegations, it “must contain sufficient factual matter, accepted as true, to ‘state a claim to

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relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl.

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Corp. v. Twombly, 550 U.S. 544, 570 (2007)). A claim is facially plausible when it “allows the

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court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id.
III.

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DISCUSSION
The FAC contains two claims, one for violation of the FCRA (Claim 1) and the other for

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violation of the CCRAA (Claim 2). CIG and Wells Fargo seek dismissal of both claims under

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Rule 12(b)(6).2
A.

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United States District Court
Northern District of California

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FCRA (Claim 1)

The FCRA creates a private right of action against furnishers for noncompliance with

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duties imposed under 15 U.S.C. § 1681s-2(b). Gorman, 584 F.3d at 1154. Section 1681s-2(b)

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imposes certain obligations on a furnisher, such as a duty to conduct an investigation, when the

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furnisher receives notice from a CRA that a consumer disputes information reported by the

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furnisher. Id. A plaintiff is required to plead and prove four elements to prevail on an FCRA

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claim against a credit furnisher: “(1) a credit reporting inaccuracy existed on plaintiff’s credit

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report; (2) plaintiff notified the consumer reporting agency that plaintiff disputed the reporting as

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inaccurate; (3) the consumer reporting agency notified the furnisher of the alleged inaccurate

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information of the dispute; and (4) the furnisher failed to investigate the inaccuracies or further

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failed to comply with the requirements in 15 U.S.C. § 1681s-2(b) (1)(A)-(E).” Denison v.

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Citifinancial Servicing LLC, No. C 16-00432 WHA, 2016 WL 1718220, at *2 (N.D. Cal. Apr. 29,

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2016). A furnisher’s duties under § 1681s-2(b) of the FCRA arise “only after the furnisher

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receives notice of dispute from a CRA.” Gorman, 584 F.3d at 1154.

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Plaintiff’s FCRA claim against CIG and Wells Fargo is subheaded “Failure to

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Reinvestigate.” FAC ¶ 115-16. Plaintiff alleges that CIG and Wells Fargo “violated section

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1681s-2(b) by failing to conduct a reasonable investigation and re-reporting misleading and

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Wells Fargo joins in CIG’s motion and provides limited additional argument regarding the
grounds raised by CIG.
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inaccurate account information.” Id. ¶ 118. Presumably, this claim is based upon the conduct of

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CIG and Wells Fargo upon receiving notice of Plaintiff’s dispute regarding the August 2015

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Credit Report. Plaintiff alleges that he sent dispute letters to Experian and other CRAs regarding

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unidentified inaccuracies contained in the August 2015 Credit Report, and that the CRAs in turn

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sent Plaintiff’s dispute to each furnisher by means of an ACDV. Id. ¶¶ 100-02.

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CIG and Wells Fargo argue that Plaintiff has not alleged facts sufficient to satisfy the first

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element of a claim under § 1681s-2(b), the existence of a credit reporting inaccuracy. The Court

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agrees for the reasons discussed below. Before turning to the parties’ arguments regarding

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inaccuracy, however, the Court addresses CIG’s request (joined by Wells Fargo) for judicial
notice of documents filed in Plaintiff’s bankruptcy case. See RJN, ECF 60. The request is

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United States District Court
Northern District of California

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GRANTED, as the documents are proper subject for judicial notice. See Reyn’s Pasta Bella, LLC

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v. Visa USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006).

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Vague Allegations Regarding Contents of August 2015 Credit Report

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CIG and Wells Fargo first point out that although Plaintiff argues that their reporting was

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“inaccurate and or incomplete,” FAC ¶ 122, Plaintiff does not allege what facts are inaccurate or

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missing from the August 2015 Credit Report upon which his FCRA claim is based. The Court

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agrees. As discussed above, Plaintiff’s allegations regarding the contents of the August 2015

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Credit Report are quite vague. He alleges only that “multiple trade lines continued to report

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Plaintiff’s accounts with past due balances, inaccurate balances, in collections, and/or charged off.

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Some accounts even failed to register that Plaintiff was making payments on the account through

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Plaintiff’s Chapter 13 plan.” FAC ¶ 99. Plaintiff argues that more specificity is provided at

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paragraph 106 of the FAC. See Pl.’s Opp. at 4-5, ECF 75. However, that paragraph describes the

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contents of the April 2016 Credit Report that Plaintiff obtained to ensure that his accounts had

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been updated following his letters of dispute regarding the earlier August 2015 Credit Report. See

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FAC ¶¶ 103-06. Plaintiff does not allege that he disputed the April 2016 Credit Report.

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Therefore, inaccuracies in the April 2016 Credit Report cannot form the basis of his claim.

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2.

Reporting After Confirmation of Chapter 13 Plan

More fundamentally, to the extent that Plaintiff claims that it was inaccurate for CIG to
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report balances or past due balances after plan confirmation, that theory of liability has been

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rejected by courts in this district and other districts within the Ninth Circuit. See, e.g., Artus v.

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Experian Info. Sols., Inc., No. 5:16-CV-03322-EJD, 2017 WL 346022, at *5 (N.D. Cal. Jan. 24,

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2017) (collecting cases); Doster, 2017 WL 264401, at *6 (“[A]s a matter of law it is not

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misleading or inaccurate to report a delinquent debt during the pendency of a bankruptcy.”);

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Polvorosa v. Allied Collection Serv., Inc., No. Case No. 2:16–CV–1508 JCM (CWH), 2017 WL

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29331, at *3 (D. Nev. Jan. 3, 2017) (“[R]eporting delinquencies during the pendency of a

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bankruptcy or during a bankruptcy’s automatic stay is not itself a violation of the FCRA.”).

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Plaintiff argues that these decisions fail to recognize that a bankruptcy court’s order
confirming a Chapter 13 plan constitutes a binding final judgment regarding the rights and

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United States District Court
Northern District of California

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liabilities of the debtor and his or her creditors. According to Plaintiff, because a confirmed plan

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modifies the original debts, any post-confirmation reporting of pre-confirmation delinquencies or

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balances is inaccurate. It is true that “[t]he provisions of a confirmed plan bind the debtor and

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each creditor.” 11 U.S.C. § 1327(a). Thus a creditor seeking payment on a debt is entitled only to

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those payments provided for under the plan, and “any issue decided under a plan is entitled to res

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judicata effect.” In re Blendheim, 803 F.3d 477, 486 (9th Cir. 2015). However, the Court

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declines to make the logical leap urged by Plaintiff that these authorities, governing the

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relationships between parties to a bankruptcy action, make it a violation of the FCRA for a

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furnisher to report a historically accurate pre-confirmation debt or delinquency. Regardless of

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how the rights and obligations of the parties to a bankruptcy are modified by a Chapter 13 plan,

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the original debt did exist prior to confirmation and Plaintiff has cited no authority suggesting that

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bankruptcy proceedings “erase” that historical fact for purposes of the FCRA.

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Plaintiff’s reliance on In re Luedtke, No. 02-35082-svk, 2008 WL 2952530 (Bankr. E.D.

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Wis. July 31, 2008), is misplaced. In Luedtke, the bankruptcy court concluded that a creditor

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whose claim was modified by a Chapter 13 confirmation order had violated that order by

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continuing to report the original debt to CRAs. Id. at *6. The court suggested that in addition to

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seeking sanctions for violation of the confirmed plan, the debtor also could have sought relief

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under the FCRA. Id. In making that suggestion, the bankruptcy court appeared to assume that the
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creditor’s reporting of the original debt would have constituted an inaccuracy under the FCRA.

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Id. at *5. That view, expressed in dicta by a bankruptcy court outside the Ninth Circuit almost a

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decade ago, has not been adopted by the courts in this district. At least one court outside the

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district has found the decision to be irrelevant to determination whether a plaintiff had pleaded a

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viable FCRA claim. See, e.g., Wylie v. TransUnion, LLC, No. 3:16-CV-102, 2017 WL 835205, at

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*5 n.6 (W.D. Pa. Mar. 2, 2017) (“[T]he question before the Court is whether Defendants reported

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accurate information, not whether Defendant violated the bankruptcy code.”) (internal quotation

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marks and citation omitted).

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Moreover, with respect to the many debtors who fail to make all required plan payments,
the original debt terms ultimately are reinstated. See Blendheim, 803 F.3d at 487. Indeed,

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United States District Court
Northern District of California

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historically accurate debts may be reported even after discharge, so long as the credit report

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indicates that the debts were discharged in bankruptcy. See Mortimer v. Bank of Am., N.A., No. C-

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12-01959 JCS, 2013 WL 1501452, *9-11 (N.D. Cal. Apr. 10, 2013) (furnisher’s reporting that the

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debt had been delinquent during the pendency of the bankruptcy was historically accurate and thus

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not actionable under the FCRA where report also indicated that the debt had been discharged in

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bankruptcy).

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Plaintiff’s counsel argued at the hearing that allowing reporting of pre-confirmation

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delinquencies or balances after a Chapter 13 plan has been confirmed will deprive debtors of

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significant benefits that they expect to obtain through Chapter 13 bankruptcy. That issue is one

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for Congress to resolve, not this Court. The Court’s task in evaluating Plaintiff’s FAC is to

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determine whether the facts alleged therein make out a plausible claim that moving parties’ credit

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reporting was inaccurate. The Court simply is not persuaded that the reporting of a balance or past

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due balance after plan confirmation is per se inaccurate under the FCRA.

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However, it appears to be an open question whether such reporting could satisfy the

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inaccuracy requirement if the report is unaccompanied by any indication that the consumer is in

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bankruptcy. See Devincenzi v. Experian Info. Sols., Inc., No. 16-CV-04628-LHK, 2017 WL

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86131, at *7 (N.D. Cal. Jan. 10, 2017) (declining to decide whether allegations that the “credit

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report contained no indication at all that the debts were the subject of a pending bankruptcy . . .
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would be sufficient to state a claim” but granting plaintiff leave to attempt to assert FCRA claim

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based on that theory). It is this Court’s view that it may well be possible for a plaintiff to allege

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facts showing that the reporting of a pre-confirmation debt or delinquency is materially misleading

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absent any reference to a pending Chapter 13 bankruptcy in the report, at least where a confirmed

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plan governs the timing and amounts of post-confirmation payments on the debt.

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Plaintiff has not alleged such facts here, as he has not identified any particular inaccuracy

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contained in the August 2015 Credit Report upon which his claim is based, and has not stated

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whether the August 2015 Credit Report mentioned his bankruptcy.

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3.

Metro 2 Format

In addition to his theory of FCRA liability based on the effect of plan confirmation,

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United States District Court
Northern District of California

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Plaintiff asserts a related theory based on industry standards regarding credit reporting. He

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devotes more than thirty paragraphs of the FAC to a tutorial on industry standards and in

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particular the “Metro 2 format” adopted by the Consumer Data Industry Association (“CDIA”).

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See FAC ¶¶ 37-71. According to Plaintiff, Metro 2 provides instruction on what updates must be

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made when a bankruptcy is filed, and deviation from the Metro 2 format is inaccurate or

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misleading. The Ninth Circuit has not spoken on the effect of the Metro 2 format, if any, on the

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obligations of furnishers under the FCRA. However, district courts within the Ninth Circuit

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overwhelmingly have held that a violation of industry standards is insufficient, without more, to

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state a claim for violation of the FCRA. See, e.g., Doster, 2017 WL 264401, at *5 (collecting

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cases); Mestayer v. Experian Info. Sols., Inc., No. 15-CV-03645-EMC, 2016 WL 7188015, at *3

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(N.D. Cal. Dec. 12, 2016).

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The out-of-district cases cited by Plaintiff do not persuade this Court to take a contrary

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view. In Dreher v. Experian Info. Sols., Inc., No. 3:11-CV-00624-JAG, 2013 WL 2389878, at *7

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(E.D. Va. May 30, 2013), the district court held that industry standards could be considered at the

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summary judgment stage as part of the totality of evidence regarding the reasonableness of

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Experian’s failure to identify the main source of disputed information. That ruling does not

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advance Plaintiff’s argument that deviation from Metro 2 constitutes a per se inaccuracy under the

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FCRA. In Nissou-Rabban v. Capital One Bank (USA), N.A., No. 15CV1675 JLS (DHB), 2016
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WL 4508241, at *5 (S.D. Cal. June 6, 2016), the district court held that the plaintiff had alleged a

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claim under the FCRA where she alleged that Metro 2 was Synchrony’s chosen method of

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reporting and that Synchrony’s deviation from Metro 2 might be misleading to such an extent as to

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affect credit decisions. Courts in this district have found such allegations to be insufficient. See,

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e.g., Mestayer, 2016 WL 7188015, at *3 (credit report that deviated from Metro 2 was not

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misleading where report disclosed bankruptcy); see also Doster, 2017 WL 264401, at *5

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(collecting cases). This Court finds the latter decisions to be better reasoned and therefore

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concludes that allegations that a credit report deviated from the Metro 2 format is insufficient,

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without more, to state a claim under the FCRA.

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The Court does not mean to suggest that Metro 2 is wholly irrelevant to the evaluation of a

United States District Court
Northern District of California

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claim asserted under the FCRA. It may be that allegations of deviations from the Metro 2 format

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could bolster other allegations of inaccuracy or be relevant to allegations of negligence on the part

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of the reporting entity. However, Plaintiff’s reliance on Metro 2 as an independent source of

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liability under the FCRA is unavailing.

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Accordingly, the motions to dismiss Plaintiff’s FCRA claim brought by CIG and Wells
Fargo are GRANTED.

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B.

CCRAA (Claim 2)

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Subject matter jurisdiction in this case is based on federal question with respect to

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Plaintiff’s FCRA claim and supplemental jurisdiction with respect to his CCRAA claim. See FAC

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¶ 13. Plaintiff has yet to allege a viable federal claim, and if he fails to do so this Court will

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decline to exercise supplemental jurisdiction over his state law claim. See Sanford v.

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MemberWorks, Inc., 625 F.3d 550, 561 (9th Cir. 2010) (“[I]n the usual case in which all federal-

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law claims are eliminated before trial, the balance of factors to be considered under the pendent

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jurisdiction doctrine – judicial economy, convenience, fairness, and comity – will point toward

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declining to exercise jurisdiction over the remaining state-law claims.”) (internal quotation marks

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and citation omitted).

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Accordingly, the Court DECLINES TO ADDRESS the merits of Plaintiff’s CCRAA claim
against CIG and Wells Fargo at this time.
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IV.

LEAVE TO AMEND
Having concluded that CIG and Wells Fargo are entitled to dismissal of Plaintiff’s FCRA

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claim, the Court must determine whether leave to amend is warranted. In deciding whether to

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grant Plaintiff leave to amend his pleading, the Court must consider the factors set forth by the

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Supreme Court in Foman v. Davis, 371 U.S. 178 (1962), and discussed at length by the Ninth

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Circuit in Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048 (9th Cir. 2003). A district court

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ordinarily must grant leave to amend unless one or more of the Foman factors is present: (1)

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undue delay, (2) bad faith or dilatory motive, (3) repeated failure to cure deficiencies by

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amendment, (4) undue prejudice to the opposing party, and (5) futility of amendment. Eminence

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Capital, 316 F.3d at 1052. “[I]t is the consideration of prejudice to the opposing party that carries

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United States District Court
Northern District of California

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the greatest weight.” Id. However a strong showing with respect to one of the other factors may

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warrant denial of leave to amend. Id.
The first factor (undue delay), second factor (bad faith), and fourth factor (undue

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prejudice) do not weigh against granting leave to amend at this time, although the Court may well

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have a different view in the event that Plaintiff’s counsel fails to address the deficiencies

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addressed herein and persists in submitting pleadings consisting primarily of copy-and-paste

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boilerplate allegations. The third factor (failure to cure deficiencies) weighs slightly against

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granting leave to amend, as Plaintiff previously amended his pleading. Finally, with respect to the

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fifth factor (futility of amendment), the Court has grave reservations whether Plaintiff will be able

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to state a viable FCRA claim against CIG. However, because it is not clear that Plaintiff cannot

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do so, the Court will grant him leave to amend.
If Plaintiff chooses to amend his FCRA claim, he shall allege with specificity what

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reporting is attributable to each defendant and shall attach a copy of each report or allege the

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contents of the offending trade lines verbatim. Failure to do so will be deemed an admission that

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Plaintiff is incapable of pleading specific facts giving rise to liability under the FCRA.

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VI.

ORDER
(1)

The motions to dismiss brought by Defendants CIG and Wells Fargo are
GRANTED WITH LEAVE TO AMEND as to Plaintiff’s FCRA claim; the Court
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declines to address Plaintiff’s CCRAA claim unless and until Plaintiff states a

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viable federal claim;

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(2)

Leave to amend is limited to the FCRA claim discussed in this order and the related

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CCRAA claim; Plaintiff may not add new claims or parties without express leave

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of the Court;

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(3)

Any amended pleading shall be filed on or before May 9, 2017; and

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(5)

Failure to meet the May 9 deadline to file an amended complaint or failure to cure

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the deficiencies identified in this Order will result in a dismissal of Plaintiff’s

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claims with prejudice.

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United States District Court
Northern District of California

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Dated: April 18, 2017
______________________________________
BETH LABSON FREEMAN
United States District Judge

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