United States District Court, N.D. California, San Jose Division
ORDER SUBMITTING DEFENDANT SPECIALIZED'S MOTION
FOR SANCTIONS WITHOUT ORAL ARGUMENT; VACATING HEARING; AND
DENYING MOTION [RE: ECF 49]
LABSON FREEMAN United States District Judge.
Specialized Loan Servicing, LLC (“Specialized”)
seeks sanctions in the amount of $6, 975.00 against
Plaintiff's counsel under Federal Rule of Civil Procedure
11. Specialized's motion is hereby SUBMITTED without oral
argument and the hearing set for May 4, 2017 is VACATED.
See Civ. L.R. 7-1(b). The motion is DENIED for the
reasons discussed below.
filed this action on August 12, 2016, and a first amended
complaint (“FAC”) on October 3, 2016, asserting
violations of the Fair Credit Reporting Act
(“FCRA”), 15 U.S.C. § 1681 et seq.,
and the California Consumer Credit Reporting Agencies Act
(“CCRAA”), California Civil Code §
1785.25(a). She alleged that multiple credit reporting
agencies (“CRAs”) and entities that furnished
information to them (“furnishers”) failed to
reinvestigate disputed information on her credit report and
reported inaccurate or misleading information. Plaintiff has
dismissed or settled with all defendants other than
Specialized. On April 21, 2017, the Court granted
Specialized's motion to dismiss the FAC with leave to
Plaintiff filed the FAC but before the Court issued its
dismissal order, Specialized filed the present motion for
sanctions under Rule 11.
of the Federal Rules of Civil Procedure imposes upon
attorneys a duty to certify that they have read any pleadings
or motions they file with the court and that such pleadings
and motions are well-grounded in fact, have a colorable basis
in law, and are not filed for an improper purpose.
Fed.R.Civ.P. 11(b); Business Guides, Inc. v. Chromatic
Comm. Enters., Inc., 498 U.S. 533, 542 (1991). If a
court finds a violation of this duty, it may impose
appropriate sanctions to deter similar conduct. Fed.R.Civ.P.
11(c)(1); see also Cooter & Gell v. Hartmarx
Corp., 496 U.S. 384, 393 (1990) (“[T]he central
purpose of Rule 11 is to deter baseless filings in district
court.”). However, “Rule 11 is an extraordinary
remedy, one to be exercised with extreme caution.”
Operating Eng'rs Pension Trust v. A-C Co., 859
F.2d 1336, 1345 (9th Cir. 1988). Rule 11 sanctions should be
reserved for the “rare and exceptional case where the
action is clearly frivolous, legally unreasonable or without
legal foundation, or brought for an improper purpose.”
Id. at 1344.
as here, the complaint is the primary focus of Rule 11
proceedings, a district court must conduct a two-prong
inquiry to determine (1) whether the complaint is legally or
factually ‘baseless' from an objective perspective,
and (2) if the attorney has conducted ‘a reasonable and
competent inquiry' before signing and filing it.”
Christian v. Mattel, Inc., 286 F.3d 1118, 1127 (9th
claims under the FCRA and CCRAA turn on her theory that
confirmation of a Chapter 13 plan alters furnishers'
credit reporting obligations. In her FAC, Plaintiff alleged
that upon confirmation, furnishers should adjust their
reporting to reflect balances due under the plan terms rather
than balances due under the original debt terms. FAC
¶¶ 80-83, ECF 73. Plaintiff alleged that
Specialized and other furnishers failed to comply with these
and other “industry standards” in reporting her
debts post-confirmation. Id. ¶ 99, 103-110.
According to Plaintiff, those failures rendered
Specialized's reporting inaccurate and misleading.
Id. ¶¶ 114.
argues that Plaintiff's claims are baseless because a
Chapter 13 debtor's debts are extinguished only upon
discharge, and Plaintiff has not been granted discharge in
her bankruptcy. Specialized contends that it properly
reported Plaintiffs debt, along with a notation regarding her
pending bankruptcy. Specialized also contends that Plaintiffs
claims are barred by the doctrine of judicial estoppel
because she did not amend her bankruptcy filings to disclose
the claims as an asset of the estate. Finally, Specialized
argues that a reasonable and competent inquiry, comprising
only an examination of the record in Plaintiffs bankruptcy
proceeding, would have revealed these facts to Plaintiffs
argument based on judicial estoppel is without merit, at
least at the pleading stage, for the reasons discussed in the
Court's order granting Specialized's motion to
dismiss the FAC. See Order at 6-7, ECF 73 (declining
to find Plaintiffs claims barred under the doctrine of
judicial estoppel at the pleading stage). With respect to
reporting, the scope of the FCRA has not been fully
delineated by the Ninth Circuit, and the viability of
Plaintiff s theory regarding appropriate reporting after
confirmation of a Chapter 13 plan has been the subject of
vigorous litigation in this district. At the time Plaintiffs
counsel filed the complaint and FAC, Plaintiffs theory was at
least colorable. In fact, this Court dismissed Plaintiffs
claims with leave to amend because it was not clear that
Plaintiff could not state a claim under the FCRA. Under these
circumstances, the Court cannot conclude that Plaintiffs
claims were legally or factually baseless when filed.
Court notes that Plaintiffs counsel has filed numerous cases
in this district premised on the theory that failure to
comply with industry standards in credit reporting
constitutes a violation of the FCRA. While that theory was at
least colorable when first advanced, it has been rejected by
every court in this district to address it. If counsel
persists in asserting FCRA claims based solely on alleged
violations of industry standards, Rule 11 sanctions may
become appropriate at some point.