No. 10-cv-4148 (CS)
OPINION AND ORDER
In this putative class action, Maurice and Mary Jayne Fitzgerald ("Plaintiffs") sue Chase Home Finance, LLC, JP Morgan Chase Bank, N.A., and Washington Mutual Bank for alleged violations of the Truth in Lending Act, 15 U.S.C. § 1601, et seq., and the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681, et seq., and bring various New York State law claims. On September 3, 2010, Defendants moved to dismiss all claims under Federal Rule of Civil Procedure 12(b)(6). (Doc. 16.) Plaintiffs opposed and in the alternative requested leave to amend the Complaint. (Doc. 24.) For the foregoing reasons, Defendants' motion to dismiss is GRANTED as to all claims except the FCRA claim, and Plaintiffs' request for leave to amend is GRANTED.
The facts (although not the conclusions) from the Complaint are assumed to be true for the purposes of this Opinion. Plaintiffs are a married couple with a first mortgage on their home held by Defendants. (Compl. ¶ 1.) In December 2008, Mr. Fitzgerald telephoned Defendants and requested assistance in securing a reduction of his monthly mortgage payments. (Id. ¶ 20). Defendants informed Mr. Fitzgerald that Plaintiffs would qualify under the "CARE Program," also known as "The Making Homes Affordable Now Program," and that the CARE program would reduce their monthly mortgage payments. (Id. ¶¶ 20, 22.) Based on this conversation, Plaintiffs applied to the CARE program through Defendants. (Id. ¶¶ 23-24.)
The Complaint makes no distinction between the three defendants. Instead, Plaintiffs attribute all of the unlawful conduct to Defendants, generally, throughout the Complaint. This form of pleading should be corrected in the Amended Complaint.
Defendants instructed Mr. Fitzgerald that, in order to be approved for the CARE program, Plaintiffs would need to make elevated mortgage payments for the months of April, May, and June 2009. (Id. ¶ 25.) Plaintiffs complied with the instructions. (Id. ¶ 26.) In July 2009, Plaintiffs did not receive a mortgage statement. (Id. ¶ 30.) When Plaintiffs asked Defendants why they had not received a mortgage statement, Defendants informed them that their application to the CARE program was under consideration and directed Plaintiffs not to make any additional monthly payments on their existing mortgage. (Id.) Plaintiffs complied with Defendants' instructions and made no further mortgage payments. (Id. ¶ 31.)
The introductory paragraph of the Complaint alleges generally that members of the putative class were told that they should not make payments in order to qualify for reduced monthly payments. (Compl. ¶ 1.) Although the factual recitation of Plaintiffs' interaction with Defendants includes the allegation that Plaintiffs were told not to make payments while their applications to the CARE program were being processed, (id. ¶¶ 30, 32, 38), nowhere is it alleged that Plaintiffs were told that they should skip payments in order to qualify for the CARE program.
On several unspecified occasions after June 2009, Mr. Fitzgerald contacted Defendants to confirm that Plaintiffs were to make no further mortgage payments. (Id. ¶ 32.) Defendants stated that Plaintiffs' application was still under consideration and that Plaintiffs should not make any monthly mortgage payments. (Id. ¶ 32.) Plaintiffs complied with that instruction. (Id. ¶ 33.)
In September 2009, Mr. Fitzgerald contacted Experian, a national credit reporting agency, to confirm that no negative reports concerning his credit had been filed as a result of the non-payment of his mortgage. (Id. ¶ 34.) Experian informed Mr. Fitzgerald that Defendants reported late mortgage payments for July and August 2009. (Id. ¶ 35.) Mr. Fitzgerald then contacted Defendants to complain that Defendants should not have sent a negative report about his failure to make mortgage payments because Defendants had instructed him not to make the payments. (Id. ¶ 36.) After Defendants ensured him that the report to Experian was a mistake and that Defendants would correct the error, Mr. Fitzgerald again asked whether he should make payments on his mortgage. (Id. ¶¶ 37-38.) Defendants told Mr. Fitzgerald that his application was being reviewed and not to make any payments. (Id. ¶ 38.)
Thereafter, Mr. Fitzgerald contacted Experian to report that Plaintiffs were not late for their July, August, and September mortgage payments. (Id. ¶ 46.) Experian then contacted Defendants to report that Plaintiffs disputed the accuracy of the payment history Defendants had provided to Experian. (Id. ¶ 47.) Defendants never corrected the inaccuracies with Experian or any other credit reporting agency. (Id. ¶ 48.) As a result, Mr. Fitzgerald's credit rating and access to credit has been reduced. (Id. ¶¶ 106-09.)
On November 2, 2009, having been sent no mortgage statements since June, (id. ¶ 29), Mr. Fitzgerald received a notice from Defendants charging Plaintiffs with late penalties and interest for their missed mortgage payments from July to October 2009. (Id. ¶ 52.) When Mr. Fitzgerald contacted Defendants about the statement, Defendants informed him, for the first time, that Plaintiffs would not qualify for lower monthly mortgage payments under the CARE program. (Id. ¶ 53.) To the contrary, Plaintiffs qualified for a mortgage with a monthly payment approximately $500 higher than what Plaintiffs had been paying before applying to the CARE program. (Id.) Defendants informed Mr. Fitzgerald that, regardless of whether Plaintiffs refinanced at the higher rate, Plaintiffs would still have to pay interest, unamortized principal, penalties, and fees accrued during the period of non-payment. (Id. ¶ 55.) Failure to pay would result in foreclosure and collection proceedings. (Id. ¶¶ 56-57.)
II. LEGAL STANDARD
"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.'" Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009) (quoting 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." Id. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, 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 the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (alteration in original) (citations and internal quotation marks omitted). Although Federal Rule of Civil Procedure 8 "marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, . . . it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Iqbal, 129 S. Ct. at 1950.
In considering whether a complaint states a claim upon which relief can be granted, the Court may "begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth," and then determine whether the remaining well-pleaded factual allegations, accepted as true, "plausibly give rise to an entitlement to relief." Id. Deciding whether a complaint states a plausible claim for relief is "a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. "[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 has not 'show[n]'—'that the pleader is entitled to relief.'" Id. (second alteration in original) (quoting Fed. R. Civ. P. 8(a)(2)).
Courts should grant leave to amend "freely . . . when justice so requires." Fed. R. Civ. P 15(a)(2); see Forman v. Davis, 371 U.S. 178, 182 (1962). "It is the usual practice upon granting a motion to dismiss to allow leave to replead." Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991). Granting leave to amend a complaint is appropriate if the amended complaint could state plausible facts upon which relief could be granted. See Hayes v. Perotta, No. 09-2458, 2010 WL 4705150, at *5 (S.D.N.Y. Sept. 30, 2010). On the other hand, leave to amend should be denied if the amendment would be futile because the claim fails as a matter of law. See Grace v. Rosenstock, 228 F.3d 40, 53 (2d Cir. 2000).
Plaintiffs assert claims for: (1) violations of the Truth in Lending Act; (2) fraudulent inducement; (3) breach of contract; (4) unjust enrichment; (5) violation of New York General Business Law § 349; (6) violation of New York General Business law § 350; and (7) violation of the Fair Credit Reporting Act. All claims, with the exception of the alleged violation of the Fair Credit Reporting Act, must be dismissed for failure to state a claim. Amendment, however, could cure many of the defects identified in this Opinion.
With respect to Plaintiffs' Truth in Lending Act, fraudulent inducement, and breach of contract claims, the Complaint omits critical facts concerning the relationship between Plaintiffs and Defendants. Of particular importance to the viability of these claims is the contractual relationship between the parties after Plaintiffs applied to the CARE program. For example, Plaintiffs' opposition brief suggests that a modification of Plaintiffs' original mortgage agreement may have occurred based on Plaintiffs' compliance with Defendants' instructions in December 2008. The Complaint, however, is silent as to whether a modification of the mortgage agreement occurred. As discussed below, Plaintiffs are not entitled to relief under TILA or New York State law based on Defendants' conduct surrounding the original mortgage agreement, but Plaintiffs might be able to state cognizable claims if the original mortgage agreement was modified. Although the modification issue is a matter of law which will require subsequent briefing, Plaintiffs must first make the allegation in an Amended Complaint (if they can do so in good faith) before the Court may consider Plaintiffs' Truth in Lending Act, fraudulent inducement, and breach of contract claims.
Plaintiffs' remaining causes of action suffer similar defects. Aside from payments made pursuant to their mortgage agreement, Plaintiffs have not conferred any benefit to Defendants, so the unjust enrichment claim is untenable. Plaintiffs fail to show any consumer-oriented activity, requiring dismissal of both New York General Business Law claims. Additionally, Plaintiffs have not shown that Defendants' activities qualify as advertisements within the meaning of New York General Business Law § 350. Therefore, the Court dismisses all of those claims without prejudice. Plaintiffs will have twenty-one days from the date of this Opinion to file the Amended Complaint.
A. Truth in Lending Act
The Truth in Lending Act ("TILA") requires lenders to disclose the timing and amount of all payments associated with consumer credit transactions. See, e.g., 15 U.S.C. §§ 1638(a)(6), 1639(a)(2)(A). The lender's obligation to make disclosures under TILA, however, arises only in conjunction with the "consummation" of the transaction with the consumer. See, e.g., id. §§ 1638(b)(2)(A), 1639(b)(1). According to Federal Reserve Regulation Z, "[c]onsummation means the time that a consumer becomes contractually obligated on a credit transaction." 12 C.F.R. § 226.2(a)(13); see Chevron USA, Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 844 (1984) (giving "controlling weight" to an agency's "reasonable interpretation" of a statute). Although Regulation Z provides that consummation is the critical moment triggering the lender's disclosure obligations, Regulation Z does not determine when the consumer becomes contractually obligated to perform. See Murphy v. Empire of Am., FSA, 746 F.2d 931, 934 (2d Cir. 1984). Rather, state law governs the commencement of the consumer's contractual obligation. Id.
Federal courts applying the laws of New York and other states have uniformly held that, in determining when consummation of a transaction occurs under TILA, "[t]he signing of the contract is the event of central significance." Id.; see Nadler v. Bank of Am., N.A., No. 10-4237, 2010 WL 4922307, at *2 (S.D.N.Y. Nov. 30, 2010) ("It is well settled that consummation occurs when a borrower signs the loan documents and becomes obligated to pay.") (citation and internal quotation marks omitted); see also United States v. Petroff-Kline, 557 F.3d 285, 296 (6th Cir. 2009) (consummation occurs when borrower signs loan documents and becomes obligated to pay, despite fact that loan may be contingent on lender's approval); Bragg v. Bill Heard Chevrolet, Inc., 374 F.3d 1060, 1066 (11th Cir. 2004) ("well-reasoned case law" supported plaintiff's interpretation that consummation occurred when he signed the relevant contract). The Federal Reserve's Official Staff Interpretation of Regulation Z makes clear that the current language of Regulation Z was chosen to ensure that consummation does not occur if the borrower has merely made an investment in the transaction. See Murphy, 746 F.2d at 933 n.1.
Plaintiffs have failed to state a TILA claim because the Complaint contains no facts indicating that consummation of a credit transaction occurred. Although Plaintiffs had the intention of entering into a new mortgage agreement with Defendants, Plaintiffs never finalized an agreement to receive credit under the CARE program. Instead, the Complaint states that Plaintiffs submitted an application to reduce their monthly mortgage payments under the CARE program but still remained bound under the terms of the original mortgage agreement. (See, e.g., Compl. ¶¶ 22-23, 25.) Plaintiffs never signed a new agreement with Defendants, and only made an investment in the hoped-for transaction by overpaying their mortgage payments for a few months. (Id. ¶ 26.) Thus, Defendants had no duty to make disclosures to Plaintiffs under TILA because Plaintiffs did not consummate a credit transaction with Defendants when Plaintiffs applied to the CARE program.
To the extent that Plaintiffs argue in their opposition that their application to the CARE program constituted a refinancing, (Pl.'s Opp'n at 5-6), thus triggering Defendants' duty to make disclosures under TILA, this argument also fails. First, the allegation that a refinancing occurred does not appear in the Complaint. Second, a "refinancing occurs when an existing obligation that was subject to this subpart is satisfied and replaced by a new obligation undertaken by the same consumer." 12 C.F.R. § 226.20(a). Here, the Complaint contains no facts suggesting that Plaintiffs satisfied their original obligation to Defendants. Consequently, Defendants had no obligation to make disclosures to Plaintiffs under the theory that Plaintiffs' application to the CARE program was a refinancing.
Finally, although Plaintiffs appear to argue that an oral modification of their mortgage agreement occurred, thus triggering Defendants' disclosure obligations under TILA, (Pl.'s Opp'n at 5-7), the Complaint does not allege any such modification. Whether a modification occurred, whether it would be valid under New York law in light of the requirement in the original mortgage that any modification be in writing, and whether modifying a contract consummates a new transaction under TILA need not be addressed until such time as the Complaint is amended to plead that a contract modification occurred. The Court therefore dismisses Plaintiffs' TILA claims without prejudice and grants Plaintiffs leave to amend, if they can do so in good faith.
B. Fraudulent Inducement
To state a claim of fraudulent inducement, "a plaintiff must show: (1) a representation of material fact, (2) which was untrue, (3) which was known to be untrue or made with reckless disregard for the truth, (4) which was offered to deceive another or induce him to act, and (5) which that other party relied on to its injury." Aetna Cas. & Sur Co. v. Aniero Concrete Co., 404 F.3d 566, 580 (2d Cir. 2005). Claims of fraudulent inducement are subject to the heightened pleading requirement of Federal Rule of Civil Procedure 9(b), id. at 582, which requires a party alleging fraud or mistake to "state with particularity the circumstances constituting fraud or mistake," Fed. R. Civ. P. 9(b).
1. Misrepresentations of Facts
Under New York law, a fraudulent inducement claim will be successful only if the plaintiff can "prove a misrepresentation or a material omission of fact which was false and known to be false by [the defendant.]" Sogenti USA LLC v. Whirlwind Bldg. Sys., Inc., 274 F. App'x 105, 107 (2d Cir. 2008) (internal quotation marks omitted). "[S]tatements will not form the basis of a fraud claim when they are mere 'puffery' or are opinions as to future events." Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir. 1994).
The false representation alleged in the Complaint is Defendants' statement that Plaintiffs did not have to make payments on their existing mortgage while their CARE application was pending. (Compl. ¶ 77.) Defendants argue that such a statement is not a misrepresentation of fact because it was in the nature of advice and because Defendants never added that they would forgive the interest, penalties, and fees that would accrue, according to the terms of the mortgage, during the period of non-payment. (Def.'s Mem. at 7-8.) The Court disagrees. An instruction by a bank not to pay may reasonably be understood by a borrower as a representation that non-payment is acceptable to the bank and will not have negative consequences. See, e.g., Hyosung Am., Inc. v. Sumagh Textile Co., Ltd., 137 F.3d 75, 78 (2d Cir. 1998) (notwithstanding plaintiff's ability to inquire further into defendant's representations, plaintiff could justifiably rely on defendant's statements because plaintiff was never "placed on guard or practically faced with the facts" by defendant). Moreover, to the extent a bank authorizes non-payment without explaining that penalties will nevertheless accrue, such may be construed as a material omission. See, e.g., Merrill Lynch & Co., Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 181-82 (2d Cir. 2007) (noting that plaintiff could recover on fraudulent inducement theory where defendant omitted critical facts so long as plaintiff's reliance was "not so utterly unreasonable, foolish or knowingly blind as to compel the conclusion that whatever injury it suffered was its own responsibility"). Thus, the Complaint sufficiently alleges a misrepresentation of material fact.
Plaintiffs suggest in their memorandum of law that Defendants falsely represented that the missed payments were necessary to qualify for the CARE program and that Plaintiffs would qualify for reduced payments under the CARE program. (Pl.'s Opp'n at 7-9.) As drafted, however, the Complaint does not allege those statements as having fraudulently induced Plaintiffs to act.
2. The Particularity Requirement
Although Plaintiffs have pleaded an omission of material fact, Plaintiffs' fraudulent inducement claim must be dismissed for failure to plead fraud sufficiently. Under Federal Rule of Civil Procedure 9(b), a complaint must (1) specify the statements that the plaintiff contends were fraudulent; (2) identify the speaker; (3) state where and when the statements were made; and (4) explain why the statements were fraudulent. See Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). Additionally, in cases involving multiple defendants, the plaintiff "must plead circumstances providing a factual basis for scienter for each defendant; guilt by association is impermissible." In re DDAVP Direct Purchaser Antitrust Litig., 585 F.3d 677, 695 (2d Cir. 2009) (citation and internal quotations omitted).
The pleadings in the Complaint do not satisfy the particularity requirement. For example, Plaintiffs allege that "[o]n several occasions after June, 2009, Fitzgerald contacted Defendants to confirm that plaintiffs were not to make any further mortgage payments and was again told that their application was being processed . . . ." (Compl. ¶ 32.) This statement fails to identify which of the three defendants made the statement. The allegation also includes no information concerning when or where the statement was made. This defect is consistent throughout the Complaint. (See, e.g., id. ¶¶ 25-33, 35-45, 47-49.) Accordingly, Plaintiffs' failure to meet the requirements of Rule 9(b) requires dismissal, without prejudice, of the fraudulent inducement claim.
The Court realizes that providing the name of the speaker, for example, might be unreasonable in circumstances such as these, but given that the alleged false representations not to pay were made in conversations initiated by Mr. Fitzgerald, (see, e.g., Compl. ¶¶ 30, 32, 36-38), Plaintiffs should be able to provide more detail than they have here.
Although Rule 9(b) allows that "[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally," this requirement should not be "mistaken for license to base claims of fraud on speculation and conclusory allegations." Shields, 25 F.3d at 1128 (alternation in original) (internal quotation marks omitted). Therefore, to state a viable claim for fraudulent inducement, the plaintiff must allege "specific facts from which a reasonable trier of fact could directly or indirectly infer that the promisor intended not to honor his obligations at the time the promise was made." Drexel Burnham Lambert, Inc. v. Saxony Heights Realty Assocs., 777 F. Supp. 228, 235 (S.D.N.Y. 1991).
Defendants do not address the sufficiency of Plaintiffs' pleading of intent to deceive or intent to induce Plaintiffs to act. Nonetheless, aside from the conclusory statement that "Defendants made these representations with the knowledge that they were false," (Compl. ¶ 78), the Complaint does not indicate that Defendants acted with the intent to deceive Plaintiffs or induce them to act. Consequently, the fraudulent inducement claim must also be dismissed without prejudice for failure to plead fraudulent intent sufficiently.
C. Breach of Contract
Plaintiffs fail to state a claim for breach of contract because Plaintiffs do not identify any terms of the mortgage agreement breached by Defendants. In Plaintiffs' brief, rather than responding to Defendants' arguments concerning the breach of contract claim, Plaintiffs argue that Defendants breached their duty of good faith and fair dealing. (Pl.'s Opp'n at 15.) A claim for breach of the duty of good faith and fair dealing during the performance of a contract is separate and distinct from a claim of breach of contract. Compare Tractebel Energy Marketing, Inc. v. AEP Power Marketing, Inc., 487 F.3d 89, 98 (2d Cir. 2007) (claims of breaching duty of good faith and fair dealing involve acts with effect of impairing other party's ability to receive fruits of contract), with Terwilliger v. Terwilliger, 206 F.3d 240, 245-46 (2d Cir. 2000) (claims of breach of contract involve failure of a party to perform contract itself). The Complaint, however, does not seek relief for a breach of the duty of good faith and fair dealing. Plaintiffs therefore fail to state a claim of either breach of contract or breach of the duty of good faith and fair dealing. The Court dismisses Plaintiffs' breach of contract claim without prejudice and grants leave to amend.
The Complaint suggests that Defendants breached the provision of the mortgage that provided for fees and penalties only for missed payments. (Compl. ¶¶ 85-86.) Plaintiffs admit that, from July 2009 on, they did not make the payments required under the original mortgage. Accordingly, they may be suggesting that their conversations with Defendants' representatives constituted an oral modification of the mortgage that reduced their payment obligation to zero, such that imposition of fees and penalties would be unwarranted. (Pl.'s Opp'n at 9-11.) Because the Complaint as drafted pleads no such modification, the Court will not address whether a modification occurred or whether it would be valid under New York law. Plaintiffs may address the issue, if appropriate, in an Amended Complaint.
D. Unjust Enrichment
A cognizable unjust enrichment claim requires a showing (1) that the defendant benefitted; (2) at the plaintiff's expense; and (3) that "equity and good conscience require restitution." Kaye v. Grossman, 202 F.3d 611, 616 (2d Cir. 2000). "The 'essence' of such a claim 'is that one party has received money or a benefit at the expense of another.'" Id. (quoting City of Syracuse v. R.A.C. Holding, Inc., 685 N.Y.S.2d 381, 382 (4th Dep't 1999)). Here, although Plaintiffs claim that Defendants attempted to collect penalties, fees, and interest unjustly, the Complaint is silent as to whether Plaintiffs paid Defendants any money. Cf. Jaffe v. Capital One Bank, No. 09-4106, 2010 WL 691639, at *8 (S.D.N.Y. Mar. 1, 2010) (dismissing unjust enrichment claim where complaint never alleged payments from plaintiff to defendant). Indeed, the conditional wording of this claim—"[i]f the Defendants were permitted to collect and/or retain late penalties, fees, and accrued interest . . . the Defendants would be unjustly enriched," (Compl. ¶ 91)—suggests payments were not made. Thus, because Plaintiffs have not actually enriched Defendants, Plaintiffs fail to state a claim of unjust enrichment.
Plaintiffs further allege that Defendants were unjustly enriched by the three "elevated" payments of approximately $500 over their normal monthly obligation. (Id. ¶¶ 25-26, 92.) Because the terms of the mortgage provided that the approximately $1,500 in extra payment would be applied to Plaintiffs' outstanding principal and interest obligation, (Decl. of Jessica L. Kaufman in Support of Def.'s Mot. to Dismiss Ex. A at 4), the payments did not unjustly enrich Defendants, cf. Davidowitz v. Patridge, No. 08-6962, 2010 WL 5186803, at *10 (S.D.N.Y. Dec. 7, 2010) ("[T]he existence of a valid and enforceable written contract precludes recovery on a theory of unjust enrichment."). The Court therefore dismisses Plaintiffs' unjust enrichment claim without prejudice.
Although Plaintiffs' original mortgage agreement was not attached to the Complaint, the Court may still consider it because the document is "integral" to the Complaint and the Complaint "relies heavily on its terms and effects." Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). --------
E. New York General Business Law Section 349
The New York State legislature passed Section 349 of the General Business Law to provide a private right of action to consumers injured by "[d]eceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state." N.Y. Gen. Bus. Law § 349(a); see Gaidon v. Guardian Life Ins. Co., 94 N.Y.2d 330, 344 (1999) (discussing private rights of action under § 349). "To state a claim under § 349, a plaintiff must allege: (1) the act or practice was consumer-oriented; (2) the act or practice was misleading in a material respect; and (3) the plaintiff was injured as a result." Spagnola v. Chubb Corp., 574 F.3d 64, 74 (2d Cir. 2009).
To plead consumer-oriented conduct, the complaint must show that the defendant's acts or practices "have a broad impact on consumers at large." N.Y. Univ. v. Cont'l Ins. Co., 87 N.Y.2d 308, 320 (1995). While the consumer-oriented requirement is to be construed liberally, the plaintiff must allege that the defendant's policies would "likely have an impact on similarly-situated consumers." Exec. Risk Indem. Inc. v. Icon Title Agency, LLC, No. 10-2473, 2010 WL 3154558, at *2 (S.D.N.Y. Aug. 3, 2010). While private contract disputes normally do not fall within the ambit of the statute, see N.Y. Univ., 87 N.Y.2d at 320, if the complaint can "demonstrate that the acts or practices have a broader impact on consumers at large," the plaintiff will satisfy the pleading burden under Section 349, Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 25 (1995). In other words, for a Section 349 claim to arise out of a private transaction, "[the] disputed private transaction must have ramifications for the public at large, or be harmful to the general public interest." Ng. v. HSBC Mortg. Corp., No. 07-5434, 2010 WL 889256, at *15 (E.D.N.Y. Mar. 10, 2010) (internal quotation marks omitted).
Plaintiffs, however, do not sufficiently allege that Defendants treated other consumers as Plaintiffs allege they were treated. They do not allege, for example, that their claims arise out of Defendants' having "target[ed] vulnerable borrowers," id., or having engaged in "false and misleading advertising" in the marketplace, see ExxonMobil Inter-Am., Inc. v. Advanced Info. Eng'g Servs., Inc., 328 F. Supp. 2d 443, 448 (E.D.N.Y. 2004) (internal quotation marks omitted). They allege no facts to support the inference that Defendants' conduct was repeated or even likely to repeat with other consumers—that, for example, it occurred pursuant to a sales script or other internal policy or practice. The Complaint cites only to interactions and conversations specific to the Plaintiffs and Defendants. Such allegations are insufficient to support a Section 349 claim, and, therefore, the Court dismisses the claim without prejudice.
F. New York General Business Law Section 350
New York General Business Law Section 350 protects consumers against false advertising. Rodriguez v. It's Just Lunch, Int'l, No. 07-9227, 2010 WL 685009, at *10 (S.D.N.Y. Feb. 23, 2010). To state a claim under Section 350, the plaintiff must show that (1) the defendant directed advertisements at consumers; (2) the advertisements misled the consumer in a material way; and (3) the consumer suffered an injury as a result of the advertisements. Id. New York State courts have rejected Section 350 claims where the complaint does not indicate that the plaintiff was aware of the defendant's advertisements until after the parties entered into a business transaction. See McGill v. Gen. Motors Corp., 647 N.Y.S.2d 209, 210 (1st Dep't 1996); Gershon v. Hertz Corp., 626 N.Y.S.2d 80, 81 (1st Dep't 1995).
Plaintiffs' Section 350 claim must be dismissed for two reasons. First, consumer-oriented activity is a requirement for claims under both Section 349 and Section 350. See Maurizio v. Goldsmith, 230 F.3d 518, 522 (2d Cir. 2000). As discussed above, the Complaint does not sufficiently plead consumer-oriented activity. Additionally, the Complaint fails to allege that Defendant directed advertisements at Plaintiffs. To the contrary, Plaintiffs initiated contact with Defendants when Mr. Fitzgerald called Defendants in December 2008 to seek assistance in securing reduction of his monthly mortgage payments. (Compl. ¶ 20.) The Complaint does not state that Plaintiffs were even aware of the CARE program before Defendants told Mr. Fitzgerald about it, much less that Plaintiffs contacted Defendants for the purpose of applying to the CARE program. (Compl. ¶ 20). Thus, Plaintiffs have not stated a claim under Section 350.
Plaintiffs advance an unconvincing argument that the information about the CARE program offered by Defendants in the December 2008 phone call qualifies as advertising under New York law. Plaintiffs point to the Federal Reserve's commentary to Regulation Z to support the proposition that any "[c]ommunications promoting a new open-end plan or closed-end transaction" constitutes advertising. (Pl.'s Opp'n at 22.) Plaintiffs overlook the next section in the commentary, which provides that advertising does not include "(A) [d]irect personal contacts, such as follow-up letters, cost estimates for individual consumers, or oral or written communication relating to the negotiation of a specific transaction" and "(F) [c]ommunications about an existing credit account (for example, a promotion encouraging additional or different uses of an existing credit card account)." Truth in Lending, 63 Fed. Reg. 16669-02, 16674 (Apr. 6, 1998). New York law governs Plaintiffs' false advertising claim, so the reference to Regulation Z is inapposite, but even if the Federal Reserve's definition of "advertisement" applied, the result in this case would not change because the communications between the parties concerned a specific transaction relating to an existing account. As a result, Plaintiffs' claim under Section 350 is dismissed without prejudice.
G. Fair Credit Reporting Act
The Fair Credit Reporting Act places two sets of obligations on entities that furnish information to consumer reporting agencies. First, under Section 1681s-2(a), the FCRA imposes a duty on the furnisher to "provide accurate information" to consumer reporting agencies. 15 U.S.C. § 1681s-2(a). Section 1681s-2(a) states that "[a] person shall not furnish information relating to a consumer to any consumer reporting agency if—(i) the person has been notified by the consumer, at the address specified by the person for such notices, that specific information is inaccurate; and (ii) the information is, in fact, inaccurate." Id. § 1681s-2(a)(1)(B). Section 1681s-2(a) also prohibits a furnisher from reporting information that it knows or has reasonable cause to believe is inaccurate. Id. § 1681s-2(a)(1)(A). There is no private right of action to enforce violations of § 1681s-2(a). Redhead v. Winston, No. 01-11475, 2002 WL 31106934, at *4 (S.D.N.Y. Sept. 20, 2002) (citing 15 U.S.C. § 1681s-2(d)).
Second, under Section 1681s-2(b), after the furnisher receives notice "of a dispute with regard to the completeness or accuracy of any information provided by a person to a consumer reporting agency," the furnisher must conduct an investigation with respect to the dispute, including a review of the information provided by the consumer reporting agency, report the results of the investigation to the consumer reporting agency, and take certain steps if the person finds the information to be inaccurate, incomplete, or impossible to verify. 15 U.S.C. § 1681s-2(b)(1). For Section 1681s-2(b) to apply, the notice must originate from a consumer reporting agency. Howard v. Mun. Credit Union, No. 05-7488, 2008 WL 782760, at *8 (S.D.N.Y. Mar. 25, 2008). Private plaintiffs may bring an action for willful or negligent non-compliance with § 1681s-2(b). Neblett v. Chase Bank, No. 09-10574, 2010 WL 3766762, at *5 (S.D.N.Y. Sept. 27, 2010) (citing 15 U.S.C. § 1681n-o).
Here, the disputed information is whether Plaintiffs were "late for their July, August, and September, 2009, mortgage payments." (Compl. ¶ 46.) Plaintiffs advance two arguments for why Defendants had an obligation to inform Experian that Plaintiffs were not delinquent on their mortgage payments. First, because an oral modification of the mortgage agreement occurred, Defendants had an obligation to correct Experian's information concerning the timeliness of Plaintiffs' mortgage payments. (Pl.'s Opp'n at 23-24.) The Court will not address whether the alleged oral modification triggered Defendants' duty to correct information sent to Experian because, as noted above, Plaintiffs have failed to allege in the Complaint that such a modification occurred.
Second, Plaintiffs argue that Defendants had an obligation to tell Experian why Plaintiffs failed to make timely mortgage payments. (Id. at 24.) The FCRA requires furnishers to correct "incomplete or inaccurate" information in the possession of the credit reporting agency. 15 U.S.C. § 1681s-2(b)(1)(D). Although the question of whether the FCRA requires reporting of contextual information explaining why the individual failed to make payments is unresolved in the Second Circuit, "[s]everal courts . . . have held that a report is accurate for the purposes of the FCRA so long as it is technically accurate, or accurate on its face." Elsady v. Rapid Global Bus. Solutions, Inc., No. 09-11659, 2010 WL 2740154, at *6 (E.D. Mich. July 12, 2010) (collecting cases); see Kellers v. Ocwen Loan Servicing, LLC, No. 09-6076, 2009 WL 2899813, at *2 (D. Or. Sept. 9, 2009) ("[T]he FCRA imposes a duty to provide accurate information, but it does not impose a duty to report the reasons a borrower stopped paying a loan.").
On the other hand, other courts have held that "[a] credit entry may be 'inaccurate' within the meaning of the statute either 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." Sepulvado v. CSC Credit Servs., Inc., 158 F.3d 890, 895 (5th Cir. 1998) (citing Pinner v. Schmidt, 805 F.2d 1258, 1258 (5th Cir. 1986) (finding violation of FCRA where consumer reporting agency marked credit entry "litigation pending" without specifying that it was plaintiff/obligor who had initiated suit against creditor)); see Carvalho v. Equifax Info. Servs., LLC, No. 09-15030, 2010 WL 5127974, at **10-12 (9th Cir. Dec. 16, 2010) (adopting "patently incorrect or materially misleading" standard); Saunders v. Branch Banking & Trust Co. of Va., 526 F.3d 142, 148 (4th Cir. 2008) ("[A] consumer report that contains technically accurate information may be deemed 'inaccurate' if the statement is presented in such a way that it creates a misleading impression."); Koropoulos v. Credit Bureau, Inc., 734 F.2d 37, 42 (D.C. Cir. 1984) (holding that plaintiff may pursue FCRA claim even though report is technically accurate, so long as "it is shown that such reports are not accurate to the maximum possible extent") (internal quotation marks omitted). These courts rejected the "technically accurate" approach used in the Sixth and Eleventh Circuits because "[n]ot only might such a rule intimidate consumers into giving up bona fide disputes by paying debts not actually due to avoid damage to their credit ratings, but it also contravenes the purpose of the FCRA, to protect against unfair credit reporting methods." Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1163 (9th Cir. 2009) (internal quotation marks omitted). Indeed, Congress passed the FCRA "'to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit . . . in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information.'" Koropoulos, 734 F.2d at 40 (alternation in original) (quoting 15 U.S.C. § 1681e(b)); see id. at 40 n.4 (discussing purpose of FCRA as indicated by its legislative history). For this reason, the Court adopts the rule from Sepulvado and the approach of the Fourth, Fifth, Ninth, and District of Columbia Circuits.
Here, assuming the accuracy of the facts alleged in the Complaint, Defendants did not inform credit reporting agencies that Plaintiffs failed to make mortgage payments because Defendants instructed them to do so. This information could—and allegedly did—adversely impact Plaintiffs' credit rating and access to credit. Thus, regardless of the technical accuracy of the reports Defendants sent to Experian, those reports were materially misleading and therefore actionable.
For the foregoing reasons, Defendants' motion to dismiss is DENIED as to the FCRA claim and GRANTED as to all other claims, which are dismissed without prejudice. Plaintiffs have twenty-one days from the date of this Opinion to file an Amended Complaint. The Clerk of Court is respectfully directed to terminate the pending motion. (Doc. 16.) The parties are to appear for a status conference on April 11, 2011, at 10:30 a.m. SO ORDERED: DATED: White Plains, New York
February 28, 2011
Cathy Seibel, U.S.D.J.