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finding Metro 2 theory to be viable even though the defendant did not challenge the theory's viability
Summary of this case from Blakeney v. Ascension Servs., L.P.Opinion
Case No.: 15cv1675 JLS (DHB)
06-06-2016
SANDY NISSOU-RABBAN, Plaintiff, v. CAPITAL ONE BANK (USA), N.A.; BANK OF AMERICA, N.A.; MERCEDES-BENZ FINANCIAL SERVICES USA LLC; SYNCHRONY BANK; and EXPERIAN FINANCIAL SOLUTIONS, INC., Defendants.
ORDER DENYING MOTION TO DISMISS
(ECF No. 32)
Presently before the Court is Defendant Synchrony Bank's Motion to Dismiss Pursuant to Federal Rule of Civil Procedure 12(b)(6) (MTD). (ECF No. 32.) Also before the Court are Plaintiff's Opposition to, (ECF No. 44), Synchrony Bank's Reply in Support of, (ECF No. 47), and Synchrony Bank's Notice of Supplemental Authority Regarding, (ECF No. 52), the MTD. The Court vacated the hearing on this matter and took it under submission without oral argument pursuant to Civil Local Rule 7.1(d)(1).
For the reasons stated below, Synchrony's MTD is DENIED.
BACKGROUND
Plaintiff Sandy Nissou-Rabban (Plaintiff) filed this lawsuit against Synchrony and several other defendants in July 2015, and in October 2015 filed an Amended Complaint. (See Compl., ECF No. 1; Am. Compl., ECF No. 27.) In her Amended Complaint, Plaintiff alleges Synchrony and several other defendants violated the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681 et seq., and California's Consumer Credit Reporting Agencies Act (CCRAA), Cal. Civ. Code §§ 1785.1 et seq.
On November 24, 2014, Plaintiff filed for Chapter 7 bankruptcy. (Am. Compl. ¶ 24.) At that time, Plaintiff owed money on an account with Synchrony. (See id. at ¶ 141.) On April 13, 2015, credit reporting agency Experian Information solutions, Inc., issued a credit report showing "December 2014 and January 2015 - CO (Charge Off) in the payment history section" related to Plaintiff's account with Synchrony. (Id. at ¶ 141.) A "charge off" is a value an institution that furnishes information to credit reporting agencies—a furnisher—may use to describe a debt. Synchrony provides information to credit reporting agencies, and is therefore a furnisher. (Id. at ¶ 18.) Plaintiff alleges that Synchrony violated the FCRA and CCRAA by reporting a charge off for Plaintiff's account. (Id. at ¶¶ 173-180.)
Plaintiff named Experian as a defendant in this action but on May 4, 2016, stipulated to dismissal with prejudice of Experian from this case. (See ECF No. 58.)
Plaintiff's debt to Synchrony was discharged through the bankruptcy proceedings on February 24, 2015. (Id. at ¶¶ 27-32.) Plaintiff states that "it was illegal and inaccurate for any of the Defendants to report any post-Bankruptcy derogatory collection information . . . ." (Id. at ¶ 33.) Plaintiff further alleges that the information defendants—presumably including Synchrony—reported was "inaccurate in that Defendants continued reporting information based on Defendants' pre-bankruptcy contract terms with Plaintiff, which were no longer enforceable upon the bankruptcy filing, thereby rendering the disputed information 'inaccurate.'" (Id. at ¶ 36.)
According to the Amended Complaint, Synchrony and the other defendants used the Consumer Data Industry Association's "Metro 2 format" for credit reporting. (Id. at ¶¶ 38-39.) Plaintiff alleges that this format requires furnishers to use the value "D" or "no data," and not a delinquency note like "Charge Off," for an account's payment history during bankruptcy. (Id. at ¶ 40.) Plaintiff also states that under the Metro 2 format, "credit furnishers" must "report the status of the account at the time of the bankruptcy petition (e.g. 'Included in Bankruptcy'), rather than the account status as it would have existed in the months following the filing of the Bankruptcy Petition if the Bankruptcy Petition had not been filed (e.g. '120+ days delinquent' or 'charged off')." (Id. at ¶ 40 (emphasis in original).) Uniformity among those using the Metro 2 reporting standard is necessary to foster "consistency in how furnishers calculate data to report to the bureaus, which ultimately leads to objective credit scores being formulated for consumers." (Id. at ¶ 42.) Deviating from these standards therefore amounts to "an inaccurate or misleading statement," Plaintiff alleges. (Id. at ¶ 43.)
In June 2015, Plaintiff sent a letter to Experian disputing Synchrony's reporting of a charge off, arguing the last activity for Plaintiff's account with Synchrony should be November 24, 2014—the date Plaintiff instituted bankruptcy proceedings. (Id. at ¶¶ 153-155.) Plaintiff advised Experian that if it did not delete the challenged information from Plaintiff's credit report it should note that this portion of the report was disputed. (Id. at ¶ 155.) Plaintiff does not allege that it advised Synchrony that it was responsible for noting the dispute in the credit report. (See id. at ¶¶ 155-168.)
Synchrony moved to dismiss both Plaintiff's FCRA and CCRAA causes of action pursuant to Federal Rule of Civil Procedure 12(b)(6).
LEGAL STANDARD
Pursuant to Federal Rule of Civil Procedure 12(b)(6), courts must dismiss complaints that "fail[] to state a claim upon which relief can be granted." The Court evaluates whether a complaint supports a cognizable legal theory and states sufficient facts in light of Federal Rule of Civil Procedure 8(a), which requires a "short and plain statement of the claim showing that the pleader is entitled to relief." Although Rule 8 "does not require 'detailed factual allegations,' . . . it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, "a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of a cause of action's elements will not do." Twombly, 550 U.S. at 555 (alteration in original). "Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Iqbal, 556 U.S. at 678 (alteration in original) (quoting Twombly, 550 U.S. at 557).
"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.'" Id. (quoting Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible when the facts pleaded "allow[] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). That is not to say that the claim must be probable, but there must be "more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556). "[F]acts that are 'merely consistent with' a defendant's liability" fall short of a plausible entitlement to relief. Id. (quoting Twombly, 550 U.S. at 557). Further, the Court need not accept as true "legal conclusions" contained in the complaint. Id. at 678-79 (citing Twombly, 550 U.S. at 555). This review requires "context-specific" analysis involving the Court's "judicial experience and common sense." Id. at 679. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged—but it has not 'show[n]'—'that the pleader is entitled to relief.'" Id. (quoting Fed. R. Civ. P. 8(a)(2)). The Court will grant leave to amend unless it determines that no modified contention "consistent with the challenged pleading . . . [will] cure the deficiency." DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986)).
ANALYSIS
Synchrony argues that Plaintiff's FCRA claim must be dismissed because she does not actually allege that Synchrony's report was inaccurate as required in this Circuit to state a claim under the FCRA. (MTD at 5.) Plaintiff responds that her Amended Complaint pleads sufficient facts to support three viable legal theories. (Opp'n at 9.) First, Plaintiff argues Synchrony's failure to note that the reported information was disputed is inaccurate and misleading. (Id.) Second, Plaintiff contends that reporting her account as charged off after she had filed for bankruptcy—as opposed to after her debts were formally discharged—"is inaccurate and misleading." (Id.) Finally, Plaintiff avers that Synchrony's failure to follow the Metro 2 reporting standards, even if the information reported is objectively correct, is nonetheless inaccurate and misleading. (Id.)
Pinpoint citations to docketed materials refer to the CM/ECF number electronically stamped at the top of each page.
The FCRA requires creditors who "furnish" information to credit reporting agencies to report "accurate information," see 15 U.S.C. § 1681s-2(a), and to conduct an investigation if someone disputes reported information, see 15 U.S.C. § 1681s-2(b). If the furnisher determines the disputed information is "incomplete or inaccurate," the furnisher must report this information to the credit reporting agencies. Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 890 n.10 (9th Cir. 2010) (citing 15 U.S.C. § 1681s-2(b)(1)(D)). The statute only provides a private right of action, however, for failing to investigate as required by subsection (b). See Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1162 (9th Cir. 2009).
To state a claim under both the FCRA and the CCRAA, a plaintiff must plead an actual inaccuracy. Carvalho, 629 F.3d at 890. Thus, "an item on a credit report can be 'incomplete or inaccurate' within the meaning of the FCRA's furnisher investigation provision . . . '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.'" Id. (citing Gorman, 584 F.3d at 1163) (citation and footnote omitted). / / / / / / / / /
I. Failure to Note Dispute
The Ninth Circuit has held that a plaintiff may sustain an FCRA claim for failing to report that a charge is disputed. Gorman, 584 F.3d at 1164. However, Plaintiff's Amended Complaint only directs this allegation toward Experian. As Synchrony points out in its Reply, Plaintiff tries to slide this allegation in against Synchrony through her Opposition. (Reply at 3-4.)
Courts generally cannot consider evidence outside the pleadings when ruling on a motion to dismiss under Rule 12(b)(6). Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 925 (9th Cir. 2001). Likewise, "the court may not consider the new allegations and exhibits contained in the plaintiff's opposition." Jacobson v. Schwarzenegger, 357 F. Supp. 2d 1198, 1204 (C.D. Cal. 2004). Allegations raised in the plaintiff's opposition may be relevant, however, "in deciding whether to grant leave to amend." Id. (citing Broam v. Bogan, 320 F.3d 1023, 1026 n.2 (9th Cir.2003)).
Because Plaintiff's Amended Complaint does not allege that Synchrony, as opposed to Experian, failed to note the dispute in her credit report, this legal theory does not save Plaintiff's claims against Synchrony from dismissal.
II. Effect of Pending Bankruptcy Proceedings
Plaintiff next argues that Synchrony violated the FCRA and CCRAA by noting the charge off while her bankruptcy proceedings were pending. (Opp'n at 16-17.) Plaintiff does not cite any authority for the proposition that reporting accurate information about a particular debt while bankruptcy proceedings are pending but before the debt is formally discharged violates these laws.
Plaintiff characterizes this argument as a factual one, but as Synchrony correctly points out in its Reply, (Reply at 5), this is a legal argument. The Court takes as true the factual basis laid out in the Complaint: that before the debt was discharged, Plaintiff owed money to Synchrony; Synchrony reported the debt as a charge off while Plaintiff's bankruptcy matter was pending; and the debt was ultimately discharged through bankruptcy proceedings. It is a question of law, however, whether filing the bankruptcy petition makes this otherwise accurate reporting inaccurate by operation of the automatic bankruptcy stay statute, 11 U.S.C. § 362(a).
Collection activities are automatically stayed when a person files for bankruptcy. 11 U.S.C. § 362(a). It does not follow, however, that reporting on debts in a way that reflects their status at the time bankruptcy proceedings were pending, instead of their status after the debt was discharged, is inaccurate. The Court agrees with other district courts that have addressed this question that otherwise accurate negative credit reporting is not retroactively made inaccurate because a bankruptcy petition later discharged the debt. See, e.g., Giovanni v. Bank of Am., N.A., No. C 12-02530 LB, 2012 WL 6599681, at *5-6 (N.D. Cal. Dec. 18, 2012); Mortimer v. JP Morgan Chase Bank, N.A., No. C 12-1936 CW, 2012 WL 3155563, at *3 (N.D. Cal. Aug. 2, 2012). Thus, pleading facts that show a furnisher reported information that was accurate while bankruptcy was pending but before the debt was discharged does not, as a matter of law, provide the predicate inaccuracy necessary to state an FCRA or CCRAA claim. See Giovanni, 2012 WL 6599681, at *6; Mortimer, 2012 WL 3155563, at *3.
Plaintiff filed her bankruptcy petition on November 24, 2014. 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. The Court likewise agrees with the courts in Giovanni and Mortimer that the fact that the credit report issued after the debt had been discharged does not change the analysis because the report is accurate for the time about which it reported. See Giovanni, 2012 WL 6599681, at *1 (debt discharged January 2011; credit report received in August 2011 reporting delinquency from September 2010 to January 2011); Mortimer, 2012 WL 3155563, at *1 (debt discharged February 2010; credit report received in March 2012 reporting delinquency for December 2009 and January 2010).
Thus, because Plaintiff pleads only that the charge off for December 2014 to January 2015 was made inaccurate by operation of the later bankruptcy discharge—a conclusion of law she has not supported with any authority—and does not otherwise plead that the charge off for that period was factually inaccurate, the Court concludes that this legal theory does not bind the well-pleaded facts together to state a cognizable claim.
III. Compliance With Metro 2 Reporting Standards
Plaintiff next argues that Synchrony failed to follow the Metro 2 format, which is the industry standard, and that failing to follow this standard is sufficiently misleading to support her FCRA and CCRAA claims. (See Opp'n at 17.) In particular, Plaintiff points out that the Amended Complaint alleges that "the Metro 2 reporting format directs furnishers to report 'D' or 'no data' during the pendency of a bankruptcy," rather than the charge off Synchrony actually reported. (Id.)
To support this legal theory, Plaintiff points to a subsequent order in the Giovanni v. Bank of America case, No. C 12-02530 LB, 2013 WL 1663335, at *6 (N.D. Cal. Apr. 17, 2013). In that order, the Giovanni court again dismissed the plaintiff's complaint, but in doing so noted the significance of allegations missing from the plaintiff's complaint: "the [complaint] does not allege that [defendant] was required to follow the Metro 2 Format, . . . or that deviation from those instructions constitutes an inaccurate or misleading statement." Plaintiff distinguishes Giovanni by pointing out that she has in fact pleaded that deviation from the Metro 2 format constitutes an inaccurate or misleading statement. That is, reporting information in a manner inconsistent with industry standards "compromises the credit reporting system," (Am. Compl. ¶ 43), and those making credit decisions, who would expect that the furnisher adheres to the Metro 2 format, might view a charge off notation more negatively than "no data."
Although the latter facts could have been pleaded more explicitly, the Court concludes that the allegations in the Complaint support this summation. (See ¶¶ 40-43, 141-143.)
Plaintiff also cites to the Tenth Circuit case Cassara v. DAC Services., Inc., 276 F.3d 1210 (10th Cir. 2002), for the proposition that inaccuracy may be established by the understanding of terms in the industry. (Opp'n at 18.) The Court in Cassara held that using the word "accident," although technically correct, to describe an event when the industry standard for what qualifies as an accident may carry a different meaning created a triable issue of fact. Cassara, 276 F.3d at 1225. That is, there was a question of whether labeling an event an accident was "'accurate' within the meaning of the Fair Credit Reporting Act." See id. Thus, at least in the Tenth Circuit, using a term that is technically correct but varies from the industry standard may provide the inaccuracy required to support an FCRA claim. See id.
Although there is persuasive authority suggesting that sufficiently pleading an FCRA claim based on failure to follow Metro 2 standards may be difficult, courts that have addressed this argument generally have not held as a matter of law that deviation from that standard cannot amount to an "inaccuracy" for purposes of the FCRA, and by extension the CCRAA. See, e.g., Giovanni, 2013 WL 1663335, at *6 (dismissing complaint where plaintiff failed to plead "that deviation from [the Metro 2] instructions constitutes an inaccurate or misleading statement"); Mortimer v. Bank of Am., N.A., No. C-12-01959 JCS, 2013 WL 1501452, at *12 (N.D. Cal. Apr. 10, 2013) ("Plaintiff has not pled any basis to conclude that any entity would be misled by Defendant's reporting, or that any entity would have expected Defendant to report in compliance with the CDIA guidelines.") (emphasis added). On the other hand, courts—including this Court—have allowed FCRA actions to proceed where the alleged inaccuracy has to do with proper reporting under the Metro 2 standard. See, e.g., Shaw v. Experian Info. Sols., Inc., 49 F. Supp. 3d 702, 704, 709 (S.D. Cal. 2014); see also Gillespie v. Equifax Info. Servs., LLC, No. 05C138, 2008 WL 4316950, at *8 (N.D. Ill. Sept. 15, 2008) (concluding that failure to adhere to the Metro 2 format was evidence of willfulness of an FCRA violation under 15 U.S.C. § 1681n(a)).
Synchrony submitted as supplemental authority the district court's order in Mestayer v. Experian Information Solutions, Inc., No. 15-cv-03645-EMC, 2016 WL 631980, at *4 (N.D. Cal. Feb. 17, 2016). (ECF No. 52, at 10.) The plaintiff in Mestayer alleged the defendant failed to adhere to the Metro 2 standards. Id. Relying on Giovanni and Mortimer, the court dismissed the plaintiff's FCRA claim, noting that the plaintiff "failed to point to any authority indicating that a failure to comply with an industry standard is a failure to comply with the law." Id. The Court does not understand that to be Plaintiff's burden to survive this MTD. She has not moved for judgment as a matter of law based on the undisputed fact Synchrony failed to follow the industry standard, and her claim does not depend on the premise that failure to follow these standards is an FCRA violation per se. Rather, Plaintiff's argument is that Synchrony's failure to adhere to the Metro 2 format may prompt those making credit decisions to draw a more negative inference from Synchrony's reporting a charge off than if it reported "no data," as Plaintiff alleges the industry standard required. (See Am. Compl. ¶¶ 42-43, 141.) Of course, to prove her case, Plaintiff will likely need to establish through admissible evidence that this is in fact the industry standard, that Synchrony deviated from it, and that this particular deviation might adversely affect credit decisions—in other words, that "entit[ies] would have expected Defendant to report in compliance with the CDIA guidelines." Mortimer, 2013 WL 1501452, at *12. Whether these allegations turn out to be true is a question of proof that is not suited for resolution in a motion to dismiss.
This would not be the first case in which the Metro 2 standards were relevant to an FCRA cause of action. For example, in Toliver v. Experian Information Solutions., Inc., 973 F. Supp. 2d 707, 717-19 (S.D. Tex. 2013), the evidence showed that the Metro 2 codes the defendant used were accurate and "that the developers of the credit scoring models know or have access to the definitions of the Metro 2 codes." Thus, the court held the defendant, a credit reporting agency, was entitled to summary judgment because the accurate use of the Metro 2 code was not likely to be misleading in such a way that it would adversely affect credit decisions. See id. at 713-14, 718-19. The inverse may also be true—that inaccurate reporting under Metro 2 standards may be misleading and lead to adverse credit decisions.
Thus, taking Plaintiff's allegations as true, Synchrony's deviation from Metro 2, the industry standard and its chosen method of reporting, may be "misleading in such a way and to such an extent that it can be expected to adversely affect credit decisions.'" See Carvalho, 629 F.3d at 890; Gorman, 584 F.3d at 1163.
Synchrony does not directly challenge the viability of this legal theory, but argues that the way Plaintiff lays out the facts in her Amended Complaint does not support it. (Reply at 6-7.) In particular, Synchrony takes aim at the Amended Complaint's directing allegations toward "Defendants" in general, as opposed to Synchrony in particular. (Id. at 6-7 (citing Am. Compl. ¶¶ 38-43).) The Amended Complaint lists five parties as "Defendants," (Am. Compl. ¶¶ 2), and alleges the failure to follow the Metro 2 format under the headline "General Allegations," which appears to pertain to all five defendants. (See id. at ¶¶ 38-43.) Elsewhere in the Amended Complaint, under the heading, "The Synchrony Bank Misreported Credit Information," Plaintiff avers that Synchrony reported a charge off. (Id. at ¶ 141.) No paragraph explicitly states both that Synchrony reported a charge off and that, under the Metro 2 standard, it should have reported "no data." However, it is not asking too much of Synchrony that it put together ¶ 40—stating that Metro 2 required all defendants to report "no data" after a bankruptcy petition has been filed—and ¶ 141 —stating Synchrony reported a charge off—to understand that Plaintiff avers that Synchrony did not adhere to the Metro 2 standard. Synchrony therefore had sufficient notice pursuant to Rule 8 of the claim against it.
Synchrony next contends that Plaintiff's failure to actually attach documentation supporting her Metro 2 allegations makes it impossible "to verify these factual allegations that are not within Plaintiff's personal knowledge." (Reply at 8.) Synchrony cites no authority for the proposition that Plaintiff was required to attach these materials to her Amended Complaint to survive dismissal. (See id. at 8-9.) Synchrony's argument that Plaintiff must support her complaint with this evidence at the pleading stage is unpersuasive.
Accordingly, Plaintiff pleads facts sufficient to support her claim that Synchrony's reporting might have been inaccurate or misleading. Because Synchrony's argument for dismissal is based on Plaintiff's failure to plead inaccurate reporting, the Court DENIES Synchrony's MTD. / / /
CONCLUSION
Although Plaintiff has not pleaded facts sufficient to support FCRA and CCRAA claims based on failure by Synchrony to note a dispute or actual inaccuracy by operation of filing a bankruptcy petition, she has pleaded facts that, if proven, would show that Synchrony's reporting was inaccurate or misleading. Synchrony's MTD is therefore DENIED.
IT IS SO ORDERED. Dated: June 6, 2016
/s/_________
Hon. Janis L. Sammartino
United States District Judge