Martin v. First Advantage Background Services Corp. et al
Filing
31
MEMORANDUM OF LAW & ORDER. IT IS HEREBY ORDERED that: 1. Defendant First Advantage Background Services Corporation's Motion to Dismiss 4 and Defendant Wells Fargo Bank, NA.'s Motion to Dismiss 6 are both DENIED. 2. Plain tiff Mahlon Martin is granted leave to amend his complaint to add alternative state law claims. Any such amendment must be completed within 30 days of the filing of this Order. (Written Opinion). Signed by Chief Judge Michael J. Davis on 7/13/12. (GRR)
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
MAHLON MARTIN,
Plaintiff,
v.
MEMORANDUM OF LAW & ORDER
Civ. No. 11-3357 (MJD/LIB)
FIRST ADVANTAGE BACKGROUND
SERVICES CORP., and WELLS FARGO
BANK, NA,
Defendants.
Daniel Gray Leland and Joni M. Thome, Baillon Thome Jozwiak Miller Wanta,
LLP, Counsel for Plaintiff.
Jenny L. Sautter, Meagher & Geer, PLLP, and Jason A. Spak, Picadio Sneath
Miller & Norton, PC, Counsel for Defendant First Advantage Background
Services Corp.
Joseph G. Schmitt and David A. James, Nilan Johnson Lewis, PA, Counsel for
Defendant Wells Fargo Bank, NA.
I.
Introduction
This matter is before the Court on motions to dismiss by Defendants First
Advantage Background Services Corporation and Wells Fargo Bank, NA.
[Docket Nos. 4 and 6.] The Court heard oral argument on April 13, 2012.
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II.
Background
Plaintiff began working for Defendant Wells Fargo Bank, NA (“Wells
Fargo”) as a contract worker in May 2009. In July 2009 he was laid off, but in
August 2009 he was hired by Wells Fargo’s default/collections department.
Plaintiff consented to criminal background checks when he was hired for both of
those positions, and the results of those checks were unremarkable.
In October 2010, Plaintiff accepted a new position as a TeleSales Specialist
in Wells Fargo’s home mortgage department. In January 2011, Plaintiff
consented to another background check. A criminal background report
(“report”) was prepared by Defendant First Advantage Background Services
Corporation (“First Advantage”). The report contained the following entry
relating to records obtained from Ramsey County District Court:
Case Number
Type
Date Filed
Charge
Offense Date
Arrest Date
Disposition
Sentence
:
:
:
:
:
:
:
:
62-TX-97-041983
MISDEAMENOR
6/27/1997
IMPERSONATING A OFFICER
5/29/1997
10/9/1998 GUILTY
GUILTY: 09/15/1997
JAIL: 1 YEAR
PROBATION: 1 YEAR/UNSUPERVISED
NOTE: CASE DISMISSED 10/09/1998
2
(Spak Aff. [Docket No. 13], Ex. 1.)
On February 4, 2011 Plaintiff met with his supervisor at Wells Fargo, and
she informed him that his employment was terminated as a result of the
information contained in the report. She gave Plaintiff a letter entitled “Letter
1—Team members ineligible for continued employment due to background
check results” and which stated that “a record was found making [Plaintiff]
ineligible for employment with Wells Fargo.” (Compl. [Docket No. 1-1] ¶ 26.)
Wells Fargo did not give Plaintiff notice of the report or a chance to
respond to it before his termination. Plaintiff sought more information about his
termination from Wells Fargo’s human resources department. When he learned
that the termination was based on a 1997 criminal conviction, he retrieved
documents from the Ramsey County District Court indicating that, after Plaintiff
was charged, the case was stayed for one year, and that at the end of that year,
the charge was dismissed. (Martin Decl. [Docket No. 18], Ex. a.) There is no
indication that Plaintiff was ever found guilty, sentenced to one year in jail, or
incarcerated for any length of time. Plaintiff alleges that he faxed the relevant
records to Wells Fargo, explaining that he was not disqualified from
employment.
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Plaintiff also filed a “Notice of Consumer Dispute” form with First
Advantage, noting that the charge of impersonating an officer had been “vacated
and dismiss[ed].” (Spak Aff. [Docket No. 13], Ex. 3.) First Advantage responded
to Plaintiff in a letter which stated that their investigation had “confirmed the
information” in the original report. (Spak Aff., Ex. 4.)
Plaintiff filed this suit in Hennepin County District Court, setting out five
counts, all of which relate to violations of the Fair Credit Reporting Act
(“FCRA”), 15 U.S.C. § 1681 et seq. The first four counts, directed at First
Advantage, are: failure to follow reasonable procedures to assure maximum
possible accuracy in violation of FCRA (Count I); failure to follow strict
procedures for use of public record information (Count II); failure to comply
with obsolescence requirements (Count III); and failure to follow procedures in
case of disputed accuracy (Count IV). Count V, failure to provide pre-adverse
action disclosures, is directed at Wells Fargo. Defendants removed the case to
this Court. Both Defendants have now moved for dismissal of Plaintiff’s claims.
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III.
Discussion
A.
Standard
Under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a party may
move the Court to dismiss a claim if, on the pleadings, a party has failed to state
a claim upon which relief may be granted. In reviewing a motion to dismiss, the
Court takes all facts alleged in the complaint to be true. Zutz v. Nelson, 601 F.3d
842, 848 (8th Cir. 2010).
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. Thus, although a complaint need not include
detailed factual allegations, a plaintiff’s obligation to provide the
grounds of his entitlement to relief requires more than labels and
conclusions, and a formulaic recitation of the elements of a cause of
action will not do.
Id. (citations omitted).
In deciding a motion to dismiss, the Court considers “the complaint,
matters of public record, orders, materials embraced by the complaint, and
exhibits attached to the complaint.” PureChoice, Inc. v. Macke, Civil No. 071290, 2007 WL 2023568, at *5 (D. Minn. July 10, 2007) (citing Porous Media Corp.
v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)).
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B.
Whether the report in this case was a “Consumer Report” under
the FCRA
1. Definition of “Consumer Report”
Each of the counts in Martin’s complaint alleges a violation of FCRA, and
all but one of those counts (Counts I-III and V) require a finding that the report
prepared by First Advantage and relied upon by Wells Fargo is a “consumer
report” under that Act.
The definition of a “consumer report” includes a report “by a consumer
reporting agency bearing on a consumer’s credit worthiness, credit standing,
credit capacity, character, general reputation, personal characteristics, or mode of
living,” when such a report is “used or expected to be used or collected in whole
or in part for the purpose of serving as a factor in establishing the consumer’s
eligibility for . . . employment purposes.” 15 U.S.C. § 1681a(d)(1)(B). Certain
reports are excluded from this definition. A communication which otherwise
would be considered a “consumer report” is excluded if,
(B) the communication is made to an employer in connection with
an investigation of-(i) suspected misconduct relating to employment; or
(ii) compliance with Federal, State, or local laws and
regulations, the rules of a self-regulatory organization, or any
preexisting written policies of the employer;
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(C) the communication is not made for the purpose of investigating
a consumer’s credit worthiness, credit standing, or credit capacity;
and
(D) the communication is not provided to any person except-(i) to the employer or an agent of the employer;
(ii) to any Federal or State officer, agency, or department, or
any officer, agency, or department of a unit of general local
government;
(iii) to any self-regulatory organization with regulatory
authority over the activities of the employer or employee;
(iv) as otherwise required by law; or
(v) pursuant to section 1681f of this title.
15 U.S.C. § 1681a(y)(1). 1
There is little doubt that, without the operation of the exemption found in
18 U.S.C. § 1681a(y) (“the exemption”), the report prepared by First Advantage
would be considered a consumer report under 15 U.S.C. § 1681a(d)(1)(B). The
parties also agree that Wells Fargo did not obtain the report “for the purpose of
investigating [Plaintiff’s] credit worthiness, credit standing, or credit capacity”
and that the report was provided only to Wells Fargo, Plaintiff’s employer. See
15 U.S.C. § 1681a(y)(1)(C)-(D).
A key issue in this case is therefore whether the report was made to Wells
Fargo “in connection with an investigation of . . . suspected misconduct related to
employment; or compliance with Federal, State, or local laws and regulations,
1
Prior to July 21, 2010, this exemption was codified at 18 U.S.C. § 1681a(x).
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the rules of a self-regulatory organization, or any preexisting written policies of
the employer.” 15 U.S.C. § 1681a(y)(1)(B). If it was, the exemption applies, and
Plaintiff’s claims on Counts I, II, III and V cannot succeed because the FCRA
provisions which underlie those claims apply only to “consumer reports.”
2. Scope of the Exemption
Wells Fargo contends that its purpose in obtaining the report was to
comply with Federal law and, therefore, the exemption applies and the report is
not a “consumer report.” In response, Plaintiff first argues that the exemption
applies only to reports obtained in investigations of alleged employee
misconduct. In support he notes that certain aspects of the legislative history
indicate that Congress enacted the exemption in response to applications of
FCRA to instances where reports were obtained in response to allegations of
workplace misconduct. Plaintiff notes that there has never been an allegation of
misconduct on his part.
Defendants argue that reading the exemption to encompass only
investigations of employee misconduct would essentially read out the clause
referring to “investigation[s] of . . . compliance with Federal, State, or local laws
and regulations, the rules of a self-regulatory organization, or any preexisting
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written policies of the employer.” 15 U.S.C. § 1681a(y)(1)(B); see Duncan v.
Walker, 533 U.S. 167, 174 (2001) (explaining that courts should give effect to
“every clause and word of a statute”). Moreover, Defendants argue that
Plaintiff’s arguments regarding the legislative history of the exemption are
irrelevant in this case because the meaning of the statute’s language is plain. See
United States v. Ron Pair Enters., 489 U.S. 235, 240-41 (1989) (“[A]s long as the
statutory scheme is coherent and consistent, there generally is no need for a court
to inquire beyond the plain language of the statute.”). Finally, Defendants note
that the legislative history does not necessarily support Plaintiff’s contention that
Congress intended for the exemption to apply only to misconduct investigations.
Plaintiff’s position that the exemption applies only to investigations of
employee misconduct does not square with the text of the statute. Plaintiff’s
reading entirely elides the clause in the exemption relating to compliance with
laws, regulations, and internal policies. This language does not require that an
employer be investigating alleged employee misconduct in order to avail itself to
the exemption. The Court need not delve into a historical analysis of the
exemption where its language is plain and unambiguous, see Ron Pair Enters.,
489 U.S at 240-41, but the Court notes that the legislative history is not as clear as
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Plaintiff asserts. See, e.g., 149 Cong. Rec. H8124 (daily ed. Sept. 10, 2003)
(statement of Rep. Sheila Jackson-Lee) (noting that the exemption would allow
employers “to assure compliance with civil rights laws and other laws, as well as
written workplace policies”). The Court must conclude that a report received
and used in connection with an investigation into the employer’s compliance
with laws, regulations, or preexisting written internal policies is sufficient to
trigger the exemption.
3. Compliance with Federal Laws
Defendants assert that Wells Fargo sought the report generated by First
Advantage in connection with its efforts to comply with federal law, though each
Defendant has focused on a different federal law with which Wells Fargo is
supposed to have sought to comply. Plaintiff argues that because the federal
statutes cited by Defendants do not require an employer to conduct a criminal
background check, the exemption should not apply. Plaintiff also argues that
this Court should not determine at the motion to dismiss stage Wells Fargo’s
intentions when it sought the report from First Advantage.
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a. Relevant Federal Statutes and Regulations
Defendants claim that Wells Fargo sought a criminal background report in
connection with its efforts to comply with several federal statutes and
regulations. The Federal Institutions Reform, Recovery, and Enforcement act of
1989 (“FIRREA”) prohibits “any person who has been convicted of any criminal
offense involving dishonesty or a breach of trust or money laundering, or has
agreed to enter into a pretrial diversion or similar program in connection with a
prosecution for such offense” from “participat[ing], directly or indirectly, in the
conduct of the affairs of any insured depository institution.” 12 U.S.C. §
1829(a)(1)(A). An individual who violates this provision can be subject to a fine
of up to $1,000,000 or five years imprisonment, or both. 12 U.S.C. § 1829(b).
Wells Fargo notes that it is also obligated to comply with the SAFE Act, 12
U.S.C. § 5101 et seq., which requires that mortgage loan originators working for
banks such as Wells Fargo be licensed and registered in a national registry. See
12 C.F.R. § 34.101. The regulations which implement the SAFE Act require Wells
Fargo to ensure that its “mortgage loan originator[s] . . . submit to the Registry,
or [the bank] must submit on behalf of the employee[s]” a variety of information,
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including convictions for the types of crimes prohibited by FIRREA. 12 C.F.R. §
34.103(d). Another SAFE Act regulation requires that Wells Fargo
[e]stablish a process for reviewing employee criminal history
background reports received pursuant to this subpart, taking
appropriate action consistent with applicable Federal law, including
section 19 of the Federal Deposit Insurance Act (12 U.S.C. 1829) and
implementing regulations with respect to these reports, and
maintaining records of these reports and actions taken with respect
to applicable employees.
12 C.F.R. 34.104(h). Finally, Wells Fargo’s employment handbook indicates that
“[a]ny individual who doesn’t meet the FIRREA criteria, isn’t bondable, or
otherwise doesn’t meet our background screening cannot be employed or
continue employment at Wells Fargo.” (Spak Aff., Ex. 2 at 12.) Defendants
therefore argue that Wells Fargo’s decision to obtain a criminal background
check was made in connection with an investigation to ensure compliance with
FIRREA, the SAFE Act, and Wells Fargo’s own written policies.
In response, Plaintiff points to other parts of the SAFE Act which indicate
that that Wells Fargo may not be required to run a criminal background check on
its employees in order to comply with those laws and policies. He notes that the
employee, not the employer, is required to attest to the information submitted to
the registry. See 12 C.F.R. § 34.103(d)(2)(ii). Plaintiff also notes that the agencies
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adopting the regulations cited by Defendants have explained that, while an
employer is required to verify the information submitted by an employee to the
registry, “institutions need only compare the information supplied by the
employee with the information contained in the institution’s own records.” See
75 Fed. Reg. 44656, 44673 (July 28, 2010). Plaintiff therefore argues that a criminal
background check is unrelated to Wells Fargo’s compliance with the Safe Act.
Even if Plaintiff is correct that Wells Fargo was not required to run a
criminal background check in order to comply with the SAFE Act, the exemption
might still apply. The exemption applies to reports obtained “in connection”
with “an investigation” into “compliance” with federal and state law, as well as
written company policies. 15 U.S.C. § 1681a(y)(1)(B). There is no requirement
that the report be required or necessary for such compliance. As Wells Fargo has
noted, it may submit information to the registry on its employees’ behalf, and
information about employees’ criminal history is required. Moreover, banks are
required to “[e]stablish a process for reviewing employee criminal history
background reports,” a requirement which contemplates they will receive such
reports. 12 C.F.R. 34.104(h). Finally, Plaintiff does not deny that, under FIRREA,
Wells Fargo could be subject to sanctions if it were to employ loan originators
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who have relevant criminal histories, see 12 U.S.C. § 1829(b), or that Wells
Fargo’s written policies explicitly require that employees “meet the FIRREA
criteria,” be “bondable,” and “otherwise meet [its] background screening.”
(Spak Aff., Ex. 2 at 12.)
b. Application of Motion to Dismiss Standard
Plaintiff argues that Defendants’ assertions about the purpose of the report
should not be credited at the motion to dismiss stage because the Court cannot
consider evidence of Wells Fargo’s intentions or procedures in the lead up to its
decision to obtain the report. Defendants argue that part of Plaintiff’s burden in
stating a claim for which relief can be granted is setting out factual allegations
which, if true, would lead to the conclusion that the report was a “consumer
report” under FCRA. Defendants note that Plaintiff has acknowledged that First
Advantage sells “consumer files to potential employers wishing to investigate
the criminal record history of individuals” and that Wells Fargo “obtained [the
report] from First Advantage for employment purposes.” (Compl. ¶¶ 22-23.) He
does not allege that Wells Fargo sought the report to determine his “credit
worthiness, credit standing, or credit capacity.” See 15 U.S.C. § 1681a(y)(1).
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Although this issue may prove simple at the summary judgment stage, the
Court declines to grant Defendants’ motion to dismiss. At this point, the Court’s
examination is properly limited to “the complaint, matters of public record,
orders, materials embraced by the complaint, and exhibits attached to the
complaint.” PureChoice, Inc., 2007 WL 2023568, at *5. Whether or not the report
at issue in this case qualifies as a consumer report depends on the circumstances
surrounding Wells Fargo’s decision to obtain it. That information is uniquely in
the hands of Wells Fargo, and it would not be appropriate for this Court to
examine selected pieces of evidence submitted by Defendants without allowing
Plaintiff the benefit of discovery. For these reasons, the Court denies
Defendants’ motions to dismiss Counts I, II, III, and V.
At oral argument, Plaintiff’s counsel requested leave to amend his
complaint to include state law claims if the Court were to find that report was
not a “consumer report” under FCRA. While the Court makes no such finding at
this stage, in light of the legal conclusions set out above, the Court will grant
Plaintiff leave to amend his complaint should he wish to add alternate state law
claims.
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C.
Count IV—Failure to Reinvestigate
Count IV relates to First Advantage’s response to Plaintiff’s “Notice of
Consumer Dispute” (“Notice”) in which he stated that the 1997 charge of
impersonating an officer had been vacated and dismissed.
Under FCRA, First Advantage is required to reinvestigate information
contained in its files where a consumer files a dispute.
[I]f the completeness or accuracy of any item of information
contained in a consumer’s file at a consumer reporting agency is
disputed by the consumer and the consumer notifies the agency
directly . . . of such dispute, the agency shall, free of charge, conduct
a reasonable reinvestigation to determine whether the disputed
information is inaccurate and record the current status of the
disputed information, or delete the item from the file . . . before the
end of the 30-day period beginning on the date on which the agency
receives the notice of the dispute from the consumer or reseller.
15 U.S.C. § 1681i(a)(1)(A). To maintain a claim for failure to reinvestigate, a
plaintiff must show that the challenged item of information was, in fact,
inaccurate. See Paul v. Experian Info. Solutions, Inc., 793 F. Supp. 2d 1098, 1102
(D. Minn. 2011) (collecting cases).
As discussed above, the report prepared by First Advantage contained the
following entry with respect to Plaintiff’s criminal history:
Case Number
Type
:
:
62-TX-97-041983
MISDEAMENOR
16
Date Filed
Charge
Offense Date
Arrest Date
Disposition
Sentence
:
:
:
:
:
:
6/27/1997
IMPERSONATING A OFFICER
5/29/1997
10/9/1998 GUILTY
GUILTY: 09/15/1997
JAIL: 1 YEAR
PROBATION: 1 YEAR/UNSUPERVISED
NOTE: CASE DISMISSED 10/09/1998
Plaintiff’s Notice indicated that he was disputing an element of his “criminal
record” and specifically noted the case number from the 1997 arrest. (Spak Aff.,
Ex. 3.) He stated that “[t]he charge for impersonating [an] officer was vacated
[and] dismiss[ed] by the Ramsey County Court.” (Id.) First Advantage
responded by stating that it had conducted a reinvestigation and that its
“inquiries confirmed the information that [it had] in [its] files to be accurate.”
(Spak Aff., Ex. 4.)
First Advantage argues that Plaintiff has not stated a claim for which relief
can be granted because he did not dispute an item of information which was
inaccurately reported. It contends that because Plaintiff did not specifically
object to the particular lines of the report which stated that he was found guilty
or that he was sentenced to one year in jail, he cannot claim that First Advantage
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failed in its duty to reinvestigate. First Advantage also notes that the report
correctly states that the charge had been dismissed.
Plaintiff argues, and the Court agrees, that First Advantage’s approach
holds his Notice to an overly stringent standard. In his Notice, Plaintiff clearly
referenced the disputed conviction which he was disputing and stated that it had
been dismissed or vacated. Plaintiff contends that a reasonable investigation
would have shown that he was never found “guilty” of the charged offense (as
the report twice indicates) and that he was not sentenced to one year in jail. He
notes that the offense for which he was charged was a misdemeanor, the
maximum punishment for which was up to 90 days incarceration and up to a
$700 fine. The state court records do not mention any incarceration.
Based on the facts alleged by Plaintiff, it is difficult to credit First
Advantage’s argument that Plaintiff’s Notice was insufficient. While the Notice
was not as detailed as it might have been, it certainly put First Advantage on
notice of the nature and subject of his complaint. Several items of information
relating to the conviction highlighted in Plaintiff’s Notice are alleged to have
been entirely incorrect. First Advantage had a duty to conduct a reasonable
reinvestigation. See Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1155
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(9th Cir. 2009); Westra v. Credit Control of Pinellas, 409 F.3d 825, 827 (7th Cir.
2005); Johnson v. MBNA Am. Bank, NA, 357 F.3d 426, 429-31 (4th Cir. 2004). In
doing so, First Advantage bore a “grave responsibility” under FCRA “to ensure
the accuracy of [the] information” contained in its report. Cushman v. Trans
Union Corp., 115 F.3d 220, 225 (3rd Cir. 1997) (quoting 15 U.S.C. § 1681(a)(4)).
The Court concludes that Plaintiff has sufficiently stated a claim that First
Advantage failed to conduct a reasonable investigation in response to the dispute
raised in his Notice.
Accordingly, based on the files, records, and proceedings herein, IT IS
HEREBY ORDERED that:
1. Defendant First Advantage Background Services Corporation’s Motion
to Dismiss [Docket No. 4] and Defendant Wells Fargo Bank, NA.’s
Motion to Dismiss [Docket No. 6] are both DENIED.
2. Plaintiff Mahlon Martin is granted leave to amend his complaint to add
alternative state law claims. Any such amendment must be completed
within 30 days of the filing of this Order.
Dated: July 13, 2012
s/ Michael J. Davis
Michael J. Davis
Chief Judge
United States District Court
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