Causay v. Wells Fargo Bank, N.A. et al
Filing
37
MEMORANDUM Opinion and Order Signed by the Honorable John Robert Blakey on 12/12/2016. Mailed notice(gel, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
TAWANDA R. CAUSAY,
Plaintiff,
Case No. 16-cv-7398
v.
WELLS FARGO BANK, N.A. and
EQUIFAX INFORMATION
SERVICES, LLC,
Judge John Robert Blakey
Defendants.
MEMORANDUM OPINION AND ORDER
Plaintiff Tawanda R. Causay (“Plaintiff”) alleges that Defendant Wells Fargo
Bank, N.A. (“Wells Fargo” or “Defendant”) violated the Fair Credit Reporting Act
(“FCRA”), 15 U.S.C. § 1681, et seq., by failing to correct false information it
furnished to credit reporting agencies. Compl. [1]. Plaintiff also raises state law
claims of defamation and breach of contract. Id.
On September 19, 2016, Defendant filed a motion to dismiss Plaintiff’s
defamation claim (Count I) pursuant Federal Rule of Civil Procedure 12(b)(6), as
well as a motion to strike a portion of Plaintiff’s breach of contract claim (Count IV)
pursuant to Rule 12(f), on the grounds that Plaintiff’s state law claims are
preempted by the FCRA.
Def.’s Mot. Dismiss & Strike [20].
For the reasons
explained below, Defendant’s motion is granted as to Count I and denied as to
Count IV.
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I.
Background
A.
The Deed in Lieu of Foreclosure
Plaintiff’s Complaint sets forth the following relevant facts, which the Court
accepts as true for the purposes of Defendant’s motions. On April 12, 2007, Plaintiff
executed a mortgage for her Chicago condominium. Compl. [1] ¶ 20. On September
10, 2010, the mortgage was assigned to Defendant. Id. ¶¶ 10, 21. On November 16,
2012, Plaintiff and Defendant entered into an agreement entitled “Deed in Lieu of
Foreclosure” (“Deed in Lieu”), which, according to Plaintiff, consisted “of a set of
promises.” Id. ¶¶ 22-23, Ex. 1. Specifically, in exchange for conveying her interest
in the property to Defendant, Defendant agreed to pay Plaintiff $121,181.40 and
“forever forebear taking any action whatsoever to collect” against Plaintiff on the
obligations “secured by the mortgage/deed of trust.” Id. ¶¶ 24, 26 (quoting Compl.
[1] Ex. 1) (emphasis removed). As additional consideration, Wells Fargo waived “its
right to bring an action” against Plaintiff “based on the promissory note secured by
the mortgage” and agreed “not to name” Plaintiff “as a party to a foreclosure action.”
Id. ¶ 25, Ex. 1.
B.
Wells Fargo’s Collection Attempts and Credit Furnishing
Plaintiff contends that Wells Fargo repeatedly breached the Deed in Lieu by
attempting to collect on the “nonexistent mortgage” after she conveyed her interest
in the property to the Bank. Id. ¶¶ 84-85. Plaintiff alleges that, over a three-year
period, Wells Fargo attempted to collect on the loan by sending form collection
letters and placing telephone calls to Plaintiff. Id. ¶¶ 30-33, 38.
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On multiple occasions during this time period, Plaintiff informed Defendant
that the Deed in Lieu had been executed. Id. ¶ 34. For example, on November 23,
2014, Plaintiff informed Defendant that she no longer owned the property and
requested that Defendant cease all communication. Id. ¶ 45. On December 5, 2014,
Defendant sent Plaintiff a letter confirming her request.
Id. ¶ 46, Ex. 2.
Defendant’s confirmation, however, also stated that Defendant was “in the process
of moving forward with the foreclosure referral and process.” Id. ¶¶ 46-47, Ex. 2.
Moreover, despite Plaintiff’s request, Defendant continued to send collection letters
and make collection calls. Id. ¶¶ 32-33, 56.
In addition to contacting Plaintiff, Defendant also falsely reported to credit
reporting agencies that Plaintiff’s mortgage account was in default. Id. ¶¶ 29, 48.
In April 2014, Plaintiff disputed the inaccuracy with Equifax Information Services,
LLC (“Equifax”)—the other named defendant in this suit—and indicated that she
was no longer liable for the mortgage account. Id. ¶ 35. Although Equifax informed
Defendant of the dispute, Defendant continued to report to credit reporting agencies
that the loan on Plaintiff’s property was in default. Id. ¶¶ 36, 39. On February 3,
2015, Plaintiff’s credit report still listed the non-existent Wells Fargo mortgage as
delinquent. Id. ¶ 49.
C.
The Present Litigation
On July 20, 2016, Plaintiff filed a five-count class action complaint in this
Court. Compl. [1]. Plaintiff brings state law claims for defamation (Count I) and
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breach of contract (Count IV), 1 and asserts violations of two federal statutes, the
FCRA (Counts II and III) and Telephone Consumer Protection Act, 47 U.S.C. § 227
(Count V). Id. Defendant’s motions relate only to Plaintiff’s state law claims.
In Count I, Plaintiff alleges that, on multiple occasions, Defendant “published
misrepresentations” about the status of her mortgage account to various credit
reporting agencies, including TransUnion, Equifax, and Experian, and “through
these entities to all of Plaintiff’s potential lenders.” Id. ¶ 63. Plaintiff contends that
these misrepresentations constituted “defamations” made “with legal malice and a
willful intent to injure Plaintiff by placing derogatory credit information on her
credit reports as punishment for what Defendant believed was a failure to pay.” Id.
¶ 64. In Count IV, Plaintiff alleges that Defendant breached the Deed in Lieu by
continuing collection attempts against Plaintiff and incorrectly reporting to credit
reporting agencies that her account was delinquent. Id. ¶¶ 84-86.
Defendant argues that Plaintiff’s state law claims are preempted by the
FCRA to the extent they are based upon Defendant’s credit furnishing activities.
Def.’s Mem. Supp. Mot. Dismiss & Strike [21] 1. Accordingly, Defendant asserts
that this Court should dismiss Plaintiff’s defamation claim and strike the portion of
Plaintiff’s breach of contract claim that is based on Wells Fargo’s alleged improper
reporting. Id.
Plaintiff’s Complaint [1] refers to this claim as “Count VI” despite its placement between Counts III
and V. The Court interprets this as a mere scrivener’s error.
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II.
Legal Standard
A motion to dismiss under Rule 12(b)(6) “challenges the sufficiency of the
complaint for failure to state a claim upon which relief may be granted.” Gen. Elec.
Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074, 1080 (7th Cir. 1997). To
survive a motion to dismiss, a complaint must contain “sufficient factual matter” 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)).
In
determining whether a complaint states a plausible claim for relief, the Court
accepts all well-pleaded allegations as true and draws all reasonable inferences in
favor of Plaintiff. Id. at 679.
Pursuant to Rule 12(f), the Court may strike “an insufficient defense or any
redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P. 12(f).
Motions to strike “are generally disfavored because they potentially only delay the
proceedings.” Edwards v. Mack Trucks, Inc., 310 F.R.D. 382, 386 (N.D. Ill. 2015).
The moving party has the burden of showing that the challenged allegations “are so
unrelated to plaintiff’s claim as to be devoid of merit, unworthy of consideration,
and unduly prejudicial.” E & J Gallo Winery v. Morand Bros. Beverage Co., 247 F.
Supp. 2d 979, 982 (N.D. Ill. 2003) (internal quotations omitted). A motion to strike
is proper, however, “when it serves to remove ‘unnecessary clutter’ to expedite a
case.” Id. (quoting Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286,
1294 (7th Cir. 1989)).
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A motion to strike should be granted only if the language in the pleading: (1)
“bears no possible relation to the controversy”; or (2) “may cause the objecting party
prejudice.”
Talbot v. Robert Matthews Distrib. Co., 961 F.2d 654, 664 (7th Cir.
1992). The former “is essentially a relevancy inquiry.” Volling v. Antioch Rescue
Squad, 999 F. Supp. 2d 991, 1007 (N.D. Ill. 2013). Regarding the latter, prejudice
results “when the matter complained of has the effect of confusing the issues, or
where it is so lengthy and complex that it places an undue burden on the
responding party.”
Sun Life Assurance Co. of Canada v. Great Lakes Business
Credit LLC, 968 F. Supp. 2d 898, 903 (N.D. Ill. 2013).
III.
Analysis
A.
Plaintiff’s Defamation Claim (Count I)
Originally enacted in 1970, the FCRA is a “comprehensive statutory scheme
designed to regulate the consumer reporting industry.” Ross v. FDIC, 625 F.3d 808,
812 (4th Cir. 2010). The FCRA provides protection for consumers “by ensuring
accuracy and fairness in credit reporting and requiring that such reporting is
confidential, accurate, relevant, and proper.” Tracy Bateman Farrell, Preemption of
State Law by Fair Credit Reporting Act, 8 A.L.R. Fed. 2d 233, § 2 (2006).
As originally enacted, the FCRA contained the following preemption
provision:
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 reporting of information
against any consumer reporting agency, any user of
information, or any person who furnishes information to a
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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) (emphasis added). Thus, § 1681h(e) preempts “some” state
regulation of reports to credit agencies, Purcell v. Bank of Am., 659 F.3d 622, 625
(7th Cir. 2011), but does not preempt willfully false reports, as Plaintiff alleges
here. See Compl. [1] ¶ 71 (“The conduct, actions and inactions of Wells Fargo were
willful, malicious, deliberate, intentional and/or with reckless disregard for the
interests and rights of Plaintiff.”).
In 1996, however, Congress amended the FCRA to impose new duties upon
those furnishing information to credit reporting agencies. See 15 U.S.C. § 1681s-2;
see also Ryan v. Trans Union Corp., No. 99-cv-216, 2000 WL 1100440, at *1 (N.D.
Ill. Aug. 4, 2000). Specifically, under § 1681s-2(b), a furnisher who receives notice
that a consumer disputes the “completeness or accuracy” of information provided to
a credit reporting agency must conduct an investigation. Id. § 1681s-2(b)(1)(A). If
the investigation finds that the disputed information is inaccurate, the furnisher
must report its results to credit reporting agencies and either modify, delete, or
permanently block the reporting of that information.
Id. § 1681s-2(b)(1)(D)-(E).
Plaintiff’s FCRA claim against Wells Fargo (Count II) alleges violations of these
duties. See Compl. [1] ¶ 73.
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The 1996 amendments to the FCRA also added another, broader preemption
provision—§ 1681t(b)(1)(F)—to supplement § 1681h(e). That section provides that,
aside from certain situations not applicable here, no “requirement or prohibition
may be imposed under the laws of any State” with respect to “any subject matter
regulated under 15 U.S.C. § 1681s-2” relating to “the responsibilities of persons who
furnish information to consumer reporting agencies.” 15 U.S.C. § 1681t(b)(1)(F).
Unlike § 1681h(e), § 1681t(b)(1)(F) does not contain an exception for willfully false
reports.
In the years following the 1996 amendments, some courts, in attempt to
harmonize § 1681h(e) and § 1681t(b)(1)(F), found the latter to apply only to state
statutes, but not state common law. See, e.g., Purcell v. Bank of Am., No. 09-cv-356,
2010 WL 4955542, at *5-*9 (N.D. Ind. Nov. 30, 2010); Manno v. American General
Finance Co., 439 F. Supp. 2d 418, 425 (E.D. Pa. 2006); Johnson v. Citimortgage,
Inc., 351 F. Supp. 2d 1368, 1376 (N.D. Ga. 2004); Carlson v. Trans Union, LLC, 259
F. Supp. 2d 517, 521 (N.D. Tex. 2003).
In 2011, however, the Seventh Circuit
explicitly rejected this approach. Purcell v. Bank of America, 659 F.3d 622 (7th Cir.
2011). In doing so, it held that § 1681t(b)(1)(F) reduces the scope of permissible
state regulation to preempt even willfully false reports that fall under its purview.
Id. at 625 (“[T]he first-enacted statute preempts some state regulation of reports to
credit agencies, and the second-enacted statute preempts more.”).
Section 1681t(b)(1)(F), as interpreted in Purcell, controls here.
Count I
alleges that Defendant defamed Plaintiff by providing inaccurate information to
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credit reporting agencies. Such allegations fall within the scope of § 1681s-2, and
thus, § 1681t(b)(1)(F). See Aleshire v. Harris, N.A., 586 F. App’x 668, 671 (7th Cir.
2013) (“Because [the plaintiff’s] state law tort claims arise out of [the defendant’s]
reports to consumer credit reporting agencies, they relate to a matter regulated
under section 1681s-2.”).
Therefore, Plaintiff’s defamation claim is preempted.
Accordingly, Count I is dismissed with prejudice.
B.
Plaintiff’s Breach of Contract Claim (Count IV)
i. Preemption of Express Breach of Contract Claims Under
the FCRA
Defendant next argues that the portions of Count IV premised upon credit
furnishing allegations are also preempted under § 1681t(b)(1)(F) and should be
stricken. Def.’s Mot. Dismiss & Strike [20] ¶ 2. Specifically, Defendant moves to
strike Plaintiff’s allegation that Defendant “continued to report to the credit
reporting agencies that an account was delinquent and failed to note that it was in
dispute or resolved through a deed in lieu.” Compl. [1] ¶ 86.
Although Purcell concluded that § 1681t(b)(1)(F) potentially reaches both
state statutory and common law, it did not find its preemptive scope to be without
limit. See 659 F.3d at 625 (“[T]here are exceptions to § 1681t(b)(1)(F).”); see also
Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 523 (1992) (“That the pre-emptive
scope of [a federal statute] cannot be limited to positive enactments does not mean
that [it] pre-empts all common-law claims. . . . [W]e must look to each of petitioner’s
common-law claims to determine whether it is in fact pre-empted.”).
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Indeed,
neither the Seventh Circuit nor courts in this district have squarely addressed
preemption of breach of contract claims under the FCRA.
Returning to the statute itself, § 1681t(b)(1)(F) provides, in relevant part,
that no “requirement or prohibition may be imposed under the laws of any State”
with respect to “any subject matter regulated under 15 U.S.C. § 1681s-2” relating to
“the responsibilities of persons who furnish information to consumer reporting
agencies.” For preemption to apply, therefore, two requirements must be met: (1)
the “requirement or prohibition”—i.e., the legal duty giving rise to the claim—must
be “imposed under the laws of any State” (“duty requirement”), and; (2) the state
law claim must be related to “subject matter regulated under § 1681s-2” (“subject
matter requirement”).
Defendant contends that Plaintiff’s breach of contract claim is preempted to
the extent it is premised upon improper credit furnishing. Def.’s Mem. Supp. Mot.
Dismiss & Strike [21] 10. By doing so, Defendant ostensibly argues that because
the “subject matter” of such allegations relates to § 1681s-2, then preemption must
apply. Defendant fails, however, to address § 1681t(b)(1)(F)’s duty requirement.
Moreover, a distinction must be drawn between a duty imposed by state law and a
remedy provided by state law. While state law may provide the remedy for breach of
an express contract, the predicate duty is independently undertaken by the parties
themselves. Thus, on its face, § 1681t(b)(1)(F) does not apply.
Here, Cipollone v. Liggett Grp., Inc., 505 U.S. 504, 515 (1992), is instructive.
In Cipollone, the Supreme Court addressed a nearly identical preemption provision
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found in the Public Health Cigarette Smoking Act of 1969 (“the Act”), 15 U.S.C. §
1331, et seq. That provision provides, in relevant part, that no “requirement or
prohibition based on smoking and health shall be imposed under State law with
respect to the advertising or promotion of any cigarettes the packages of which are
[lawfully] labeled.” Id. at 515. Following the death of his mother from lung cancer,
petitioner sued cigarette manufacturers for, among other things, breach of an
express warranty, alleging that respondents had “expressly warranted that
smoking cigarettes which they manufactured and sold did not present any
significant health consequences.” Id. at 509.
In a plurality decision, the Supreme Court held that the Act did not preempt
the petitioner’s breach of express warranty claim. Id. at 525. The Court’s “central
inquiry” asked whether the claim “would require the imposition under state law of a
requirement or prohibition based on smoking and health with respect to advertising
or promotion.” Id. at 525. The Court held that it would not. According to the
Court:
A manufacturer’s liability for breach of an express
warranty derives from, and is measured by, the terms of
that warranty. Accordingly, the “requirement[s]” imposed
by an express warranty claim are not “imposed under
State law,” but rather imposed by the warrantor. If, for
example, a manufacturer expressly promised to pay a
smoker’s medical bills if she contracted emphysema, the
duty to honor that promise could not fairly be said to be
“imposed under state law,” but rather is best understood
as undertaken by the manufacturer itself. While the
general duty not to breach warranties arises under state
law, the particular “requirement . . . based on smoking
and health . . . with respect to the advertising or
promotion [of] cigarettes” in an express warranty claim
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arises from the manufacturer’s statements in its
advertisements. In short, a common-law remedy for a
contractual commitment voluntarily undertaken should
not be regarded as a “requirement . . . imposed under
State law ” within the meaning of § 5(b).
Id. 525-26 (quoting the Act) (some emphasis added).
In a footnote, the Court
further noted that such “express warranty claims are said to sound in contract
rather than in tort.” Id. n.23 (citing Black’s Law Dictionary 1489 (6th ed. 1990)
(defining “tort”: “There must always be a violation of some duty . . . and generally
such duty must arise by operation of law and not by mere agreement of the parties”;
defining “contract”: “An agreement between two . . . persons which creates an
obligation.”).
Like the Act in Cipollone, § 1681t(b)(1)(F), by its own express terms,
preempts only “requirement[s] or prohibition[s]” that are “imposed under the laws
of any State.” Moreover, the Deed in Lieu, like the warranty in Cipollone, while
enforceable under state law, was not “imposed” by the State.
Rather, it was
“imposed” by the parties themselves when they entered into the agreement.
Because the legal duty giving rise to Plaintiff’s breach of express contract claim is
not imposed by state law, the claim is not preempted by § 1681t(b)(1)(F).
See
Granville Alley v. Farmers Bank, Inc., No. 3:13-CV-146, 2014 WL 4287103, at *7
(M.D. Ga. Aug. 29, 2014) (finding preemption for breach of an implied agreement
but specifically noting that “it is clear that a breach of contract claim based on an
express agreement between the parties does not arise from a ‘requirement or
prohibition . . . imposed under laws of any State’ and therefore falls outside
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preemption imposed by § 1681t(b)(1)(F)”); Spencer v. National City Mortg., 831 F.
Supp. 2d 1353, 1364 (N.D. Ga. 2011) (holding that to the extent the plaintiff’s
breach of contract claim was based upon breach of an express agreement, claim was
not preempted by the FCRA); Leet v. Cellco P’ship, 480 F. Supp. 2d 422, 431-32 (D.
Mass. 2007) (holding that breach of an alleged contractual obligation to remove
negative information from plaintiff’s credit report was not imposed by state law and
therefore not preempted by the FCRA); Kavicky v. Washington Mut. Bank, F.A., No.
3:06CV01812(AWT), 2007 WL 1341345, at * 2 (D. Conn. May 5, 2007) (“[T]he FCRA
does not preempt breach of contract claims.”). Consequently, Defendant’s motion to
strike Count IV is denied.
ii. The Deed in Lieu Constitutes an Express Agreement
One final wrinkle remains. Some district courts have concluded that, express
contracts notwithstanding, the FCRA preempts breach of implied contract claims.
See, e.g. Granville Alley v. Farmers Bank, Inc., No. 3:13-CV-146 CAR, 2014 WL
4287103, at *8 (M.D. Ga. Aug. 29, 2014) (“Plaintiffs’ breach of contract claim is
indisputably based on the Bank’s alleged breach of implied terms of the Note and
Mortgage . . . . [T]he Court is inclined to find such claim preempted by the FCRA.”)
(emphasis in original); Carruthers v. Am. Honda Fin. Corp., 717 F. Supp. 2d 1251,
1254 (N.D. Fla. 2010) (finding preemption where plaintiff did not allege that
defendant violated a specific term of contract, but rather the “covenant of good faith
and fair dealing implied in every contract under Florida law”) (internal quotations
omitted).
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Nevertheless, this Court need not decide whether § 1681t(b)(1)(F) applies to
implied breach of contract claims, because the Deed in Lieu at issue here
constitutes an express agreement. An express agreement is “manifested by direct
and appropriate language, as distinguished from that which is inferred from
conduct.” Beaver v. Grand Prix Karting Ass’n, Inc., 246 F.3d 905, 909 (7th Cir.
2001) (quoting Black’s Law Dictionary (6th ed. 1990)); Wynn v. Bd. of Educ. of Sch.
Dist. No. 159, 815 F. Supp. 2d 1007, 1017 (N.D. Ill. 2011) (stating that under Illinois
law, “the only difference between an express contract and a contract implied in fact
is that in the former the parties arrive at their agreement by words, either written
or oral, while in the latter their agreement is arrived at by a consideration of their
acts and conduct.”).
Here, Defendant explicitly agreed to “forever forebear taking any action
whatsoever to collect” against Plaintiff on the obligations “secured by the
mortgage/deed of trust.”
Compl. [1] Ex. 1.
Plaintiff alleges that, despite this
agreement, Defendant “continued to report to the credit reporting agencies that an
account was delinquent.” Id. ¶ 86. The reporting of debt to a credit reporting
agency constitutes a “collection activity.” See Purnell v. Arrow Fin. Servs., LLC, 303
F. App’x 297, 304 (6th Cir. 2008) (“We assume without deciding that the reporting
of the debt to Equifax constitutes a ‘collection activity.’”); Smith v. Encore Capital
Grp. Inc., 966 F. Supp. 2d 817, 829 (E.D. Wis. 2013) (“[C]redit reporting constitutes
collection of a debt.”); Edeh v. Midland Credit Mgmt., Inc., 748 F. Supp. 2d 1030,
1035 (D. Minn. 2010), aff'd, 413 F. App’x 925 (8th Cir. 2011) (“[T]hreatening to
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report and reporting debts to CRAs is one of the most commonly-used arrows in the
debt collector's quiver.”); Quale v. Unifund CCR Partners, 682 F. Supp. 2d 1274,
1279 (S.D. Ala. 2010); Sullivan v. Equifax, Inc., No. CIV.A. 01-4336, 2002 WL
799856, at *4 (E.D. Pa. Apr. 19, 2002) (“[R]eporting a debt to a credit reporting
agency is a powerful tool designed, in part, to wrench compliance with payment
terms.”) (internal quotations omitted); Federal Trade Commission, Office of the
Secretary, Fair Debt Collection Practices Act, Staff Opinion Letter, 1997 WL
33791232, at *1 (December 23, 1997) (opining that it is not permissible under the
Fair Debt Collection Practices Act for a debt collector to report, or continue to
report, a consumer’s charged-off debt to a consumer reporting agency after the debt
collector has received, but not responded to, a consumer’s written dispute during the
30–day validation period under 15 U.S.C. § 1692g) (“[T]he reality is that debt
collectors use the reporting mechanism as a tool to persuade consumers to pay, just
like dunning letters and telephone calls.”).
In sum, § 1681t(b)(1)(F) does not apply to Count IV and Defendant’s motion
to strike Count IV is denied.
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IV.
Conclusion
For the reasons explained above, Defendant’s Motion to Dismiss and Strike
[20] is granted as to Count I and denied as to Count IV.
Date: December 12, 2016
Entered:
____________________________________
John Robert Blakey
United States District Judge
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