Yolda v. Discover Bank et al

Filing 85

ORDER; Defendant's Motion to Dismiss 62 is DENIED as to Count One and GRANTED as to Counts Five and Seven. Signed by Judge Janet Bond Arterton on 7/13/2015. (Morril, Gregory)

UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
JOHN YOLDA,
Plaintiff,
v.
BANK OF AMERICA, N.A. &
CHASE BANK USA, N.A.,
Defendants.1

Civil No. 3:14cv788 (JBA)

July 13, 2015

RULING ON DEFENDANT’S MOTION TO DISMISS
Defendant Chase Bank USA, N.A. (“Chase”) moves [Doc. # 62] to dismiss
Plaintiff John Yolda’s Amended Complaint [Doc. # 51] alleging a violation of the Fair
Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681 et seq. (Count One); defamation of
credit (Count Five); and a violation of the Connecticut Unfair Trade Practices Act
(“CUTPA”), Conn. Gen. Stat. § 42-110b et seq. (Count Seven). For the reasons that
follow, Defendant’s motion is denied as to Count One and granted as to Counts Five and
Seven.
I.

Facts Alleged
The Amended Complaint alleges that Mr. Yolda “was the member and operator

of” State Line Transport, LLC (“State Line”), a limited liability company, until April 2013
during which time a representative from Defendant Chase called him to solicit State Line
to open a credit card business account. (Am. Compl. ¶¶ 12, 31.) On behalf of State Line,
Plaintiff “applied for [a] credit card[] from [Defendant] solely in the name of State Line . .

1

The Clerk is requested to amend the caption as shown above to reflect the
dismissal of Defendants CitiBank, Discover, Transunion, Experian and Equifax. (See Note
2 infra.)

. [and] did not apply for the credit cards in his personal name or using his social security
number.” (Id. ¶ 31 (emphasis in original).) In connection with this application, Mr. Yolda
provided State Line’s employer identification number rather than his social security
number and specified to the representative from Chase that he would not personally
guarantee the line of credit. (Id. ¶¶ 15, 19, 33.)
State Line made every payment on the credit card until April 2013 when it ceased
operations and was unable to continue payments. When the account defaulted, Chase
reported to the three major credit bureaus (also known as “credit reporting agencies”),
Transunion, Experian and Equifax, “that Yolda had personally defaulted on payments,
which was untrue.” (Id. ¶ 20.) Mr. Yolda disputed this report with Chase both directly
and through the credit agencies and demanded that it correct its “improper and
erroneous negative credit reports,” but Chase refused to do so. (Id. ¶¶ 25, 29–30.) Because
Plaintiff alleges that he was not personally liable and Chase refused to correct its report to
reflect this fact, Plaintiff alleges “[u]pon information and belief” that Chase must have
failed to properly investigate his dispute, as it was required to do under the FCRA. (Id.
¶¶ 20, 31.) Plaintiff claims that as a result of Chase’s negligent or willful conduct, his

2

personal credit and ability to borrow have been damaged, resulting in monetary loss and
emotional distress. (Id. ¶¶ 23, 38.)2
II.

Discussion3
Defendant contends that Plaintiff has failed to allege that it breached any of its

statutory obligations under the FCRA and that the state law claims are preempted by the
FCRA.
A.

The Fair Credit Reporting Act

Under the FCRA, when a “furnisher[] of information” to a consumer credit
reporting agency receives notice from a credit reporting agency that a consumer has
disputed the accuracy of such information, the furnisher must:
(A) conduct an investigation with respect to the disputed information; (B)
review all relevant information provided by the consumer reporting
2

The Amended Complaint asserts claims against Chase for violations of the
FCRA, 15 U.S.C. § 1681s–2(b) (Count One); defamation of credit (Count Five); and a
violation of CUTPA (Count Seven). Mr. Yolda asserted identical claims against Discover
Bank, Bank of America, and CitiBank for issuing State Line credit cards and then
reporting its unpaid debts as Mr. Yolda’s personal obligations. Bank of America has not
moved to dismiss the complaint and Plaintiff has stipulated to the dismissal of his claims
against CitiBank and Discover as well as the credit bureaus Transunion, Experian and
Equifax. (See Doc. ## 58, 66, 70, 74, 84.)
3

“To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
(2007)). Detailed allegations are not required but a claim will be found facially plausible
only if “the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Id. However, “a
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do. Factual allegations must be enough to raise a right to relief above the
speculative level.” Twombly, 550 U.S. at 555 (alterations in original).
3

agency . . .; (C) report the results of the investigation to the consumer
reporting agency; (D) if the investigation finds that the information is
incomplete or inaccurate, report those results to . . . [the] consumer
reporting agencies; and (E) if an item of information disputed . . . is found
to be inaccurate or incomplete . . . [the furnisher must] modify . . . delete
. . . or permanently block the reporting of that item of information.
15 U.S.C. § 1681s-2(b).
This investigation must be performed by a credit furnisher within 30 days after a
credit reporting agency receives a notice of a disputed credit report from a consumer. Id.
§§ 1681s-2(b)(2), 1681i(a)(1). The FCRA provides a private right of action against credit
furnishers only if they willfully or negligently violate § 1681s-2(b). See 15 U.S.C. § 1681s2(c).4
While the Second Circuit has not yet defined the extent to which a furnisher is
obligated to investigate a consumer dispute in order to avoid liability under § 1681s-2(b),
courts within and outside of this Circuit have consistently applied a reasonableness
standard for judging the adequacy of the investigation under the circumstances. See
Okocha v. HSBC Bank USA, N.A., 700 F. Supp. 2d 369, 374 & n.11 (S.D.N.Y. 2010)

4

The Amended Complaint also alleges that Chase failed to (1) “respond[] to
Plaintiff’s disputes by providing evidence of the alleged debt” (Am. Compl. ¶ 32); (2)
provide “requested copies of his credit card application” (id.. ¶ 33); (3) to “provide notice
of Plaintiff’s dispute to the credit bureaus” (id.. ¶ 34); (4) provide to Plaintiff “the results
of an investigation” or “statement or explanation of why they did not honor his dispute”
(id.. ¶¶ 31, 35); and (5) “notif[y] Plaintiff of any determination that Plaintiff’s dispute is
frivolous within . . . 5 days” (id. ¶ 36). At oral argument, Plaintiff acknowledged that he
could only assert a claim against Chase under the FCRA for an inadequate investigation
and explained that these other assertions were intended to provide factual detail to
support an inference that Chase’s investigation was unreasonable. (See also Pl.’s Opp’n
[Doc. # 64] at 4–5 (contending only that the FCRA required Defendant to undertake an
adequate investigation).)
4

(collecting cases); Johnson v. MBNA Am. Bank, NA, 357 F.3d 426, 430–31 & n.2 (4th Cir.
2004) (“It would make little sense to conclude that, in creating a system intended to give
consumers a means to dispute—and, ultimately, correct—inaccurate information on their
credit reports, Congress used the term ‘investigation’ to include superficial, un reasonable
inquiries by creditors. We therefore hold that § 1681s–2(b)(1) requires creditors, after
receiving notice of a consumer dispute from a credit reporting agency, to conduct a
reasonable investigation of their records to determine whether the disputed information
can be verified.” (internal citations omitted)).
Defendant maintains that Plaintiff has failed to allege a violation of the FCRA
because the statute only required Chase to investigate Plaintiff’s dispute regarding his
credit report and Plaintiff has not alleged facts to support his allegation that “[u]pon
information and belief” it failed to do so reasonably. (Def. Mem. Supp. [Doc. # 63] at 6.)
Rather, Defendant maintains that Plaintiff has pled “nothing more than conclusory
allegations [of] Plaintiff’s (a) subjective belief that he is not personally liable for the
Account because Plaintiff opened the account in State Line’s name, and (b) general
disagreement with the results of Chase’s investigation, which determined that the
information was being reported correctly and no changes were needed.” (Id.)
Notwithstanding Defendant’s characterization, the Amended Complaint contains
sufficient factual detail to support a plausible inference that Chase’s investigation of Mr.
Yolda’s dispute was unreasonable. It alleges that Plaintiff “was not personally liable for
the debts incurred on” on State Line’s credit card with Chase (Am. Compl. ¶ 19) because,
when he applied for the card, Mr. Yolda “specifically informed the solicitors that he was
not interested in obtaining a credit card that he would have to personally guarantee” (id.
5

¶ 31) and applied for the card “solely in the name of State Line” using its employer
identification number rather than his own social security number (id. ¶¶ 14–15).
Accepting these allegations as true and drawing all reasonable inferences in Plaintiff’s
favor—as the Court must on a motion to dismiss—it is reasonably inferable that Chase
“failed to properly investigate Yolda’s disputes concerning his personal liability for the
alleged debts” (id. ¶ 31) because, if it had done so, it would not “have refused to correct
[its] improper and erroneous negative credit report[]” (id. ¶ 25).5 Therefore, Defendant’s
motion is denied as to Count One.
B.

Preemption under the FCRA (Counts Five and Seven)

Defendant next contends that Plaintiff’s remaining state law claims are preempted
by the FCRA, which provides that “[n]o requirement or prohibition may be imposed
under the laws of any State . . . with respect to any subject matter regulated under . . .
section 1681s-2 of this title, relating to the responsibilities of persons who furnish
information to consumer reporting agencies.” 15 U.S.C. § 1681t(b)(1)(F). This
5

At oral argument, Defendant maintained that after Plaintiff initiated this action,
it provided him with a copy of the credit card agreement that it maintains shows that Mr.
Yolda is in fact personally liable on State Line’s account and as a result Plaintiff dropped
claims against it under the Fair Debt Collection Practices Act, 15 U.S.C. § 1692 et seq., for
its attempt to collect the debt from Mr. Yolda (Compl. [Doc. # 1] ¶ 43), leaving only a
claim that Chase reported false information to the credit bureaus (Am. Compl. ¶ 20) and
failed to conduct an adequate investigation after Plaintiff disputed this information (id.
¶ 31). While the Court could consider documents attached to a complaint on a motion to
dismiss under Rule 12(b)(6), see Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d
Cir. 2002); Fed. R. Civ. P. 10(c), and would not accept as true allegations of the complaint
that were contradicted by such documents, see Feick v. Fleener, 653 F.2d 69, 75 (2d Cir.
1981), neither party has attached the credit agreement and thus the Court can only
consider, and must accept as true, the Amended Complaint’s allegations of the
agreement’s terms and verbal representations regarding Plaintiff’s personal liability.
6

preemption provision applies to both state statutory and common law. See Premium
Mortgage Corp. v. Equifax, Inc., 583 F.3d 103, 106 (2d Cir. 2009) (“Plaintiff’s distinction
between statutory and common-law claims under this section of the FCRA’s express
preemption provision is . . . unpersuasive.”).
Plaintiff maintains that his state law claims are not preempted because they “do
not concern conduct regulated under § 1681s-2.” (Pl.’s Opp’n [Doc. # 64-1] at 7.) He
reasons that the preemption provision creates a “temporal” distinction, because, as
discussed above, § 1681s-2(b) imposes an obligation on a furnisher of information to
conduct an investigation only after it is notified by a credit agency of a consumer dispute.
Thus, Plaintiff reasons, there is “no preemption under § 1681t(b)(1)(F)[] until after the
furnisher of information to a credit reporting agency has received notice of an inaccuracy
contained in a credit report.” (Pl’s Opp’n at 7 (emphasis in original).)
Plaintiff’s interpretation is inconsistent with the statutory text, which does not
limit preemption to claims under § 1681s-2(b), but rather is a “broadly-sweeping
preemption” provision, Macpherson v. JPMorgan Chase Bank, N.A., 665 F.3d 45, 48 (2d
Cir. 2011), that refers to the “subject matter regulated,” 15 U.S.C. § 1681t(b)(1)(F).
Plaintiff’s argument thus fails to account for § 1681s-2(a), which applies before a
furnisher has received notice from a credit bureau of a consumer dispute and provides
that the furnisher “shall not furnish any information relating to a consumer to any
consumer reporting agency if the person knows or has reasonable cause to believe that
the information is inaccurate.” 15 U.S.C. § 1681s-2(a)(1)(A). While there is no private

7

right of action under this provision, see 15 U.S.C. § 1681s-2(c)(1),6 the statutory text does
not make preemption dependent upon the enforcement mechanism but rather whether
the claims falls within the “subject matter regulated under . . . section 1681s–2,” 15 U.S.C.
§ 1681t(b)(1)(F).
In Macpherson, the Second Circuit held that § 1681t(b)(1)(F) preempted state
common law claims for defamation and intentional infliction of emotional distress where
the plaintiff alleged that “Chase willfully and maliciously provided false information
about [the plaintiff’s] finances to Equifax, a consumer credit reporting agency,” which
“reduced his credit score, to his detriment.” 665 F.3d at 46. Such claims thus related to
inaccurate reporting of information to a credit agency, which is within the ambit of
§ 1681s-2(a). Id.; Macpherson v. JP Morgan Chase Bank, N.A., No. 3:09CV1774 (AWT),
2010 WL 3081278, at *4 & n.5–6 (D. Conn. Aug. 5, 2010). Therefore the plain text of
§ 1681t(b)(1)(F) and the Second Circuit’s holding in Macpherson foreclose Plaintiff’s
attempt to limit the preemptive scope of the FCRA to conduct prohibited by § 1681s–
2(b). See also Claude v. Wells Fargo Home Mortgage, No. 3:13-CV-00535 VLB, 2014 WL
4073215, at *8 (D. Conn. Aug. 14, 2014) (“[T]he Fair Credit Reporting Act, 15 U.S.C.
§ 1681t(b)(1)(F), contains an ‘absolute immunity provision’ that bars and preempts state
law claims against ‘furnishers of information’ like Wells Fargo for allegedly providing

6

Enforcement of § 1681s-2(a) is limited to federal and state agencies. See 15
U.S.C. § 1681s-2(d); see also Purcell v. Bank of Am., 659 F.3d 622, 623 (7th Cir. 2011);
Kane v. Guar. Residential Lending, Inc., No. 04-CV-4847 (ERK), 2005 WL 1153623, at *4
(E.D.N.Y. May 16, 2005).
8

inaccurate information to consumer credit reporting agencies.”).7 Therefore, Counts Five
and Seven are preempted and must be dismissed.
III.

Conclusion
For the reasons discussed above, Defendant’s Motion to Dismiss [Doc # 62] is

DENIED as to Count One, and GRANTED as to Counts Five and Seven.

IT IS SO ORDERED.
/s/
Janet Bond Arterton, U.S.D.J.

Dated at New Haven, Connecticut this 13th day of July, 2015.

7

In support of the temporal approach, Plaintiff cites Ryder v. Washington Mut.
Bank, FA, 371 F. Supp. 2d 152 (D. Conn. 2005), a pre-Macpherson case. While Plaintiff
contends that Ryder’s “approach is not inconsistent with the Second Circuit’s decision in
Macpherson” (Pl.’s Opp’n at 7 n.5), Ryder reasoned that to read § 1681t(b)(1)(F) as
imposing total preemption would improperly render “superfluous” an earlier-enacted
preemption provision, § 1681h(e), applying to “defamation, invasion of privacy, or
negligence with respect to the reporting of information against . . . any person who
furnishes information to a consumer . . . except as to false information furnished with
malice or willful intent to injure such consumer,” 371 F. Supp. 2d at 154. The Second
Circuit rejected this logic in Macpherson, holding that the two preemption provisions
were “not in conflict” because “the operative language in § 1681h(e) provides only that
the provision does not preempt a certain narrow class of state law claims; it does not
prevent the later-enacted § 1681t(b)(1)(F) from accomplishing a more broadly-sweeping
preemption.” 665 F.3d at 48.
9