White v. Green Tree Servicing, LLC (Maryland U.S.D.C.)

Filed:  August 4, 2015

Opinion by:  Richard D. Bennett

Holdings:  (1) Fair Credit Reporting Act (''FCRA'') claims alleging provision of false information and failure to investigate such information were dismissed to the extent plaintiff premised her claim on a theory of negligence.  (2) Plaintiff satisfied 12(b)(6) sufficiency standard by merely alleging she notified consumer reporting agency of disputed information.

Facts:  In 2001, Plaintiff acquired property in Baltimore City with her former husband, becoming sole owner after a 2007 divorce.  Five years later, servicing rights for the loan were transferred to Defendant.  Following the June 1, 2013 date of transfer Plaintiff alleged she made every ensuing payment in full and on time.

In October 2013, Plaintiff attempted to refinance the loan through her personal bank, receiving approval and a commitment letter conditioned on Plaintiff resolving unrelated disputes on her credit report.  Plaintiff fulfilled the conditions in January 2014, but Defendant soon thereafter reported to Plaintiff, Plaintiff’s personal bank, and the three major credit reporting agencies that she was no longer current on her mortgage payments.  Pursuant to the FCRA, 15 U.S.C. §1681, et seq., on January 27, 2014, Plaintiff notified the reporting agencies and Defendant that she disputed Defendant’s reporting of late mortgage payments.  One day later, Plaintiff’s bank denied her for final approval of the refinanced mortgage.

Defendant responded in February 2014, maintaining its position that Plaintiff was behind on her payments.  Defendant thereafter issued several letters indicating it would investigate disputed payment information, but ultimately sent another statement in March 2014 informing Plaintiff she had fallen farther behind on her mortgage, incurring additional late fees.

In June 2014, Plaintiff filed in Circuit Court for Baltimore City, alleging violations of the Maryland Consumer Protection Act (''MCPA''), Debt Collection Act, (''MCDCA''), and Mortgage Fraud Protection Act, (''MMFPA''), contending Defendant failed to investigate or correct the payment information and that she suffered economic damages.  Defendant moved to dismiss, arguing the complaint was preempted by the FCRA.  Plaintiff thereafter amended her complaint to allege identical state claims but add FCRA claims.  Defendant again moved to dismiss the common law claims as preempted by the FCRA, and to dismiss the FCRA claim because Plaintiff had failed to state a claim on which relief could be granted.

Analysis:  The court began by explaining that the FCRA’s preemption provisions –  15 U.S.C. §1681t(b)(1)(F) as to state statutory claims and 15 U.S.C. §1681h(e) as to state common law claims – had been consistently interpreted to preempt claims arising from inaccurate information provided to credit reporting agencies.  Accordingly, the court dismissed Plaintiff’s counts alleging violations of the MCPA, MCDCA and MMFPA as a result of Defendant’s purported materially false, misleading oral or written statements, omissions, or representations related to the Plaintiff’s loan status or mortgage lending process.

The court next moved to Plaintiff’s FCRA claims, which focused on Defendant’s provision of allegedly false information and failure to investigate the allegedly false information.  To the former, Plaintiff alleged Defendant’s liability in defamation for making a series of false and misleading statements as to the late mortgage payments.  Here, the court cited §1681h(e):

[No] consumer may bring any action …in the nature of defamation… with respect to the reporting of information against …any person who furnishes information to a consumer reporting agency, … 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.

Accordingly, the court granted Defendant’s motion to dismiss the defamation claim in part and only to the extent the claim was premised on a theory of negligence.

Plaintiff’s second FCRA claim alleged that Defendant violated §1681s-2(b) by a failure to investigate allegedly false information for several months after it was informed of the disputed information.  FCRA §1681s-2(b) imposed a duty to investigate disputed information after receiving notice [from a credit reporting agency].  Defendant moved to dismiss, arguing Plaintiff failed to explicitly allege that Defendant received such notice.  Finding no controlling Fourth Circuit authority, the court looked to decisions of the U.S. Courts of Appeal for the Seventh and Ninth Circuits, indicating that under the FCRA a plaintiff triggered a defendant-furnisher’s duty to investigate by merely notifying the consumer reporting agency of a dispute.  In the court’s view, all that was required to meet the Rule 12(b)(6) pleading sufficiency standard was plaintiff’s allegation that she notified the reporting agency of disputed credit information.  As a result, Plaintiff’s second FCRA claim survived Defendant’s motion to dismiss.

The full opinion is available in PDF.

Schelhaus v. Sears Holding Co. (Maryland U.S.D.C.)

Filed: December 3, 2009
Opinion by Judge J. Frederick Motz

Held: Plaintiff’s complaint against employment agency and former employer claiming that reporting the reason for the plaintiff's prior termination to a new employer violated the Fair Credit Reporting Act was sufficient to survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6).

Facts: Plaintiff was an employee in a Sears department store until he was fired for “award fraud” for giving a discount to a customer, giving away a power cord to an appliance, and taking other actions to improperly garner benefits under a sales program. The plaintiff made a written statement to Sears security personnel admitting to this conduct but contended that his supervisors knew and approved of his conduct.

Following his termination from Sears, the plaintiff was hired by a new employer. The new employer conducted a background check on the plaintiff by contacting the employment agency for information. Sears had previously sent a report to the employment agency indicating the reasons for the plaintiff’s dismissal. The agency told the new employer that the plaintiff was fired for committing award fraud. The new employer then fired the plaintiff.

The plaintiff complained to the employment agency, challenging the veracity of his employment history report. The employment agency asked Sears to provide all information supporting the report of a termination for award fraud. In response, Sears provided the employment agency with the plaintiff's written statement admitting to the conduct. The employment agency then told the plaintiff that it had deleted all information from his employment record that had not been verified. The plaintiff later discovered that his employment record remained unaltered, including the allegations of award fraud, and filed suit against Sears and the employment agency.

Both defendants moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

Analysis: The Fair Credit Reporting Act (FCRA) imposes investigation obligations on those who learn that information they have furnished to credit reporting agencies is inaccurate. Further, a consumer reporting agency violates the FCRA if (1) the consumer report contains inaccurate information and (2) the reporting agency did not follow reasonable procedures to assure maximum possible accuracy.

The plaintiff alleged that Sears violated the FCRA because it failed to conduct an investigation into the veracity of the conclusion that the plaintiff committed award fraud, failed to provide the employment agency with information supporting its report, and then failed to amend its initial report of award fraud.

The plaintiff alleged that the employment agency violated the FCRA because it failed to follow reasonable procedures to assure the maximum possible accuracy of Sears’ report when it did not conduct an independent evaluation, possessed no supporting documentation at the time of its report to the new employer, ultimately failed to review any foundation for Sears’ report, and failed to conduct a reasonable investigation to determine whether the disputed information was accurate.

The defendants argued that the plaintiff’s written statement admitting to the alleged fraudulent conduct precluded the plaintiff from bringing actions against them under the FCRA.

The Court held that the plaintiff’s written statement to Sears security personnel did not preclude the plaintiff from raising plausible FCRA claims . The Court noted that while the plaintiff admitted to certain conduct in his written statement, he also contended that he acted with managerial knowledge and supervision. Without details of Sears’ policies and procedures and any definition of “award fraud” the Court could not find that the plaintiff’s claims were deficient.

The full opinion is available in PDF.