Saunders v. Equifax Information Services, LLC et al

Filing 50

REPORT AND RECOMMENDATIONS re 38 Motion to Dismiss filed by Equifax Information Services, LLC. The undersigned RECOMMENDS that the district judge DENY Defendant Equifax Information Systems LLCs Motion to Dismiss Amended Complaint. Signed by Judge Andrew W. Austin. (dm)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
BELINDA A. SAUNDERS,
VS.
EQUIFAX INFORMATION SYSTEMS

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§
§
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§

NO. A-16-CV-525-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are Defendant Equifax Information System’s LLC’s Motion to Dismiss

Amended Complaint (Dkt. No. 38); Saunders’ Response (Dkt. No. 43); and Equifax’s Reply (Dkt. No.
44). The District Court referred the above motions to the undersigned Magistrate Judge for a report
and recommendation pursuant to 28 U.S.C. §636(b) and Rule 1(c) of Appendix C of the Local Rules.
I. BACKGROUND
Saunders sues Equifax for violations of the Fair Credit Reporting Act. Saunders alleges that
Equifax listed on her credit report two accounts on which she is only an “authorized user,” and
included in the report negative history on those two accounts. Saunders alleges this negatively
impacted her credit rating. Saunders disputed the information related to the accounts in a letter to
Equifax dated January 28, 2016. The letter informed Equifax that Saunders was not a signer, obligor
or accommodation party to the original contracts but merely an authorized user of the accounts, and
demanded that the accounts be removed from her credit history. Equifax responded that the accounts
were being accurately reported and that it would continue to report the authorized user accounts with
the negative history.

Saunders argues that since she is not contractually or financially responsible or obligated for
paying the accounts, the information on her credit report is both false and misleading. She asserts
Equifax violated its duty under 15 U.S.C. §1681i(a)(1)(a) to conduct a good faith and reasonable
investigation into this dispute. Additionally, Saunders complains that Equifax did not send any
notifications of the dispute to either Chase or Capital One, in violation of 15 U.S.C. §1681i(a)(2)(A).
Saunders also asserts that Equifax is also currently violating 15 U.S.C. §1681e(b), by not following
reasonable procedures to assure maximum possible accuracy, because it is allowing a data furnisher
(Chase and Capital One) to report negative information on Saunders’ credit report.
In this motion, Equifax asserts that Saunders’ pleadings fail to allege that Equifax’s reporting
of the two accounts was inaccurate because she admits that she was an authorized user on the
accounts and does not contend that either the balance or status information on those accounts was
inaccurate. Saunders responds that reporting information about authorized user accounts is
misleading when it includes “negative” payment history information, as it both has an adverse impact
on her credit score, and because it could lead to the denial of credit based on a misunderstanding that
she was in some way responsible for the outstanding balance.
II. LEGAL STANDARD
Federal Rule of Civil Procedure 12(b)(6) allows a party to move to dismiss an action for
failure to state a claim upon which relief can be granted. FED. R. CIV. P.12(b)(6). In deciding a Rule
12(b)(6) motion to dismiss for failure to state a claim, “[t]he court accepts all well-pleaded facts as
true, viewing them in the light most favorable to the [nonmovant].” In re Katrina Canal Breaches
Litig., 495 F.3d 191, 205 (5th Cir. 2007) (internal quotation marks omitted), cert. denied, 552 U.S.
1182 (2008). The Supreme Court has explained that a complaint must contain sufficient factual
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matter “to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial
plausibility when the [nonmovant] pleads factual content that allows the court to draw the reasonable
inference that the [movant] is liable for the misconduct alleged.” Id. The court generally is not to
look beyond the pleadings in deciding a motion to dismiss. Spivey v. Robertson, 197 F.3d 772, 774
(5th Cir. 1999).
III. ANALYSIS
A.

The FCRA
The FCRA “defines a complex set of rights and obligations that attend the relationships

among and between the provider of a credit report, the user of that information and the consumer
who is made the subject of such a report.” Sepulvado v. CSC Credit Servs., Inc., 158 F.3d 890, 895
(5th Cir. 1998), cert. denied, 526 U.S. 1044 (1999). Among the obligations that the FCRA imposes
is the requirement that “[w]henever a consumer reporting agency prepares a consumer report it shall
follow reasonable procedures to assure maximum possible accuracy of the information concerning
the individual about whom the report relates.” 15 U.S.C. § 1681e(b). In addition,
if 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 . . . 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.
15 U.S.C. § 1681i(a). Importantly, to state a claim for relief under the act, the consumer must
“establish that a credit report contained an actual inaccuracy [otherwise] the plaintiff’s claims fail
as a matter of law.” Doster v. Experian Info. Sols., Inc., 2017 WL 264401, at *3 (N.D. Cal. Jan. 20,
2017) (internal punctuation and citation omitted); see also Washington v. CSC Credit Services Inc.,
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199 F.3d 263, 267 n. 3 (5th Cir. 2000) (“In order to pursue a cause of action based upon a willful or
negligent violation of 15 U.S.C. § 1681e(b), the report sought to be attacked must be inaccurate.”).
To establish a prima facie case for failure to follow reasonable procedures under § 1681e(b),
Saunders must demonstrate: (1) that Equifax prepared a consumer report concerning her that
contained inaccurate information; (2) that the inaccuracy was due to Equifax’s failure to follow
reasonable procedures to assure maximum possible accuracy; (3) that she suffered a cognizable
injury; and (4) that her injury was caused by the inclusion of the inaccurate entry. 15 U.S.C. §
1681e(b); Norman v. Experian Info. Sols., Inc., 2013 WL 1774625, at *3 (N.D. Tex. Apr. 25, 2013);
Sepulvado, 158 F.3d at 895-96.
To establish a prima facie case for failure to conduct a reasonable reinvestigation under
§ 1681i, Saunders must show (1) her consumer report contained inaccurate information; (2) she
disputed the accuracy of information on her credit file directly with Equifax; (3) Equifax “did not
reinvestigate free of charge and either record the current status of the disputed information or delete
the item from the file in the manner prescribed by Section 1681i(a)(5) within the statutory period;”
(4) Equifax’s “noncompliance was negligent or willful;” (5) Saunders suffered injury; and (6) the
injury was caused by Equifax’s failure to reinvestigate. Norman, 2013 WL 1774625, at *3-4; 15
U.S.C. § 1681i(a).
Equifax’s motion to dismiss contends that Saunders’ complaint lacks sufficient pleading on
three aspects of a prima facie case for these claims: (1) “inaccurate” information in the report; (2) a
cognizable injury to Saunders; or (3) an injury caused by the inaccuracy or Equifax’s failure to
reinvestigate.

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B.

Inaccuracy
The primary question presented in the motion is whether a plaintiff states a claim under the

FCRA by alleging that their credit report is “inaccurate” because it reports an account on which the
plaintiff is not the obligor, but rather is only an authorized user, and includes negative payment
history for the account. Equifax contends that because Saunders was in fact an authorized user of
the two accounts at issue here, and further that the payment history was correctly reported, the
information contained in her report was technically accurate, and she cannot state a claim under the
FCRA. Saunders counters that by including the accounts and their negative history, Equifax is
misleading creditors, and further notes that the accounts skew the FICO credit score down, which
impacts lenders’ decisions in offering her credit. Relying on the Fifth Circuit’s statement in
Sepulvedo that “a credit entry may be ‘inaccurate’ within the meaning of the statute either because
it is patently incorrect, or because it is misleading in such a way and to such an extent that it can be
expected to adversely affect credit decisions,” 158 F.3d at 896, she contends she has stated a claim
under the statute.
The Fifth Circuit has held that to be actionable, information challenged in a credit report that
is misleading or ambiguous, must be “open to an interpretation that is directly contradictory to the
true information.” Wagner v. TRW, Inc., 1998 WL 127812 at *1 (5th Cir. Mar. 4, 1998) (per
curiam); see also Pinner v. Schmidt, 805 F.2d 1258, 1262-63 (5th Cir. 1986). Equifax contends that
the information on the two “authorized user” accounts on Saunders’ credit report is not open to an
interpretation that would be “directly contrary” to the actual information. The actual information
is that she is (or was) authorized to use the accounts, but is not obligated to pay them. The

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information on the reports lists the accounts as accounts on which she is an authorized user, but is
silent about her obligation to pay charges.
Two cases instructive on this understanding of “misleading” under the FCRA are Cortez v.
Trans Union, LLC, 617 F.3d 688 (3rd Cir. 2010), and Miller v. Trans Union, LLC, 2013 WL 544208
(M.D. Pa. Aug. 14, 2013). Both of those cases involved situations where the report included a
statement that the individual was a “match” or “possible match” to a name on a government list of
individuals prohibited from doing business in the United States. Both courts found the inclusion of
the statement was misleading, as it could be read as implying the person was possibly on and
possibly not on the government list, when neither of the individuals was actually on the list. 617
F.3d at 709; 2013 WL 544208 at *5. In Wagner v. TRW, the Fifth Circuit applied the same test to
a claim that a credit report was misleading because it said the plaintiff had “5 or more” late payments
on an account, when she only had 6. Wagner argued that the use of “or more” was “unreasonably
ambiguous because it could mean that she was late 6, 10, or 100 times.” Wagner, 1998 WL 127812,
at *1. The court disagreed, and while it noted that the “or more” language was “imprecise,” it was
“neither inaccurate nor open to an interpretation that is directly contradictory to the true
information.” Id. Applying this same rule, in Pinner, the Fifth Circuit held that including a notation
of “Litigation Pending” on an account in the plaintiff’s credit file was ambiguous to the point of
being misleading because “any person could easily have construed the notation ‘Litigation Pending’
as an indication that the plaintiff was being sued by [the creditor], while the actual situation was the
reverse.” Pinner, 805 F.2d at 1262. The question here is whether the inclusion of the authorized user
account, together with its negative payment history, is susceptible of a construction that is similarly
misleading.
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The Court has located only four decisions in which courts were presented with a claim under
the FCRA that raised that question. The first decision is from the Eastern District of Michigan.
There, the court found that the complaint failed to state a claim because the information was
technically accurate, and the plaintiff’s pleadings on inaccuracy were “conclusory.” Importantly, the
court also noted that:
Plaintiff does not support [her] argument with any factual allegations that anyone was
misled by the credit report information. Nor does Plaintiff present any allegations in
her complaint that the “authorized user” notation and reporting of the balance
negatively affected her or her creditworthiness.
Bailey v. Equifax Information Services, LLC, 2013 WL 3305710 (E.D. Mich. 2013) at *6. Bailey
is thus a little different from this case, as here Saunders pleads throughout her complaint that the
inclusion of the account information negatively affected her credit rating. See, e.g., Dkt. No. 37 at
9-10. The second case is from the Northern District of Georgia. While the court there was presented
with a fact scenario like that here, the question it was deciding was not whether that type of
allegation stated a claim, but instead was deciding whether any inaccuracy stemming from the
inclusion of the account could be viewed as either willful or reckless (so as to support an award of
punitive damages). Pedro v. Equifax, Inc., 186 F. Supp 3d 1364 (N.D. Ga. 2016). Relying on the
unsettled state of the law on the reporting of “authorized user accounts,” and the novelty of that
question, the court concluded that the plaintiff could not state a claim for a willful or reckless
violation of the statute. Id. at 1369-70. But it did not reach the issue presented here—whether
including the account on a credit report was inaccurate under the FCRA, even if not in a willful or
reckless manner. In the third case, a judge in the Eastern District of Texas confronted the very same

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issue here, and denied a motion to dismiss, but did not state his reasons. Johnson v. Equifax
Information Services, 2017 WL 1438030 (E.D. Tex. April 24, 2017).
Finally, just 30 days ago, Judge Ezra of the San Antonio Division of this court was also
presented with this question. Referring to Pedro and Bailey, he noted that:
several district courts have held that the listing of a consumer as an “authorized user”
of a financial account when the consumer is actually an authorized user of the
account is not inaccurate within the meaning of the FCRA. . . . Accordingly, the
Court finds that the credit entry at issue is also not misleading in such a way and to
such an extent that it can be expected to adversely affect credit decisions.
Ostiguy v. Equifax Information Services, LLC, 2017 WL 1842947 (W.D. Tex. May 4, 2017) at *3
(citations omitted). As discussed above, Pedro did not actually consider the question of accuracy,
and in Bailey the plaintiff failed to plead any facts showing the report negatively affected her
creditworthiness. Similarly, there is no mention in Ostiguy of any pleadings concerning the impact
the inclusion of the account had on his credit. Interestingly, though, the court added this statement
immediately following the above language:
While Plaintiff’s accurate credit entry may be negatively perceived by third parties,
credit reporting agencies only have “a duty to make a reasonable effort to report
‘accurate’ information on a consumer's credit history,” and do not have a duty to only
report “information which is favorable or beneficial to the consumer.” Cahlin, 936
F.2d at 1158.
Id at *4. As discussed at the outset, the Fifth Circuit has held that an ambiguous statement that can
be read in two ways, and that could have a negative impact on the consumer’s credit, qualifies as
“inaccurate” under the FCRA. Sepulvado, 158 F.3d at 895; Pinner, 805 F.2d at 1262 (addressing
inclusion of “litigation pending” without a statement of who brought the suit). As mentioned, it is
not clear what Ostiguy pled in his complaint, but here Saunders has clearly and repeatedly alleged
that the inclusion of the authorized user account with negative payment information has lowered her
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credit score, and impaired her credit. Ostiguy is therefore distinguishable, and to the extent it is not,
the undersigned respectfully disagrees with Judge Ezra’s conclusion.
Further, it is important to keep in mind that the Court is reviewing this issue in the context
of a motion to dismiss for failure to state a claim. As the Third Circuit has noted, generally speaking,
the question of whether including or omitting something from a credit report is sufficiently
misleading such that it can be expected to have an adverse impact on a plaintiff is a question of fact
non suitable for determination on a motion to dismiss:
And we agree with the three Courts of Appeals to have considered the question that
even if the information is technically correct, it may nonetheless be inaccurate if,
through omission, it ‘‘create[s] a materially misleading impression.’’ Saunders v.
Branch Banking & Trust Co. of Va., 526 F.3d 142, 148 (4th Cir.2008); see also
Boggio, 696 F.3d at 617; Gorman, 584 F.3d at 1163. Whether technically accurate
information was “‘misleading in such a way and to such an extent that [it] can be
expected to have an adverse effect’” is generally a question to be submitted to the
jury. Gorman, 584 F.3d at 1163 (quoting Saunders, 526 F.3d at 150).
Seamans v. Temple Univ., 744 F.3d 853, 865 (3d Cir. 2014). The Court concludes that—though they
are far from a model of how to draft a federal claim—Saunders’ pleadings contain sufficient factual
detail to allege a claim under the FCRA.1 Further, though Equifax emphasizes that the negative
1

Examples of allegations in the Amended Complaint of this sort are:

“Authorized user accounts are calculated into the credit score and FICO score.” Dkt.
No. 37 at 6.
“The negative accounts are crushing Plaintiff’s credit scores. FICO, which calculates
credit scores that are used by a vast majority of lenders, calculates the authorized user
accounts in their scoring. Because Plaintiff’s authorized user account has so many
late payments on it, it led to a charge off, which is devastating Plaintiff’s credit score
and crushing her lending power.” Id. at 9-10
“Reporting that Plaintiff missed her payments on an account that she has zero
obligation to pay, and reporting it so it looks as if Plaintiff was the individually
responsible for paying is extremely misleading.” Id. at 10.
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account information is technically accurate, it fails to explain why that information is contained in
the credit report if the plaintiff has no obligation to make payments toward the account. Inclusion
of the negative payment history could be viewed by a third person as suggesting the opposite of the
true facts—that the plaintiff does have financial responsibility for account—as it doesn’t make sense
to include an account on a credit report that the subject of the report has no responsibility to pay,
unless the consumer somehow bears financial responsibility for the debt.
C.

Injury
Equifax also argues that the complaint fails to adequately allege injury to Saunders, or to

allege that the injury was caused by the inaccuracy, or by Equifax’s failure to adequately
reinvestigate the issue when Saunders disputed the report. These arguments, however, have no
merit. Saunders has plainly alleged an injury, as has been noted above, in that she has alleged that
her credit score and creditworthiness have been negatively impacted by the inclusion of the account
on her report. Dkt. No. 37 at 14-15. She also alleges she has suffered physical and emotional pain
and suffering. Id. at 15. She includes a request for punitive damages, permitted under the FCRA
upon a showing of willfulness or recklessness. Id. Finally, she adequately ties these damages to
Equifax’s inclusion of the allegedly inaccurate information, and failure to properly investigate it.
This is more than adequate to survive a motion to dismiss the complaint. Cousin v. Trans Union
Corp., 246 F.3d 359, 369 (5th Cir. 2001) (permitting FCRA damages for emotional distress).
IV. RECOMMENDATION
In light of the foregoing the undersigned RECOMMENDS that the district judge DENY
Defendant Equifax Information System’s LLC’s Motion to Dismiss Amended Complaint (Dkt. No.
38).
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V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections
must specifically identify those findings or recommendations to which objections are being made.
The District Court need not consider frivolous, conclusive, or general objections. See Battle v.
United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987).
A party’s failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and
recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass
v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
SIGNED this 6th day of June, 2017.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

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