Smith v. Equifax Information Services,Llc et al

MOTION TO DISMISS FOR FAILURE TO STATE A CLAIM

D. Kan.May 5, 2017

UNITED STATES DISTRICT COURT DISTRICT OF KANSAS ROBYN J. SMITH, Plaintiff, v. EQUIFAX INFORMATION SERVICES, LLC, EXPERIAN INFORMATION SOLUTIONS INC., TRANS UNION, LLC, BERLIN-WHEELER, INC., KANSAS COUNSELORS OF KANSAS CITY, LLC AND CMRE FINANCIAL SERVICES, INC., Defendants. Case No. 2:16-cv-02819-CM-GEB DEFENDANT EXPERIAN INFORMATION SOLUTIONS, INC.’S RULE 12 (B)(6)(C) MOTION TO DISMISS PLAINTIFF’S COMPLAINT AND MEMORANDUM OF LAW IN SUPPORT Defendant Experian Information Solutions, Inc. (“Experian”) requests that this Court grant its motion to dismiss under Fed.R.Civ.P. 12 (B)(6). Experian provides this memorandum in support of its motion pursuant to Local Rule 7.6. There are issues fundamentally amiss with Plaintiff’s claims, which her recent amendment has not cured. Though purporting to bring claims against Experian under §§ 1681e(b) and 1681(i) of the Fair Credit Reporting Act (“FCRA”), Plaintiff has not pleaded any cognizable inaccuracy. Plaintiff alleges that Experian’s reporting is “inconsistent” in light of her ongoing Chapter 13 bankruptcy, but the contingent nature of a Chapter 13 bankruptcy, which could be withdrawn, amended, converted to a Chapter 7, or dismissed at any moment, renders Plaintiff’s allegations specious and unsound. As such, Plaintiff’s claims against Experian Information Solutions, Inc. (“Experian”) fail as a matter of law. This Court should therefore dismiss Plaintiff’s claims against Experian. Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 1 of 11 - 2 - BACKGROUND AND NATURE OF THE CASE I. THE FAIR CREDIT REPORTING ACT. The Fair Credit Reporting Act (“FCRA”) seeks “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, 52 (2007). Pertinent here, the statute requires credit bureaus (called “consumer reporting agencies” or “CRAs”) to maintain “reasonable procedures to assure maximum possible accuracy” in preparing credit reports provided to third parties (called “consumer reports”), 15 U.S.C. § 1681e(b), and to reasonably investigate consumer disputes about the accuracy of credit data, a process called “reinvestigation.” Id. at § 1681i(a). The statute expressly governs the reporting of information about consumer bankruptcies. Id. at § 1681c(d)(1); see also Childress v. Experian Info. Sols., Inc., 790 F.3d 745 (7th Cir. 2015). II. PROCEDURAL HISTORY. Plaintiff filed this case on November 14, 2016, in the District Court of Wyandotte County, Kansas Limited Actions Division and it was removed to this Court on December 16, 2016. Dkt. 1. On February 22, 2017, Experian moved for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Dkt. 19. Rather than respond to Experian’s motion, Plaintiff moved for leave to amend her complaint (Dkt. 32), which was granted on April 14, 2017. On April 21, 2017, Plaintiff filed her Amended Complaint. III. FACTUAL ALLEGATIONS AGAINST EXPERIAN. A. The Parties. Plaintiff Robyn J. Smith is a “consumer” under the FCRA. (Am. Compl. at ¶48); see also 15 U.S.C. § 1681a(c). Defendant Experian is a “consumer reporting agency” under the FCRA. Like its national competitors Trans Union and Equifax, Experian collects consumer credit Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 2 of 11 - 3 - information from various sources, organizes and stores the information, and then makes it available to authorized third parties, like lenders. B. Plaintiff’s Bankruptcy Case. Plaintiff filed for Chapter 13 bankruptcy on November 9, 2015. Id. at ¶15; see also Anthony Jerome Smith and Robyn Janelle Smith, No. 2:15-bk-22360 (Bankr. D. Kan. 2015). On January 14, 2016, Plaintiff’s Chapter 13 plan was confirmed by the Bankruptcy Court. Plaintiff’s plan remains ongoing and her bankruptcy has not yet been discharged. (Am. Compl. at ¶16). Plaintiff alleges she is making payments in accordance with the Chapter 13 plan. Id. at ¶33. Plaintiff’s original Schedule F of General Unsecured Creditors, filed with her bankruptcy petition included a claim for $655 to Kansas Counselors, Inc., among nine pages and more than $86,000 in general unsecured debt. See In re Smith, Case No. 15-22360, Doc. 1 at 27 (Bankr. D. Kan. Nov. 9, 2015). Plaintiff’s confirmed Chapter 13 plan obligates her to pay $579 each month to the plan for a period of at least three years, and provides for Plaintiff’s general unsecured creditors to receive payment if at all, only after all other classes of creditors are paid. See id., Dkt. 24 at 10. Currently, their bankruptcy docket does not disclose what funds, if any, the Chapter 13 trustee has disbursed to Plaintiff’s creditors. Kansas Counselors does not appear on the claims register, indicating that they did not file a proof of claim in Plaintiff’s bankruptcy. C. Plaintiff’s Dispute to Experian. On November 18, 2016, four days after Plaintiff filed the present lawsuit, and the same day Experian was served with Plaintiff’s original complaint, Experian received a dispute from Plaintiff. (Am. Compl. at ¶¶ 21-23.) Plaintiff alleges that, prior to this dispute, her account with Kansas Counselors of Kansas City (“KCKC”) was reporting on her Experian credit report with a past due balance of $501, and did not indicate that it had been included in Plaintiff’s bankruptcy proceedings. (Id. at ¶ 20.) Following her dispute, Plaintiff’s Experian report reflects that the Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 3 of 11 - 4 - account was updated to indicate that it is included in Plaintiff’s Chapter 13 petition, and continues to reflect a past due balance of $501. (Id. at ¶¶ 24-26.) IV. PLAINTIFF’S LEGAL CLAIMS AGAINST EXPERIAN. In her Amended Complaint, Plaintiff brings claims under the FCRA against Experian for alleged willful and negligent violations of § 1681e(b) (reasonable procedures) and 1681(i) (adequate investigation). Plaintiff’s claims are based entirely on information reported during Plaintiff’s ongoing Chapter 13 bankruptcy. (See Am. Compl. at ¶¶ 33, 34). Specifically, Plaintiff alleges that Experian’s reporting of her KCKC account as included in her Chapter 13 petition, but with a past due balance is “internally inconsistent with the other tradelines reported in the credit report with a status of ‘Petition for Chapter 13 Bankruptcy’ [and] . . . internally inconsistent and misleading with the reading of the Kansas Counselors tradeline in and of itself.” (Id. at ¶¶ 27-28.) Plaintiff does not identify what these alleged inconsistencies are. QUESTION PRESENTED Should the claims against Experian be dismissed for failure to state a claim where Plaintiff has failed to adequately plead the existence of an inaccurate consumer report, which is a threshold element of plaintiff’s cause of action, and that Experian did not conduct an adequate reinvestigation? LEGAL STANDARD When considering a motion to dismiss, the court accepts as true “all well-pleaded factual allegations in the complaint and the view[s] them in the light most favorable to the plaintiff.” Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231, 1235 (10th Cir. 2013) (citation omitted). “To survive a motion to dismiss under Rule 12(b)(6), a complaint must ‘state a claim to relief that is plausible on its face.’” Id. (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 4 of 11 - 5 - (quoting, in turn, Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007))). “A claim has facial plausibility when 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). “While the 12(b)(6) standard does not require that Plaintiff establish a prima facie case in [his] complaint, the elements of each alleged cause of action help to determine whether Plaintiff has set forth a plausible claim.” Khalik v. United Air Lines, 671 F.3d 1199,1102 (10th Cir. 2012). “Pleadings that do not allow for at least a ‘reasonable inference’ of the legally relevant facts are insufficient.” Burnett, 706 F.3d at 1236 (quoting Iqbal, 556 U.S. at 678 (observing that a “pleading that offers ‘legal conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do’”)). ARGUMENT Plaintiff’s claims against Experian are legally defective. Her amended pleading fails to plausibly allege any factual inaccuracy in Experian’s reporting, an element of liability under the FCRA. Plaintiff’s claims rest entirely on allegedly inaccurate information from the time period between Plaintiff’s bankruptcy plan confirmation (the bankruptcy is ongoing) and the time of her complaint, but, as explained below, such information cannot give rise to liability under the FCRA. As such, Plaintiff’s complaint against Experian must be dismissed under Federal Rule 12(b)(6). I. PLAINTIFF HAS NOT PLEADED THE EXISTENCE OF AN INACCURATE CONSUMER REPORT. “To prevail on a claim under [§§ 1681e(b) or 1681i], a plaintiff must “establish that: (1) [the CRA] failed to follow reasonable procedures to assure the accuracy of its reports; (2) the report in question was, in fact, inaccurate; (3) [the plaintiff] suffered injury; and (4) [the CRA's] failure caused his injury.” Wright v. Experian Info. Sols., Inc., 805 F.3d 1232, 1239 (10th Cir. 2015) (quoting Eller v. Trans Union, LLC, 739 F.3d 467, 473 (10th Cir. 2013). The element of an Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 5 of 11 - 6 - inaccurate report is a threshold requirement: “[a] successful FCRA claim . . . must be based on inaccurate information disclosed in a consumer credit report.” Pinson v. Equifax Credit Info. Servs., Inc., 316 F. App'x 744, 751 (10th Cir. 2009) (upholding summary judgment where there was no showing of inaccurate information); see also George v. Chex Sys., Inc., No. 16-2450-JTM, 2017 WL 119590 (D. Kan. Jan. 12, 2017) (dismissing a claim based on a failure to plausibly allege an inaccuracy). A. PLAINTIFF’S ONGOING CHAPTER 13 BANKRUPTCY DOES NOT RENDER EXPERIAN’S REPORTING INACCURATE. Plaintiff’s purported inaccuracies fail as a matter of law. Plaintiff alleges that, prior to her dispute, Experian inaccurately reported her KCKC account as “showing a balance past due in February 2016 and not showing in a Chapter 13 plan, but rather in collection.” (See Am. Compl. at ¶ 21). Following her dispute, Plaintiff alleges that the account was updated to show that it was included in her Chapter 13 petition, but the past due balance remained. (Id. at ¶ 26.) Plaintiff also alleges that Experian has failed to adequately identify all of the debts included in her Chapter 13 bankruptcy, but she does not specifically identify which debts those are. (Id. at ¶ 33.) As an initial matter, it is unclear what exactly Plaintiff alleges is inaccurate or “inconsistent” in Experian’s reporting. She complains that Experian’s “failure to update the past due balance [of the KCKC account]” makes the account reporting inconsistent with itself, and with other accounts included in Plaintiff’s bankruptcy. (Id. at ¶¶ 27-33.) Plaintiff does not explain how the account could be inconsistent with itself, nor does she allege any facts to suggest that her KCKC account should be reporting identically with other accounts impacted by her Chapter 13 bankruptcy. Plaintiff also includes the odd allegation that “Essentially . . . Experian reported trade lines as past due that were included in the Chapter 13 plan while Plaintiff was current on her Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 6 of 11 - 7 - payments and misrepresented the status of the trade lines included in the bankruptcy despite being listed on the bankruptcy schedules.” (See Am. Compl. at ¶ 33). In short, Plaintiff alleges that, somehow, by virtue of her Chapter 13 plan, she was no longer past due on her debt to KCKC, or at least something about Experian’s reporting of the past due balance was “inconsistent” with reporting the debt as included in her Chapter 13 petition. Plaintiff does not elaborate on how she became current on her obligation to KCKC, nor does she allege that she has actually paid KCKC anything on their debt, 1 but a review of the relevant bankruptcy principles does shed some light on the meaning of her allegations. Plaintiff scheduled her KCKC debt, but KCKC did not file a proof of claim. Accordingly, the trustee is not paying KCKC anything from any remaining plan proceeds. See Fed.Bnkr.R.Proc. 3002(a) (“An unsecured creditor…must file a proof of claim or interest for the claim or interest to be allowed.”). If Plaintiff successfully completes her Chapter 13 plan, the KCKC debt will be discharged, and KCKC will not be able to recover from Plaintiff personally. See 11 U.S.C. § 1328(a) (stating upon plan completion “the court shall grant the debtor a discharge of all debts provided for by the plan”); In re Cody, 246 B.R. 597, 599 (Bankr. E.D. Ark. 1999) (“A plan which provides generally for payment of unsecured claims is considered to provide for such claims if the debts are listed in the schedules.”). In other words, because she is not paying KCKC anything under her plan, Plaintiff’s allegation that she is current on her debt to KCKC then, must mean that, because KCKC did not file a claim and is not being paid by the Trustee, Plaintiff owes KCKC nothing, and could not be past due. 1 For instance, Plaintiff does not allege that she has somehow made arrangements with KCKC outside the plan and has thus become current by actually paying the money owed on the debt. Nor could she as such an arrangement would amount to discriminating among her creditors, which is forbidden in Chapter 13. See 11 U.S.C. § 1322(a)(3) (“if the plan classifies claims, shall provide the same treatment for each claim within a particular class”). Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 7 of 11 - 8 - There is, however, a problem with Plaintiff’s allegations that her ongoing Chapter 13 proceeding has somehow obliterated her past due obligation to KCKC, namely that her Chapter 13 case is just that, ongoing. As other courts have explained, the mere confirmation of a Chapter 13 plan does not change the legal status of the underlying debts, because Chapter 13 bankruptcies are generally years-long process, which can fail to reach completion in many ways. See, e.g., Devincenzi v. Experian Info. Sols., Inc., No. 16-CV-04628-LHK, 2017 WL 86131, at *6 (N.D. Cal. Jan. 10, 2017) (“Confirmation of a payment plan is not sufficient to alter the legal status of a debt, because if a debtor fails to comply with the Chapter 13 plan, the debtor's bankruptcy petition can be dismissed, in which case the debt will be owed as if no petition for bankruptcy was filed.”). If Plaintiff does not complete her plan, for any reason, she will not be granted a discharge, and the legal status of her debts will return to the pre-petition status quo. See In re Irons, 173 B.R. 910, 910–11 (Bankr. E.D. Ark. 1994) (“Section 349 of the Bankruptcy Code states the effect of a dismissal of a bankruptcy case . . .[t]his section negates, as it was intended to, the consequences of the filing of the petition in bankruptcy where the case is dismissed without discharge. Parties are restored to their rights and positions as they existed prior to the filing of the bankruptcy case.”) (citing In re Nash, 765 F.2d 1410, 1414 (9th Cir. 1985)). Here, because Plaintiff is not paying KCKC anything through her plan, the $509 that was past due when she filed her case, will still be past due again if her Chapter 13 case fails. This inherent contingency of Chapter 13 bankruptcies is why it is entirely accurate and appropriate for Experian to continue reporting the past-due nature of Plaintiff’s KCKC account and also report the account as included in her Chapter 13 petition while the bankruptcy is ongoing. See, e.g., Jaras v. Experian Info. Sols., Inc., No. 16-CV-03336-LHK, 2016 WL 7337540, at *3 (N.D. Cal. Dec. 19, 2016) (holding that “a matter of law, it is not misleading or inaccurate to report delinquent debts Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 8 of 11 - 9 - during the pendency of a bankruptcy proceeding prior to the discharge of the debts”); Blakeney v. Experian Info. Sols., Inc., No. 15-CV-05544-LHK, 2016 WL 4270244, at *6 (N.D. Cal. Aug. 15, 2016) (holding that “it was not misleading or inaccurate . . . to report Plaintiff's delinquent debts” in an ongoing Chapter 13 bankruptcy because “Confirmation of Plaintiff's Chapter 13 bankruptcy plan is not equivalent to discharge of Plaintiff's debts, and Plaintiff is not entitled to receive a discharge of debts covered under Plaintiff's Chapter 13 bankruptcy plan until Plaintiff has completed all payments provided for under the Chapter 13 bankruptcy plan.”). B. THE FCRA DOES NOT REQUIRE EXPERIAN TO ACT AS A BANKRUPTCY TRIBUNAL. The preceding discussion reveals a deeper flaw in Plaintiff’s case: even if Plaintiff’s legal conclusion that the provisions of her Chapter 13 plan superseded her original debt obligation with KCKC were correct, this sort of “legal inaccuracy” cannot support liability under the FCRA. See, e.g., Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 891 (9th Cir. 2010) (explaining credit bureaus “simply collect and report information” and are “not tribunals”); DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008) (holding that an alleged inaccuracy arising from the legal validity of a mortgage loan “is not a factual inaccuracy . . . but rather a legal issue that a credit agency . . . is neither qualified nor obligated to resolve under the FCRA”); Wright v. Experian Info. Sols., Inc., 805 F.3d 1232, 1244 (10th Cir. 2015) (holding that CRAs have no duty to determine the validity of a tax lien); Chiang v. Verizon New England Inc., 595 F.3d 26, 38 (1st Cir. 2010) (“a plaintiff's required showing is factual inaccuracy, rather than the existence of disputed legal questions”). Plaintiff’s theory of inaccuracy would require Experian to determine the legal status of her debts based on the language of her Chapter 13 plan. Experian would have to pull Plaintiff’s petition, her repeatedly amended schedules, the claims register for her case, and her confirmed Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 9 of 11 - 10 - Chapter 13 plan. Then, Experian would have to decipher exactly how this stack of court documents impacted the specifics of her debt to KCKC, applying various principles of bankruptcy law along the way. This unreasonable burden is precisely what led the court in Hupfauer v. Citibank, N.A., et al to note “‘[t]he only practical means to [determine whether a particular debt is discharged] is by searching a consumer's actual bankruptcy court file and scouring all the filings,’ requiring the third party to ‘consult with an attorney to determine whether a certain account may fall into one of the many exceptions to discharge . . . requiring a credit bureau to determine whether a specific account was discharged in Chapter 13 bankruptcy would impose an unfairly heavy burden on that party.” Hupfauer, 2016 WL 4506798 at *7 (internal citation omitted) (alterations in original); see also George v. Chex Systems, Inc., No. 16-2450-JTM, 2017 WL 119590, at *3 (D. Kan. Jan 12, 2017) (holding that “the maximum possible accuracy” standard of § 1681e does not require a CRA to check PACER prior to preparing a report); Childress v. Experian Info. Sols., Inc., 790 F.3d 745, 747 (7th Cir. 2015) (holding that there was no duty to employ legally trained individuals to review and classify bankruptcy dismissals). In short, FCRA litigation is “not the appropriate way” to resolve a dispute over the legal status of a debt. Johnson v. TranUnion, LLC, No. 10 C 6960, 2012 WL 983379, at *7 (N.D. Ill., Mar. 22, 2012), aff’d, 524 F. App’x 268 (7th Cir. 2013); Wright, 805 F. 3d at 1244 (“The FCRA expects consumers to dispute the validity of a debt with the furnisher of the information or append a note to their credit report to show the claim is disputed.”) Plaintiff, even with the benefit of amendment, has not alleged any actionable inaccuracy here, and accordingly Plaintiff’s claims fail entirely and should be dismissed. Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 10 of 11 - 11 - CONCLUSION Without allegations that Experian prepared an inaccurate consumer report, Plaintiff’s claims against Experian fail and Plaintiff’s Complaint should be dismissed with prejudice. Respectfully submitted, HORN AYLWARD & BANDY, LLC /s/ Danne W. Webb Danne W. Webb KS #22312 Andrea S. McMurtry KS #24746 2600 Grand Blvd, Suite 1100 Kansas City, MO 64108 Telephone: (816) 421-0700 Facsimile: (816) 421-0899 dwebb@hab-law.com amcmurtry@hab-law.com /s/ Juan C. Arguello Juan C. Arguello (6320230) JONES DAY admitted Pro Hac Vice jarguello@jonesday.com 77 West Wacker Chicago, IL 60601.1692 Telephone: +1.312.782.3939 Facsimile: +1.312.782.8585 Attorneys for Defendant Experian Information Solutions, Inc. CERTIFICATE OF SERVICE I hereby certify that on May 5, 2017, the foregoing was served by operation of the Court’s CM/ECF system upon counsel of record. /s/ Danne W. Webb Attorney for Defendant Experian Information Solutions, Inc. Case 2:16-cv-02819-JWL-GEB Document 39 Filed 05/05/17 Page 11 of 11