Opinion
No. C 05-05409 JW.
June 12, 2006
ORDER GRANTING MOTIONS TO DISMISS
I. INTRODUCTION
On December 29, 2005, Plaintiffs filed this putative class action against Defendants Capital One Bank ("Capital One"), Bank Of America Corp. ("BofA") and MBNA Marketing Systems Inc. ("MBNA," collectively, "MBNA/BofA"), seven other credit reporting agencies ("CRAs") and banks, and an individual, (collectively, "Defendants") for alleging libel and violations of various state and federal fair credit reporting and debt collection statutes. Presently before the Court are Capital One and MBNA/BofA's Motions to Dismiss Plaintiffs' Complaint. On June 2, 2006, the Court held a hearing on Defendants' Motions. Having considered the parties' arguments and for the reasons set forth below, the Court GRANTS Capital One's Motion to Dismiss and GRANTS MBNA/BofA's Motion to Dismiss.
II. BACKGROUND
The following facts are alleged in the complaint: On or about February 2001, Plaintiffs Dick Newman and Ann Newman, residents of Mesa, Colorado, signed a written agreement with Defendant Capital One for a VISA credit card. The card was never received or used by Plaintiffs to charge any goods or services from any merchant. When Plaintiffs did not receive the card in the mail, they notified Capital One, and were told that a thief had stolen a batch of Capital One credit cards from Capital One's facilities, and used the card with the plaintiffs' names on it to charge over $10,000 in goods and services, cash advances, and travel. These charges were then routinely and continuously reported by Capital One to the CRAs. (Compl. ¶ 8.)According to Plaintiffs, Defendants made "false and defamatory and derogatory 'default' and 'delinquent' credit reports" which have resulted in the lowering of the Plaintiffs' "FICO" credit scores from "near 800" to the "500's", denial of credit, inability to refinance their property at a reasonable interest rate, and other "deleterious consequences." (Compl. ¶ 9.) Plaintiffs allege that they challenged and disputed the accuracy of certain charges on their credit accounts, but that Defendants "blithely ignored" their challenges. (Compl. ¶ 9.) Plaintiffs also allege that as a result of the lowered FICO scores, Defendants MBNA and BofA quickly "jacked up" Plaintiffs' interest rates from about 3 percent to over 24 percent per annum beginning in June 2001. (Compl. ¶ 27.) Plaintiffs allege that the increased interest rate was in violation of Defendants' credit card agreement with Plaintiffs. (Compl. ¶ 8.)
Plaintiffs further allege that Defendants promised to bill Plaintiffs only for goods and services Plaintiffs themselves charged on their credit cards, and that Capital One falsely assured Plaintiffs that there were "good" procedures in place to prevent credit card fraud and that Plaintiffs' credit card could not be used by anyone to charge anything until the card was "activated" by the Plaintiffs themselves. (Compl. ¶ 25.) According the Complaint, Defendants allegedly made these statements in order to fraudulently induce Plaintiffs to sign the credit card agreement, (Compl. ¶ 25). Plaintiffs also allege that the terms of these credit card agreements were breached by Defendants' actions. (Compl. ¶ 20.)
Plaintiffs also contend that beginning in November 2002, the Defendants began harassing Plaintiffs with "annoying and minatory" calls, endless letters and minatory notices, and calls at "4am" in the night. Additionally, Plaintiffs allege that Defendants called them at work and that this collection harassment has continued to the present date. (Compl. ¶ 44.)
As a result of Defendants' activities, Plaintiffs allege that they suffered financial and emotional damages. Plaintiffs also request punitive damages for Defendants' acts because "Defendants committed the acts alleged wherein maliciously, fraudulently and oppressively, with the wrongful intention of injuring plaintiffs, from an improper and evil motive amounting to malice, and in conscious disregard of plaintiffs's rights." (Compl. ¶ 15.)
The Complaint alleges seven causes of action: state law libel, breach of contract, fraud, intentional infliction of emotional distress, and violations of the Fair Credit Reporting Act, Equal Credit Opportunity Act, California Fair Debt Collection Practices Act. Defendants Capital One and MBNA/BofA filed separate motions to dismiss all causes of action alleged in the Complaint.
III. STANDARDS
Under Rule 12(b)(6), a complaint may be dismissed for failure to state a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). A claim may be dismissed as a matter of law for one of two reasons: "(1) lack of a cognizable legal theory or (2) insufficient facts under a cognizable legal theory." Robertson v. Dean Witter Reynolds, Co., 749 F.2d 530, 534 (9th Cir. 1984). "A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The court "must presume all factual allegations of the complaint to be true and draw all reasonable inferences in favor of the nonmoving party." Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). In determining the propriety of a Rule 12(b)(6) dismissal, a court may not look beyond the complaint.Schneider v. California Dept. of Corrections, 151 F.3d 1194, 1197 (9th Cir. 1998) ("The focus of any Rule 12(b)(6) dismissal . . . is the complaint.")
IV. DISCUSSION
A. Credit Libel
The FCRA permits a state law action for libel under § 1681h(e) so long as the plaintiff also alleges that the false statement was furnished with malice or with willful intent to injure.Gorman v. Wolpoff Abramson, 370 F. Supp. 2d 1005, 1009-10 (N.D. Cal. 2005). Allegations of libel, as with allegations of any cause of action, must contain sufficient facts. See Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (C.A. Cal. 1984) (finding that a complaint may be dismissed as a matter of law for "insufficient facts under a cognizable legal claim"). See also Gulf Coast Western Oil Co. v. Trapp, 165 F.2d 343, 348 (10th Cir. 1947) (holding that even under the liberal rules of pleading, a complaint must particularize the issue sufficiently to enable the defendant to prepare its defense). Alleging credit libel with "non-descriptive phrases" and mere "legal conclusions" fail to give a defendant sufficient notice of a plaintiff's claim. Gorman, 370 F. Supp. 2d at 1010.
Plaintiffs' allegations of credit libel are non-descriptive (e.g., "[i]n or about 2001, and continuously to the present" (Compl. ¶ 18)) and conclusory (e.g., "defendants committed the acts alleged herein maliciously, fraudulently and oppressively" (Compl. ¶ 29)). More importantly, Plaintiffs conflate the actions of the eleven Defendants in the case — Defendants as diverse as the initial credit card issuer, credit reporting agencies, a separate credit card issuer, other creditors not specifically named in the facts of the Complaint, and an individual — preventing each Defendant from receiving fair notice as to the pertinent allegations giving rise to Plaintiffs' claims. For example, although Plaintiffs allege credit libel against unspecified "defendants," it is doubtful that Plaintiffs would be able to allege a viable libel claim against Defendants MBNA/BofA who appear to have only raised interest rates in response to information from CRAs. It is unclear what false statement MBNA/BofA made, let alone that they furnished a false statement with "malice" or with "willful intent to injure."
In its Opposition Brief (Plaintiff's Opposition to Defendant Capital One Services Motion to Dismiss, Docket Item No. 32, at 12), Plaintiffs state that they are prepared to "specifically plead the defamatory words by the defendants that have libeled him," and requests leave to amend to do so. Based on the liberal federal rule governing amendments, and the somewhat inscrutable allegations in the Complaint, this Court grants Plaintiffs leave to amend to clarify and state a libel claim. As this Court required in Gorman, Plaintiffs must specifically "identify which statements are libelous and when they were made." 370 F. Supp. 2d at 1010. Plaintiffs must also specify which Defendant made which allegedly libelous statement.
Defendant Capital One further claims that, since the statute of limitations for a libel claim is one year under California Code of Civil Procedure 340(c), statements by Defendant made prior to December 29, 2004 are time-barred. Plaintiffs contend that the statute of limitations does not apply because the libel alleged is a "continuous tort," as defined in Flowers v. Carville, 310 F.3d 1118 (9th Cir. 2002) (interpreting Nevada's statute of limitations) and that Plaintiffs "have been defamed by defendants" "[c]ontinuously, from on or about 2001 to the present." (Compl. ¶ 9.) The Court notes that under California law, "mere continuing impact from past violations is not actionable." McDougal v. County of Imperial, 942 F.2d 668, 674-75 (9th Cir. 1991) (emphasis in original) (interpreting California Code of Civil Procedure 340(c)), but without knowing which statements are alleged to be libelous and when they were made, the Court is unable to determine whether the libel alleged constituted a discrete action or a continuous tort. Because the Court has granted leave to amend for Plaintiffs to state a libel claim, the Court declines to address, at this juncture, either whether Plaintiffs may allege a continuous tort, or whether California has even adopted the continuing tort doctrine for libel claims.
B. Breach of Contract
Under California law, a plaintiff must establish (1) "the existence of the contract, performance by the plaintiff or excuse for nonperformance, (2) breach by the defendant and (3) damages" to state a breach of contract claim. First Commercial Mortgage Co. v. Reece, 89 Cal. App. 4th 731, 745 (2001).
Plaintiffs allege a cause of action for breach of contract by stating: "In or about 2002. and continuously to the present, plaintiffs entered into various sundry credit agreement with all defendants. These were for credit card and other commercial credit for buying goods and services" (Compl. ¶ 18) and "On or about April, 2001, and continuously to the present day, defendants materially breached said loan agreements by arbitrarily, unjustifiably, illegally and in a discriminatory manner increasing the monthly payment and interest rates for plaintiffs, imposing late fees and other 'administrative' and other fees plaintiffs had never agreed to, ignoring plaintiffs' notices of dispute of debts, refused to submit written proof of the debts to plaintiffs on demand, etc., as described above" (Compl. ¶ 20).
Even under the liberal pleading requirements of Rule 8, Plaintiffs must give "fair notice of what the claim is and the grounds upon which it is based." Holgate v. Baldwin, 425 F.3d 671, 676 (9th Cir. 2005). Plaintiffs failed to identify the Defendants with which they contracted, the actual contract involved with each Defendant, and the actions of each Defendant that breached the actual agreement. In order to meet basic fair notice pleading requirements, Plaintiffs must identify and distinguish the elements of the actual contracts that each Defendant failed to perform, and when the alleged breaches occurred. The Court dismisses Plaintiffs' cause of action for breach of contract for failure to state a claim, but grants Plaintiffs' request for leave to amend this cause of action.
Again, because Plaintiffs have not alleged the dates of the breach, or whether there were continuous violations of any specific contract, this Court declines to make a determination as to whether Plaintiffs' action is time-barred.
C. Fraud
Defendants also contend that the Plaintiffs' fraud claim is barred by the applicable statute of limitations. California has a three-year statute of limitations for fraud actions. CAL. CIV. PROC. CODE § 338(d). Under § 338, fraud claims accrue when the plaintiff discovers the facts constituting the fraud and every element of the cause of action is in place, including damages.Hunt v. GM/Hughes Elecs., 229 F.3d 1157, (9th Cir. 2000). The California Court of Appeals has held that "where an injury, although slight, is sustained in consequence of the wrongful act of another, and the law affords a remedy therefor, the statute of limitations attaches at once." Spellis v. Lawn, 200 Cal. App. 3d 1075, 1080-81 (1988) ("[i]t is not material that all damages resulting from the act shall have been sustained at that time, and the running of the statute of limitations is not postponed by the fact that the actual or substantial damages do not occur until a later date.")
Plaintiffs' fraud claims are based on the statements by Defendant Capital One that Plaintiffs' Visa credit card could not be used by anyone else to charge goods or services unless the card was activated by the Plaintiffs themselves and that Plaintiffs would be billed accurately and fairly for goods and services that Plaintiffs actually charged on their credit cards. (Compl. ¶ 25.) The allegations in the Complaint indicate that Plaintiffs discovered the facts underlying their fraud claim prior to June 2001. According to the Complaint, "on or about June 2001, and continuously to the present, Defendants . . . ignored Plaintiffs' dispute of charges." (Compl. ¶ 27.) Since Plaintiffs had to have discovered the alleged fraud before they disputed the charges, Plaintiffs must have discovered the alleged fraud by June 2001. Furthermore, according to the Complaint, Plaintiffs had already suffered reliance damages in 2001: "Plaintiffs relied on said statements to their detriment . . . and wound up being defamed and harrased by collectors." (Compl. ¶ 26.) Because, as affirmatively alleged in the Complaint, the Plaintiffs knew of every element of the cause of action by 2001 and failed to file suit until December of 2004, the fraud claim against Capital One is time-barred and dismissed with prejudice.
Although Plaintiffs allege fraud against "defendants" wholesale, the only specific allegations are those against Capital One. To the extent Plaintiffs intended to allege fraud against other Defendants, Plaintiffs' incorporation of the credit libel and breach of contract allegations (Compl. ¶ 24) are insufficient to meet the requirement of FED. R. CIV. P. 9 that fraud allegations be stated with particularity. Accordingly, fraud allegations are dismissed against MBNA/BofA under FED. R. CIV. P. 9, with leave to amend.
D. Fair Credit Reporting Act
Because there is no private right of action under 15 U.S.C. § 1681s-2(a), Nelson v. Chase Manhattan Mortgage Co., 282 F.3d 1057, 1059 (9th Cir. 2002), Plaintiffs may only state a claim under § 1681n and § 1681o only insofar as the claims are based on willful and negligent violations of § 1681s-2(b). Gorman, 370 F. Supp. 2d at 1012. Unlike § 1681s-2(a) which imposes a "duty of furnishers of information to provide accurate information," § 1681s-2(b) is directed to the "duties of furnishers of information upon notice of dispute."
Plaintiffs have not alleged that Defendants did not conduct a reasonable investigation of Plaintiffs' dispute in response to notification by a CRA. Accordingly, Plaintiffs' allegations based on 15 U.S.C. § 1681n and § 1681o are insufficiently alleged under § 1681s-2(b), and dismissed with leave to amend.
Plaintiffs also allege that Defendants violated § 1681m of the FCRA which imposes duties on users of information reported by CRAs. Section 1681m(h)(8), effective December 1, 2004, bars private actions under § 1681m. Hogan v. PMI Mortg. Ins. Co., No. 05-3851 PJH, 2006 WL 1310461, at *4 (N.D. Cal. May 12, 2006). The Complaint in this action was filed on December 29, 2005. Courts are split on whether § 1681m(h)(8) bars a claim filed after December 1, 2004 where the complaint alleges that defendant's conduct occurred prior to the December 1, 2004. Id. Allegations of § 1681m violations occurring after December 1, 2004 are dismissed with prejudice. The Court need not address the issue of whether § 1681m(h)(8) is retroactive at this time because Plaintiffs have not sufficiently stated a claim under § 1681m. Should Plaintiffs wish to allege violations of § 1681m occurring prior to December 1, 2004, within the applicable statute of limitations, Plaintiffs are granted leave to amend their Complaint to so allege. However, Plaintiffs must give fair notice of a § 1681m violation to Defendants by stating which Defendants are alleged to be "users," what the "adverse actions" of the "users" were, and if these "adverse actions" were based on "consumer reports." Plaintiffs must also state when they believe the alleged violation of § 1681m occurred.
E. Equal Credit Opportunity Act
Defendants contend that Plaintiffs have not sufficiently stated a claim for violation of the ECOA. This Court agrees. The ECOA, 15 U.S.C. § 1691, states in relevant part:
It shall be unlawful for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction —
(1) on the basis of race, color, religion, national origin, sex or marital status, or age (provided the applicant has the capacity to contract);
(2) because all or part of the applicant's income derives from any public assistance program; or
(3) because the applicant has in good faith exercised any right under this chapter.
As defined at 15 U.S.C. § 1691a(b), an "applicant" is "any person who applies to a creditor directly for an extension, renewal, or continuation of credit, or applies to a creditor indirectly by use of an existing credit plan for an amount exceeding a previously established credit limit."
As an initial matter, Plaintiffs do not allege that they were members of a protected class, that their income derives from public assistance, or that they have "in good faith exercised any right under" the ECOA, as required for an ECOA violation. 15 U.S.C. § 1691(a).
Furthermore, Plaintiffs' affirmative allegations in the Complaint preclude an ECOA violation because Plaintiffs were not discriminated against as "applicants" by Capital One or MBNA. Indeed, Plaintiffs allege that they entered into "credit agreements with all defendants" (Compl. ¶ 18), so it appears that when they submitted an application to Defendants, these applications were accepted. The Complaint does not contain any other allegations that discrimination occurred in the application process. Reading the Complaint in the light most favorable to the Plaintiffs, the Court notes that one of the bases for the ECOA violation in the Complaint is that Defendants "den[ied] plaintiff credit, re-financing, equity lines of credit and loans, etc." (Compl. ¶ 38.) To the extent that Plaintiffs intend to state an ECOA violation based on these denials of credit, and Plaintiffs can allege that meet the requirements of 15 U.S.C. § 1691(a), Plaintiffs are granted leave to so allege.
F. California Fair Debt Collection Practices Act
Defendants contend that Plaintiffs' California FDCPA claim is time-barred. In Joseph v. J.J. Mac Intyre Cos., 281 F. Supp. 2d 1156 (N.D. Cal. 2003), the court held the one-year limitations period for a California FDCPA claim regarding a series of phone calls was subject to the continuing violation doctrine. InJoseph the Court stated:
[T]he key is whether the conduct complained of constitutes a continuing pattern and course of conduct as opposed to unrelated discrete acts. If there is a pattern, then the suit is timely if the action is filed within one year of the most recent date on which the Defendant is alleged to have violated the FDCPA and the entire course of conduct is at issue.Id. at 1162.
Here, the Complaint alleges an endless pattern of "harassing" and "annoying" calls and notices made to Plaintiffs at their home and at their work by Defendants beginning in November, 2002 and continuing to the present date arising from the fraudulent charges to Capital One Visa credit card. (Compl. ¶ 44.) Since the Complaint alleges numerous calls and notices over a three-year period to the present date, these allegations are sufficient to constitute a pattern of related conduct and the alleged violations would trigger the continuing violation doctrine. Defendants' motion to dismiss based on the statute of limitations is therefore denied.
Plaintiffs, however, must still meet the minimum requirements of FED. R. CIV. P. 8. In Gorman, the Court dismissed the FDCPA claim where the plaintiff only alleged conclusory statements, e.g., "harassing" and "annoying", and failed to allege the date or contents of even one call that the defendant made. 370 F. Supp. 2d at 1005. Plaintiffs' California FDCPA allegations pertaining to "harassing," "annoying, and minatory" phone calls and letters closely resemble the plaintiff's insufficient conclusory allegations in Gorman. Id. at 1013. Moreover, Plaintiffs have failed to allege that Defendants Capital One or MBNA/BofA are "debt collectors" under CAL. CIV. CODE 1788.2(c). The California FDCPA claim is dismissed with leave to amend only against "debt collectors" within the meaning of the California FDCPA.
G. Intentional Infliction of Emotional Distress
To state a claim for intentional infliction of emotional distress ("IIED"), a plaintiff must allege that (1) the defendant engaged in outrageous conduct, (2) the conduct was intentional or done with a reckless disregard of the probability of causing emotional distress, (3) the plaintiff is suffering severe emotional distress, and (4) there is causal relationship between the plaintiff's emotional distress and the defendant's outrageous conduct. Bogard v. Employers Casualty Co., 164 Cal. App. 3d 602, 616 (Ct.App. 1985). Conduct, to be outrageous, must be so extreme as to exceed all bounds of that usually tolerated in a civilized society. King v. AC R Advertising, 65 F.3d 764, 769 (9th Cir. 1995). Although the question as to whether Defendants' conduct constitutes "outrageous conduct" is normally an issue of fact, a court may nonetheless make an initial determination of whether defendant's conduct may reasonably be regarded as so extreme and outrageous as to permit recovery.Arikat v. JP Morgan Chase Co., No. C-06-00330 RMW, 2006 WL 1195335, at *9 (N.D. Cal. May 03, 2006).
In support of their IIED claim, Plaintiffs allege that Defendants woke them up "at wee hours in the morning with harassing collection phone calls, etc," which Plaintiffs claim to be "outrageous and [to] constitute intentional infliction of emotional distress." As an initial matter, Plaintiffs make this allegation against all Defendants, which seems unsupportable. Furthermore, Plaintiffs fail to allege sufficient facts which would make Defendants' debt collection activities outrageous conduct under California law. See Bundren v. Superior Court, 145 Cal. App. 3d 784, 789-90 (Ct.App. 1983) (holding that a debt collection activity which involves the waking up of Plaintiff-debtor at odd hours is deemed outrageous only if the plaintiff is suffering from certain conditions which make him or her especially susceptible to emotional distress). Since the Complaint does not allege that any of the Plaintiffs suffer from certain conditions that make them especially susceptible to emotional distress, Defendants' conduct, as alleged, does not rise to the level of outrageousness sufficient to sustain a claim for IIED.
Plaintiffs also simply incorporate by reference the preceding 46 paragraphs of the Complaint in support of their IIED claim. This Court presumes that Plaintiffs are referring to the credit libel allegations to support their IIED claim, specifically the portion on Plaintiffs' "anxiety and insomnia and depression," as well as Plaintiffs' "constant worrying," which has caused them "physical and emotional pain which has gotten worse [over time]." Under California law, such manifestation of emotional distress is not deemed sufficiently severe. See Standard Wire Cable Co. v. AmeriTrust Corp., 697 F. Supp. 368, 372 (C.D. Cal. 1988) (holding that the plaintiff's distress, which include headaches, insomnia, anxiety, and irritability, is not severe under California law).
With respect to Plaintiffs' IIED claim, the "continuing tort" doctrine would apply if the conduct being complained of is a course of conduct that only becomes outrageous over time. Murphy v. Allstate Ins. Co., 83 Cal. App. 3d 38, 51 (Ct.App. 1978) (citing Fletcher v. Western National Life Ins. Co., 10 Cal. App. 3d 376 (Ct.App. 1970). In such a case, the statute begins to run once Plaintiffs' emotional distress reaches a "severe level." Eisenberg v. Ins. Co. of N. Am., 815 F.2d 1285, 1292 (9th Cir. 1987). Because Plaintiffs have failed to allege the time by which they began to suffer from severe mental and emotional distress as a result of Defendant-creditors' harassing phone calls, the Court declines to discuss the statute of limitations issue as it may pertain to Plaintiffs' IIED claim. Plaintiffs' seventh cause of action for intentional infliction of emotional distress is dismissed with leave to amend.
V. CONCLUSION
For the reasons stated above, the Court GRANTS Defendants' Motions to Dismiss. Plaintiffs are granted leave to amend, consistent with this Order and to the extent possible: the first cause of action for libel, the second cause of action for breach of contract, the third cause of action for fraud as it may pertain to MBNA/BofA, the fourth cause of action for violations of 15 U.S.C. § 1681s-2(b), the fourth cause of action under 15 U.S.C. § 1681m to allege acts prior to December 1, 2004 but within the applicable statute of limitations, the fifth cause of action for violations of the ECOA, the sixth cause of action under the California FDCPA against "debt collectors" within the meaning of the statute, and the seventh cause of action for IIED. The Complaint may only include those allegations and claims made in good faith, as should be the case with all representations to the Court. Plaintiffs' third cause of action for fraud against Capital One is dismissed with prejudice. Should Plaintiffs wish to pursue this action, Plaintiffs shall file and serve an amended complaint consistent with this order on or before July 14, 2006.