Smith v. Sterling Infosystems-Ohio, Inc. et al

Filing 52

Memorandum of Opinion and Order: This matter is before the Court upon Defendant e-Verifile.com, Inc.'s Motion to Dismiss Counts I and II of Plaintiff's First Amended Complaint (Doc. 40 ). Also pending is the Sterling Defendants� 39; Motion to Dismiss First Amended Complaint in Part and to Strike Class Allegations (Doc. 43 ). Defendant eVerifile.com, Inc.'s motion is DENIED and the Sterling defendants' motion is GRANTED in PART and DENIED in PART. The Court finds that count one fails to state a claim for a willful violation of Section 1681k(a). The motion is DENIED in all other respects. Judge Patricia A. Gaughan on 10/19/16. (LC,S)

Case: 1:16-cv-00714-PAG Doc #: 52 Filed: 10/19/16 1 of 13. PageID #: 445

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

Tiffany Smith, et al.,
Plaintiff,
Vs.
Sterling Infosystems-Ohio, Inc., et al.,

Defendant.

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CASE NO. 1:16 CV 714
JUDGE PATRICIA A. GAUGHAN

Memorandum of Opinion and Order

INTRODUCTION
This matter is before the Court upon Defendant e-Verifile.com, Inc.’s Motion to Dismiss
Counts I and II of Plaintiff’s First Amended Complaint (Doc. 40). Also pending is the Sterling
Defendants’ Motion to Dismiss First Amended Complaint in Part and to Strike Class Allegations
(Doc. 43). This case aries under the Fair Credit Reporting Act (“FCRA”). For the reasons that
follow, defendant eVerifile.com, Inc.’s motion is DENIED and the Sterling defendants’ motion
is GRANTED in PART and DENIED in PART. The Court finds that count one fails to state a

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claim for a willful violation of Section 1681k(a). The motion is DENIED in all other respects.
FACTS
Plaintiff, Tiffany Smith, brings this class action against defendants, Sterling InfosystemsOhio, Inc., Sterling Infosystems, Inc., (collectively, “Sterling”) and e-Verifile.com, Inc. (“eVerifile”), alleging wrongdoing in connection with a background check furnished in conjunction
with plaintiff’s application for employment.
Plaintiff applied for employment with Annapolis Junction Rail Solutions, LLC
(“Annapolis”). As part of the application process, plaintiff was required to sign a written consent
form agreeing to the procurement of a consumer report containing a background check through
e-Verifile. On or about March 28, 2014, plaintiff was hired conditioned upon the background
check. Annapolis submits its employment applications for qualification and approval through
North American Rail Solutions, LLC (“NARS”) and CSX Transportation, Inc. (“CSX”). These
companies in turn use defendant e-Verifile to produce and obtain a consumer report concerning
plaintiff and then determine whether she is eligible for employment within the CSX and NARS
system. E-Verifile purchased a consumer report from Sterling.
On April 11, 2014, Annapolis received a notice from e-Verifile regarding plaintiff’s
background check. The notice indicated that plaintiff was ineligible for employment because she
had been convicted of a felony in the past seven years. Plaintiff alleges that the information
contained in the report is false. At no point did any defendant notify plaintiff that it provided a
consumer report that contained information likely to result in an adverse action. As a result of
the information contained in the report, plaintiff was terminated from employment.
Thereafter, plaintiff brought this class action lawsuit asserting three claims for relief.

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Count one is a claim for violation of 15 U.S.C. § 1681k(a) and is filed against all defendants.
Count two is a claim for violation of 15 U.S.C. § 1681b(b)(3) and is filed against defendant eVerifile only. Count three is an individual claim for violation of 15 U.S.C. § 1681e(b) and is
asserted against both defendants.
Defendant e-Verifile moves to dismiss counts one and two. Defendant Sterling moves to
dismiss the complaint to the extent it purports to allege willful violations in counts one and three.
Defendant Sterling also moves to strike the class allegations on the grounds that the class lacks
Article III standing based on the Supreme Court’s recent decision in Spokeo, Inc. V. Robins, 136
S.Ct. 1540 (2016). Plaintiff opposes both motions.
STANDARD OF REVIEW
Rule 12(b)(6)
When considering a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure, the allegations of the complaint must be taken as true and construed liberally in
favor of the plaintiff. Lawrence v. Chancery Court of Tenn., 188 F.3d 687, 691 (6th Cir. 1999).
Notice pleading requires only that the defendant be given “fair notice of what the plaintiff’s
claim is and the grounds upon which it rests.” Conley, 355 U.S. at 47. However, the complaint
must set forth “more than the bare assertion of legal conclusions.” Allard v. Weitzman (In Re
DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993). Legal conclusions and unwarranted
factual inferences are not accepted as true, nor are mere conclusions afforded liberal Rule
12(b)(6) review. Fingers v. Jackson-Madison County General Hospital District, 101 F.3d 702
(6th Cir. Nov. 21, 1996), unpublished. Dismissal is proper if the complaint lacks an allegation
regarding a required element necessary to obtain relief. Craighead v. E.F. Hutton & Co., 899

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F.2d 485, 489-490 (6th Cir. 1990).
In addition, a claimant must provide “enough facts to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 569 (2007). A pleading
that offers “labels and conclusions” or “a formulaic recitation of the elements of a cause of
action will not do.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1955 (2009). Nor does a complaint suffice
if it tenders “naked assertion[s]” devoid of “further factual enhancement.” Id.
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. 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. The
plausibility standard is not akin to a “probability requirement,” but it asks for more than a
sheer possibility that a defendant has acted unlawfully. 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. at 1949 (citations and quotations omitted). See also, Hensley Mfg. v. ProPride, Inc., 579 F.3d
603 (6th Cir.2009).
Rule 12(b)(1)
“Whether subject matter jurisdiction exists is a threshold determination the Court must
make before proceeding further.” Ggnsc Stanford, LLC v. Gilliam, 2016 WL 4700135 (E.D. Ky.
Sept. 7, 2016) (citing United Liberty Life Ins. Co. v. Ryan, 985 F.2d 1320, 1325 (6th Cir. 1993)).
“A Rule 12(b)(1) motion can either attack the claim of jurisdiction on its face, in which case all
allegations of the plaintiff must be considered as true, or it can attack the factual basis for
jurisdiction, in which case the trial court must weigh the evidence and the plaintiff bears the
burden of proving that jurisdiction exists.” Hutchins v. Laferte, 2016 WL 4534029 (W.D. Ky.
Aug. 25, 2016) (citing DLX, Inc. v. Kentucky, 381 F.3d 511, 516 (6th Cir. 2004)). Here,
defendant asserts a facial attack and, therefore, the Court will accept the truth of the allegations
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set forth in the complaint.
ANALYSIS
1.

e-Verifile’s motion to dismiss/Sterling’s motion to strike

e-Verifile argues that counts one and two should be dismissed because the absent class
members lack standing to assert their claims. According to this defendant, the class definition is
too broad and encompasses individuals who have not suffered an “injury in fact.” e-Verifile,
however, concedes that plaintiff herself “satisfies the requirement for Article III standing.” In
response, plaintiff argues that she need not establish standing on behalf of the absent class
members. Rather, the fact that she unquestionably has standing is sufficient to invoke this
Court’s jurisdiction. Upon review, the Court agrees. Defendant e-Verifile essentially asks the
Court to dismiss the claims of the absent class members due to lack of standing. This is not the
proper analysis. See, Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 422-23 (6th Cir.
1998)(“Once [plaintiff’s] standing is established, whether [plaintiff] will be able to represent the
putative class, including absent class members, depends solely on whether he is able to meet the
additional criteria encompassed in [Fed.R.Civ.Pro. 23(a)].”); NECA-IBEW Health & Welfare
Fund v. Goldman Sachs & Co., 693 F.3d 145, 159 (2nd Cir. 2012)(whether “class standing”
exists does not turn on whether plaintiff has Article III standing to assert claims; rather the
analysis is more properly performed under Rule 23). As such, whether plaintiff can represent
absent class members is more properly analyzed under Rule 23. Accordingly, the claims will not
be dismissed for lack of standing and defendant eVerifile’s motion to dismiss is DENIED.
Sterling, however, recognizes that dismissal for lack of standing is improper. As such,
Sterling requests that the Court strike the allegations instead. According to Sterling, the class is

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broadly defined and because many of the class members lack standing, the Court cannot certify
the class. Sterling claims that the class members lack standing under the Supreme Court’s recent
decision in Spokeo, 136 S.Ct. at 1549. Because no amount of discovery will cure this defect, the
Court should strike the class claims now. In response, plaintiff argues that it is not proper to
strike the class allegations at this point. Plaintiff further claims that Sterling improperly focuses
on standing alone. Because plaintiff need not establish standing with respect to absent class
members, striking the class allegations is improper. Plaintiff also argues that even if she is
required to establish standing for class members, she has done so. According to plaintiff, the
class members suffered an “informational” injury which is sufficient to confer Article III
standing under Spokeo.
Upon review, the Court agrees with plaintiff. Courts routinely struggle with concepts of
“standing” as they pertain to absent class members. Although the general rule is that a plaintiff
need not establish standing with respect to absent class members for purposes of Article III, it is
not entirely clear what impact this principle has with regard to class certification. By way of
example, the Eighth and Second Circuits have held that “although federal courts do not require
that each member of a class submit evidence of personal standing, a class cannot be certified if it
contains members who lack standing.” Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th
Cir. 2010); Denney v. Deutsche Bank AG, 443 F.3d 253 (2nd Cir. 2006)(“the class must
therefore be defined in such a way that anyone within it would have standing”). These holdings
imply that provided a movant can establish that some class members lack standing, the class
claims must be stricken.
On the other hand, the Third Circuit held that the focus is not standing at all. Rather, the

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inquiry is limited solely to Rule 23 concerns. See, Neale v. Volvo Cars of North America, LLC,
794 F.3d 353 (2nd Cir. 2015). Neale pointed out that it was not clear whether Avritt based its
holding on Article III or Rule 23. Ultimately, Neale held that “requiring Article III standing of
absent class members is inconsistent with the nature of an action under Rule 23.” Id. Citing
Kohen v. Pac. Inv. Mgmt. Co., LLC, 571 F.3d 672, 677 (7th Cir. 2009)(“a class will often include
persons who have not been injured by defendant’s conduct; indeed this is almost inevitable
because at the outset of the case many of the members of the class may be unknown”).
Although not cited by any party, the Sixth Circuit expressly ruled that once the
representative plaintiff establishes standing, whether she “will be able to represent the putative
class, including absent class members, depends solely on whether she is able to meet the
additional criteria encompassed in Rule 23 of the Federal Rules of Civil Procedure.” See,
Fallick v. Nationwide Mut. Ins. Co., 162 F.3d 410, 422-23 (6th Cir. 1998)(emphasis added). As
noted above, the parties do not dispute that plaintiff possesses standing to represent the class.
Thus, in order to satisfy Fallcik, the Court must conduct a “rigorous” analysis under Rule 23 to
ascertain whether plaintiff can represent the class. Sterling’s analysis–although purporting to
recognize that concepts of Article III and Rule 23 are different– fails in any way to engage in a
Rule 23 analysis. Rather, Sterling simply claims that the absent class members lack standing
under Spokeo and, therefore, the class claims should be stricken. Although the Court has some
doubt as to whether many of the class members would have standing in their own right, the
Court finds that it is not proper to strike the class claims at this time. Absent any analysis of
Rule 23, the Court finds that it cannot assess whether the “standing” issue renders certification
improper. This is especially so in that courts around the country struggle with how to address

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the principles underlying standing in connection with a Rule 23 analysis. See, e.g., Sandoval v.
Pharamcare, US, Inc., 2016 WL 3554919 (S.D. Cal. June 10, 2016)(noting that standing
concerns in the context of class certification can be characterized as problems with overbreadth,
commonality, typicality, or Article III standing). Because Sterling did not tie its “standing”
argument to the Rule 23 factors, the Court denies Sterling’s motion to strike.1
2.

Sterling’s motion to dismiss

Sterling moves to dismiss the claims in the complaint to the extent they seek damages for
willful violations of the statute. According to Sterling, the question of whether a federal
statutory violation is willful is a question of law that is appropriately addressed via a Rule 12(b)
motion to dismiss. Sterling argues that plaintiff’s allegations of willfulness are conclusory and
improperly lump the defendants together. Plaintiff responds that she need not plead willfulness
with any degree of specificity. Plaintiff further alleges that whether defendants acted willfully
cannot be decided at this stage in the litigation. Regardless, even if the Court considers the
argument, plaintiff sufficiently alleges willfulness.
The parties agree that a willful violation of the FCRA requires plaintiff to establish that
defendant’s conduct was either intentional or reckless. Safeco Ins. Co. of America v. Burr, 551

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Sterling does mention that courts in this jurisdiction have
concluded that overbroad class definitions are “problematic.” The
Court agrees with these general statements, but notes that the
courts went on to assess the Rule 23 factors. See, e.g., Anderson v.
United Financial Systems, Corp., 281 F.R.D. 292 (N.D. Ohio
2012). Pilgrim, 2010 WL 1254849 at * 2. (going on to assess Rule
23’s factors after noting that “overbreadth of the class may not be
in itself fatal”); Chaz Concrete Co., LLC v. Codell, 2006 WL
2453302 (E.D Ky. Aug. 23, 2006)(denying class certification
motion after assessing Rule 23’s factors).
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U.S. 47, 69 (2007). It appears that Sterling’s attack on the sufficiency of the willfulness
allegations is two-pronged. First, Sterling asserts that plaintiff’s willfulness allegations are
insufficient as to count one because plaintiff asserts an interpretation of the statute that no Court
has accepted. As such, even assuming Sterling failed to take the actions as alleged, any such
failure cannot be willful as a matter of law. With regard to count three, Sterling claims that
plaintiff simply fails to satisfy the pleading standards required to allege willfulness.
As to count one, the Court agrees with Sterling. Count one asserts a violation of 15
U.S.C. § 1681k(a), which provides:
A consumer reporting agency which furnishes a consumer report for employment
purposes and which for that purpose compiles and reports items of information on
consumers which are matters of public record and are likely to have an adverse effect
upon a consumer's ability to obtain employment shall–
(1) at the time such public record information is reported to the user of such
consumer report, notify the consumer of the fact that public record information is
being reported by the consumer reporting agency, together with the name and
address of the person to whom such information is being reported; or
(2) maintain strict procedures designed to insure that whenever public record
information which is likely to have an adverse effect on a consumer's ability to
obtain employment is reported it is complete and up to date. For purposes of this
paragraph, items of public record relating to arrests, indictments, convictions,
suits, tax liens, and outstanding judgments shall be considered up to date if the
current public record status of the item at the time of the report is reported.
Plaintiff points to the following allegations as sufficiently alleging a willful violation of
this section:
•

Sterling never gave plaintiff and class members notice that it was reporting
adverse public information (Compl. ¶¶ 25, 41, 57);

•

“Sterling did not follow the option available under 15 U.S.C. § 1681k(a)(2),
which requires a consumer reporting agency to actually contact the original
source of the public records information (e.g., the clerk of court) and to do so
immediately before furnishing a report which includes such information.”
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(Compl. ¶ 62);
•

The records defendants obtain are incomplete in that defendants do not obtain the
“full criminal or traffic file or all of the consumers’ personal identifiers in the
file.” (Compl. ¶ 63);

•

Because of the aforementioned allegations, defendants cannot rely on 15 U.S.C. §
1681k(a)(2). (Compl. ¶ 64);

•

Sterling’s procedures and conduct were intentional and not the result of accidents
or mistakes. (Compl. ¶ 78);

•

Sterling is aware of its obligations under the FCRA. (Compl. ¶ 79);

•

Sterling obtained substantial written materials informing it of its FCRA
obligations.(Compl. ¶ 80);

•

Sterling acted willfully (Compl. ¶¶ 81, 83); and

•

Sterling’s conduct was consistent with their established and systematically
executed procedures. (Compl. ¶ 82).

Defendant argues that no court has ever required a reporting agency to “actually contact
the original source of the public records information (e.g., the clerk of court) and to do so
immediately before furnishing a report which includes such information” in order to comply with
Section 1681k(a)(2). Thus, in the event the Court ultimately accepts plaintiff’s argument that
defendant should have taken such action in order to comply with Section 1681k(a)(2), the failure
to do so cannot be willful as Sterling reasonably interpreted the statute as not requiring such
actions. In response, plaintiff claims this case does not contain an issue of first impression. As
such, the Court need only analyze the sufficiency of the allegations.
Upon review, the Court agrees with defendant. In Long v. Tommy Hilfiger, U.S.A., Inc.,
671 F.3d 371 (3rd Cir. 2012), the court addressed whether the willfulness component of an
FCRA claim can be met based on an erroneous interpretation of a statute. There, the court noted

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that because defendant’s “interpretation of the statute is not ‘objectively unreasonable’ ...
[plaintiff] has not stated a claim for a willful violation of FACTA.” Id. at 377. As such, the
district court properly dismissed the claim. Here, Sterling argues that its interpretation of 15
U.S.C. § 1681k(a)(2) is not objectively unreasonable. In other words, it claims that because it
objectively believed that it need not contact the Clerk of Court in order to satisfy Section
1681k(a)(2), it could not have willfully violated that provision. The Court agrees. Plaintiff
expressly alleges that Section 1681k(a)(2) can only be relied upon to avoid the notice
requirements of Section 1681k(a)(1) if a consumer agency contacts “the original source of the
public records information (e.g., the clerk of court) immediately before furnishing a report which
includes such information” or obtains “the full criminal or traffic file or all of the consumers’
personal identifiers in the file.” (Compl. ¶ 62-64). These specific requirements, however, do
not appear on the face of 15 U.S.C. § 1681k(a)(2) and plaintiff provides the Court with no case
law interpreting the provision as requiring these precise activities. Thus, the Court finds that
even if it were to ultimately read the statute as urged by plaintiff, Sterling’s interpretation that
those specific actions were not required is objectively reasonable. Therefore, plaintiff does not
allege a willful violation of 15 U.S.C. § 1681k. This is so even if plaintiff sufficiently alleges
that Sterling willfully failed to send notice as the statute is violated only if Sterling fails to
comply with both 15 U.S.C. § 1681k(a)(1) and 15 U.S.C. § 1681k(a)(2).
In count three, plaintiff alleges an individual claim based on a violation of 15 U.S.C. §
1681e(b), which provides:
(b) Accuracy of report
Whenever a consumer reporting agency prepares a consumer report it shall follow
reasonable procedures to assure maximum possible accuracy of the information
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concerning the individual about whom the report relates.
Plaintiff asserts the following in connection with this claim:
•

Sterling furnished a report that inaccurately stated that plaintiff was a convicted
felon. (Compl. ¶ 73);

•

In furnishing the inaccurate report, Sterling failed to follow reasonable procedures
to assure maximum possible accuracy of the information. (Compl. ¶ 74);

•

Sterling’s conduct was willful. (Compl. ¶ 76);

•

As a matter of practice, Sterling regularly and consistently fails to establish or
follow reasonable procedures to assure maximum possible accuracy of the
information. (Compl. ¶ 77);

•

Sterling’s procedures and conduct were carried out as intended and do not amount
to accidents or mistakes. (Compl. ¶ 78);

•

Sterling is aware of its legal obligations under the FCRA and has obtained
substantial written information regarding its duties. (Compl. ¶¶ 79, 80);

•

Despite these obligations, Sterling acted consciously and willfully in breaching its
obligations. (Compl. ¶ 81); and

•

Sterling’s conduct is consistent with it established and systematically executed
procedures. (Compl. ¶ 82).

Upon review, the Court finds that these allegations are sufficient to allege a willful
violation of 15 U.S.C. § 1681e(b). Plaintiff alleges that Sterling knew of its obligations under
the FCRA and possessed materials outlining those obligations. Nonetheless, Sterling “failed to
follow reasonable procedures to assure maximum possible accuracy of the information” as
required by 15 U.S.C. § 1681e(b). Sterling further avers that the procedures were carried out
intentionally and were not accidents or mistakes and that Sterling’s conduct is consistent with its
established and systematically executed procedures. On the whole, the Court finds that these
factual allegations are sufficient to allege that Sterling knew of its obligations, yet routinely

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disregarded them. This in turn is sufficient to allege that Sterling acted at least recklessly and, as
such, plaintiff alleges a willful violation of the statute. Accordingly, the Court finds that plaintiff
states a claim for a willful violation of 15 U.S.C. § 1681e(b).
CONCLUSION
For the foregoing reasons, defendant eVerifile.com, Inc.’s motion is DENIED and the
Sterling defendants’ motion is GRANTED in PART and DENIED in PART. The Court finds
that count one fails to state a claim for a willful violation of Section 1681k(a). The motion is
DENIED in all other respects.
IT IS SO ORDERED.

/s/ Patricia A. Gaughan
PATRICIA A. GAUGHAN
United States District Judge
Dated: 10/19/16

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