Gallaher et al v. US Bank Natl Assn et al
Filing
35
ORDER granting in part and denying in part Defendants' 18 Motion to Dismiss. See attached Memorandum of Decision. The parties shall file their Rule 26(f) Report on or before 4/5/2016. Signed by Judge Vanessa L. Bryant on 3/22/2016. (Nadler, S.)
UNITED STATES DISTRICT COURT
DISTRICT OF CONNECTICUT
JEFFREY GALLAHER AND ROSA
GALLAHER
Plaintiffs,
:
:
:
:
v.
:
:
US BANK NATIONAL ASSOCIATION, :
WELLS FARGO BANK, AND
:
AMERICAN SERVICING COMPANY, :
Defendants.
:
CIVIL ACTION NO.
3:14-cv-1877 (VLB)
March 22, 2016
MEMORANDUM OF DECISION GRANTING AND DENYING IN PART DEFENDANTS’
MOTION TO DISMISS [Dkt. #19]
Plaintiffs Jeffrey and Rosa Gallaher (the “Gallahers”), proceeding pro se,
bring claims under the Fair Debt Collection Practices Act (“FDCPA”), 15 U.S.C. §
1692, et seq., the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681, et seq., the
Connecticut Consumer Collection Agency Act (“CCCAA”), Conn. Gen. Stat. § 36a885, et seq., the Connecticut Unfair Trade Practices Act (“CUTPA”), Conn. Gen.
Stat. § 42-110a, et. seq., and a state law invasion of privacy claim against
Defendants US Bank, National Association (“US Bank”), Wells Fargo Bank
(“Wells Fargo”), and American Servicing Company (“ASC”).1 For the reasons that
follow, the Defendants’ Motion to Dismiss is GRANTED in part and DENIED in
part.
1
The parties agree that ASC is a division of Wells Fargo that services loans for
other investors under the ASC name. [Dkt. #17, Am. Compl. at ¶ 5; Dkt. #19,
Defs.’ Memo. at 4, n. 2]. Accordingly, the Court hereinafter refers to both Wells
Fargo and ASC as the “Wells Fargo Defendants.”
1
I.
Factual Background
A.
State Court Foreclosure Proceeding
This case is related to a state court foreclosure action in the Superior Court
for the Judicial District of Stamford/Norwalk at Stamford, Connecticut, captioned
US Bank National Association, As Trustee For the Structured Asset Investment
Loan Trust, 2006-BNC3 v. Rosa Davis Gallaher, et al., No. FSTCV106003384S (the
“Foreclosure Action”).2 In 2006, Plaintiffs borrowed $579,500.00 from BNC
Mortgage, Inc. (“BNC”) to purchase real estate. [Dkt. #19-2, Ex. B. to Defs’. Mot. at
¶ 3]. Incident to the financing, Plaintiffs executed and delivered a note in
consideration for a loan in the amount of $579,500.00 to BNC. [Id.]. In further
consideration for the loan by BNC, Plaintiffs executed a mortgage to BNC to
secure the note, which they delivered to Mortgage Electronic Registration
Systems, Inc. (“MERS”), as nominee for BNC. [Id. at ¶ 4]. At some point, the
mortgage was assigned to US Bank, National Association, as Trustee for the
Structured Asset Investment Loan Trust, 2006-BNC3 (“US BANK 2006-BNC3”).
2
The Court properly takes judicial notice of the records and pleadings in the
Foreclosure Action, as the Defendants challenge this Court’s subject matter
jurisdiction under the Rooker-Feldman doctrine and assert the defenses of res
judicata and collateral estoppel. See Makaraova v. United States, 201 F.3d 110,
113 (2d Cir. 2000) (“In resolving a motion to dismiss for lack of subject matter
jurisdiction under Rule 12(b)(1), a district court . . . may refer to evidence
outside the pleadings.”) (citation omitted); Patrowicz v. Transamerica
HomeFirst, Inc., 359 F. Supp. 2d 140, 144 (D. Conn. 2005) (“[I]n considering a res
judicata defense, a court may judicially notice prior pleadings, orders,
judgments, and other items appearing in the court records of prior litigation that
are related to the case before the Court.”); Can v. Goodrich Pump & Engine
Control Sys., Inc., 711 F. Supp. 2d 241, 246 (D. Conn. 2010) (“On a motion to
dismiss under Rule 12(b)(6), judicial notice may be taken of other judicial
documents that might provide the basis for issue preclusion.”) (citing Day v.
Moscow, 955 F.2d 807, 811 (2d Cir. 1992)).
2
[Id.]. This assignment suggests that the note and mortgage were securitized,
meaning they were sold together with other loans to create a synthetic
investment security. The assignment was to be recorded on the Stamford Land
Records. [Id.].
On or about January 21, 2010, US Bank 2006-BNC3 commenced the
Foreclosure Action, asserting that the note was in default and seeking a
foreclosure of the mortgage. [Id. at 1]. Neither of the Wells Fargo Defendants
was a party to the Foreclosure Action.3 That same day, US Bank 2006-BNC3 filed
a notice of lis pendens, which stated that the mortgage was assigned to US Bank
2006-BNC3 by virtue of an assignment of mortgage to be recorded on the
Stamford Land Records. [Id. at 9].
After the commencement of the Foreclosure Action, on April 25, 2012,
MERS assigned the mortgage to US Bank National Association, as Trustee for
Structured Asset Investment Loan Trust Mortgage Pass-Through Certificates,
Series 2006-BNC3 (“US Bank Mortgage Pass-Through”). [Dkt. #23, Ex. A to Pl.’s
Opp. at 8]. On July 5, 2013, US Bank 2006-BNC3 filed a motion to substitute US
Bank Mortgage Pass-Through as plaintiff in the foreclosure proceeding, and in
support of the motion, it attached the April 25, 2012 assignment. [Dkt. #1, Ex. A to
Compl. at 16]. On July 23, 2013, absent objection from the Gallahers, the court
granted the motion. [Dkt. #19-1, Ex. A to Defs.’ Mot. at 5]; US Bank National
3
The relationship between the Wells Fargo Defendants and Defendant US Bank
with regard to the Gallahers is presently unclear. Without support, the
Amended Complaint characterizes the Wells Fargo Defendants as
“accomplices/agents” of Defendant US Bank. [Dkt. #17, Am. Compl. at ¶ 7].
3
Association, As Trustee For the Structured Asset Investment Loan Trust, 2006BNC3 v. Rosa Davis Gallaher, et al., No. FSTCV106003384S, Dkt. No 130.86.
On November 1, 2013, Kelly Cornelious prepared an affidavit of debt on
behalf of US Bank Mortgage Pass-Through. [Dkt. #1, Ex. C to Compl. at 23]. The
affidavit stated that US Bank Mortgage Pass-Through “was in possession of the
[promissory] [n]ote prior to 1/21/2010.” [Id. at 23, ¶ 4]. As for the outstanding
balance on the mortgage, the affidavit stated that the total amount owed was
$793,950.04. [Id. at 24]. This figure included the total remaining principal amount
of $571,308.72, and unpaid interest which accrued at a rate of 7.5% between
September 1, 2009 and October 15, 2013, totaling $176,606.81. [Id.]. The original
principal amount of the mortgage was $579,500. [Id. at 23, ¶ 2].
The Superior Court conducted a foreclosure hearing, granted the plaintiff’s
motion for and entered an order of strict foreclosure on December 16, 2013,
vesting title in the property to the mortgagee upon the expiration of the law day.
[Dkt. #19-3, Ex. C to Defs.’ Mot. at 2]. The foreclosure judgment set March 11,
2014 as the first law day. [Id.]. The court also found that the mortgage debt due
and owing equaled $571,308.72, the amount averred by US Bank Mortgage PassThrough in its affidavit of debt. [Id.]. Nowhere do the Gallahers contend that this
judgment was provisional, tentative, or anything other than a final judgment on
the merits for the purposes of appeal.
The Gallagers unsuccessfully sought vacatur of the judgment of strict
foreclosure. Approximately three weeks after the Superior Court entered the
judgment, on January 29, 2014, the Gallahers filed with the foreclosure court a
4
notice of dispute of debt, pursuant to the FDCPA. See [Dkt. #1, Ex. B to Compl. at
20-21; Dkt. #23, Ex. B to Pl.’s Opp. at 11-12; Dkt. #19-1, Ex. A to Defs.’ Mot. at 6,
Dkt. No. 146.00]. In it, the Gallahers requested that US Bank Mortgage PassThrough provide “‘verification’ and debt validation as defined by 15 U.S.C. [§]
1692,” and they challenged, inter alia, “the identity of the true owner (if any) of the
alleged debt, the alleged amount due and owing . . . and [US Bank Mortgage PassThrough]’s authority and capacity to collect and or sue on behalf of the same.”
[Dkt. #1, Ex. B to Compl. at 20; Dkt. #23, Ex. B to Pl.’s Opp. at 11]. The Gallahers
also contended that the Wells Fargo Defendants (non-parties to the Foreclosure
Action) reported a mortgage debt on their consumer credit reports, which they
claimed was inaccurate, and sought an order requiring them “to delete the
inaccurate information immediately pursuant to 15 U.S.C. § 1681, et al.” [Dkt. #1,
Ex. B to Compl. at 21; Dkt. #23, Ex. B to Pl.’s Opp. at 12]. The Gallahers stated
that in the event Wells Fargo and ASC did not delete this information, they
intended to file a counterclaim for damages incurred as a result. [Id.]. In
addition, the day before the first law day, on March 10, 2014, the Gallahers filed a
motion to open judgment and extend the law day. [Dkt. #19-1, Ex. A to Defs.’ Mot.
at 6, Dkt. No. 148.00]. The following month, on April 7, 2014, US Bank Mortgage
Pass-Through filed a timely motion for deficiency judgment. [Id. at Dkt. No.
151.00]. On November 14, 2014, the Superior Court conducted a hearing on the
Plaintiffs’ motions. See [Dkt. #19-4, Ex. D to Defs.’ Mot. at 1]. On November 18,
2014, the Superior Court entered an order denying the Gallahers’ motions. [Id. at
Dkt. Nos. 146.01, 147.88, 148.86]. In its orders denying the motions, the court
5
stated only that “[o]n December 16, 2013 a judgment of strict foreclosure entered
against the defendants and a law day of March 11, 2014 was ordered. The
defendants failed to redeem by the law day and therefore title vested in the
plaintiff by reason of the 3/11/2015 law day.” US Bank National Association, As
Trustee For the Structured Asset Investment Loan Trust, 2006-BNC3 v. Rosa
Davis Gallaher, et al., No. FSTCV106003384S, Dkt. Nos. 146.01, 147.88, 148.86.
On December 1, 2014, after title vested with US Bank, the Gallahers filed a
second motion to open and vacate the judgment. [Id.]. On December 31, 2014,
the court denied this motion as well. See [Dkt. #19-4, Ex. D to Defs.’ Mot. at 2]. In
its memorandum of decision, the court noted that the Gallahers’ motion was
“premised on two inter-related propositions – plaintiff [US Bank Mortgage PassThrough] is not properly characterized as a creditor but rather is a debt collector
within the meaning of 15 U.S.C. § 1692(a)(6), and the court lacked jurisdiction to
entertain the foreclosure action brought by plaintiff in that capacity.” [Id. at 3].
Upon reviewing the record, the court concluded that there was “no evidence . . .
to support the claim that plaintiff, as assignee/transferee of the loan documents,
is merely a debt collector.” [Id. at 4]. Thus, the court “reject[ed] this contention
on the merits.” [Id. at 5].
The court reviewed the December 16, 2013 proceedings, and noted that on
that date:
[The Gallahers] also claimed that [US Bank Mortgage Pass Through]
was simply a debt collector and therefore not entitled to bring a
foreclosure action. That issue was rejected by the court . . . [T]he
court was presented with the original note, mortgage, and
assignment, and accepted them over the objection of [the Gallahers].
Implicitly, then, the court found the assignment to be valid, in
6
ordering a judgment of strict foreclosure. By refusing to
acknowledge the validity of the paperwork being presented to the
court, the status of the plaintiff as a property party to the action was
at least partially placed in issue by [the Gallahers], and adjudicated
by the court.
[Id. at 5-6].
Indeed, during the December 16, 2013 proceedings, the Gallahers
“acknowledged that [US Bank Mortgage Pass-Through] was the current holder of
the note and mortgage.” [Id. at 6]. The Court then held that, “[i]n the absence of
any evidence that might undermine the validity of the assignment or [US Bank
Mortgage Pass-Through]’s otherwise proper status as a party with standing to
pursue this matter, the court declines to revisit the issue.” [Id.].
On January 16, 2015, the Gallahers filed a motion for reconsideration. See
[Dkt. #19-5, Ex. E to Defs.’ Mot. at 2]. However, with this motion still pending, on
January 20, 2015, the Gallahers filed an appeal with the Connecticut Appellate
Court. See [Dkt. #19-6, Ex. F at 2]. On February 23, 2015, the trial court issued a
decision granting reconsideration but denying any relief. [Dkt. #19-5, Ex. E to
Defs.’ Mot. at 2]. In its decision, the court initially observed that “[t]he motion
invokes the Fair Debt Collection Practices Act–both the Federal Act . . . and the
State counterpart” and noted “that there is no explanation as to why these
matters could not have been, or were not, presented to the court in connection
with the entry of judgment.” [Id.]. In addition, the court found that, even if US
Bank Mortgage Pass-Through satisfied the definition of “debt collector” within
the meaning of the FDCPA, the Gallahers failed to explain how its “status as a
debt collector under the Act in any way undermines the propriety of the judgment
7
that was entered in its favor in this case.” [Id. at 3]. On March 11, 2015, the
Appellate Court granted US Bank’s motion to dismiss the appeal. [Dkt. #19-6, Ex.
F at 3].
B.
The Amended Complaint in the Present Action
On December 16, 2014, after the judgment of strict foreclosure was entered
in the Foreclosure Action but well before the matter had concluded, the Gallahers
filed the instant action. See [Dkt. #1, Compl.]. On April 6, 2015, they filed an
amended complaint. See [Dkt. #17, Am. Compl.]. The Amended Complaint
asserts nine claims. In the first eight claims, the Gallahers allege that the
Defendants violated the FDCPA, Connecticut’s analogue, the CCCAA, and
CUTPA. [Id. at 5].
First, they allege that Defendant US Bank “masquerade[d] as a bona-fide
creditor” and misrepresented “the character, amount, and legal status” of the
debt they were seeking to collect, in violation of 15 U.S.C. § 1692e, Connecticut’s
analogue, the CCCAA, and CUTPA in two ways. [Id. at ¶ 13]. While not perfectly
clear, the Gallahers appear to contend that the July 5, 2013 motion to substitute
party filed by an entity of Defendant US Bank in the underlying foreclosure
proceeding, which was predicated on the April 24, 2012 assignment of the
Gallahers’ mortgage by MERS to the US Bank entity, establishes that the US Bank
entity was not assigned the mortgage until April 24, 2012, and thus, it had no right
or ability to foreclose on the property back in January 2010. [Id. at ¶ 7]. Second,
they maintain that, because US Bank is not a “creditor” within the meaning of the
FDCPA, but was instead a “holder of an assignment received purchased or found
8
after the alleged debt was in default,” it had no right to possess the Gallahers’
property. [Id. at ¶¶ 16-19].
In addition, to the foregoing eight claims, the Gallahers claim that the
Defendants violated the FDCPA notice requirement, contained in 15 U.S.C. §
1692g, and in so failing also violated CCCAA and CUTPA. [Id. at ¶¶ 10-11, 20g-j].
In particular, the Gallahers allege that, despite their January 29, 2014 notice of
dispute, “the Defendants have yet to respond by providing . . . validation and[/]or
proof of claim but continued with their collection activities” through the
Foreclosure Action. [Id. at ¶ 11].
The second count of the Amended Complaint asserts three additional
claims under the FCRA: false reporting, failure to correct false reports, and failure
to investigate. Specifically, the Gallahers allege that, on or about January 30,
2014, they obtained Mr. Gallaher’s consumer credit report and discovered that the
Wells Fargo Defendants had reported a debt in connection with their mortgage.
[Id. at ¶ 23]. On or about the same day, they filed disputes with three credit
agencies, Equifax, Experian, and Transunion. [Id. at ¶ 24]. On February 28, 2014,
after communicating with the Wells Fargo Defendants, the credit agencies
concluded that the debt was valid. [Id.]. The credit reports identified the Wells
Fargo Defendants as creditors and stated that the original amount of the
mortgage was $579,500, a balance of $571,308 was owed on the mortgage, the
mortgage called for monthly payments of $4,865, the last payment made on the
9
mortgage occurred in October 2009, and that the amount past due, as of February
2014, exceeded $250,000. See [Dkt. #1 at 28-32].4
The Gallahers claim that the Wells Fargo Defendants “intentionally chose
not to delete information found to be inaccurate and erroneous,” in violation of 15
U.S.C. § 1681s-2(a). [Dkt. #17, Am. Compl. at ¶ 28]. In particular, they claim that
the Wells Fargo Defendants are not their creditors and that the reported debt was
inaccurate. [Id. at ¶¶ 20f., 21, 23]. In addition, they allege that, after receiving
notice of the disputes from the reporting agencies, the Wells Fargo Defendants
“failed to properly investigate” the disputes, in violation of 15 U.S.C. § 1681s-2(b).
[Id.].
Finally, the Gallahers bring a state law invasion of privacy claim against the
Wells Fargo Defendants, whom they assert “illegally obtained” Mr. Gallaher’s
consumer credit report. [Id. at ¶ 34]. The Gallahers contend that the Wells Fargo
Defendants “are not creditors,” and thus had no right to access Mr. Gallaher’s
credit report. [Id.].
II.
Legal Standards
As Plaintiffs are proceeding pro se, their submissions, “however inartfully
pleaded, must be held to less stringent standards than formal pleadings drafted
by lawyers.” Erickson v. Pardus, 511 U.S. 89, 94 (2007); see also Ahlers v.
Rabinowitz, 684 F.3d 53, 60 (2d Cir. 2012). Nevertheless, pro se plaintiffs are not
excused from the normal rules of pleading and dismissal. See Caidor v.
Onondaga Cnty., 517 F.3d 601, 605 (2d Cir. 2008) (“[P]ro se litigants generally are
4
Two of the reports, from Experian and Transunion list a past due amount of
$255,320, while the report from Equifax states that the amount past due as of
February 18, 2014 was $250,525.
10
required to inform themselves regarding procedural rules and to comply with
them.”) (quotations and citation omitted).
A.
Motion to Dismiss for Lack of Subject Matter Jurisdiction (12(b)(1))
“Federal courts are courts of limited jurisdiction.” Gunn v. Minton,
__U.S.__, 133 S. Ct. 1059, 1064 (2013). Subject matter jurisdiction is not waivable,
and a lack of subject matter jurisdiction may be raised at any time, by a party or
the court sua sponte. See Gonzalez v. Thaler, __U.S.__, 132 S. Ct. 641, 648 (2012);
see also Sebelius v. Auburn Reg’l Med. Ctr., __U.S.__, 133 S. Ct. 817, 824 (2013)
(“Objections to a tribunal’s jurisdiction can be raised at any time, even by a party
that once conceded the tribunal’s subject-matter jurisdiction over the
controversy.”). If a court lacks subject matter jurisdiction, it must dismiss the
action. See Fed. R. Civ. P. 12(h)(3).
A “district court[s] must take all uncontroverted facts in the complaint as
true, and draw all reasonable inferences in favor of the party asserting
jurisdiction.” Tandon v. Captain’s Cove Marina of Bridgeport, Inc., 752 F.3d 239,
243 (2d Cir. 2014). However, “where jurisdictional facts are placed in dispute, the
court has the power and obligation to decide issues of fact by reference to
evidence outside the pleadings[.]” Id. “In that case, the party asserting subject
matter jurisdiction has the burden of proving by a preponderance of the evidence
that it exists.” Id.
1. Rooker-Feldman Doctrine
Under the Rooker-Feldman doctrine, federal district courts may not
exercise subject matter jurisdiction over suits that are, in substance, appeals
11
from state court judgments. Rooker v. Fidelity Trust Co., 263 U.S. 413, 414-15
(1923); District of Columbia Court of Appeals v. Feldman, 460 U.S. 462 (1983).
There are four requirements for the application of the Rooker-Feldman doctrine:
(1) the party raising the claim must have lost in state court; (2) that party’s
injuries must be caused by the state court judgment; (3) that party’s claims must
invite the district court to review and reject the state court judgment; and (4) the
state court judgment must have been rendered prior to the commencement of the
federal court proceedings. See Vossbrinck v. Accredited Home Lenders, Inc., 773
F.3d 423, 426 (2d Cir. 2014). The first and last requirements are “procedural,”
while the second and third requirements are “substantive.” Morrison v. City of
New York, 591 F.3d 109, 112 (2d Cir. 2010).
A judgment is final for Rooker-Feldman purposes where “the state
proceedings [have] ended.” Exxon Mobil Corp. v. Saudi Basic Industries Corp.,
544 U.S. 280, 291 (2005). While Rooker-Feldman’s timing requirement “will
usually be straightforward,” the present case falls within the category of cases
which “present difficult questions as to whether ‘the state proceedings have
‘ended’ within the meaning of Rooker-Feldman on the federal questions at
issue.’” Hoblock v. Albany Cnty. Bd. of Elections, 422 F.3d 77, 89 (2d Cir. 2005)
(quoting Federacion de Maestros de P.R. v. Junta de Relaciones del Trabajo de
P.R., 410 F.3d 17, 25 (1st Cir. 2005)).
Here, prior to the commencement of this action, the Connecticut Superior
Court entered a judgment of strict foreclosure against the Gallahers, and denied
their motion to open judgment and extend the law days. See [Dkt. #19-3, Ex. C to
12
Defs.’ Mot. at 2; Dkt. #19-1, Ex. A to Defs.’ Mot. at 6, Dkt. Nos. 146.01, 147.88,
148.86; Dkt. #1, Compl. at 1]. However, after the Gallahers brought the present
action, their second motion to open and vacate the judgment was still pending in
the Superior Court, and they subsequently filed a motion for reconsideration with
the trial court, and an appeal of the judgment with the Connecticut Appellate
Court. See US Bank National Association, As Trustee For the Structured Asset
Investment Loan Trust, 2006-BNC3 v. Rosa Davis Gallaher, et al., No.
FSTCV106003384S, Dkt. Nos. 158.00, 163.00, 164.00. Given that the state trial
court proceedings had not been completed and the appeals process not even
begun at the time the Gallahers filed the present action, there is considerable
doubt, in light of the Supreme Court’s statements in Exxon, that the RookerFeldman doctrine applies in this case. See In re Haven Eldercare, LLC, No. 3:11cv-1090 (MRK), 2012 WL 90179, at *2 (D. Conn. Jan. 10, 2012) (finding that the
Second Circuit “has not yet confronted” the question of “whether the RookerFeldman doctrine prohibits a state court loser from filing a federal challenge to a
state court decision while the state case is still being appealed,” noting that
“district courts within this Circuit [] are split on the question” and citing cases on
both sides of the issue). Fortunately, as in In re Haven Eldercare, the Court need
not conclusively reach this issue since, as will be shown below, the doctrines of
res judicata and collateral estoppel apply, such that the Court reaches the same
conclusions it would have even if it applied Rooker-Feldman to the Gallahers’
claims.
13
B.
Failure to State a Claim (12(b)(6)) Standard
“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.” Sarmiento v. U.S., 678 F.3d 147, 152 (2d Cir. 2012)(quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). While Rule 8 does not require detailed factual
allegations, “[a] pleading that offers ‘labels and conclusions’ or ‘formulaic
recitation of the elements of a cause of action will not do.’ Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Iqbal, 556 U.S. 662, 678 (2009) (citations omitted). “Where a complaint pleads
facts that are ‘merely consistent with’ a defendant's liability, it stops short of the
line between possibility and plausibility of ‘entitlement to relief.’” Id. (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.” Id.
(internal citations omitted).
In general, the Court’s review on a motion to dismiss pursuant to Rule
12(b)(6) “is limited to the facts as asserted within the four corners of the
complaint, the documents attached to the complaint as exhibits, and any
documents incorporated by reference.” McCarthy v. Dun & Bradstreet Corp., 482
F.3d 184, 191 (2d Cir. 2007). However, the Court may also consider “matters of
which judicial notice may be taken” and “documents either in plaintiffs'
possession or of which plaintiffs had knowledge and relied on in bringing suit.”
Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993); Patrowicz v.
14
Transamerica HomeFirst, Inc., 359 F. Supp. 2d 140, 144 (D. Conn. 2005). In
addition, courts in this Circuit recognize a “narrow exception” to the principle
that allegations should be accepted as true on a motion to dismiss, when the
“factual assertions . . . are contradicted by the complaint itself, [or] by documents
upon which the pleadings rely . . . .” Perry v. NYSARC, Inc., 424 F. App’x 23, 25
(2d Cir. 2011); see also Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2d
Cir. 1995) (“[C]onclusory allegations need not be credited, however, when they
are belied by more specific allegations of the complaint.”)
1. Res Judicata
“When determining the preclusive effect of a state court judgment, a court
must apply the preclusion law of the rendering state.” Faraday v. Blanchette, 596
F. Supp. 2d 508, 514 (D. Conn. 2009) (citing Kulak v. City of New York, 88 F.3d 63,
71 (2d Cir. 1996)). Under both Connecticut and federal law, res judicata provides
that “a final judgment, when rendered on the merits, is an absolute bar to a
subsequent action, between the same parties or those in privity with them, upon
the same claim.” Saunders v. Principal Residential Mortg., Inc., No. 3:11-cv-1817
(VLB), 2012 WL 4321974, at *5 (D. Conn. Sept. 20, 2012) (citing Connecticut and
federal cases). “[O]nce a case reaches a final judgment on the merits, the parties
cannot later relitigate the issues that were raised or could have been raised in
that earlier case.” Id. (citing Vandever v. Emmanuel, 606 F. Supp. 2d 253, 254 (D.
Conn. 2009)).
“[A] judgment will ordinarily be considered final ‘if it is not tentative,
provisional, or contingent and represents the completion of all steps in the
15
adjudication of the claim by the court . . .’ [O]ne of the critical factors in
determining whether a judicial determination is a final judgment for purposes of
res judicata is whether it is also a final judgment for purposes of appeal.” Cadle
Co. v. Drubner, 303 F. Supp. 2d 143, 147 (D. Conn. 2004) (quoting CFM v.
Chowdhury, 239 Conn. 375, 396, 685 A.2d 1108, 1119 (1996)), overruled on other
grounds by State v. Salmon, 250 Conn. 147, 735 A.2d 333 (Conn. 1999)). “Courts
in this circuit have held, and the Second Circuit has affirmed, that a foreclosure
proceeding may constitute an adjudication on the merits.” Saunders, 2012 WL
4321974, at *8 (citing Swiatkowski v. Citibank, 745 F. Supp. 2d 150 (E.D.N.Y. 2010)
and noting that the court found that an “earlier state court action, which included
a Final Judgment of Foreclosure and Sale” constituted an adjudication on the
merits).
With respect to the application of res judicata, “the principle of privity bars
relitigation of the same cause of action against a new defendant known by a
plaintiff at the time of the first suit where the new defendant has a sufficiently
close relationship to the original defendant to justify preclusion.” Central
Hudson Gas & Elec. Corp. v. Empresa Naviera Santa S.A., 56 F.3d 359, 367-68 (2d
Cir. 1995). Stated another way, privity, in the context of res judicata, stands for
the proposition that “[o]ne whose interests were adequately represented by
another vested with the authority of representation is bound by the judgment,
although not formally a party to the litigation.” Expert Elec., Inc. v. Levine, 554
F.2d 1227, 1233 (2d Cir. 1977). “A key consideration in determining the existence
of privity is the sharing of the same legal right by the parties allegedly in privity.”
16
Tibbets v. Stempel, 354 F. Supp. 2d 137, 148 (D. Conn. 2005) (quoting Joe’s Pizza,
Inc. v. Aetna Life & Cas. Co., 236 Conn. 863, 868, 675 A.2d 441, 445 (Conn. 1996)).
“Generally, an employer-employee or agent-principle [sic] relationship will
provide the necessary privity for claim preclusion with respect to matters within
the scope of the relationship, no matter which party is first sued.” Id. (quoting 18
Moore’s Fed. Prac. 3d § 131.40[3][f] (Matthew Bender ed.)).
Finally, to determine whether an action involves the same claim as a prior
action, both federal and Connecticut courts apply a transactional test. See
Saunders, 2012 WL 4321974, at *5 (citing Weiss v. Weiss, 297 Conn. 446, 461, 998
A.2d 766, 776 (Conn. 2010)); FDIC v. Lenz, 323 F. Supp. 2d 342, 347 (D. Conn.
2004) (“[T]he dominant federal rule is based on a transactional approach to
defining the claim.”). “The transactional test measures the preclusive effect of a
prior judgment, which includes any claims relating to the cause of action that
were actually made or might have been made.” Saunders, 2012 WL 4321974, at *5
(quoting Legassey v. Shulansky, 28 Conn. App. 653, 656, 611 A.2d 930, 932 (Conn.
App. Ct. 1992) (citations and quotations omitted)). In applying this test, courts
look to the “group of facts which is claimed to have brought about an unlawful
injury to the plaintiff . . . and [have] noted that even though a single group of facts
may give rise to rights for several different kinds of relief, it is still a single cause
of action.” Id. (quoting Weiss, 297 Conn. at 461-62, 998 A.2d at 776).
2. Collateral Estoppel
“Collateral estoppel, or issue preclusion . . . provides that “once a court
has decided an issue of fact or law necessary to its judgment, that decision may
17
preclude relitigation of the issue in a suit on a different cause of action involving
a party to the first case.’” Faraday, 596 F. Supp. 2d at 514 (quoting Burgos v.
Hopkins, 14 F.3d 787, 789 (2d Cir. 2014) (quotation and citation omitted)).
“Although claim preclusion [res judicata] and issue preclusion [collateral
estoppel] often appear to merge into one another in practice, analytically they are
regarded as distinct.” Tibbetts, 354 F. Supp. 2d at 146 n. 18 (quoting Jackson v.
R.G. Whipple, Inc., 225 Conn. 705, 712-13, 627 A.2d 374, 378 (Conn. 1993)).
“In Connecticut, to be subject to collateral estoppel, an issue must have
been: (1) ‘fully and fairly litigated,’ (2) ‘actually decided,’ [] (3) ‘necessary to the
judgment’ in the first action . . . and (4) ‘identical’ to the issue to be decided in the
second action.” Faraday, 596 F. Supp. 2d at 515 (quoting Virgo v. Lyons, 209
Conn. 497, 501, 551 A.2d 1243, 1245 (Conn. 1988) and State v. Joyner, 255 Conn.
477, 490, 774 A.2d 927, 935 (Conn. 2001)). “An issue has been fully and fairly
litigated if the party against whom collateral estoppel is asserted had a ‘full and
fair’ opportunity to litigate that issue in the prior proceeding.” Id. (citing Aetna
Cas. & Sur. Co. v. Jones, 220 Conn. 285, 306, 596 A.2d 414, 425-26 (Conn. 1991)).
“An issue is actually litigated if it is properly raised in the pleadings or otherwise,
submitted for determination, and in fact determined.” Id. (quoting Joyner, 255
Conn. at 490, 774 A.2d at 935 (internal quotation omitted). “An issue is
necessarily determined if, in the absence of a determination of the issue, the
judgment could not have been validly rendered.” Id. On the other hand, “[i]f an
issue has been determined, but the judgment is not dependent upon the
determination of the issue, the parties may relitigate the issue in a subsequent
18
action.” Joyner, 255 Conn. at 490, 774 A.2d at 935 (citation and quotations
omitted). The “party seeking estoppel has the burden of showing that the issue
whose relitigation he seeks to foreclose was actually decided in the first
proceeding.” Gross v. Rell, 485 F. Supp. 2d 72, 78 (D. Conn. 2007) (quoting
Windsor Locks Assocs. v. Planning & Zoning Comm’n, 90 Conn. App. 242, 252,
876 A.2d 614, 620-21 (Conn. App. Ct. 2005)).
In addition, “Connecticut has abandoned the rule of mutuality, meaning
that even parties that were not actually adverse to one another in the prior
proceeding may nonetheless assert collateral estoppel . . . unless [the party
precluded from relitigating the issue] lacked full and fair opportunity to litigate
the issue in the first action or other circumstances justify affording him an
opportunity to relitigate the issue.” Faraday, 596 F. Supp. 2d at 515 (quoting
Torres v. City of Waterbury, 249 Conn. 110, 135-36, 733 A.2d 817, 831-32 (Conn.
1999) (citation and quotation omitted)). Thus, the fact that a party in the present
action was not a party in the prior state action “does not preclude [that party]
from asserting collateral estoppel.” Id. However, as with res judicata, collateral
estoppel “may only be invoked between the same parties or those in privity with
them.” Gross, 485 F. Supp. 2d at 78 (quoting Joyner, 255 Conn. at 490, 774 A.2d
at 935).5
5
The Defendants also claim that counts one and two of the Amended Complaint
are barred by the Noerr-Pennington doctrine, because Defendant US Bank
“possessed a First Amendment right to petition the Connecticut Superior Court
to foreclose Plaintiffs’ loan for their default.” [Dkt. #19, Defs.’ Memo. at 19].
While that may be the case, the Defendants make no further attempt to apply the
doctrine to the allegations in the Amended Complaint. In addition, to the extent
the doctrine is at all relevant, it does not bar either of the first two counts
because the Gallahers contend that Defendant US Bank made intentional
19
III.
Analysis
A.
Count I of the Amended Complaint is Barred by the Doctrines of Res
Judicata and Collateral Estoppel
Plaintiffs did not bring a counterclaim under the FDCPA or raise the
statute as an affirmative defense prior to the state court’s entering a judgment of
strict foreclosure against them.6 However, each of the allegations on which
Plaintiffs’ FDCPA claim is based was resolved against them in the course of the
state court’s entry of a strict foreclosure judgment in the Foreclosure Action.
The Amended Complaint brings a claim under the FDCPA on the basis
of several discrete acts, namely, that Defendant US Bank: (i) was not a bona fide
misrepresentations regarding both the debt itself and its status as a creditor.
See Fritz v. Resurgent Capital Servs., LP, 955 F. Supp. 2d 163, 175, 176-77
(E.D.N.Y. 2013) (holding that “Noerr-Pennington does not provide immunity for
intentional misrepresentations made in litigation,” stating that “[a] collection
action by an entity that does not own the underlying debt” falls within the
“sham” exception to the doctrine, and declining to apply the doctrine to
plaintiff’s FDCPA claims); see also Shetiwy v. Midland Credit Mgmt., 980 F.
Supp. 2d 461, 476 (S.D.N.Y. 2013) (“To the extent that the Noerr-Pennington
doctrine applies at all to FDCPA claims based on litigation misconduct by debt
collectors . . . Defendants’ alleged practice of ‘[u]sing fraudulent, deceptive, and
misleading affidavits and affirmations’ . . . would place . . . Defendants’ suits
under the sham exception.”).
6
The Gallahers did affirmatively raise arguments under the FDCPA in support of
their post-judgment motions for reconsideration. See [Dkt. #1, Ex. B to Compl.
at 20-21; Dkt. #23, Ex. B to Pl.’s Opp. at 11-12; Dkt. #19-4, Ex. D to Defs.’ Mot. at
2-3]. The court addressed one of the arguments, that US Bank was “merely a
debt collector” and thus lacked standing to bring a strict foreclosure action, and
“reject[ed] this contention on the merits.” [Dkt. #19-4, Ex. D to Defs.’ Mot. at 4].
As for the remainder of the Plaintiffs’ contentions under the FDCPA and its state
law analogue, the court declined to address these arguments, in part, because it
found the Plaintiffs could have raised them earlier in the litigation but chose not
to. See [Dkt. #19-5, Ex. E to Defs.’ Mot. at 2-3 (noting “[a]s a threshold matter . . .
that there is no explanation as to why these matters could not have been, or
were not, presented to the court in connection with entry of judgment . . . There
is no suggestion or apparent claim that [the Gallahers] did not have an
opportunity to present these issues during the extended period of time the
matter was pending”)].
20
creditor, (ii) misrepresented the character, amount, and legal status of the debt it
was seeking to collect, (iii) had no right or ability to foreclose on the property,
(iv) had no right to possess the Gallahers’ property, and (v) failed to verify the
debt. [Dkt. #17, Am. Compl. at ¶¶ 7, 11, 13, 16-19]. However, in entering a
judgment of strict foreclosure against the Gallahers, the court considered and
necessarily resolved all but one of them. Prior to entering this judgment, the
court held argument and US Bank presented the court with the original note,
mortgage, and assignment. [Dkt. #19-4, Ex. D to Defs.’ Mot. at 4-5]. Over the
Gallahers’ objection as to the validity of these documents, the court nevertheless
entered judgment in favor of US Bank. Indeed, as the court later noted in its
memorandum denying the Gallahers’ motion to vacate the judgment, at the time
it entered the judgment of strict foreclosure, the court “found the assignment” of
the mortgage “to be valid.” [Id. at 4]. It also expressly “rejected” the Gallahers’
contention that US Bank “was simply a debt collector and therefore not entitled
to bring a foreclosure action.” [Id.]. Nowhere do the Gallahers maintain that this
judgment was not final, nor does any evidence in the record suggest that it was
anything other than a final judgment on the merits.7
7
As the judgment of strict foreclosure was a final judgment on the merits which
necessarily resolved the issues of whether US Bank could properly foreclose on
the property, that Plaintiffs did in fact owe the amounts stated in the affidavit of
debt to US Bank, and that by the end of the running of the law days, US Bank
had the right to possess the property, to the extent Plaintiffs’ FDCPA claim is
based on a challenge to any of these necessary findings, the claim would also
be barred on res judicata grounds. See, e.g., Schuh v. Druckman & Sinel, LLP,
602 F. Supp. 2d 454, 467 (S.D.N.Y. 2009) (applying transactional test and
contrasting that case with one in which the FDCPA claim was based on an
allegation that the bank “seeks to collect on an invalid judgment,” because in
that instance the allegations underlying the FDCPA claim “and the judgment
would arise out of the same disputed transaction”).
21
In addition, the Wells Fargo Defendants may avail themselves of the
doctrine of collateral estoppel in order to bar Count I of the Amended Complaint.
The Defendants overcome the fact that the Wells Fargo Defendants were not
parties to the Foreclosure Action by establishing that they were in privity with
Defendant US Bank. The Defendants point to the allegations in the Amended
Complaint, which characterizes the Wells Fargo Defendants as
“accomplices/agents” of Defendant US Bank in “the prosecution of a
foreclosure.” [Dkt. #17, Am. Compl. at ¶ 7]. The Gallahers further allege that the
Defendants “conspired and illegally procured a judgment [of] Strict Foreclosure .
. . seized title of [the] property . . . and filed a Motion for Deficiency Judgment to
extort additional monies, fees and costs[s].” [Id. at ¶ 8]. Reasonably construed,
these paragraphs of the Amended Complaint allege that the Defendants were coconspirators in a single transaction to defraud the Gallahers by improperly
pursuing a strict foreclosure and deficiency judgment, and are thus sufficient to
establish privity between them, at least with respect to the conduct that occurred
in connection with the Foreclosure Action. See Caro v. Fidelity Broker Servs., No.
3:14-cv-01028 (CSH), 2015 WL 1975463, at *22 (D. Conn. Apr. 30, 2015)
(concluding “that privity exists between the [defendants who were parties to the
prior action and those who were not] to the extent the complaint alleges that the
[new defendants] conspired with the [previous defendants] to injure Plaintiffs . . .
[C]ourts have held that alleged co-conspirators are ‘in privity’ with one another
for res judicata purposes”).8
8
Even absent res judicata or collateral estoppel, Count I fails as to the Wells
Fargo Defendants because the Gallahers simply do not allege any facts
22
The sole remaining allegation in Count I, the Gallahers’ contention that the
Defendants violated the FDCPA by not verifying the debt, indirectly challenges
the validity of the documents US Bank provided in obtaining the strict foreclosure
judgment, and is thus barred by the doctrines of res judicata and collateral
estoppel. [Id. at ¶ 11].
“Verification of a debt requires only that the debt collector obtain a written
statement that ‘the amount being demanded is what the creditor is claiming is
owed; the debt collector is not required to keep detailed files of the alleged
debt.’” Derisme v. Hunt Leibert Jacobson P.C., 880 F. Supp. 2d 339, 370 (D. Conn.
2012) (quoting Bascom v. Dubin, No. 03-cv-6160T, 2007 WL 210387, at *3
(W.D.N.Y. Jan. 25, 2007)). This is because the purpose of the verification
requirement is solely “to eliminate the . . . problem of debt collectors dunning the
wrong person or attempting to collect debts which the consumer has already
paid.” Id. (citation and quotations omitted).
Here, in order to obtain a judgment of strict foreclosure, Defendant US
Bank was required to, and did in fact, present written documents detailing the
amount the Gallahers owed, including the original note and mortgage. In entering
a judgment of strict foreclosure against the Gallahers, the court plainly
determined that foreclosure was an appropriate remedy to discharge the debt and
that the Gallahers were the individuals who owed it. Derisme, 880 F. Supp. 2d at
359 (“A judgment of strict foreclosure . . . constitutes an appropriation of the
indicating that those defendants had any involvement in the events leading up
to the judgment of strict foreclosure. Indeed, they are not mentioned anywhere
in the allegations underlying the FDCPA claim, beyond a conclusory reference
to serving as an accomplice or agent, which is otherwise unsupported by the
record in the Foreclosure Action. [Dkt. #17, Am. Compl. at ¶¶ 7, 9].
23
mortgaged property to satisfy the mortgage debt.”) (citing Nat’l City Mortg. Co. v.
Stoecker, 92 Conn. App. 787, 793, 888 A.2d 95 (Conn. App. Ct. 2006)). Thus, the
only way the Gallahers could presently maintain their verification claim would be
to challenge the findings of the state court, which they are barred from doing.9
Further, the Gallahers have not clearly stated the factual basis for this
claim, but to the extent they allege that the foreclosure action triggers a duty to
verify the debt, they are mistaken. The debt verification provision of the FDCPA
is triggered by the collection of a debt. It provides that “[w]ithin five days after
the initial communication with a consumer in connection with the collection of
any debt a debt collector must provide certain information to the debtor.” 15
U.S.C. § 1692g(a). A foreclosure action is not the collection of a debt, and thus
does not trigger the notice provision of the FDCPA. Cheung v. Wells Fargo Bank,
N.A., 987 F. Supp. 2d 972, 977 (N.D. Cal. 2013). Further, the protective provisions
of the FDCPA are superfluous in a foreclosure action because the court must, as
it did here, find that he debtor owes the amount of debt claimed to the party
seeking foreclosure before the order of foreclosure may enter. See Wilshire
Credit Corp. v. Kastens, No. CV 970058213, 1999 WL 49821, at *3 (Conn. Super. Ct.
Jan. 21, 1999) (“When seeking strict foreclosure, the moving party must establish
the amount of debt owed to it . . . In order to do so, the moving party must present
reliable evidence as to the debt.”) (citing New England Bedford Sav. Bank v.
Realty Corp., 238 Conn. 745, 760, 680 A.2d 301 (Conn. 1996)); see also Derisme,
880 F. Supp. 2d at 370 (noting that a state foreclosure proceeding “afforded the
9
The Gallahers’ claims under CCCAA and CUTPA, which rely on the same
allegations as its FDCPA claim, are also barred by res judicata and collateral
estoppel. See [Dkt. #17, Am. Compl. at ¶¶ 20, 20g.].
24
Plaintiff even more protection than the FDCPA disclosure requirements”). As the
Plaintiffs claim that US Bank and Wells Fargo conspired to foreclose and thereby
violated the FDCPA by failing to validate the debt, that claim fails.
Accordingly, Count I of the Complaint is DISMISSED in its entirety.
B.
Count II is Barred as to Defendant US Bank Only
Count II of the Amended Complaint alleges that Defendant US Bank, along
with the Wells Fargo Defendants, violated the FCRA by (i) furnishing Mr.
Gallaher’s consumer credit report with false information, namely, the mortgage at
issue in the underlying Foreclosure Action and identifying the Wells Fargo
Defendants as creditors, (ii) failing to conduct an investigation into the accuracy
of this information after Plaintiffs disputed it with the credit reporting agencies,
and (iii) refusing to delete the information, which they knew to be inaccurate.
[Dkt. #17, Am. Compl. at ¶¶ 20f., 21, 23-24, 28].
Beyond incorporating by reference the earlier allegations against
Defendant US Bank and requesting that judgment be entered against it in
connection with their FCRA claim, Plaintiffs offer no additional facts supporting
their contention that Defendant US Bank violated the FCRA. See [id. at ¶¶ 21, 31].
Thus, Plaintiffs’ FCRA claim against Defendant US Bank fails for two reasons.
First, Plaintiffs fail to allege any facts tending to show that Defendant US Bank
had anything to do with the addition of the debt and the Wells Fargo Defendants
as creditors to Mr. Gallaher’s credit report, the investigation following their
dispute of this information, and the decision to maintain it on his credit reports.
Second, any liability as to Defendant US Bank in connection with this claim would
25
appear to be based on an implicit challenge of the accuracy of the debt itself,
which, for the reasons stated above, Plaintiffs are barred from disputing in the
present proceeding.
As for Plaintiffs’ FCRA claim against the Wells Fargo Defendants, the
Defendants contend both that the claim is barred by the doctrine of collateral
estoppel and that the Amended Complaint fails to state a plausible claim. See
[Dkt. #19, Defs.’ Memo. at 16-18, 25-27]. Neither argument succeeds.
The purpose of the FCRA is to ensure “that consumer reporting agencies
adopt reasonable procedures for meeting the needs of commerce for consumer
credit, personnel, insurance, and other information in a manner which is fair and
equitable to the consumer, with regard to the confidentiality, accuracy, relevancy,
and proper utilization of such information.” 15 U.S.C. § 1681(b). The FCRA
imposes obligations on entities like the Wells Fargo Defendants who furnish
credit information to reporting agencies. See Kinel v. Sherman Acquisition II LP,
No. 05 Civ. 3456 (RCC) (THK), 2006 WL 5157678, at *13 (S.D.N.Y. Feb. 28, 2006).
Two sections of the FCRA govern the furnishing of information to credit
agencies. Section 1681s-2(a) discusses a furnisher’s duty to report accurate
information and its ongoing duty to correct and update inaccurate information.10
Section 1681-2(b) governs the furnisher’s duties after receiving notice from a
credit reporting agency regarding the accuracy of credit information. This
section requires credit furnishers, after receiving notice of a consumer dispute by
a credit agency to: (i) conduct an investigation, (ii) review all relevant information
10
Only “federal and state authorities” may bring claims for violations of section
1681s-2(a). See Longman v. Wachovia Bank, N.A., 702 F.3d 148, 151 (2d Cir.
2012); see also 15 U.S.C. § 1681s-2(d).
26
provided by the consumer reporting agency, (iii) report the results of the
investigation to the consumer reporting agency; and (iv) if the investigation finds
that the information is incomplete or inaccurate, to report those results to all
other consumer reporting agencies to which the person furnished the
information. 15 U.S.C. § 1681-2(b)(1). “While the Second Circuit has not yet
defined the specific contours of a furnisher’s investigatory responsibility under
this statute, courts both within and outside the Circuit have ‘assum[ed] a
reasonableness standard for judging the adequacy of the required
investigation.’” Dickman v. Verizon Commc’ns, Inc., 876 F. Supp. 2d 166, 172
(E.D.N.Y. 2012) (quoting Okocha v. HSBC Bank USA, N.A., 700 F. Supp. 2d 369,
374 (S.D.N.Y. 2010)).
The Amended Complaint advances two theories under the FCRA as to the
Wells Fargo Defendants: (i) they failed to properly investigate the Gallahers’
disputes and (ii) they intentionally chose not to delete information found to be
inaccurate and erroneous. [Dkt, #17, Am. Compl. at ¶ 28].
At the present stage, the Court cannot dismiss Count II against the Wells
Fargo Defendants, nor can it strike either of the Plaintiffs’ theories, because the
record is bare regarding the nature of the relationship, if any, between the Wells
Fargo Defendants and the Plaintiffs. The Defendants claim that the Wells Fargo
Defendants were “the [mortgage] loan’s servicer,” but the portion of the
Amended Complaint, paragraph five, to which they exclusively cite does not
support their claim. [Dkt. #19, Defs.’ Memo. at 18]. Paragraph five describes
Defendant ASC as a “division of WELLS FARGO” which “services loans for other
27
investors under the ASC name.” [Dkt. # 17, Am. Compl. at ¶ 5]. This vague,
barebones description says nothing about whether Defendant ASC performed
any services in connection with the mortgage and note at issue in the
Foreclosure Action.
Construing the Amended Complaint liberally and in a light most favorable
to the Plaintiffs, as the Court must, it may be read to assert that the Wells Fargo
Defendants intentionally and inaccurately reported on Mr. Gallaher’s credit report
that he owed the Wells Fargo Defendants the balance of the mortgage. [Dkt. #17,
Am. Compl. at ¶¶ 23-24, 25]. Since the state court record depicts only US Bank as
the holder of the mortgage and note, there is presently no evidence to indicate
that either of the Wells Fargo Defendants are creditors of the Gallahers.
Moreover, in the event the Wells Fargo Defendants were not creditors, their
failure to discover this and correct the error would tend to support the Gallahers’
claim that they failed to properly investigate the disputed credit information.
Neither res judicata nor collateral estoppel applies to bar Count II of the
Amended Complaint against the Wells Fargo Defendants. There is no evidence
that any issues concerning the Wells Fargo Defendants were raised prior to the
entry of judgment in the underlying Foreclosure Action. Indeed, the Gallahers
could not have raised them at the time judgment was entered, since they allege
that they did not discover the changes to Mr. Gallaher’s credit report until “[o]n or
about January 30th, 2014.” [Dkt. #17, Am. Compl. at ¶ 23].11
11
Not only did the Gallahers first refer to the Wells Fargo Defendants in the
Foreclosure Action after the judgment of strict foreclosure was entered, but the
order in response to their notice of dispute provides no indication that the
allegations against them were ever taken up or resolved. See US Bank National
28
However, the Gallahers’ FCRA claim is limited to the reporting of the Wells
Fargo Defendants as their creditor, and may not go forward as to any other
information contained in the report. This is because the Gallahers are estopped
from contesting the mortgage debt itself, and the documents the Gallahers
attached to their original complaint plainly establish that a reasonable
investigation was performed regarding the debt figures contained in the credit
reports. The affidavit of debt, a publicly-filed document, states that the mortgage
amount was originally $579,500.00 and the remaining principal owed on the
mortgage was $571,308.72. See [Dkt. #1, Ex. C to Compl. at 24]. The credit
reports submitted by the Gallahers accurately depict both of these figures, to the
penny, on a date prior to the transfer of title to the property. [Dkt. #1, Ex. D to
Compl. at 28; Dkt. #19-3, Ex. C to Defs.’ Mot. at 2].12
Association, As Trustee For the Structured Asset Investment Loan Trust, 2006BNC3 v. Rosa Davis Gallaher, et al., No. FSTCV106003384S, Dkt. Nos. 146.01,
147.88, 148.86.
12
In their Opposition, the Gallahers raise the existence of, but fail to identify, a
discrepancy between the figures in the strict foreclosure judgment and the
credit report. See [Dkt. #23, Pls.’ Opp. at 5]. They are mistaken. The affidavit
of debt contained the total amount of money remaining on the loan, including
the outstanding principal, interest, late charges, insurance, and tax
disbursements. See [Dkt. #1, Ex. C to Compl. at 24]. The $250,000 “past due”
figure in the credit reports appears to have been calculated from the Gallahers’
monthly payment schedule ($4,865/month) and the date of their last payment
(October 19, 2009). [Id. at 32]. Similarly, the minor discrepancy between the
reports regarding the amount past due—less than $5,000 where the total
amount was over $250,000—is insufficiently material to support an FCRA claim.
See, e.g., Enwonwu v. Trans Union, LLC, 364 F. Supp. 2d 1361, 1367 (N.D. Ga.
2005) (granting summary judgment to defendant on FCRA claim where
inaccuracy on plaintiff’s credit report was “immaterial” in light of the
“indisputably accurate adverse information” on the report). Regardless,
nowhere does the Amended Complaint identify with any particularity the
mortgage figures the Gallahers believe are inaccurate, and on which they bring
their claim.
29
Accordingly, Count II of the Amended Complaint is DISMISSED as to US
Bank, and may go forward as to the Wells Fargo Defendants, but only with
respect to the allegedly inaccurate reporting of the Wells Fargo Defendants as the
creditors on the mortgage.
C.
The Gallahers’ Invasion of Privacy Claim May Proceed as to the Wells
Fargo Defendants
Finally, given the lack of evidence regarding the nature and extent of the
relationship between the Wells Fargo Defendants and the Gallahers, Plaintiffs’
invasion of privacy claim survives. Here, the Gallahers contend that the Wells
Fargo Defendants illegally obtained their credit report, that they were not their
creditors, they acted intentionally and in bad faith, and as evidence of the
Defendants’ bad faith, they thereafter altered the substance of the report by
adding inaccurate information, which they then refused to remove. [Dkt. #17, Am.
Compl. at ¶¶ 8, 28-29, 34, 36].
First, at the present stage, the Gallahers’ invasion of privacy claim appears
to fall outside the scope of preemption under the FCRA. The FCRA contains two
sections concerning preemption of state law claims, 15 U.S.C. §§ 1681t(b)(1)(F)
and 1681h(e). Section 1681t(b)(1)(F) states: “No requirement or prohibition may
be imposed under the laws of any State . . . with respect to any subject matter
regulated under . . . [S]ection 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). Section 1681h(e) states:
Except as provided in sections 1681n and 1681o of this title, no
consumer may bring any action or proceeding in the nature of
defamation, invasion of privacy, or negligence with respect to the
30
reporting of information against any consumer reporting agency, any
user of information, or any person who furnishes information to a
consumer reporting agency based on information disclosed
pursuant to section 1681g, 1681h, or 1681m of this title, or based on
information disclosed by a user of a consumer report to or for a
consumer against whom the user has taken adverse action, based in
whole or in part on the report except as to false information
furnished with malice or willful intent to injure such consumer.
15 U.S.C. § 1681h(e).
In reconciling these two provisions, courts in this district and throughout
the Circuit have generally adopted a temporal approach, holding that “state law
claims based on action of a furnisher of information after the furnisher has
received notice of inaccuracies are held preempted . . . while actions taken before
notice has been received may not be preempted.” Ryder v. Washington Mut.
Bank, FA, 371 F. Supp. 2d 152, 154 (D. Conn. 2005) (quoting Kane v. Guaranty
Residential Lending, Inc., No. 04-CV-4847 (ERK), 2005 WL 1153623, at *8 (E.D.N.Y.
May 16, 2005)); see also Ahmed v. Bank of Am., No. 09-cv-2550 (DLI) (RLM), 2010
WL 3824168, at **3-4 (E.D.N.Y. Sept. 24, 2010).
Since the Gallahers’ invasion of privacy claim is predicated on the Wells
Fargo Defendants’ allegedly unlawful procurement of their credit report, and the
Amended Complaint may plausibly be read to suggest that this occurred prior to
their receiving notice from either the Gallahers or the credit reporting agencies of
the Gallahers’ dispute of the information they furnished, the Gallahers’ claim is
not temporally preempted. In addition, the Amended Complaint clearly alleges
that the Wells Fargo Defendants acted intentionally and with malice, such that it
overcomes the substantive bar 15 U.S.C. § 1681h(e) imposes on pre-notice
invasion of privacy claims.
31
Second, the case law the Defendants offer in challenging the sufficiency of
the allegations in the Amended Complaint is unavailing. The two unreported
district court opinions outside this Circuit they cite are distinguishable. See
O’Connor v. Wells Fargo, N.A., No. C-14-00211 DMR, 2014 WL 4802994, at *5 (N.D.
Cal. Sept. 26, 2014) (dismissing FCRA claim against defendant where underlying
action established that defendant was in fact plaintiff’s creditor); Daniels v.
ComUnity Lending, Inc., No. 13CV488-WQH-JMA, 2014 WL 51275, at *6 (S.D. Cal.
Jan. 6, 2014) (dismissing FCRA claim where sole allegation was that defendants
obtained plaintiff’s credit report without a permissible purpose). The rest of the
Defendants’ cases are inapposite, because they stand for the proposition that a
debt collector may obtain a credit report for the purpose of collecting a debt. See
[Dkt. #19, Defs.’ Memo at 28 (citing Veal v. Portfolio Recovery, Inc., No. 14-CV12967-ADB, 2015 WL 1609109, at *3 (D. Mass. Apr.9, 2014) and Huertas v. Galaxy
Asset Mgmt., 641 F.3d 28, 34 (3d Cir. 2011))]. Presently, the record does not
establish what purpose—valid or otherwise—the Wells Fargo Defendants were
pursuing at the time they obtained Mr. Gallaher’s credit report. While the
reporting of a debt owed to Wells Fargo may suggest that they permissibly
accessed the Gallaher’s credit report for the purpose of collecting a debt, there is
nothing on the record establishing that Wells Fargo had any interest in the
Gallahers’ mortgage.
Finally, the only reference in Count III of the Complaint to Defendant US
Bank is extremely vague and devoid of any specific facts relating to accessing
Mr. Gallaher’s credit report. See [Dkt. #17, Am. Compl. at ¶ 36 (“Whether
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negligent or intentional, Defendant [US Bank] knew and or should have known of
the persistent misconduct of its incompetent employees, agents, attorney debt
collectors, and debt collection agency whom they hired . . . . Defendants were
simply allowed and[/]or encouraged to engage in . . . abusive debt collecting
practices.”)].
The best the Court can surmise is that the Gallahers contend the Wells
Fargo Defendants were “employees” or “agents” whom US Bank “hired to
engage in the . . . collection of an alleged debt” and that US Bank is liable to the
Plaintiffs under an agency theory. [Id.]. To the extent this allegation is true, it
would appear to preclude liability under the FCRA, because in accessing Mr.
Gallaher’s credit report, the Defendants would have been pursuing a lawful
purpose—collecting a debt, which the Gallahers are estopped from contesting.
See Larobina v. First Union Nat’l Bank, No. CV990170845S, 2004 WL 1664230, at
*4 (Conn. Super. Ct. Jun. 28, 2004) (denying plaintiff’s motion to strike FCRA
preemption defense in response to negligent credit reporting claim because the
FCRA “could provide immunity for [defendant] if willfulness or malice is not
proven”). Accordingly, Count III of the Complaint is DISMISSED as to Defendant
US Bank.
IV.
Conclusion
For the foregoing reasons, the Defendants’ Motion to Dismiss is GRANTED
in part and DENIED in part. Count I of the Amended Complaint is DISMISSED in
its entirety, Counts II and III are DISMISSED as to Defendant US Bank, and all
claims against Defendant US Bank are DISMISSED with prejudice. The following
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claims may go forward as to the Wells Fargo Defendants, subject to the following
limitations: Count II, but only with respect to the reporting of the Wells Fargo
Defendants as Plaintiffs’ creditors, and Count III, under the theory that the Wells
Fargo Defendants willfully, maliciously, and without legal right, accessed Mr.
Gallaher’s credit report.
IT IS SO ORDERED, ADJUDGED AND DECREED, this 22nd day of March
2016, Hartford, Connecticut
_________/s/______________
Vanessa L. Bryant,
United States District Judge
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