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Burrows v. Experian Information Solutions Inc.

United States District Court, N.D. California

March 20, 2017

LESLIE BURROWS, et al., Plaintiffs,
v.
EXPERIAN INFORMATION SOLUTIONS, INC., et al., Defendants.

          ORDER GRANTING MOTIONS TO DISMISS WITH LEAVE TO AMEND RE: DKT. NOS. 35, 41, 63

          PHYLLIS J. HAMILTON United States District Judge.

         Defendants Chase Bank USA, N.A. and Equifax, Inc.'s motions to dismiss came on for hearing before this court on March 1, 2017. Plaintiffs Leslie and Louis Burrows appeared through their counsel, Elliot Gale. Defendant Chase Bank USA, N.A. appeared through its counsel, Andrew Soukup and Megan Rodgers. Defendant Equifax, Inc. appeared through its counsel, Thomas Quinn. Former defendant Bank of America, N.A. appeared through its counsel, Alice Miller, and has joined Chase's motion. Dkt. 61.[1]Defendant Asset Acceptance LLC appeared through its counsel, Thomas Landers, and has joined Chase's motion. Dkt. 59. Non-moving defendant Experian Information Solutions, Inc. appeared through its counsel, Ben Lee. Having read the papers filed by the parties and carefully considered their arguments and the relevant legal authority, and good cause appearing, the court hereby rules as follows.

         BACKGROUND

         A. Chapter 13 Bankruptcy

         Chapter 13 bankruptcy allows debtors with regular income to “repay creditors in part, or in whole, over the course of a three-to-five-year period.” In re Blendheim, 803 F.3d 477, 485 (9th Cir. 2015). Under Chapter 13, the debtor proposes a debt repayment plan that must comply with a number of statutory requirements. Id. at 485-86. “A Chapter 13 debtor seeking a discharge typically proposes a plan in which the discharge is granted at the end of the proceeding, after the debtor completes all required payments under the plan.” Id. at 486. If the Chapter 13 plan satisfies all of the statutory requirements, the bankruptcy court approves or “confirms” the plan. 11 U.S.C. § 1325(a); In re Flores, 735 F.3d 855, 857 (9th Cir. 2013).

         If the debtor makes the payments under the confirmed plan, the bankruptcy court will grant a discharge of the debts, which “releases debtors from personal liability on claims and enjoins creditors from taking any action against the debtor.” Blendheim, 803 F.3d at 486-87. “Many debtors, however, fail to complete a Chapter 13 plan successfully.” Harris v. Viegelahn, 135 S.Ct. 1829, 1835 (2015). If the debtor fails to make the required payments, he may either “convert [the] Chapter 13 case to a [bankruptcy] case under a different chapter, ” or dismiss the action. Blendheim, 803 F.3d at 487. The effect of dismissal is to restore the legal status quo prior to the Chapter 13 filing: “dismissal returns to the creditor all the property rights he held at the commencement of the Chapter 13 proceeding and renders him free to exercise any nonbankruptcy collection remedies.” Id.at 487.

         B. The Complaint

         The complaint in this case is one of more than two hundred similar actions in this district filed by the Sagaria Law, P.C. firm against consumer credit reporting agencies in late 2016. All of these cases employ the same form complaint, with about a dozen paragraphs individualized for each plaintiff. The remainder of the complaint, including the causes of action, is copied nearly verbatim in each case.

         Plaintiffs are individuals who filed for Chapter 13 bankruptcy and allege that their debts were reported inaccurately in light of their confirmed Chapter 13 plan. Experian Information Solutions, Inc. (“Experian”), Equifax, Inc. (“Equifax”), or both credit reporting agencies (“CRAs”) are named as defendants. Also named as defendants in most of the cases are “furnishers” of credit information, such as Chase Bank USA, N.A. (“Chase”) and Bank of America, N.A. (“BANA”).

         The complaint accuses CRAs and furnishers of “ignor[ing] credit reporting industry standards for accurately reporting bankruptcies.” Compl. ¶ 7. Allegedly, this inaccurate reporting is an effort to perpetuate the “myth” that filing for bankruptcy ruins consumers' credit scores for years. Compl. ¶¶ 3-7.

         The complaint explains in some detail how a consumer's FICO credit score is calculated, and how the score derives from information that furnishers report to CRAs. Compl. ¶¶ 20-36. Plaintiffs then describe the Metro 2 credit reporting standards promulgated by the Consumer Data Industry Association (the “Metro 2 standards” or “CDIA guidelines”), which plaintiffs allege is the “industry standard for accurate credit reporting.” Compl. ¶¶ 37-52. The Metro 2 standards have different “CII indicator” codes that are used to note the filing and discharge of Chapter 7 and 13 petitions. Compl. ¶¶ 55-62. Plaintiffs allege that the CII indictor “D” is used when a Chapter 13 petition has been filed, but no discharge yet entered. Compl. ¶ 59.

         The complaint alleges that, prior to the confirmation of a Chapter 13 plan, the “accepted credit reporting standard” is to “report the outstanding balance amount as of the date of filing” of the bankruptcy petition, and to note the bankruptcy filing with CII indicator code D. Compl. ¶¶ 73, 75, 76-77. Post-confirmation, however, plaintiffs allege that the balances should be updated to reflect the confirmed Chapter 13 plan. Reporting ongoing past due amounts and late payments, instead of only indicator D, is “not generally accepted as accurate by the credit reporting industry.” Compl. ¶ 84. Plaintiffs allege that the industry standard is to “report the balance owed under the Chapter 13 plan terms, ” which is typically lower than the original amount, and to “report a $0.00 balance” if the confirmed plan does not call for any payments on that particular debt. Compl. ¶¶ 80- 81.

         This matter consists of two consolidated actions, one brought by plaintiff Leslie Burrows and the other brought by her husband Louis Burrows. In the lead case, Leslie Burrows filed for Chapter 13 bankruptcy protection on December 31, 2013. Compl. ¶ 87. She ordered credit reports from the CRAs on March 17, 2016, and filed a dispute letter with the CRAs alleging inaccuracies with respect to her accounts with Chase, Asset Acceptance LLC, BANA, and Commerce Bancshares. Compl. ¶¶ 105, 107-108, 112- 115. On September 27, 2016, plaintiff ordered a second set of credit reports, but found that the inaccuracies remained. Compl. ¶ 111. The complaint does not contain any specific allegation regarding credit score impact.

         Louis Burrows filed for Chapter 13 bankruptcy protection jointly with his wife on December 31, 2013. No. 16-06356-PJH, Compl. ¶ 87. The Burrows' Chapter 13 plan was confirmed on June 25, 2014. See No. 2:13-bk-40239-VZ Dkt. 32 (Bankr. C.D. Cal.). Louis ordered credit reports from the CRAs and filed a dispute letter on the same dates as his wife, and he alleges the same inaccuracies with respect to the BANA and Commerce Bancshares accounts. No. 16-06356-PJH Compl. ¶¶ 105, 107, 110-112.

         Plaintiffs assert two claims, one under the Fair Credit Reporting Act (“FCRA”) and one under the California Consumer Credit Reporting Agencies Act (“CCRAA”). The first cause of action alleges that the furnishers and CRAs violated FCRA “by failing to conduct a reasonable investigation and re-reporting misleading and inaccurate information.” This cause of action relies repeatedly on the alleged failure of the CRAs and furnishers to “comport with industry standards.” The second cause of action under CCRAA is made only against the furnishers, alleging that they “intentionally and knowingly reported misleading and inaccurate account information to the CRAs that did not comport with well-established industry standards.”

         DISCUSSION

         A. Legal Standard

         A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests for the legal sufficiency of the claims alleged in the complaint. Ileto v. Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). To survive a motion to dismiss for failure to state a claim, a complaint generally must satisfy the requirements of Federal Rule of Civil Procedure 8, which requires that a complaint include a “short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2).

         A complaint may be dismissed under Rule 12(b)(6) for failure to state a claim if the plaintiff fails to state a cognizable legal theory, or has not alleged sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1990). The court is to “accept all factual allegations in the complaint as true and construe the pleadings in the light most favorable to the nonmoving party.” Outdoor Media Group, Inc. v. City of Beaumont, 506 F.3d 895, 899-900 (9th Cir. 2007).

         Legally conclusory statements, not supported by actual factual allegations, need not be accepted by the court. Ashcroft v. Iqbal, 556 U.S. 662, 678-79 (2009). The allegations in the complaint “must be enough to raise a right to relief above the speculative level.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations and quotations omitted). “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.” Iqbal, 556 U.S. at 678 (citation omitted). “[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 it has not ‘show[n]'-‘that the pleader is entitled to relief.'” Id. at 679. In the event dismissal is warranted, it is generally without prejudice, unless it is clear the complaint cannot be saved by any amendment. See Sparling v. Daou, 411 F.3d 1006, 1013 (9th Cir. 2005).

         B. Legal Analysis

         Defendants seek dismissal on three different grounds. First, they argue that plaintiffs are judicially estopped from asserting their claims because they failed to disclose the claims as a contingent asset in the bankruptcy court. Second, they argue that the complaint fails to plead an “inaccuracy” in reporting that is actionable under FCRA as a matter of law. Third, they argue that the complaint fails to sufficiently allege either actual or statutory damages.

         1. Judicial Estoppel

         “Judicial estoppel is an equitable doctrine that precludes a party from gaining an advantage by asserting one position, and then later seeking an advantage by taking a clearly inconsistent position.” Hamilton v. State Farm Fire & Cas. Co., 270 F.3d 778, 782 (9th Cir. 2001). The Supreme Court has articulated three factors to guide the court's discretion: (1) whether a party's later position is “clearly inconsistent”' with its earlier position; (2) whether that party has succeeded in persuading a court to accept its earlier position; and (3) whether the party seeking to assert an inconsistent position would derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped. New Hampshire v. Maine, 532 U.S. 742, 750-51 (2001).

         In the bankruptcy context, the Ninth Circuit has adopted “a basic default rule: If a plaintiff-debtor omits a pending (or soon-to-be-filed) lawsuit from the bankruptcy schedules and obtains a discharge (or plan confirmation), judicial estoppel bars the action.” Ah Quin v. Cnty. of Kauai Dep't of Transp., 733 F.3d 267, 271 (9th Cir. 2013). The logic is straightforward: by not listing the lawsuit in the bankruptcy schedules, the debtor represented that the asset did not exist. The bankruptcy court accepted that position in its ...


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