Opinion
Civil Action No. 03-5784.
July 1, 2004
MEMORANDUM AND ORDER
Currently before the Court are Defendant's Motion to Dismiss or, in the Alternative, Motion for Summary Judgment on Plaintiff's Complaint (Docket No. 3), Plaintiff's Opposition thereto (Docket No. 4), Defendant's Reply (Docket No. 8), Plaintiff's Notice of Supplemental Authority (Docket No. 9), and Defendant's Response to Plaintiff's Notice of Supplemental Authority (Docket No. 10).
I. BACKGROUND
Plaintiff George Joseph Crane ("Crane") alleges that Defendant American Home Mortgage Corporation ("AHM") is using consumer credit information in violation of certain provisions of the Fair Credit Reporting Act ("FCRA"). Consumer Credit Protection Act, 15 U.S.C. § 1681, et seq., (2004). Crane brings this action on behalf of himself and the alleged hundreds of persons who sought mortgage loans from AHM and were either denied or were approved subject to payment of higher interest rates, fees, or other unfavorable terms.
According to the Complaint, AHM is a national provider of home mortgage loan services and products. When a consumer applies to AHM for a home mortgage either verbally or in writing, AHM usually obtains consumer reports on the applicant from Trans Union, Experian, and Equifax consumer reporting agencies. AHM evaluates the consumer reports and relies on the information when determining whether to approve the loan application at the terms requested, approve the loan application at less favorable terms, or deny the loan application.
The Plaintiff also alleges that AHM regularly sells the mortgage loans it originates in the secondary market to the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae"). AHM allegedly processes mortgage loan applications by utilizing the automated underwriting systems of Freddie Mac and Fannie Mae, called Loan Prospector and Desktop Underwriter, respectively. AHM submits the consumer reports it obtained in connection with the mortgage loan application, and the automated underwriting systems create a summary report that is forwarded back to AHM.
Through the automated underwriting systems, Freddie Mac and Fannie Mae determine whether or not they will agree to purchase the loan on the secondary market. AHM allegedly uses this information, in turn, to decide whether and at what terms it will approve the consumer's loan application. For most loan applications, AHM directly follows the recommendations set forth in Freddie Mac's or Fannie Mae's summary report.
The Complaint further alleges that AHM has a policy prohibiting its employees from disclosing to a loan applicant the consumer report, the summary report, and the fact that AHM relies on them. Crane alleges AHM enforces the policy even when its loan decision is adverse to the interests of the applicant.
On October 18, 2001, Crane sought pre-qualification for a loan from AHM. In connection with Crane's inquiry, AHM obtained consumer credit reports about Crane. AHM allegedly used the consumer reports to obtain summary reports from the automated underwriting systems of Fannie Mae and Freddie Mac. Crane alleges that AHM then used his credit history and credit scores contained in the summary reports, at least in part, to not pre-qualify him for a mortgage at AHM's then-most favorable rate. More specifically, Crane claims in his brief in opposition to AHM's motion for summary judgment that AHM denied him a loan at AHM's prime rate and offered him one at least one percent higher than prime. Crane provides no other details about the loan requested. Crane alleges that the denial of prequalification for a mortgage loan at AHM's prime rate was an adverse action under the FCRA and that, consequently, AHM was required to comply with the FCRA's notice provisions.
AHM responds that it obtained Crane's credit report and scores through its own computer systems. AHM denies ever submitting Crane's information to Fannie Mae or Freddie Mac's automated underwriting system. Further, the AHM loan officer, James F. Drinkwater, Jr., who spoke with Crane explains that AHM took no action on Crane's pre-qualification request other than obtaining his credit report; Drinkwater does not even have specific recollection of giving Crane his credit scores or offering Crane any loan. See Drinkwater Decl. (Docket No. 3, Ex. 1).
Crane filed this law suit on October 17, 2003. The Complaint states a single cause of action, alleging AHM is liable under 15 U.S.C. § 1681n for willfully violating the FCRA's adverse action notice requirements. AHM filed the instant Motion to Dismiss or, in the Alternative, Motion for Summary Judgment on January 5, 2004, before answering the Complaint, before any discovery has taken place, and before a motion to certify the purported class was filed.
II. LEGAL STANDARDS
Rule 12(b)(6) provides that a court may dismiss a complaint "for failure to state a claim upon which relief can be granted." The purpose of a Rule 12(b)(6) motion is to test the legal sufficiency of the complaint. See Holder v. City of Allentown, 987 F.2d 188, 194 (3d Cir. 1993); Harvey v. Pilgrim's Pride Corp., No. 03-3500, 2003 U.S. Dist. LEXIS 23274, at *3 (E.D. Pa. Dec. 1, 2003). When considering a 12(b)(6) motion, the Court must accept as true all facts alleged in the complaint and any reasonable inferences that can be drawn from them. See, e.g., H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50 (1989); Doe v. Delie, 257 F.3d 309, 313 (3d Cir. 2001); Fairfax v. Sch. Dist. of Phila., No. 03-4777, 2004 U.S. Dist. LEXIS 7750, at *5-6 (E.D. Pa. Apr. 26, 2004). The motion should be granted only if "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 fact that a Court must assume as true all facts alleged, however, does not mean that the Court must accept as true "unsupported conclusions and unwarranted inferences." Schuylkill Energy Res., Inc. v. Pa. Power Light Co., 113 F.3d 405, 417 (3d Cir. 1997).
Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). The party moving for summary judgment has the initial burden of showing the basis for its motion. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant adequately supports its motion pursuant to Rule 56(c), the burden shifts to the nonmoving party to go beyond the mere pleadings and present evidence through affidavits, depositions, or admissions on file showing a genuine issue of material fact for trial. See id. at 324. The substantive law determines which facts are material. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 91 L.Ed. 2d 202 (1986). When deciding a motion for summary judgment, all reasonable inferences are drawn in the light most favorable to the non-moving party. See Big Apple BMW, Inc. v. BMW of N. Am., Inc., 974 F.2d 1358, 1363 (3d Cir. 1992), cert. denied, 507 U.S. 912 (1993). If the evidence is such that a reasonable jury could return a verdict for the nonmoving party, then there is a genuine issue of fact. See id.
III. DISCUSSION
A. The ComplaintAHM first argues that Crane's Complaint fails because it does not provide specific allegations that Crane sought a loan from AHM for personal, family, or household purposes, as opposed to a loan for commercial purposes. In other words, AHM argues that Crane is not a member of the class of consumers the FCRA is intended to protect.
Congress enacted the Fair Credit Reporting Act to require consumer reporting agencies to adopt reasonable procedures for meeting the needs of commerce for consumer credit information in a manner that is fair and equitable to the consumer. 15 U.S.C. § 1681(b). Congress intended to protect consumers from the transmission of inaccurate information about them. See Razilov v. Nationwide Mut. Ins. Co., 242 F. Supp. 2d 977, 989 (D. Or. 2003). To that end, the Act protects consumer credit only, and was not enacted to protect consumers in procuring commercial credit. See D'Angelo v. Wilmington Med. Ctr., Inc., 515 F. Supp. 1250, 1254-55 (D. Del. 1981).
The FCRA protects consumer credit, in part, by requiring any person who takes adverse action with respect to a consumer that is based on information contained in a "consumer report" to provide the consumer with notice of the adverse action and with certain other information. See 15 U.S.C. § 1681m(a). The notice requirements allow consumers "to determine whether the information contained in their accessed consumer reports is accurate or needs to be corrected." Razilov, 242 F. Supp. 2d at 989. "Consumer report" is a term of art defined by the FCRA as:
Once an adverse action is taken, the user of a consumer report shall:
(1) provide oral, written, or electronic notice of the adverse action to the consumer;
(2) provide to the consumer orally, in writing, or electronically —
(A) the name, address, and telephone number of the consumer reporting agency (and a toll-free telephone number established by the agency if the agency compiles and maintains files on consumers on a nationwide basis) that furnished the report to the person; and
(B) a statement that the consumer reporting agency did not make the decision to take the adverse action and is unable to provide the consumer specific reasons why the adverse action was taken; and
(3) provide to the consumer an oral, written, or electronic notice of consumer's right —
(A) to obtain, under section 612, a free copy of a consumer report on the consumer from the consumer reporting agency referred to in paragraph (2), which notice shall include an indication of the 60-day period under that section for obtaining such a copy; and
(B) to dispute, under section 611, with a consumer reporting agency the accuracy or completeness of any information in a consumer report furnished by the agency.15 U.S.C. § 1681m(a).
any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for — (A) credit or insurance to be used primarily for personal, family, or household purposes. . . .15 U.S.C. § 1681a(d)(1) (emphasis added). A "consumer" under the Act means "an individual." 15 U.S.C. § 1681a(c). "Consumer credit" is defined in Regulations Z to the FCRA as "credit offered or extended to a consumer primarily for personal, family, or household purposes." 12 C.F.R. § 226.2(a)(12) (2004).
AHM argues that Crane's Complaint is deficient because he fails to specifically allege he was seeking credit "primarily for personal, family, or household purposes." According to AHM, therefore, Crane may have been seeking a commercial loan for which AHM would have had no duty to Crane under the FCRA adverse action notice requirements.
Federal Rule of Civil Procedure 8(a)(2) requires a complaint to consist only of "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Under the notice pleading system used in federal court, a plaintiff need only put the defendant on notice as to the circumstances surrounding the alleged behavior. See, e.g., Remick v. Manfredy, 238 F.3d 248, 263-64 (3d Cir. 2001). Moreover, when evaluating a Rule 12(b)(6) motion, the court must accept as true all facts alleged in the complaint and must draw any reasonable inferences therefrom. See Delie, 257 F.3d at 313.
Here, Crane has met his burden under Rule 8. The Complaint sets forth sufficient facts surrounding AHM's alleged violations of the FCRA. Crane specifically avers that he is a "consumer" as defined by 15 U.S.C. § 1681a(c) and that the information AHM obtained from Fannie Mae and Freddie Mac constituted "consumer reports" as defined by 15 U.S.C. § 1681a(d). It can be easily inferred that Crane sought "consumer credit" as defined in Regulation Z to the FCRA. The fact that Crane did not employ the exact phrase "primarily for personal, family, or household purposes" with regard to the type of loan he sought from AHM is not fatal to the Complaint. AHM had notice of the nature of this action from the entirety of Crane's Complaint. See Scroggins v. LTD, Inc., 251 F. Supp. 2d 1277, 1282 (E.D. Va. 2003) (denying defendant's motion to dismiss because court could draw "a fair, if weak, inference" from the allegations in the complaint that defendant had used plaintiff's credit report to deny him credit).
AHM also contends that the Complaint is deficient because it does not aver the specific loan interest rates and terms Crane sought from AHM. This argument tracks AHM's argument in favor of summary judgment, which contends that the pre-qualification process cannot trigger the FCRA's notice requirements because it is not a formal application for credit. To the extent that AHM contends it is entitled to judgment under Rule 12(b)(6) because the Complaint is deficient for not specifically setting forth loan interest rates, the Court rejects AHM's contention.
B. AHM's Duty under the FCRA
AHM next contends that it is entitled to summary judgment because it did not take an adverse action against Crane. According to AHM, Crane initiated the pre-qualification process for a loan but never progressed beyond the point of having his credit report pulled. As such, AHM reasons that it could not have taken an adverse action against Crane because he never followed-up on his initial inquiry. In other words, AHM argues that a formal credit application is a prerequisite to triggering the protections owed to consumers under the FCRA. Crane counters that his transaction with AHM was sufficient to trigger the notice requirements because the FCRA does not require a formal application for credit.
As noted, the FCRA protects consumer credit by requiring any person who takes adverse action against a consumer based on information in a consumer report to provide the consumer with notice of the adverse action and with certain other information as specified in the statute. See 15 U.S.C. § 1681m(a). The notice requirements, then, are triggered only when a user of a consumer report takes an adverse action against a consumer.
1. Definition of Adverse Action
The parties' dispute hinges on the Court's interpretation of the term adverse action in the FCRA. The parties cite no controlling interpretations of the term and, after its own research, the Court notes that this is a question of first impression in this Circuit. The FCRA defines "adverse action" as follows:
(1) Actions included. — The term "adverse action" —
(A) has the same meaning as in section 1691(d)(6) of this title[, referring to the Equal Credit Opportunity Act]; and
(B) means —
(i) a denial or cancellation of, an increase in any charge for, or a reduction or other adverse or unfavorable insurance, existing or applied for, in connection with the underwriting of insurance;
(ii) a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee;
(iii) a denial or cancellation of, an increase in any charge for, or any other adverse or unfavorable change in the terms of, any license or benefit described in section 1681b(a)(3)(D) of this title; and
(iv) an action taken or determination that is —
(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, or in connection with a review of an account under section 1681b(a)(3)(F)(ii) of this title; and
(II) adverse to the interests of the consumer.
AHM contends that the only part of the definition that is applicable in the credit transaction context is subsection (A), which refers to the definition of adverse action in the Equal Credit Opportunity Act ("ECOA"). The ECOA defines adverse action as follows: "a denial or revocation of credit, a change in the terms of an existing credit arrangement, or a refusal to grant credit in substantially the amount or on substantially the terms requested." 15 U.S.C. § 1691(d)(6). Regulations governing the ECOA refine the definition to "[a] refusal to grant credit in substantially the amount or on substantially the terms requested in an application unless the creditor makes a counteroffer (to grant credit in a different amount or on other terms) and the applicant uses or expressly accepts the credit offered." 12 C.F.R. § 202.2(c)(1)(i) (2004) (emphasis added). An application under the ECOA is defined as:
an oral or written request for an extension of credit that is made in accordance with procedures by a creditor for the type of credit requested. . . . A completed application means an application in connection with which a creditor has received all the information that the creditor regularly obtains and considers in evaluating applications for the amount and type of credit requested (including, but not limited to, credit reports, any additional information required from the applicant, and any approvals or reports by government agencies or other persons that are necessary to guarantee, insure, or provide security for the credit or collateral).12 C.F.R. § 202.2(f) (2004) (emphasis added).
AHM maintains that, applying the above definitions, Crane never made an "application" because he did not conform with AHM's usual procedures and because AHM did not follow up Crane's inquiry by obtaining the usual documentation it uses to evaluate applications for consumer credit. As evidence that Crane did not file an application, AHM explains it only used Cranes name, social security number, address, and telephone number to obtain a credit report, it never progressed beyond the first computer screen of their loan application software, and it never assigned Crane an application number. Thus, with no application to act on, AHM concludes it could not have taken adverse action under the ECOA definition, as adopted by the FCRA.
Crane contends that, although the FCRA expressly adopts the ECOA's definition, the FCRA definition is broader than the ECOA's and sweeps in the pre-qualification transaction he initiated with AHM. The catch-all provision of subsection (B)(iv) defines an adverse action as an action or determination that is "(I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer" and is "(II) adverse to the interests of the consumer." 15 U.S.C. § 1681a(k)(1)(B)(iv).
The Court finds that the catch-all provision applies to credit transactions like the pre-qualification process alleged by Crane. The Court's conclusion is guided by basic principles of statutory construction. "The first step in interpreting a statute is to determine 'whether the language at issue has a plain and unambiguous meaning with regard to the particular dispute in the case.'" Lee v. Ashcroft, 368 F.3d 218, 222 (3d Cir. 2004) (quoting Valansi v. Ashcroft, 278 F.3d 203, 209 (3d Cir. 2002)). Only if the statutory meaning is unclear must the court try to discern Congress' intent using the ordinary tools of statutory construction. Id.
First and foremost, the language of the FCRA provision at issue is clear: Congress intended to define "adverse action" in the FCRA more broadly than in the ECOA. Although the ECOA definition is tied to the concept of an "application," the FCRA definition is not. The language of the FCRA is unambiguously broader than the ECOA definition, indicating that the FCRA notice requirements are intended to cover adverse actions "made in connection with an application" or "a transaction that was initiated by any consumer."
Next, there is no indication that Congress intended credit transactions to be evaluated exclusively under subsection (A), as AHM maintains. In fact, the legislative history indicates otherwise. See Lamie v. United States Trustee, 124 S. Ct. 1023, 1033; 157 L. Ed. 2d 1024, 1036-37 (2004) (analyzing legislative history of bankruptcy code even though analysis was "unnecessary" because Court deemed code provision unambiguous);Tavarez v. Klingensmith, No. 03-2815, 2004 U.S. App. LEXIS 11729, at *6 (3d Cir. June 15, 2004). Congress stated that the 1994 revisions to the FCRA added
. . . a catch-all phrase that makes clear that any action taken or determination made with respect to a consumer application or a consumer-initiated transaction that is adverse to the interest of the consumer constitutes an adverse action. . . . Although the definition section provides a list of transactions that are considered to constitute examples of adverse actions, this list is illustrative and not definitive. It is the Committee's intent that, whenever a consumer report is obtained for a permissible purpose under section 604(a), any action taken based on that report that is adverse to the interests of the consumer triggers the adverse action notice requirements under section 615.
H.R. Rep. No. 103-486, Explanation of Legislation (April 28, 1994). Thus, the legislative history belies AHM's argument that a broad interpretation of subsection (B)(iv) renders subsection (A) superfluous, with the general provision swallowing the specific.See Lamie, 124 S. Ct. at 1031 ("Surplusage does not always produce ambiguity and our preference for avoiding surplusage constructions is not absolute."); but see Mark v. Valley Ins. Co., 275 F. Supp. 2d 1307, 1315 (D. Or. 2003) (holding catch-all provision does not apply to insurance transaction because FCRA provides an insurancespecific definition of adverse action).
A recent decision from the Court of Appeals for the Seventh Circuit also supports this Court's interpretation. Citing to the legislative history, the Seventh Circuit concluded that because of the catch-all provision, "[t]he FCRA defines 'adverse action' more broadly than does the ECOA." Treadway v. Gateway Chevrolet Oldsmobile, Inc., 362 F.3d 971, 982-83 (7th Cir. 2004) (noting "liberal definition of the FCRA"); see also Payne v. Ken Diepholtz Ford Lincoln Mercury, No. 02-C-1329, 2004 U.S. Dist. LEXIS 19, at *18 (N.D. Ill. Jan 6, 2004) (applying catch-all provision to automobile financing transactions); Scharpf v. AIG Marketing, Inc., 242 F. Supp. 2d 455, 466-67 (W.D. Ky.) (holding in insurance context that an insurance company's duties under the FCRA are not preconditioned on the making of a formal written application for insurance).
Last, the underlying policy of the FCRA supports the Court's reading of the statute. See Tavarez, 2004 U.S. App. LEXIS 11729, at *6 (considering legislative history to interpret bankruptcy code, "as well as 'the atmosphere in which [the statute] was enacted'") (citing New Rock Asset Partners v. Preferred Entity Advancements, Inc., 101 F.3d 1492, 1498 (3d Cir. 1996)). As noted, the FCRA was enacted to protect consumers from the transmission of inaccurate information about them by requiring users of consumer credit information to alert consumers their credit history was used and by providing consumers with their credit information to determine its accuracy. See 15 U.S.C. § 1681m(a); Razilov, 242 F. Supp. 2d at 989. Given the statute's purpose, the Court finds it unlikely that Congress intended pre-qualification processes — through which a creditor obtains consumer credit reports and uses them to decide whether it should pursue a consumer's initial inquiry to the formal credit application stage — to fall outside the scope of the Act's protection. Accordingly, the Court will apply the catch-all definition of adverse action to Crane's claim.
2. Crane's FCRA Claim
Applying the catch-all provision to the facts here, the Court finds that Crane has adduced sufficient evidence to survive AHM's motion for summary judgment. The pre-qualification process commenced by Crane for a mortgage loan at AHM's prime interest rate is a transaction satisfying subsection (1)(B)(iv)(I). When AHM allegedly declined to pre-qualify Crane for the loan at prime after reviewing his consumer report, it took an action adverse to his interests, satisfying subsection (1)(B)(iv)(II). Accordingly, the Court holds that, based on the limited record currently available to the Court, a reasonable jury could conclude AHM took an adverse action against Crane that triggered AHM's notice obligations under the FCRA. AHM's motion for summary judgment is denied.
There are, of course, other elements that Crane must satisfy to prove AHM intentionally violated the FCRA. In the instant motion for summary judgment, however, AHM raises only the adverse action issue.
An appropriate Order follows.
ORDER
AND NOW, this day of July, 2004, upon consideration of Defendant's Motion to Dismiss or, in the Alternative, Motion for Summary Judgment on Plaintiff's Complaint (Docket No. 3), Plaintiff's Opposition thereto (Docket No. 4), Defendant's Reply (Docket No. 8), Plaintiff's Notice of Supplemental Authority (Docket No. 9), and Defendant's Response to Plaintiff's Notice of Supplemental Authority (Docket No. 10), IT IS HEREBY ORDERED that:(1) Defendant's motion to dismiss is DENIED; and
(2) Defendant's motion for summary judgment is DENIED.