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Who bears the burden of proof on claims that an agency used unreasonable procedures? It may not matter.

September 16, 2011 Leave a comment

This post contains yet another discussion of 15 USC 1681e(b), which requires consumer reporting agencies to use “reasonable procedures to assure maximum possible accuracy” when they create consumer reports.  There’s something of a long-standing circuit split over who has the burden of proof when a plaintiff claims that an agency violated this statute.  I say “something of a long-standing split” because the split isn’t as sharp as circuit splits often are.  To explain:

If one plucks quotes from various circuit court opinions, you will have what appears to a split between the Fourth and DC Circuits (on the one side) and the Ninth and Eleventh Circuits (on the other) regarding who has the burden of proof on a 1681e(b) claim.  Here’s my plucking:

1.  “We hold here that … a plaintiff cannot rest on a showing of mere inaccuracy, shifting to the defendant the burden of proof on the reasonableness of procedures for ensuring accuracy: There is no indication that Congress meant to so shift the nominal plaintiff’s burden of proof as to requisite components of a claim based on a statutory violation.”  Stewart v. Credit Bureau, Inc., 734 F.2d 47, 51 (D.C. Cir. 1984) (citing two other FCRA provisions in which Congress had shifted the burden to the defendant, to demonstrate that Congress didn’t do so in 1681e(b)).

2.  “[W]e hold that the plaintiff bears the burden under § 1681e(b) to show that the consumer reporting agency did not follow reasonable procedures.”  Dalton v. Capital Assoc. Indus., Inc., 257 F.3d 409, 416 (4th Cir. 2001) (following Stewart).

3.  “[Plaintiff] has made out a prima facie case under § 1681e(b) by showing that there were inaccuracies in her credit report.”  Guimond v. Trans Union Info. Co., 45 F.3d 1329, 1334 (9th Cir. 1995).

4.  “In order to make out a prima facie violation of [1681e](b), the Act implicitly requires that a consumer must present evidence tending to show that a credit reporting agency prepared a report containing “inaccurate” information …. The agency can [then] escape liability if it establishes that an inaccurate report was generated by following reasonable procedures.”  Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1156 (11th Cir. 1991).

Those quotes show a circuit split.  But as I say, the split isn’t all that sharp.  One of the two cases which says that a plaintiff cannot rest on a mere inaccuracy and must prove that an agency’s procedures were unreasonable – Stewart – also says that “In certain instances, inaccurate credit reports by themselves can fairly be read as evidencing unreasonable procedures.”  734 F.2d 52.  So under Stewart, while a plaintiff technically has to do more than demonstrate an inaccuracy, the inaccuracy may be such that the plaintiff does not have to introduce direct evidence of unreasonable procedures – he or she can simply point to the inaccuracy and ask the court (and then the jury) to infer that it was caused by an unreasonable procedure.

In Philbin v. Trans Union Corp., 101 F.3d 957 (3d Cir. 1996), the Third Circuit contrasted Stewart with Guimond and Cahlin and found that there wasn’t much of a split between them at all.  It suggested that one could derive three possible holdings from those three cases:  “that a plaintiff must produce some evidence beyond a mere inaccuracy in order to demonstrate the failure to follow reasonable procedures; that the jury may infer the failure to follow reasonable procedures from the mere fact of an inaccuracy; or that upon demonstrating an inaccuracy, the burden shifts to the defendant to prove that reasonable procedures were followed.”  Id. at 965.  But after limning these three possible holdings, the Third Circuit said that “we find it unnecessary to decide among them.”  Id.*

Why is it unnecessary to decide among these inconsistent positions?  Because in most cases, the result is the same no matter which position one chooses.  In the process of demonstrating a real inaccuracy, most – and maybe all – plaintiffs will have to contrast two pieces of evidence – perhaps two reports from the same agency which describe an account in two different ways, or a letter from an agency or creditor saying that a problem has been solved, followed by a report which suggests that it wasn’t.  In doing this, plaintiffs will create a fact question regarding whether the procedures that created this problem can in fact be called reasonable.  And most of the time, that’s enough to get them past summary judgment.

*  Note that Philbin was decided before Dalton.  The Dalton panel said that “We express no view as to whether an inaccuracy can be so egregious that it creates a presumption that the agency’s procedures were unreasonable.”  257 F.3d at 416.  But by following Stewart – which stated that an inaccuracy could be that egregious – Dalt0n all but agreed to that proposition.

 

 

 

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Can procedures be reasonable as a matter of law?

September 9, 2011 Leave a comment

As regular readers know – because I’ve been saying it in every post for the past few weeks – the FCRA requires consumer reporting agencies to follow “reasonable procedures to assure maximum possible accuracy” of the information in their reports.  If a plaintiff comes forward with a report that is inaccurate in some way, the court must decide whether the agency followed “reasonable procedures” or not.  If the agency did follow reasonable procedures, then it isn’t liable, because – as we’ve noted before – the FCRA doesn’t make agencies strictly liable for inaccuracies.  However, if the agency didn’t follow reasonable procedures, then it is liable for damages caused by an inaccuracy.

All this begs the question of what makes a procedure “reasonable.”  It is now very well established that “The issue of whether the agency failed to follow “reasonable procedures” will be a “jury question[] in the overwhelming majority of cases.”  Dalton v. Capital Assoc. Indus., Inc., 257 F.3d 409, 416 (4th Cir. 2001) (citations omitted).  Judges don’t want to decide what’s reasonable; they’d rather let juries do that.

However, there are some occasions when a judge will decide that an agency’s procedure is reasonable as a matter of law – i.e., it is so obviously reasonable that it would be a waste of time to ask a jury whether it’s reasonable.  I thought I’d take a look at case law to see how many times a judge has done this.  My conclusion, based on an extensive but not necessarily comprehensive search:  it hasn’t happened often, and when it has, it happened in the Seventh Circuit (i.e., a federal court sitting in Illinois, Indiana, or Wisconsin).

In Henson v. CSC Credit Servs., 29 F.3d 280 (7th Cir. 1994), Greg Henson borrowed money to buy a Camaro, and then his brother Jeff Henson borrowed money to buy the car from Greg, which he did by paying off Greg’s loan.  After the Camaro was stolen, Jeff stopped making payments to his lender, who eventually repossessed the car and successfully sued Jeff for the balance of his loan.  In recording the lender’s judgment against Jeff, the court clerk made a mistake and said that the lender’s judgment was against Jeff and Greg.  Greg later sued a consumer reporting agency for reporting that he (Greg) was liable for this judgment.  The court found that the agency had simply relied on what the court docket said, which was a reasonable procedure under the circumstances.  Therefore, the agency’s reliance on the court docket was reasonable as a matter of law.  Id. at 285-86.

In Crabill v. Trans Union, L.L.C., 259 F.3d 662 (7th Cir. 2001), plaintiff Jerry Crabill had a brother named John Crabill, and their social security numbers differed only by one digit.  After numerous mix-ups in which a creditor who asked for one brother’s report received the other’s, Trans Union adopted the procedure of sending BOTH reports to creditors who asked for Jerry’s, with the note that Jerry’s should not be confused with John’s.  The court found that this procedure was reasonable, and Judge Richard Posner explained that decision as follows:  “Trans Union defends its program, pointing out that two files with similar though not identical identifying data may actually be referring to the same person, the differences in data being the result of errors in data collection or compilation, and so it was useful for creditors to have both Crabills’ files and make their own judgment of whether they were different persons. We think this is right, and that the statutory duty to maintain reasonable procedures to avoid inaccuracy does not require a credit agency to disregard the possibility that similar files refer to the same person.”

In Quinn v. Experian Solutions, No. 02 C 5908, 2004 U.S. Dist. LEXIS 4812 (N.D. Ill. Mar. 24, 2004), plaintiff alleged that Experian violated 1681e(b) by reporting a Wal-Mart account that did not belong to him.  Experian moved for summary judgment and argued that it acted reasonably by reporting account information that Wal-Mart furnished to it.  The judge granted Experian’s motion for summary judgment because “Quinn has not presented evidence that Wal-Mart is an unreliable source of information.”  Id. at *10.  In other words, it was reasonable, as a matter of law, for Experian to report specific information from Wal-Mart unless Experian was on notice that the specific information was inaccurate or that Wal-Mart’s information was generally not reliable.

In Anderson v. Trans Union, LLC, 367 F. Supp. 2d 1225 (W.D. Wisc. 2005), a case we discussed a few weeks ago, plaintiffs were listed as deceased due to mistakes that their bank made in coding their credit card account after:  1) the name of their street changed; and 2) the card provider changed from MasterCard to Visa.  The judge granted an agency’s motion for summary judgment, finding that the bank’s information was normally reliable and that the agency had done everything possible to account for the possibility that some information was not:

“Defendant has procedures in place to check the accuracy of the information their furnishers send it; it conducts training sessions for its furnishers when they become subscribers; it audits the furnishers routinely; and it has triggers to warn of unusual numbers of complaints or a higher than expected number of “conditions” showing up on the furnishers’ reports, as bankruptcy proceedings, Despite these procedures, Cross Country Bank’s error made its way into defendant’s system and defied both the bank’s and defendant’s efforts to eliminate it. That it did so was unfortunate for plaintiffs, who had to deal with the error on their credit report, but in and of itself, it is not evidence that defendant’s procedures were unreasonable.”

Id. at 1237.

In summary, agencies whose reports contain inaccurate information will generally not be able to convince a court that their procedures are reasonable as a matter of law, such that they aren’t liable for damages caused by the inaccuracy.  But agencies have been able to convince courts in the Seventh Circuit that a few procedures are reasonable as a matter of law.  They are:

1.  Relying on court docket summaries in the absence of information to the contrary;

2.  Relying on account information from a generally reliable source (e.g., Wal-Mart) in the absence of information to the contrary;

3.  Relying on procedures that preclude the vast majority of errors but allow unprecedented (and therefore hard-to-detect) errors to occur; and

4.  Relying on novel procedures for relatives with extremely similar names and social security numbers.

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The FCRA and strict liability: an historical study

September 2, 2011 Leave a comment

The FCRA’s provision at 15 USC 1681e(b) states that every consumer reporting agency (“CRA”) must “follow reasonable procedures to assure maximum possible accuracy”  of the information in a consumer report.  The federal courts were quick to note that “maximum possible accuracy” is not “complete accuracy.”  In other words, CRAs are not “strictly liable” or automatically forced to compensate a consumer if a report contains inaccurate information about him or her.  Rather, CRAs are only liable if their failure to “follow reasonable procedures” caused a meaningful inaccuracy.

Inspired by a recent post that discussed how a circuit court’s overstated summary of a district court’s holding could lead to mischief in later litigation, I thought I’d take a moment this week and trace how the courts came to adopt the proposition, now widely held, that the FCRA does not impose strict liability on CRAs.  While it’s a relatively clear proposition if you look at the statutory language, it’s not widely known among consumers or even lawyers.  So maybe it’s worth discussing.

As far as I can tell, the first case to hold that the FCRA is not a strict liability statute is Peller v. Retail Credit Co., Civ. No. 17900, slip op. at 4 (N.D. Ga. Dec. 6, 1973).  But Peller was not published in 1973 and has not since been picked up by LEXIS.

So the first available case on FCRA strict liability is Austin v. Bankamerica Service Corp., 419 F. Supp. 730 (N.D. Ga. 1974), which follows Peller.  The Peller and Austin courts published their opinions soon after the FCRA went into effect.*  The court found that defendant Atlanta Credit Bureau created a credit report about plaintiff Willie Lee Austin which stated, correctly, that Mr. Austin was a defendant in a lawsuit.  But the report did not indicate which court the lawsuit was in, or that Mr. Austin was being sued in his official capacity (as Deputy Marshal for DeKalb County, Georgia) and not personally.  The question was whether Mr. Austin had a claim against the bureau for failing to include these details in its report.

The Austin court held that Mr. Austin had no claim because the bureau’s report was accurate as far as it went.  The court reasoned:

“If this Court were to require Credit Bureau of Atlanta to ascertain the nature of a defendant’s capacity in a lawsuit it would be tantamount to requiring consumer credit reporting agencies to evaluate the litigation; whether it is merely for injunctive relief or for damages, the amount of damages recoverable against any particular defendant, or the probability of success in a lawsuit against a particular defendant. Requiring such an evaluation would, in this Court’s opinion, force compliance beyond the intended scope of the Act.  Although the Fair Credit Reporting Act clearly requires consumer reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information,” the Act does not impose a strict civil liability for an agency’s inaccuracy or incompleteness in a report. ”

419 F. Supp. at 733 (emphasis added).

The Austin court’s holding was quickly picked up and spread among the various circuit courts.  See Hauser v. Equifax, Inc., 602 F.2d 811, 814 (8th Cir. 1979) (following Austin) (“[T]he Act does not render consumer reporting agencies strictly liable for inaccuracies in a report …. There must be a showing that the inaccuracy resulted from the agency’s failure to ‘follow reasonable procedures to assure maximum possible accuracy'”); see also Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1156 (11th Cir. 1991) (following Hauser) (“The Act, however, does not make reporting agencies strictly liable for all inaccuracies”); Bryant v. TRW, Inc., 689 F.2d 72, 78 (6th Cir. 1982) (also following Hauser) (“It is clear, as defendant contends, that liability does not flow automatically from the fact that a credit reporting agency, such as defendant, reports inaccurate information”).

The Peller decision was also followed on a parallel track by Thompson v. San Antonio Retail Merchants Ass’n, 682 F.2d 509, 513 (5th Cir. 1982) (“Section 1681e(b) does not impose strict liability for any inaccurate credit report, but only a duty of reasonable care in preparation of the report”) (following Lowry v. Credit Bureau, Inc. of Georgia, 444 F. Supp. 541, 544 (N.D.Ga.1978) (following Peller)).

I’ll dig into some of these circuit court opinions in future weeks.  While they all agree that the FCRA is not a strict liability statute, they don’t agree on what a defendant must do to demonstrate compliance with 15 USC 1681e(b).

*  For the record:  the statutory history of 15 USC 1681, the FCRA’s preamble, explains that the FCRA was enacted on October 26, 1970 and went into effect 180 days later, or on April 24, 1971.  The Austin case is thus one of the earliest FCRA cases.

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