Opinion
6:21-cv-00371-MK
11-16-2021
KIMBERLY MCKAY, Plaintiff, v. EXPERIAN INFORMATION SOLUTIONS, Inc.; LENDINGCLUB Corp.; BARCLAYS BANK DELAWARE; JPMORGAN CHASE, Nat'l Assoc.; TD BANK USA, N.A.; and DOES 1 through 100, Defendants.
FINDINGS AND RECOMMENDATION
Mustafa T. Kasubhai (he/him) United States Magistrate Judge
Plaintiff Kimberly McKay brings this action against Defendant JPMorgan Chase, N.A. (“Defendant” or “Chase”) under the Fair Credit Reporting Act (the “FCRA”), 15 U.S.C. §§ 1681s-2(b) and 1681i(a)(1). Plaintiff asserts that Defendant violated the FCRA by inaccurately reporting her debt and failing to reasonably investigate. See Compl., ECF No. 1. Defendant moves to dismiss the claim pursuant of Fed.R.Civ.P. 12(b)(6). Def.'s Mot. Dismiss, ECF No. 26. For the reasons discussed below, Defendant's motion should be GRANTED.
Plaintiff initially brought claims against multiple Defendants who have subsequently been dismissed. This Finding and Recommendation (“F&R”) therefore addresses only the claims against Chase.
BACKGROUND
Sometime before June 2020, Plaintiff secured a loan from Chase. See Pl.'s Opp'n Mot. Dismiss 4, ECF No. 33. On June 8, 2020, Plaintiff filed a Chapter 7 bankruptcy petition. Compl. ¶ 80, ECF 1. In the petition, Plaintiff identified Chase as an unsecured creditor. Id. at ¶ 81. Plaintiff obtained a discharge in September 2020 and ordered a three-bureau credit report from Experian Information Solutions, Inc. (“Experian”) thereafter. Id. at ¶¶ 82-83. The Complaint alleges that the reports contained “inaccurate, misleading, or incomplete information that did not comply with credit reporting industry standards.” Id. at ¶ 84. In October 2020, Plaintiff sent a dispute letter to Experian, which Plaintiff believed Experian forwarded to Chase. Id. at ¶¶ 85, 89. In December 2020, “Plaintiff ordered a second three-bureau credit report from Experian to determine if her accounts were updated.” Id. at ¶ 90.
Plaintiff found that Chase reported Plaintiff's account as a “charge off” from January 2017 through May 2020, with an account summary reporting “41 charge offs.” Id. at ¶¶ 117, 119. A “charge off” is a notation that a creditor has “changed the outstanding debt from a receivable to a loss in its own account books.” Anderson v. Credit One Bank, N.A., 884 F.3d 382, 385 (2nd Cir. 2018).
The Complaint further alleges that a “charge off” is “a one-time event, and a single debt cannot be charged off repeatedly,” Compl. ¶ 19, and that the continuous reporting of a “charge off” artificially reduced her Fair Isaac Corporation (“FICO”) score, which “adversely affect[ed] Plaintiff when potential lenders were making credit decisions regarding Plaintiff and their willingness to extend credit,” Id. at ¶ 123.
STANDARD OF REVIEW
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of the claims. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). “All allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Am. Family Ass'n, Inc. v. City & Cty. of S.F., 277 F.3d 1114, 1120 (9th Cir. 2002). 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[,]” meaning “the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). In other words, a complaint must contain “well-pleaded facts” that “permit the court to infer more than the mere possibility of misconduct[.]” Id. at 679.
However, the court need not accept conclusory allegations as truthful. See Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (“[W]e are not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint, and we do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations.”) (internal quotation marks, citation, and alterations omitted). A motion to dismiss under Rule 12(b)(6) will be granted if a plaintiff alleges the “grounds” of his “entitlement to relief” with nothing “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action[.]” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Factual allegations must be enough to raise a right to relief above the speculative level on the assumption that all the allegations in the complaint are true (even if doubtful in fact)[.]” Id. (citations and footnote omitted).
DISCUSSION
“Congress enacted [the] FCRA in 1970 to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 53 (2007). The FCRA imposes obligations on credit reporting agencies and on “furnishers” who provide credit information to the reporting agencies. Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1153-54 (9th Cir. 2009). Specifically, the FCRA prohibits furnishers of credit information, such as Defendant here, from providing “any information relating to a consumer to any consumer reporting agency if the person knows or has reasonable cause to believe that the information is inaccurate.” 15 U.S.C. § 1681s-2(a)(1)(A). Additionally, when informed by a reporting agency of a dispute regarding a reported debt, the furnisher must conduct a reasonable investigation of the dispute and report those results to the credit reporting agencies. Gorman, 584 F.3d at 1157.
As relevant here, the FCRA grants a consumer, like Plaintiff, the right to bring a private right of action against a furnisher, like Defendant, who after receiving notice of the dispute from the reporting agency either: (1) fails to conduct a reasonable investigation; or (2) provides inaccurate or misleading information following the investigation. Id. (citing 15 U.S.C. § 1681s-2(b)). “Congress clearly intended furnishers to review reports not only for inaccuracies in the information reported but also for omissions that render the reported information misleading.” Id. at 1163 (quoting Saunders v. Branch Banking & Trust Co. of Va., 526 F.3d 142, 148 (4th Cir. 2008) and finding the Saunders reasoning “persuasive”); see also Shaw v. Equifax Info. Sols., Inc., 204 F.Supp.3d 956, 959 (E.D. Mich. 2016) (“Inaccuracy is an essential element of a claim for negligent or willful violation of the FCRA under section 1681s-2(b).”) (citation omitted).
The Ninth Circuit has explained that “information is inaccurate for purposes of 15 U.S.C. § 1681s-2(b) where it either is ‘patently incorrect' or is ‘misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.'” Shaw, 891 F.3d at 756 (quoting Gorman, 584 F.3d at 1163); see also Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th Cir. 1995) (explaining that to establish a prima facie case under § 1681e(b) “a consumer must present evidence tending to show that a credit reporting agency prepared a report containing inaccurate information”).
Plaintiff's claims hinge on whether Defendant's reporting of her debt was inaccurate. See Compl. ¶¶ 117-28, 142, 170. Specifically, Plaintiff asserts that Defendant's reporting that her account was charged off forty-one times, “despite the fact that her account . . . was only charged off once,” was patently incorrect and misleading. Pl.'s Opp'n Mot. Dismiss 3, ECF No. 33; see also id. 9-17. As noted, a “charge off” occurs when a lender “change[s an] outstanding debt from a receivable to a loss in its own accounting books.” In re Anderson, 884 F.3d at 385. Plaintiff's theory of liability, however, fails for multiple reasons.
First, as a factual matter, the Complaint alleges that Defendant reported Plaintiff's debt as “charge[d] off for each month from January 2017 through May 2020.” Compl. ¶ 117. Plaintiff's bankruptcy, however, was not discharged until September 9, 2020. In other words, the alleged reporting fell squarely within the timeframe where the debt was still legally enforceable. See In re McGarvey, 613 B.R. at 307 n.14 (“The creditor may continue to try and collect (or sell it to someone else to try and collect) the debt. The ‘charge-off' does not change the legal enforceability of the debt.”); Dye v. TransUnion, LLC, No. 13-cv-1094, 2013 WL 5663094, at *3 (D. Nev. Oct. 15, 2013) (charged-off “debt is still enforceable”). Courts in similar circumstances have held that reporting charged-off debt “was neither ‘patently incorrect' nor ‘misleading[.]'” Nissou-Rabban v. Cap. One Bank, N.A., 2016 WL 4508241, at *4 (S.D. Cal. June 6, 2016) (“In a credit report that issued on April 13, 2015, Synchrony reported the charge off for the period of December 2014 to January 2015. Plaintiff's debt to Synchrony was discharged on February 24, 2015. Thus, the charge off for December 2014 to January 2015 was neither ‘patently incorrect' nor ‘misleading,' see Gorman, 584 F.3d at 1163, because the debt was not discharged until February 2015.”).
Second, certain financial institutions, such as Chase here, have legal obligations to report “charged off” debts. As one district court has explained:
Banks are in fact required under Federal Regulations to charge off debt that is past due by over 180 days. See In re Anderson, 884 F.3d 382, 386 n.2 (2d Cir. 2018) (citing 65 Fed.Reg. 36,903, 36,904). Otherwise, their balance sheets would misleadingly reflect accounts as assets that have little chance of achieving their full valuation. Thus, the generally accepted accounting principle is codified into federal regulations adopted by the Federal Reserve Board and the Office of the Comptroller of Currency. Because it is not a voluntary act, the creditor has no choice in the matter. See Wilder v. J.C. Christensen & Assocs., Inc., [ ], 2016 WL 7104283, at *5 (N.D. Ill.Dec. 6, 2016); Bunce v. Portfolio Recovery Assocs., LLC, [ ], 2014 WL 5849252, at *2 (D. Kan. Nov. 12, 2014).Artemov v. TransUnion, LLC, 2020 WL 5211068, at *3 (E.D.N.Y. Sept. 1, 2020); see also Makela v. Experian Information Solutions, Inc., et al., No. 6:21-cv-00386-MC, 2021 WL 5149699, *3-4 (D. Or. Nov. 4, 2021) (“Banks under the purview of the Federal Reporting Agency . . . are required to charge off delinquent accounts after 180 days or else their balance sheets would misleadingly reflect accounts as assets that have little chance of achieving their full valuation.”) (citation and quotation marks omitted).
Third, Steinmetz v. Am. Honda Fin. Corp., 835 Fed.Appx. 199, 201 (9th Cir. 2020), also favors dismissal. In Steinmetz, the Ninth Circuit held that “[t]he report of multiple charge-offs [did] not support a plausible claim under §§ 1681e(b) and 1681i, because [the plaintiff there] failed to plead that anyone would believe that the account had been charged off more than once.” Id. at 201. Significantly, the court explained that it was “undisputed that an account can be charged off only once.” Id.
Although not precedential, the Court finds Steinmetz “a good indicator of how the court would rule in a published opinion” and therefore persuasive. See Saucedo v. Colvin, No. 6:12-cv-02289-AC, 2014 WL 4631225, at *17 (D. Or. Sept. 15, 2014); see also Ninth Circuit Rule 36-3 (permitting citation to unpublished memorandum dispositions after January 1, 2007 in accordance with Fed. R. App. P. 32.1).
Plaintiff's attempt to distinguish Steinmetz asserting that she plead that “most lenders and employers only review a consumer's FICO score, or average of scores” fails to allege how she was harmed by specific adverse credit decisions. See Compl. ¶ 124, 126, 176; Makela 2021 WL 5149699, *4 (“But Plaintiff fails to show that the charge offs misled any particular reader of her credit report or could be expected to result in an adverse credit decision against her.”); see also Warren v. Fox Family Worldwide, Inc., 328 F.3d 1136, 1139 (9th Cir. 2003) (“we do not necessarily assume the truth of legal conclusions merely because they are cast in the form of factual allegations”).
The Court finds Plaintiff's reliance on Wilson v. Equifax Info. Servs., LLC, 2020 WL 2771184, at *1 (D. Nev. May 27, 2020), similarly misplaced. There, the court found that the plaintiff sufficiently alleged a § 1681B claim based on “multiple charge-offs, the exclusion of positive data, and inaccurate bankruptcy inclusion dates” the combination of which were “misleading in such a way and to such an extent that they [could] be expected to adversely affect her creditworthiness because payment history and the inclusion of a bankruptcy are factored into credit scoring models.” Id. at *4. That litany of inaccuracies, however, makes Wilson distinguishable from this case.
In sum, Plaintiff has failed to allege that Defendant's report of her debt as “charged off” was either “‘patently incorrect' or is ‘misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.'” See Shaw, 891 F.3d at 756. As such, Plaintiff has failed to allege that Defendant made an inaccurate report in violation of the FRCA.
Because Plaintiff cannot “make a prima facie showing of inaccurate reporting” by Defendant, her reasonable investigation theory fails. Shaw, 891 F.3d at 756; see also Guimond, 45 F.3d at 1333 (“In order to make out a prima facie violation under § 1681e(b), a consumer must present evidence tending to show that a credit reporting agency prepared a report containing inaccurate information.”). For the same reason, the Court need not reach the issue of whether Defendant's conduct was willful or negligent in violation of the FCRA.
RECOMMENDATION
For the reasons explained above, Defendant's motion to dismiss (ECF No. 26) should be GRANTED and the Complaint should be DISMISSED without prejudice. Plaintiff should be allowed 30 days to file an amended complaint to cure, if possible, the deficiencies outlined above. See Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995) (if the complaint is dismissed, leave to amend should be granted unless the court “determines that the pleading could not possibly be cured by the allegation of other facts”). The parties' request for oral argument is DENIED as unnecessary. See LR 7-1(d)(1).
This recommendation is not an order that is immediately appealable to the Ninth Circuit Court of Appeals. Any notice of appeal pursuant to Federal Rule of Appellate Procedure 4(a)(1) should not be filed until entry of the district court's judgment or appealable order.
The Findings and Recommendation will be referred to a district judge. Objections to this Findings and Recommendation, if any, are due fourteen (14) days from today's date. See Fed.R.Civ.P. 72. Failure to file objections within the specified time may waive the right to appeal the District Court's order. Martinez v. Ylst, 951 F.2d 1153 (9th Cir. 1991).
IT IS SO ORDERED.