NELSON v. EQUIFAX INFORMATION SERVICES, LLC. (C.D.Cal. 4-5-2007)

R. KLAUSNER, District Judge

Proceedings: (IN CHAMBERS) Defendant Equifax Information Services LLC's Motion for Summary Judgment (DE 37)

Plaintiff Laura Nelson ("Nelson") filed her Complaint on March 14, 2006 against Equifax Information Services LLC ("Equifax"), Arrow Financial Services LLC ("Arrow"), Magna Services ("Magna"), and Direct Merchants Bank ("Direct") (collectively "Defendants") for violations of the Fair Credit Reporting Act ("FCRA"), Fair Debt Collection Practices Act ("FDCPA"), and Rosenthal Fair Debt Collection Practices Act ("California FDCPA"). As to Equifax, the only cause of action alleged is violation of the FCRA. Nelson's claim arises out of Equifax's alleged reporting of erroneous information on her credit report.

Equifax's Motion for Summary Judgment is currently before the Court.

The facts of the case are alleged as follows.

Equifax is one of three major credit reporting agencies that collects and reports consumer credit information. Arrow is a debt collection agency that performs collection services for creditors. Direct and Magna are creditors who collect debts on behalf of themselves and other creditors by reporting allegedly delinquent debts to credit reporting agencies. In November 2001, Direct reported an account ("Account") to Nelson's credit files for $187.00 past due. Nelson requested that the Account be removed from her credit report because it was not hers. On January 10, 2002, Equifax deleted the Account from her credit report. However, in September 2002, Arrow on behalf of Direct, began attempting to collect the disputed $187.00 debt from Nelson and reported the disputed Account as an unpaid debt on her credit report.

On September 14, 2002, Nelson sent a certified letter to Magna, a subsidiary of Direct, disputing the Account as fraudulent. Nelson also sent copies of this letter to the three main credit reporting agencies, Equifax, Experian and Transunion ("CRAs"). Despite Nelson's letter, the Account continued to appear on her credit report, so she sent another certified letter to the CRAs on November 2, 2003. In response, on November 18, 2003, Direct sent a letter to Nelson stating that it instructed the CRAs to show the Account as transferred/sold with a zero balance. In December 2003, Nelson sent copies of Direct's letter to the CRAs. On December 22, 2003, Arrow sent Nelson a letter confirming that they had instructed the CRAs to "Delete Account from Trade Line."

In response to Nelson's and Arrow's letters, Equifax and Transunion deleted the Account from Nelson's credit report. However, Experian continued to report the Account. In May 2004, Nelson filed a separate state court action against Arrow and Experian alleging they improperly collected upon and reported to third parties information regarding the disputed Account. On May 25, 2004, that action was removed to federal court (Case Number CV 04-3679 R (PLAx)). On September 16, 2004, Nelson voluntarily dismissed Arrow without prejudice from that action. Arrow and Nelson entered into a Settlement Agreement dated February 24, 2005, wherein Nelson released Arrow of all known or unknown claims relating to the Account, including collection and reporting of the Account to third parties, including CRAs. Nelson also settled its claims against Experian, and the entire action was dismissed on March 8, 2005.

On August 20, 2005, Nelson received a suspicious bill collection call. In response, Nelson retrieved a copy of her Equifax credit report, which again listed the disputed Account. On September 28, 2005, Nelson sent an FCRA dispute letter to the CRAs. She also sent copies to Magna, Direct, and Arrow. On October 22, 2005, Equifax informed Nelson that the disputed Account was not reported on her Equifax file. Thereafter, Experian and Transunion stopped reporting the Account, but Equifax continued to report the Account.

The evidence shows that the Account continued to appear on Nelson's credit report as late as December 27, 2005. Arrow also continued to assess interest on the Account until March 18, 2006.

On March 14, 2006, Nelson filed her Complaint in the current action. In her Complaint, Nelson alleges Equifax (1) failed to follow reasonable procedures to ensure the accuracy of her credit report, (2) relied on information from Arrow, knowing its history of inaccurate reporting, (3) failed to notify Arrow that she disputed the Account, (4) failed to certify the Account before reinserting it on her credit report, and (5) failed to follow reasonable procedures to prevent reappearance of the Account on her credit report. Equifax now seeks summary judgment as to all claims alleged against it.

A motion for summary judgment shall be granted if the "pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c).

Even if the moving party lacks the ultimate burden of persuasion at trial, it nonetheless has the initial burden of production on a motion for summary judgment. Nissan Fire Marine Ins. Co., Ltd. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). A moving party lacking the burden of persuasion at trial may carry its burden of production by (1) demonstrating, through evidence, that there is no triable issue of material fact as to each element of the affirmative defenses and counterclaims or (2) showing that the nonmoving party lacks evidence for an essential element of a claim on which it carries the burden of persuasion at trial. Id.

The FCRA was enacted to ensure that CRAs "adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." 15 U.S.C. § 1681(b).

Equifax contends that Nelson cannot establish the material elements of her FCRA claim. For the following reasons, the Court disagrees with Equifax's contention and accordingly denies its Motion.

A. FCRA Section 1681e(b)

FCRA Section 1681e(b) requires a CRA to follow reasonable procedures to assure maximum possible accuracy of information contained in an individual's credit report. 15 U.S.C. § 1681e(b).

Nelson claims that Equifax violated FCRA Section 1681e(b) by (1) failing to follow reasonable procedures to ensure the accuracy of her credit report, and (2) relying on information from Arrow when Equifax knew of Arrow's history of inaccurate reporting. Equifax contends that Nelson lacks evidence showing its procedures were not reasonable. It further contends that it properly relied on information provided by Arrow because it had no reason to believe its information was inaccurate. For the following reasons, Equifax's Motion fails as to this claim.

1. Reasonable Procedures to Ensure Accuracy of Nelson's Credit Report

In order to make out a prima facie violation of FCRA Section 1681e(b), the evidence must show that a CRA prepared a report containing inaccurate information. Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th Cir. 1995). However, a CRA can escape liability for a Section 1682e(b) violation if it can establish that even though its report contained inaccurate information, it followed reasonable procedures. Id. The reasonableness of a CRA's procedures is generally a question for the jury, unless the "reasonableness or unreasonableness of the procedures is beyond question." Sarver v. Experian Information Solutions, 390 F.3d 969, 971 (7th Cir. 2004). Summary judgment is only appropriate where there is no evidence that a CRA's procedures are unreasonable. See id.

The evidence shows the following: (1) Equifax prepared Nelson's report containing inaccurate information; (2) Equifax had been notified many times by Nelson that the Arrow Account was false; and (3) despite knowing the Account was false, Equifax continued to report the Account. (Weiner Decl. Exs. B, D and R: Yim Decl. Ex. 3 Nelson Dep. 36:11-14; 117:12-14; 118:6-9; 127:14-18, Ex. P.) This evidence suggests that Equifax lacked reasonable procedures to ensure the accuracy of Nelson's credit report. (Yim Decl. Ex. 3 Nelson Dep. 117:12-14; 118:6-9, Exs. D and I.) Thus, a genuine issue of material fact exists as to this claim.

2. Reliance on Information from Arrow Given its History of Furnishing Inaccurate Information

The Federal Trade Commission's Commentary on the FCRA states that "[i]f a consumer reporting agency accurately transcribes, stores and communicates consumer information received from a source that it reasonably believes to be reputable, and which is credible on its face, the agency does not violate this section simply by reporting an item of information that turns out to be inaccurate." Federal Trade Commission Commentary on the Fair Credit Reporting Act, 16 C.F.R., Pt. 600, App. § 607, 517. It further provides that when a CRA "learns or should reasonably be aware of errors in its reports that may indicate systematic problems (by virtue of information from consumers, report users, . . .) it must review its procedures for assuring accuracy." Id. While it is generally true that CRAs can rely on the information provided by reputable furnishers, such reliance is not reasonable where the information appears inconsistent or where the CRA previously had problems with information from a particular source. Id; See Henson v. CSC Credit Services, 29 F.3d 280, 287 (7th Cir. 1994); Pinner v. Schmidt, 805 F.2d 1258, 1263 (5th Cir. 1986).

Equifax contends it reasonably relied on information from Arrow because Arrow is a reliable source and it had no reason to believe information from Arrow was inaccurate. However, the evidence shows that (1) Arrow was having problems with the software that generates the tapes containing consumer credit information used in consumers' credit files (Pl. UF 30; Ex. K Fluellen Dep. 47:23-50:19), (2) Arrow's representatives knew that Arrow was inaccurately reporting data to Equifax, resulting in duplicate erroneous reporting (Pl. UF 32; Ex. L Jones Dep. 7:3-7, 12:19-20:9, 47:9-53:22, 58:24-59:19), and (3) Equifax failed to suppress the Arrow tradeline until January 2006, despite being notified by Nelson that the Account was disputed. (Pl. UF 25; Fluellen Dep. 13:13-14:6.) Based on this evidence, a genuine issue of material fact exists as to whether Equifax could have reasonably relied on information from Arrow, given its history of inaccurate reporting.

B. FCRA Section 1681i

Generally, under Section 1681i, if a CRA receives notice from a consumer disputing the accuracy of their credit report, the CRA must conduct a reasonable investigation. See 15 U.S.C. § 1681i(a)(1).

Nelson claims that Equifax violated FCRA Section 1681i by (1) failing to notify Arrow that Nelson disputed the Account, (2) failing to certify the Account was accurate before reinserting it onto Nelson's credit report, and (3) failing to follow reasonable procedures to prevent reappearance of the Account on Nelson's credit report. Equifax contends that Nelson's claim fails because she lacks evidence showing Equifax failed to conduct a reasonable investigation regarding the disputed Account. For the following reasons, Equifax's Motion fails on this claim.

1. Equifax's Duty to Contact Arrow While Investigating the Account

Upon notice from a consumer regarding the accuracy of information on their credit file, CRAs are required to conduct a reasonable investigation to determine the accuracy of the information. 15 U.S.C. § 1681i(a)(1). CRAs are also obligated to contact the furnisher of the alleged disputed information within five business days of being notified by the consumer of the inaccurate information. 15 U.S.C. § 1681i(a)(2)(A).

The evidence shows that Nelson contacted Equifax numerous times, starting in 2002, to dispute the Account. (Weiner Decl. Exs. B, D and R: Yim Decl. Ex. 3 Nelson Dep. 36:11-14; 117:12-14; 118:6-9; 127:14-18, Ex. P.) Upon receipt, Equifax was required to conduct a reasonable investigation to determine whether the Account was accurate, including contacting Arrow, and its predecessors, within five business days of receiving notice of the dispute from Nelson. However, an Equifax representative confirmed that Equifax failed to comply with its duty to contact Arrow. (Weiner Decl. Ex. K Fluellen Dep. 41:20 — 44:12, 63:2 — 64:24.) Thus, a genuine issue of material fact exists as to whether Equifax's investigation was reasonable.

2. Deleting the Account After Investigation

If a CRA determines, after investigation, that the disputed item is inaccurate, it must immediately delete the item from the consumer's credit report, and notify the furnisher of information that the item has been deleted from the consumer's file. 15 U.S.C. § 1681i(a)(5)(A).

Equifax contends that it did not find the disputed Account during its 2005 investigation and thus could not delete it at that time. However, the evidence suggests that Equifax's inability to match the disputed Account with the Arrow Account was the result of its own policies and procedures, which modified the account numbers reported by Arrow. (Yim Decl. Ex. 2 Copple Dep. Ex. 1.) Initially, the Direct/Magna Account was identified by account number "5449-1009-4938-0659." (Yim Decl. Ex. 2 Copple Dep. Ex. 1.) In 2005, Nelson disputed the Account by referencing account number "5449-1009-4938-0659 equal; 15139973." (Yim Decl. Ex. 3 Nelson Dep. Ex. B.) However, by the time Equifax received notice of the dispute, the Arrow Account number had been changed to "AFS ASSIG-1513*." (Yim Decl. Ex. 2 Copple. Dep. Ex. 1; Ex. 3 Nelson Dep. Ex. D.) In her deposition, Equifax employee Alicia Fluellen stated that she believed that the agent investigating Nelson's disputed Account may have been confused by the different account owners and numbers used to identify the disputed Account. (Weiner Decl. Ex. K Nelson Dep. 44:1-7.) The evidence also suggests that Equifax had no mandatory procedures in place to ensure that such confusion would be cleared up. (Weiner Decl. Fluellen Dep. 61:16 — 62:9.) As a result, Equifax failed to delete all manifestations of the disputed Account. Based on this evidence, a genuine issue of material fact exists as to Equifax's failure to delete the disputed Account.

3. Reinsertion of the Account on Nelson's Credit Report

If a CRA deletes information on a consumer's credit file, it may not be reinserted in the file unless the furnisher of information certifies that the information is complete and accurate. 15 U.S.C. § 1681i(a)(5)(B). If such previously deleted information is reinserted in a consumer's credit file, the CRA must notify the consumer of such within five business days. 15 U.S.C. § 1681i(a)(5)(B).

The evidence shows that Equifax deleted the Account from Nelson's credit report in 2003. However, the Account appeared on her September 17, 2005 credit report. (Yim Decl. Ex. 3 Nelson Dep. Ex. D and P.) There is no evidence that Equifax obtained Arrow's certification that the Account was accurate before reinserting it on Nelson's credit report. Additionally, the evidence suggests that Nelson was never notified by Equifax that the Arrow account was reinserted on her credit report. (Compl. ¶¶ 10-15.) Thus, a genuine issue of material fact exists as to Equifax's reinserting the Account on Nelson's credit report.

4. Reasonable Procedures to Prevent Reappearance of the Account on Nelson's Credit Report

CRAs are required to use reasonable procedures to prevent reappearance of previously deleted information on a consumer's credit file. 15 U.S.C. § 1681i(a)(5)(B).

Equifax contends that its procedures are reasonable. However, the evidence shows that Equifax failed to suppress the Account to prevent reappearance. (Weiner Decl. Ex. K Fluellen Dep. 13:20-23.) Additionally, as previously discussed in Section III.B.2., Equifax employees may have been confused as to which account Nelson was disputing. (Weiner Decl. Ex. K. Fluellen Dep. 44:5-7; Yim Decl. Ex. 3 Nelson Dep. Ex. D.) However, while employees were permitted under Equifax procedures to contact Nelson to resolve their confusion, they were not required to do so. (Weiner Decl. Fluellen Dep. 61:16 — 62:9.) Rather, Equifax left that decision up to its employees. (Weiner Decl. Fluellen Dep. 61:16 — 62:9.) Equifax employees never contacted Nelson to resolve their confusion. (Weiner Decl. Fluellen Dep. 44:1-12.) This evidence shows that Equifax may not have instituted sufficient procedures to guard against reappearance of deleted information. Thus, there is a genuine issue of material fact as to whether such procedures were reasonable. C. Damages on Nelson's FCRA Claim

A party may recover actual damages against a CRA if it negligently violates any duty imposed by the FCRA. 15 U.S.C. §§ 1681n, 1681o. A party may also recover punitive damages against a CRA who willfully violates the FCRA. 15 U.S.C. § 1681n.

1. Actual Damages

Equifax contends that Nelson lacks evidence showing actual damages. The Court disagrees.

Nelson alleges the following actual damages: 1) higher auto insurance premiums; 2) higher interest rate on GMAC home loan; 3) increased rates on credit cards; and 4) emotional distress. Nelson's most substantial evidence supporting her claim of damages are her own deposition testimony, Thomas Tarter's expert report and Declaration of Collene Swenson.

For the following reasons, the Court finds that Nelson has submitted sufficient evidence of damages to support her FCRA claims.

a. Economic Damages

According to Thomas Tarter's expert report, the continued appearance of the Account on Nelson's Equifax's credit report resulted in damage to her credit rating and her ability to get credit. (Weiner Decl. Ex. O: Expert Witness Report 12-13.) The evidence also shows that Nelson's December 2005 credit report; which contained the disputed Account, showed a significant drop in her credit score by Equifax (describing her score as "good"), as compared to the other two CRAs (describing her score as "excellent"). (Decl. Weiner Ex. I.) According to Tarter, negative credit items can reduce a consumer's credit score resulting in a higher cost of credit. (Weiner Decl. Ex. O: Expert Witness Report 11-14.) Mr. Tarter also states that a reduction of even five points can result in the cost of credit going up. Specifically, such a reduction in points often results in a consumer falling below lender prescribed credit score guidelines, resulting in an increase in insurance, mortgage, credit card and automobile financing costs. (Weiner Decl. Ex. O: Expert Witness Report 15.) Additionally, Tarter explains that consumers with credit scores below prescribed thresholds may also be required by lenders to pay higher down payments. (Weiner Decl. Ex. O: Expert Witness Report 15.) Here, the evidence shows that the Account may have reduced Nelson's Equifax credit score by thirty points. (Decl. Weiner Ex. I.) The Court finds that, based on the evidence presented, a triable issue of material fact exists as to economic damages. Thus, Equifax's Motion is denied as to economic damages.

b. Emotional Distress Damages

Nelson has also presented sufficient evidence to show emotional distress damages. Specifically, Nelson testified at her deposition that, as a result of the disputed Account repeatedly reappearing on her credit report, she feels stigmatized, has fights with her partner, difficulty sleeping, recurring fear, vomiting, and sick stomach. (Decl. Wiener Ex. N 47:12-15; 61:4-7; 63:25 to 64:5; 88:17-18; 89:7-8; 90:16-17; 96:5-11.) The Court finds this testimony raises a triable issue of material fact as to this issue. Thus, Equifax's Motion is denied as to Nelson's claim for emotional distress damages under the FCRA.

2. Punitive Damages

Equifax contends that Nelson lacks evidence that it willfully failed to comply with the FCRA and is thus not entitled to punitive damages. The Court disagrees.

The Ninth Circuit has held that willful noncompliance with the FCRA involves either (1) knowledge that a policy contravenes consumer's rights under the FCRA or (2) reckless disregard for whether a policy contravenes such rights. Reynolds v. Hartford Financial Services Group, Inc., 435 F.3d 1081, 1098 (9th Cir. 2006). The Ninth Circuit adopted this interpretation of willfulness because it furthers the FCRA's purpose by encouraging companies to learn the true meaning of the statute, so as to ensure compliance. Id. at 1099. A party does not act in reckless disregard of a consumers' rights under the FCRA if it has "diligently and in good faith attempted to fulfill its statutory obligations and determine the correct legal meaning of the statute", coming to a tenable interpretation of the statute. Id. Some district courts have held that evidence showing a defendant failed to act with diligence, after its investigation procedures failed to address plaintiff's credit reporting problems, was sufficient to preclude summary judgment on the issues of willfulness and punitive damages. See e.g., Apodaca v. Discover Financial Services, 417 F. Supp.2d 1220, 1233-34 (N.M. 2006).

Equifax contends that Nelson is unable to show willful noncompliance because it acted in good faith by relying on trustworthy sources and conducting a reinvestigation. However, as discussed in Section III.A.2, there is a triable issue as to whether Equifax's reliance on Arrow was reasonable. Further, as discussed in Section III.B.4., there is also a triable issue as to the reasonableness of Equifax's procedures. If the jury finds in favor of Nelson on those issues, it could also find that Equifax displayed reckless disregard for Nelson's rights under the FCRA by modifying account number identifiers, knowing it could result in duplicate and erroneous reporting. (Yim Decl. Ex. 2 Copple. Dep. Ex. 1.) Thus, a disputed issue of material fact exists as to Equifax's reckless disregard for Nelson's rights under the FCRA. Accordingly, Equifax's Motion regarding willfulness and punitive damages is denied.

In light of the foregoing, Equifax's Motion for Summary Judgment is DENIED.