Lugo v. Experian Information Solutions, Inc. et al

Filing 79

ORDER granting 71 Motion to Dismiss. Any amended complaint must be filed on or before 9/6/2017. The hearing scheduled for 8/24/2017 is VACATED. Signed by Judge Edward J. Davila on 8/22/2017. (ejdlc1S, COURT STAFF) (Filed on 8/22/2017)

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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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MARTHA LUGO,

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Case No. 5:16-cv-04647-EJD

Plaintiff,
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ORDER GRANTING DEFENDANT’S
MOTION TO DISMISS

v.
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EXPERIAN INFORMATION SOLUTIONS,
INC., et al.,

United States District Court
Northern District of California

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Re: Dkt. No. 71

Defendants.

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Plaintiff Martha Lugo (“Plaintiff”) has re-pled a previously dismissed cause of action

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under the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. §§ 1681i(a), against Defendant

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Experian Information Solutions, Inc. (“Experian”) in a Second Amended Complaint (“SAC”).

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And as before, Experian moves to dismiss the cause of action under Federal Rule of Civil

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Procedure 12(b)(6). Dkt. No. 71.

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Federal jurisdiction arises pursuant to 28 U.S.C. § 1331, and the court finds this matter

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suitable for decision without oral argument. Civ. L.R. 7-1(b). After reviewing the amended

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allegations, the court has determined the SAC still does not state a plausible FCRA claim against

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Experian. Thus, Experian’s Motion to Dismiss will be granted for the reasons explained below.

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I.

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FACTUAL AND PROCEDURAL BACKGROUND
The basic factual allegations remain largely unchanged from the prior version of the

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complaint. Plaintiff alleges she filed for Chapter 13 bankruptcy protection on January 23, 2012,

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“in order to reorganize and repair” her credit-worthiness and FICO Score.1 SAC, Dkt. No. 68, at ¶

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Plaintiff explains that a FICO Score consists of a three-digit number summarizing a consumer’s
credit risk. SAC, at ¶ 23.
Case No.: 5:16-cv-04647-EJD
ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
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94. The bankruptcy court confirmed a reorganization plan on March 21, 2012, which Plaintiff

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alleges allowed creditors a 0.64% disbursement of their filed claims. Id. at ¶¶ 97, 98. Plaintiff

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received a discharge on February 20, 2015. Id. at ¶ 100.
Over a year later, on April 15, 2016, Plaintiff alleges she ordered a “three bureau report

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from [Experian] to ensure proper reporting” by her creditors. Id. at ¶ 101. She was “dismayed” to

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learn that her credit scores were below 600 “despite being four years removed from filing Chapter

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13.” Id.
Plaintiff also noticed “5 different trade lines” on her credit report which purportedly

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contained inaccurate, misleading, or incomplete information “that did not comport with credit
reporting industry standards.” Id. at ¶ 102. For example, Plaintiff alleges one of her creditors, TD

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Northern District of California

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Bank USA, National Association, reported her account beginning in 4352 as “charged off” even

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though it was discharged as part of Plaintiff’s bankruptcy. Id. at ¶ 111. In addition, Plaintiff

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alleges that “[f]or the entire duration of Plaintiff’s Chapter 13 TD Bank failed to update the

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[Consumer Information Indicator or “CII”] to D and also failed to list the CII H upon discharge.”

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Id.2
Plaintiff alleges she disputed TD Bank’s inaccurate trade line by certified mail with

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Experian, Equifax, Inc. and TransUnion, LLC on June 23, 2016, and believes that these credit

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reporting agencies (“CRAs”) sent her dispute to TD Bank through an “automated credit dispute

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verification,” or “ACDV,” known as “e-OSCAR.” Id. at ¶¶ 103, 108. Plaintiff then ordered a

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second “three bureau report from Equifax” to ensure that her accounts had been updated. Id. at ¶

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109. Plaintiff alleges that TD Bank has refused to update the inaccurate trade line. Id. at ¶ 113.

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She also alleges Experian failed to send all relevant information to furnishers. Id. at ¶ 134.
Plaintiff initiated the instant action on August 12, 2016, and filed a FAC on October 16,

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Like the FAC, the SAC explains that the Consumer Data Industry Association has “adopted a
standard electronic data reporting format called the Metro 2 format.” SAC, at ¶ 39. A CII is “a
critical field within the Metro 2 Format that indicates a special condition that applied to a specific
consumer.” Id. at ¶ 56. A CII code of “D” indicates that a Chapter 13 bankruptcy petition has
been filed and is active, but no discharge has been entered. Id. at ¶ 60. A CII code of “H” denotes
that a Chapter 13 bankruptcy has been discharged. Id. at ¶ 63.
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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
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2016. Dkt. No. 24. The court granted motions to dismiss that pleading on May 19, 2017. Dkt.

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No. 67. Plaintiff then filed the SAC and this motion followed.

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II.

LEGAL STANDARD
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

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

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The factual allegations in the complaint “must be enough to raise a right to relief above the

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speculative level” such that the claim “is plausible on its face.” Id. at 556-57. A complaint that

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falls short of the Rule 8(a) standard may be dismissed if it fails to state a claim upon which relief
can be granted. Fed. R. Civ. P. 12(b)(6). “Dismissal under Rule 12(b)(6) is appropriate only

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Northern District of California

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

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legal theory.” Mendiondo v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, 1104 (9th Cir. 2008).
When deciding whether to grant a motion to dismiss, the court must generally accept as

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true all “well-pleaded factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). The court

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must also construe the alleged facts in the light most favorable to the plaintiff. See Retail Prop.

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Trust v. United Bhd. of Carpenters & Joiners of Am., 768 F.3d 938, 945 (9th Cir. 2014)

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(providing the court must “draw all reasonable inferences in favor of the nonmoving party” for a

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Rule 12(b)(6) motion). However, “courts are not bound to accept as true a legal conclusion

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couched as a factual allegation.” Iqbal, 556 U.S. at 678.
Also, the court usually does not consider any material beyond the pleadings for a Rule

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12(b)(6) analysis. Hal Roach Studios, Inc. v. Richard Feiner & Co., 896 F.2d 1542, 1555 n. 19

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(9th Cir. 1990). Exceptions to this rule include material submitted as part of the complaint or

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relied upon in the complaint, and material subject to judicial notice. See Lee v. City of Los

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Angeles, 250 F.3d 668, 688-69 (9th Cir. 2001).

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III.

DISCUSSION

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A.

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“Congress enacted FCRA in 1970 to ensure fair and accurate credit reporting, promote

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Statutory Authority

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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
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efficiency in the banking system, and protect consumer privacy.” Safeco Inc. Co. of Am. v. Burr,

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551 U.S. 47, 52 (2007). The statutory scheme imposes obligations on both furnishers of credit

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information and on CRAs, like Experian. It also “expressly creates a private right of action for

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willful or negligent noncompliance with its requirements.” Gorman v. Wolpoff & Abramson,

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LLP, 584 F.3d 1147, 1154 (9th Cir. 20009) (citing 15 U.S.C. §§ 1681n, 1681o).

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As to CRAs, § 1681i(a)(1)(A) provides:

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[I]f the completeness or accuracy of any item of information
contained in a consumer’s file at a consumer reporting agency is
disputed by the consumer and the consumer notifies the agency
directly, or indirectly through a reseller, of such dispute, the agency
shall, free of charge, conduct a reasonable reinvestigation to
determine whether the disputed information is inaccurate and record
the current status of the disputed information, or delete the item
from the file in accordance with paragraph (5), before the end of the
30-day period beginning on the date on which the agency receives
the notice of the dispute from the consumer or reseller.

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Northern District of California

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In connection with a “reasonable investigation,” the CRA must also promptly notify the

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furnisher of a consumer’s dispute and must provide the furnisher with all relevant information

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received from the consumer. 15 U.S.C. § 1681i(a)(2). Thus, Plaintiff must establish the following

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elements to state a plausible claim against Experian under § 1681i: “(1) [her] credit files contained

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inaccurate or incomplete information; (2) [she] directly notified Defendant of the inaccuracy; (3)

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the dispute is not frivolous or irrelevant; (4) Defendant failed to respond to the dispute; and (5)

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Defendant’s failure to reinvestigate caused Plaintiff to suffer actual damages.” Taylor v. First

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Advantage Background Servs. Corp., 207 F. Supp. 3d 1095, 1103 (N.D. Cal. 2016).

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B.

Application
i.

Inaccurate Information

As before, Experian argues Plaintiff failed to allege her credit report contained inaccurate

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or misleading information with respect to her account with TD Bank. More specifically, Experian

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argues its reporting of Plaintiff’s TD Bank account as “charged off” with a zero balance and zero

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past due balance, as opposed to “discharged” in bankruptcy, is not misleading because the

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“charged off” status does not suggest the account is the subject of ongoing collection attempts.

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Case No.: 5:16-cv-04647-EJD
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Keeping fidelity to the FCRA, the court finds otherwise.
The FCRA’s statement of purpose provides that “[i]naccurate credit reports directly impair

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the efficiency of the banking system, and unfair credit reporting methods undermine the public

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confidence which is essential to the continued functioning of the banking system.” 15 U.S.C. §

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1681(a)(1). It also recognizes that CRAs have “assumed a vital role” in the banking system, and

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their “grave responsibilities” must be exercised with “fairness, impartiality, and a respect for the

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consumer’s right to privacy.” 15 U.S.C. § 1681(a)(3), (a)(4).

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It is under the lens of the FCRA’s purpose that Plaintiff’s allegations and the instant

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arguments must be examined. To satisfy the first element of a § 1681i claim against Experian, the
FCRA requires Plaintiff to show her credit report contained an inaccuracy, either because the

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Northern District of California

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information “‘is patently incorrect, or because it is misleading in such a way and to such an extent

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that it can be expected to adversely affect credit decisions.’” Gorman, 584 F.3d at 1163 (quoting

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Sepulvado v. CSC Credit Servs., Inc., 158 F.3d 890, 895 (5th Cir. 1998)). Here, Plaintiff alleges

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her Experian credit report showed an account with TD Bank was “charged off” rather discharged

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during her bankruptcy proceedings,3 and that such reporting “alerts the lending world that Plaintiff

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has an outstanding debt that still exists and is still collectable against Plaintiff personally.” SAC,

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at ¶¶ 111, 118. Plaintiff also alleges that reporting the accounts as “charged off” allows lenders to

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“draw a more negative inference” and see her as a higher credit risk. Id. at ¶ 119.
Construing the SAC in Plaintiff’s favor, the court finds she has plausibly alleged an

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inaccuracy on her credit report that was “patently incorrect.” As opposed to the FAC, the SAC

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explains how an erroneous notation of “charged off” could undermine public confidence in the

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correctness of financial information, as well as how Experian may have failed to fairly exercise its

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“grave” responsibility with respect to consumer financial information. The SAC’s inaccuracy

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allegations are therefore consistent with the FCRA’s purpose. See Nelson v. Chase Manhattan

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This allegation is confirmed by Plaintiff’s credit report, which Experian submitted and which the
court has reviewed as a document upon which the SAC necessarily relies. See United States ex
rel. Lee v. Corinthian Colleges, 655 F.3d 984, 999 (9th Cir. 2011).
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Mortg. Corp., 282 F.3d 1057 (9th Cir. 2002) (holding that “a primary purpose” of the FCRA is “to

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protect consumers against inaccurate and incomplete credit reporting”).

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For its part, Experian does not contend the reporting of Plaintiff’s TD Bank account was

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accurate; instead, it argues the erroneous classification is not misleading under the FCRA because

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it does not suggest ongoing collection attempts and could not affect credit decisions. But

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Experian’s interpretation of the SAC is beside the point when it comes to pleading an inaccuracy,

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particularly since the facts at this stage must be considered in the light most favorable to Plaintiff,

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not to Experian.

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Northern District of California

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Accordingly, the court finds that Plaintiff has satisfied her obligation to plausibly allege an
inaccuracy on her credit report.
ii.

Damages

Plaintiff is pursuing statutory, actual and punitive damages. Experian argues the SAC’s
allegations are insufficient to support any form of damages. Experian is correct.
a. Willfulness
The FCRA permits a plaintiff to recover either statutory or actual damages, as well as

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punitive damages, for willful violations of its requirements. 15 U.S.C. § 1681n(a). “The Supreme

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Court has clarified that, under Section 1681n, willfulness reaches actions taken in ‘reckless

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disregard of statutory duty,’ in addition to actions ‘known to violate the Act.’” Syed v. M-I, LLC,

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853 F.3d 492, 503 (9th Cir. 2017) (quoting Safeco, 551 U.S. at 56-57). “[W]illfulness or

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recklessness is a higher standard” than negligence. Collins v. Experian Info. Sols., Inc., 775 F.3d

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1330, 1336 (11th Cir. 2015). “A party does not act in reckless disregard of the FCRA ‘unless the

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action is not only a violation under a reasonable reading of the statute’s terms, but shows that the

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company ran a risk of violating the law substantially greater than the risk associated with a reading

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that was merely careless.” Syed, 853 F.3d at 503. The court may resolve a question of willfulness

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as a matter of law. Id.

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Plaintiff’s federal claim against Experian arises under § 1681i(a), which requires a CRA to

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conduct a “reasonable reinvestigation” to determine whether disputed information is accurate by

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providing notification of the dispute to the furnishers of credit information, along with relevant

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information received by the consumer. The Ninth Circuit has observed the “reasonable

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reinvestigation” contemplated by § 1681i(a) “consists largely of triggering the investigation by the

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furnisher.” Gorman, 584 F.3d at 1156. Indeed, CRAs “simply collect and report information

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furnished by others.” Carvalho v. Equifax Info. Servs., LLC, 615 F.3d 1217, 1232 (9th Cir. 2010).

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They are not tribunals, and are not equipped to adjudicate disputes between consumers and the

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furnishers of credit information. Id.

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Here, Plaintiff alleges Experian’s conduct was willful because it has “instituted reckless
policies and procedures and make inaccuracies inevitable.” SAC, at ¶ 154. Plaintiff explains that
Experian does not properly train its employees “on credit reporting industry standards,” but

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Northern District of California

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expects employees to “rubber stamp” information provided by furnishers. Id. at ¶ 155. Plaintiff

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further alleges that Experian’s reinvestigations are cursory, and that it “hires employees overseas

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in an effort to hide and or frustrate consumers’ ability to actually confront the individual most

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responsible for investigating” disputes. Id. at ¶¶156, 157.

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These allegations do not plausibly describe reckless disregard of the FCRA because

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Plaintiff’s theory plainly seeks to impose obligations on Experian to which the language of §

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1681i(a) is not susceptible, and for which there is no authoritative support from a court of appeals.

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See Syed, 853 F3d at 503-504. Under a reasonable reading of its terms, § 1681i(a) does not

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impose particular training on or adherence to industry standards, does not require that employees

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be available for confrontation, and does not imply that CRAs must adjudicate the truthfulness of

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information provided by furnishers. Moreover, other allegations in the SAC imply that Experian

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actually assumed the obligation to notify furnishers in the manner contemplated by § 1681i(a).

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SAC, at ¶¶ 103, 108. Though Plaintiff also alleges Experian failed to provide all necessary

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information in its notice to furnishers, the court need not accept this unadorned assertion without

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facts disclosing exactly what information Plaintiff believes was excluded.

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Therefore, the court finds the SAC does not disclose a willful violation of the FCRA as a

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matter of law.

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b. Negligence
A consumer may recover actual damages for negligent noncompliance with the FCRA. 15

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U.S.C. § 1681o(a)(1). To do so, “Plaintiff must plead and prove actual damages resulting from
Experian’s violation of the FCRA.” Harris v. Experian Info. Sols., Inc., No. 16-cv-02162-BLF,

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2017 WL 1354778, at *8, 2017 U.S. Dist. LEXIS 57119 (N.D. Cal. Apr. 13, 2017).
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Plaintiff identifies the following actual damages in the SAC: (1) emotional distress
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Northern District of California

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including “anxiety and frustration” over Experian’s refusal to update her accounts, (2) diminished
credit, and (3) “the cost of pulling the credit report at issue for the sole purpose of verifying
accuracy” subsequent to the dispute process. SAC, at ¶ 160. Plaintiff also indicates in opposition
to Experian’s motion that she paid counsel to “to reorganize and repair [her] credit under Chapter
13,” but has yet to receive the benefit of this bargain.
The first two types of damages are not sufficiently pled. Plaintiff’s claim of emotional

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distress, anxiety and frustration is nothing more than a naked assertion; the SAC does not explain
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how Experian’s purported violation of its duties under § 1681i(a) caused Plaintiff emotional

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distress. No one in a position to distress Plaintiff is alleged to have known about the inaccuracy
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on her credit report, and Plaintiff has not produced authority standing for the possibility of
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emotional distress damages under the FCRA when only the consumer is aware of an error.
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The same is true of the allegation of diminished credit. The are no plausible allegations in
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the SAC explaining how Experian’s conduct resulted in diminished credit that actually harmed

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Plaintiff, either because she was denied credit, lost credit, paid higher interest rates, or something
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else. And as another court has observed, Plaintiff’s allegations do not show “it was defendants’
assertedly inaccurate reporting, rather than plaintiffs’ bankruptcy filing or other event, that

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resulted in any lowered credit score.” Jugoz v. Experian Info. Sols., Inc., No. 16-cv-05687-MMC,
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2017 WL 2720184, at *6, 2017 U.S. Dist. LEXIS 97656 (N.D. Cal. June 23, 2017). The SAC
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offers no facts to exclude the bankruptcy as an obvious and alternative explanation for Plaintiff’s
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reduced credit score. See Eclectic Props. E., LLC v. Marcus & Millichap Co., 751 F.3d 990, 996
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(9th Cir. 2014) (holding that when considering plausibility, courts must also consider an “obvious

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ORDER GRANTING DEFENDANT’S MOTION TO DISMISS
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alternative explanation”).
The last two types of damages are not recoverable in this context. The cost of obtaining

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another credit report to verify the accuracy of information does not flow from Experian’s conduct

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since Plaintiff’s allegations specify she would have incurred that cost no matter what the

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verification showed, and whether she sued Experian or not. Similarly, credit repair costs incurred

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by Plaintiff prior to notifying Experian cannot result from a violation of § 1681i(a) because

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Experian’s reinvestigation duties were not triggered until Plaintiff sent her dispute. And to the

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extent Plaintiff relies on them as a form of damages, the court notes that attorneys fees and costs

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attributable to a successful FCRA claim are recoverable by statute rather than contemplated as

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compensatory damages. 15 U.S.C. § 1681o(a)(2).

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Northern District of California

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In sum, the SAC’s damages allegations are not plausibly pled.

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C.

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The court must now determine whether Plaintiff should be permitted leave to file a third

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amended complaint against Experian. “[A] district court should grant leave to amend even if no

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request to amend the pleading was made, unless it determines that the pleading could not possibly

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be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000).

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However, “[a] district court may deny leave to amend when amendment would be futile.”

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Hartmann v. Cal. Dep’t of Corr. & Rehab., 707 F.3d 1114, 1129-30 (9th Cir. 2013).

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Leave to Amend

The SAC’s deficient damages allegations for a § 1681i(a) claim against Experian lead to a

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mixed result. On the one hand, allowing leave to amend the willfulness allegations, or the

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allegations claiming costs for a verifying credit report and for pre-notification legal services would

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be futile. There are no further facts that would permit the recovery of those forms of damages in

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this action.

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But on the other, futility does not preclude leave to amend allegations of emotional distress

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and diminished credit. The court cannot yet find these allegations incapable of being remedied by

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amendment.

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Consequently, the court will allow Plaintiff an opportunity to amend her damages
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allegations against Experian, but only as to her claims of emotional distress and diminished credit

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under a negligence theory.

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IV.

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ORDER
Based on the foregoing, Experian’s Motion to Dismiss (Dkt. No. 71) is GRANTED. The

FCRA claim asserted against Experian is DISMISSED WITH LEAVE TO AMEND.
Any amended complaint must be filed on or before September 6, 2017, and must be

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consistent with this order. Plaintiff should observe in light of the preceding discussion that the

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scope of leave to amend is limited.

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Plaintiff is advised the FCRA claim against Experian will be dismissed with prejudice for
failure to prosecute under Federal Rule of Civil Procedure 41(b) if an amended complaint is not

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Northern District of California

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filed by the deadline. If that occurs, this action will proceed on the remaining claims asserted in

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the SAC, with that document as the operative pleading.

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The hearing scheduled for August 24, 2017, is VACATED.

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IT IS SO ORDERED.
Dated: August 22, 2017
______________________________________
EDWARD J. DAVILA
United States District Judge

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