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Reseller Liability: Resellers are not exempt from 1681e(b)

July 4, 2014

This month’s post is the fourth in our series on cases which address whether resellers, who create tri-merge credit reports that contain information from all three credit bureaus, can be liable when one of the bureaus posts information that is both inaccurate and inconsistent with the other two bureaus.  This month, we focus on the next case in chronological order:  Waterman v. Experian Info. Solutions, Inc., No. 12-1400, 2013 U.S. Dist. LEXIS 35455 (C.D. Cal. Feb. 25, 2013).

In Waterman, DataQuick – the same reseller defendant whose motion to dismiss was denied in the Dively case that we discussed last month – again moved to dismiss a plaintiff’s claim against it.  This time, DataQuick made a different argument than it had in Dively.  DataQuick’s motion started out by asking the court to read the FCRA in its entirety and to find that a reseller’s duties under 15 USC 1681e(b) were different than a credit bureau’s duties under that statute, because the FCRA elsewhere makes distinctions between resellers and credit bureaus.  So far, so good:  this is the argument that RELS used successfully in the Stublaski case which we covered a few months back.  But then DataQuick – to my mind at least – took an odd turn:  it argued that a consumer reporting agency is only liable under 1681e(b) if it “prepares” a consumer report, but 1681e(e) suggests that resellers only “procure” consumer reports, so resellers are only liable if they fail to comply with 1681e(e).

The court disagreed.  In a short opinion, it found that if Congress had wanted to relieve resellers from a duty to assure maximum possible accuracy under 1681e(b), it would have done so; it reviewed the statutory definitions to see if Congress had done so; and it concluded that “Nowhere in these definitions is there a distinction between an agency that “prepares” a consumer report and one that does not.”  Id. at **5-6.

Reading over the briefs, I think part of the problem here was that DataQuick seemed to mush two arguments together – first, the argument that a reseller’s duty under 1681e(b) should be construed differently than a credit bureau’s duty under that provision, and second, the notion that a reseller’s duty is limited to 1681e(e).  The court focused on the second argument and, finding that it wasn’t supported by the text of the FCRA, dismissed both arguments.

Another part of the problem might have been that DataQuick’s cited some case law that, in my view, didn’t support its arguments at all.  For example, DataQuick argued that:

[I] order for Plaintiff to state a claim against DataQuick as a reseller, Plaintiff must allege that DataQuick “prepared the consumer report.” See Johnson v. Experian, No. 12-230, [2012 U.S. Dist. LEXIS 186870], (C.D. Cal. June 7, 2012) (dismissing a similar complaint against DataQuick because Plaintiff failed to allege that DataQuick “prepared” the consumer report at issue).

In fact, Johnson dismissed a complaint without prejudice for failing to make specific enough allegations; it didn’t discuss the “prepared” phrase at all.

Also, DataQuick took a simple distinction – between a credit bureau which under statute “assembles or evaluates” information (1681a(f)), and a reseller which by statute “assembles and merges” it (1681a(u)) – and muddled it, as follows:

The FCRA clearly distinguishes a credit reporting agency’s role in “preparing” a consumer report (§ 1681e(b)) from a reseller’s role in “assembling or merging” (§ 1681a(u)) of information that was contained in a previously prepared consumer credit report.  Courts have recognized this distinction. “Several courts that have reviewed the phrase have determined that it ‘implies a function which involves more than receipt and retransmission of information identifying a particular debt.’” Knechtel v. Choicepoint, Inc., Case No. 08-5018, 2009 U.S. Dist. LEXIS 109521, * 10-11 (D. N.J., November 23, 2009) [string cite omitted; emphasis added].

There are several of problems with this passage.  First, the motion refers to the phrase “assembling or merging” at 1681a(u) when in fact the statutory language is “assembling and merging.”  Second, the motion uses two separate phrases – “preparing,” and “assembling or merging” – and then cites to a case (Knechtel) which refers to “the phrase.”  This begs the question: to which of the two phrases was the Knechtel court referring?  The answer, perhaps surprisingly, is “neither”:  Knechtel was not referring to 1681e(b) or 1681a(u), but rather to the phrase “assembling or evaluating” from 1681a(f).  In short, the passage above is confusing, even to someone like me who focuses a lot of time on the FCRA.  It would doubtless be more confusing to a judge who is only occasionally given the opportunity to resolve an FCRA dispute.

In addition, the Knechtel case, and a number of other cases that it cited (and which DataQuick cited too) all held that companies which furnish information to credit reporting agencies are not themselves credit reporting agencies and are not therefore liable under the FCRA.   That is not at all the same thing as holding that a reseller is not a consumer reporting agency or that a reseller is not liable under the FCRA.  DataQuick’s motion thus seemed to suggest that cases have for years been holding that resellers aren’t liable under 1681e(b), when in fact cases haven’t really addressed that question at all until recently.

Finally, it appears that DataQuick was trying to argue that if furnishers are not liable under the FCRA because they simply pass data from A to B, then other companies that likewise simply pass data from A to B should not be liable under the FCRA for doing so.  In Knechtel, a criminal background reporting company which seems to have included credit information from one bureau on its report to an end user, was held not to be liable for errors in that information.  DataQuick could have more clearly pointed this out and then argued that, by extension, resellers – which likewise include credit information from the bureaus on their reports to end users – should not be liable for errors in that information.  But that didn’t happen.


Categories: 1681e(b), reseller
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  1. December 22, 2014 at 9:37 am
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