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Marie Ann Fuges, On Behalf of Herself and All Others Similarly v. Southwest Financial Services


December 6, 2012


On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. No. 09-cv-00699) District Judge: Hon. Legrome D. Davis

The opinion of the court was delivered by: Jordan, Circuit Judge.


Argued September 25, 2012

Before: McKEE, Chief Judge, JORDAN, and VANASKIE, Circuit Judges.


Marie Ann Fuges appeals from an order of the United States District Court for the Eastern District of Pennsylvania entering summary judgment in favor of Southwest Financial Services, Ltd. ("Southwest") with respect to Fuges‟s claim that Southwest willfully violated the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. §§ 1681-1681x. Fuges claims that Southwest willfully violated FCRA when it included inaccurate information in a report to Fuges‟s lender concerning potential encumbrances on her home. Southwest argues in response that it is not a "consumer reporting agency" ("CRA") governed by FCRA, and that the statute does not apply to the report that it provided to Fuges‟s lender. The District Court held that no reasonable jury could find that Southwest had willfully violated FCRA, because Southwest reasonably interpreted the statute as inapplicable to its activities and so, under the standard set forth in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), Southwest could not be liable as claimed. For the following reasons, we will affirm.

I. Background

A. Facts

Southwest sells current owner title reports, otherwise known as property search or limited property reports ("property reports" or "reports") to consumer lenders. The purpose of those reports is to confirm the identity of the current holder of title to the property and to determine whether the property is encumbered. All of the information thatSouthwest collects is available in public records.

Southwest‟s reports include the name and address of the property owner, the marital status of the property owner (if it appears on the deed), the amounts of any outstanding mortgages, and the amounts of any outstanding liens or judgments against the property.*fn1 The property reports do not include the owner‟s social security number, payment history, previous addresses, employment information, date of birth, or outstanding account balances all of which would typically be included in a consumer credit report prepared by one of the "Big Three" credit reporting agencies (Equifax, Experian, and Trans Union). Another point of distinction is that Southwest endeavors to include in its property reports only those judgment liens that remain unsatisfied at the time of the report, because only those liens encumber the property. A typical credit report, by contrast, shows judgment liens that have been satisfied, because they are part of a consumer‟s payment history.

Marie Ann Fuges had a $35,000 line of credit from PNC Bank ("PNC"), which she secured with the home she owned in Philadelphia. In 2008, she applied to PNC for payment protection insurance that would repay her line of credit in the event that she died or became disabled. PNC told Fuges that, in order to obtain the insurance, she needed to reapply for her line of credit.*fn2 She did so, and, after she submitted her loan application, PNC ordered a credit report generated by a credit reporting agency, as well as a property report on the home that she owned. Southwest prepared the latter and provided information concerning the ownership of the home that Fuges put up as collateral, as well as information on whether the property was subject to mortgages, judgment liens, unpaid taxes, or other encumbrances.

More specifically, that property report contained the following information: (1) Fuges‟s name and address; (2) a note concerning her marital status; (3) the amount of her mortgage ($35,000.00); (4) a reference to a $111.11 property tax delinquency; and (5) a reference to a $2,923.63 judgment lien filed by a merchant for a delinquency on the part of her son, Robert W. Fuges. The report was inaccurate in two respects. First, Fuges‟s property tax payments were arguably not delinquent because she had an agreement with the City of Philadelphia to pay her taxes in monthly installments. Second, the property report should not have reflected the judgment lien because inclusion of the lien wrongly assumed that the debt was owed by Fuges‟s deceased husband, Robert

E. Fuges, who had been an owner of the property at one time.

After PNC received the Fuges property report, it informed Fuges that it could not approve her loan application without proof that she had paid her property taxes. Later, however, PNC provided Fuges with the credit insurance, leaving her existing line of credit in place.*fn3

B. Procedural History

On February 18, 2009, Fuges filed a putative class action against Southwest, alleging that Southwest failed to comply with FCRA in preparing the property report that it had provided to PNC in connection with her credit application. She initially claimed damages for both willful and negligent violations of the statute under 15 U.S.C. §§ 1681n and 1681o, respectively.

On April 22, 2009, Southwest filed a motion to dismiss for failure to state a claim, arguing that Fuges had failed to take certain actions required under FCRA (such as contacting Southwest and asking for a copy of her property report) and also arguing that Fuges could not prove that the report caused PNC to deny her credit application. On July 15, 2009, the District Court dismissed most of Fuges‟s claims because she had failed to take actions required by FCRA, but the Court granted Fuges leave to amend her complaint. She then filed an amended complaint, and Southwest again filed a motion to dismiss, which the District Court denied.

On August 1, 2011, Southwest moved for summary judgment. It argued that its reports are not subject to FCRA, and that, even if they were, it was not liable because it did not willfully violate FCRA under the standard articulated in Safeco,551 U.S. at 69-70.*fn4 Southwest also asserted that it could not be held liable for any negligent violation of FCRA because PNC ultimately gave Fuges the credit insurance for which she had applied, and she did not suffer any injury as a result of Southwest‟s conduct.*fn5

On November 21, 2011, the District Court issued an opinion and order granting the motion for summary judgment. The Court did not address whether Southwest‟s conduct fell within the scope of FCRA, or whether there was evidence of FCRA violations. Rather, it determined that no reasonable jury could find that Southwest had acted willfully because Southwest‟s reading of FCRA as not being applicable to its business was not unreasonable. In particular, the Court said, "a reasonable jury could not conclude that Southwest willfully, i.e., knowingly or recklessly, violated ... FCRA, because Southwest reasonably interpreted its activities to fall outside the scope of the Act, in light of the less-than-clear statutory text and absence of meaningful judicial or FTC guidance." *fn6 (App. at 13.) In reaching that conclusion, the District Court reasoned that Southwest‟s interpretation of FCRA was "objectively reasonable" because the Fuges property report contained four sections -- deeds, mortgages, parcel number and taxes, and lien information -- that "more closely relate to a particular parcel of property than to a particular consumer." (App. at 10.) The Court also considered it significant that Southwest‟s report did not contain "Fuges‟[s] social security number, payment history on various debts, or previous addresses, all of which one might expect to see on a typical credit report from a CRA." *fn7

(Id.) Thus, it determined that "Southwest‟s reading of FCRA‟s CRA definition, i.e., that Southwest‟s reports are "on properties‟ not "on consumers,‟ and therefore Southwest is not a CRA, has a foundation in the statutory text, which suggests that Southwest acted reasonably, not recklessly, with respect to FCRA." (Id.)

Fuges filed a timely notice of appeal.

II. Discussion*fn8


FCRA "require[s] that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information ... with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." 15 U.S.C. § 1681(b).*fn9 The statute imposes civil liability on "[a]ny person who ... fails to comply with any requirement imposed" by the statute. See id. §§ 1681n, 1681o. A person who negligently fails to comply is liable to the affected consumer for actual damages. Id. § 1681o(a)(1). A person who willfully fails to comply is liable to the affected consumer for actual damages, or statutory damages ranging from $100 to $1,000, as well as punitive damages and attorney‟s fees. Id. § 1681n(a).

The enactment of FCRA "was prompted by congressional concern over abuses in the credit reporting industry." Philbin v. Trans Union Corp., 101 F.3d 957, 962 (3d Cir. 1996) (internal quotation marks omitted). Congress wanted "to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy." Safeco, 551 U.S. at 52. In support of FCRA, Congress found that 15 U.S.C. §1681(a).

FCRA only applies to CRAs. The statute defines a "consumer reporting agency" as "any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer*fn10 credit information or other information on consumers for the purpose of furnishing consumer reports to third parties . ." Id. § 1681a(f).

Moreover, for a report to be covered by FCRA, it must be a "consumer report," defined as any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer‟s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer‟s eligibility for --

(A) credit or insurance to be used primarily for personal, family, or household purposes;

(B) employment purposes; or (C) any other purpose authorized under section 1681b of this title.

Id. § 1681a(d)(1).*fn11

Taken together, these definitions establish statutory markers against which the reasonableness of any reading of the applicability of FCRA must be measured. One marker is that, for the preparerof a report to qualify as a CRA, the preparer must regularly engage in gathering information "on consumers" with the purpose of preparing and furnishing "consumer reports." Another marker is that, for a report to be subject to FCRA, it must bothbe a "consumer report" and have been prepared by a "consumer reporting agency," as those terms are defined in the statute.

B. Liability Standard Under Safeco

The Supreme Court‟s landmark decision in Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007), set the framework that the District Court here relied on in granting summary judgment to Southwest. Safeco involved insurance companies that relied in part on credit scores to set auto insurance premiums. Because of unfavorable credit scores, some new applicants were quoted insurance rates that were higher than the best rates available. The applicants argued that they had been subjected to an "increase" in rates (even though they had not previously enjoyed the lower rates) and so had suffered "adverse action" based on their credit reports, which required notice under § 1681m(a) of FCRA. Id. at 54-55. The insurance companies argued that they did not have to comply with FCRA‟s notice requirement because the failure to offer the preferred rates to new customers could not constitute an "increase" in rates in the absence of prior dealing. See id. at 69. The plaintiffs sought statutory and punitive damages, which required that they prove that the failure to give notice was "willful." The Supreme Court held that it was not. Although the Court disagreed with the insurance companies‟ interpretation of "increase," it concluded that the interpretation was "not objectively unreasonable, and so falls well short of raising the "unjustifiably high risk‟ of violating the statute necessary for reckless liability." Id. at 70 (emphasis added). The Court thus established a safe harbor against liability for willfulness. A company cannot be said to have willfully violated FCRA if the company acted on a reasonable interpretation of FCRA‟s coverage.

The Court derived this "reasonable interpretation" test by deconstructing the word "willfully." FCRA imposes civil liability where the defendant "willfully fails to comply" with the statute. 15 U.S.C. § 1681n(a).*fn12 The Court noted, however, that ""willfully‟ is a word of many meanings" and that "where willfulness is a statutory condition of civil liability, we have generally taken it to cover not only knowing violations of a standard, but reckless ones as well." Safeco, 551 U.S. at 57 (citations and internal quotation marks omitted). Drawing on the "essence of recklessness at common law," the Court said that "a company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute‟s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." Safeco, 551 U.S. at 69 (internal quotation marks omitted). A defendant‟s conduct is reckless only if it was "objectively unreasonable" in light of "legal rules that were "clearly established‟ at the time." Id. at 69-70 (citing Saucier v. Katz, 533 U.S. 194, 202 (2001)). Thus, even when a court disagrees with a party‟s reading of FCRA, it may not impose liability for a reckless, and therefore willful, violation of the statute unless that party‟s reading is "objectively unreasonable." See id. at 69 (noting that the Court did not agree with Safeco‟s analysis and that its reading of FCRA was "erroneous").*fn13

In short, the Safeco test is one of "objective reasonableness," and the Court explicitly rejected the argument that subjective bad faith must be taken into account in determining whether a defendant has acted recklessly, and therefore willfully, under FCRA. In deciding that subjective bad faith is irrelevant, the Court said that, "[w]here . the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator." Safeco, 551 U.S. at 70 n.20.

Fuges argues in this appeal that Southwest is not entitled to the Safeco "reasonable interpretation" defense, both because Southwest had not actually interpreted FCRA before concluding the statute did not apply to its activities and because Southwest‟s interpretation of FCRA was not objectively reasonable.*fn14 We take each of those arguments in turn.

C. Safeco's Applicability Absent a "Reading" of FCRA

Fuges contends that the District Court erred by extending the "reasonable reading" defense articulated in Safeco to Southwest‟s conduct even though Southwest failed to read or interpret FCRA in the first instance. The District Court focused its analysis on the interpretation of the terms "consumer reporting agency" and "consumer report." (See App. at 9 (discussing components of the CRA definition in 15 U.S.C. § 1681a(f)).)The Court did not specifically address the question of whether Southwest had adopted a particular interpretation of those terms prior to preparing the Fuges property report or prior to the commencement of this lawsuit.

The timing, however, is not dispositive. In Long v. Tommy Hilfiger U.S.A., 671 F.3d 371 (3d Cir. 2012), we expressly rejected the argument that a defendant is required to have a pre-litigation "reading" of FCRA to avail itself of the Safeco "reasonable interpretation" defense. 671 F.3d at 377. Long involved the interpretation of the phrase "expiration date" in a FCRA provision governing the disclosure of credit card information. Like Fuges, the plaintiff in Long argued that the defendant "did not actually rely on any interpretation of [FCRA] and instead disregarded the statute altogether and is only now seizing upon a post hoc "objectively reasonable‟ interpretation in order to shield itself from liability." Id. (citation and internal quotation marks omitted). That argument struck us as being, in essence, an assertion about the defendant‟s intent or subjective bad faith, and, as such, it was "expressly foreclosed by Safeco," because such evidence "is irrelevant when there is an objectively reasonable interpretation of the statute that would allow the conduct in question." Id. (citing Safeco, 551 U.S. at 70 n.20).

Fuges argues that Long and other cases in which defendants were found to have relied on a reasonable interpretation of FCRA may be distinguished from two post-Safeco cases in which there was "no evidence whatsoever of a [FCRA] "reading‟ by the defendant," and in which the Safeco defense did not apply. (See Appellant‟s Opening Br. at 40 (citing Birmingham v. Experian Info. Solutions, Inc., 633 F.3d 1006 (10th Cir. 2011); Saunders v. Branch Banking & Trust Co. of Va., 526 F.3d 142 (4th Cir. 2008)).) However, in neither of those cases was the interpretation of specific FCRA terms at issue.*fn15

Fuges also notes that in most of the post-Safeco cases, such as Long, Shlatichman v. 1-800-Contacts, Inc., 615 F.3d 794 (7th Cir. 2010), and Levine v. World Financial Network National Bank, 554 F.3d 1314 (11th Cir. 2009), the "defendants acknowledged ... FCRA‟s regulatory existence, and attempted to comply with it on some level." (Appellant‟s Opening Br. at 40.) However, in each of those cases, the defendant also acknowledged that it was subject to FCRA, and the only disputed issue was the interpretation or applicability of a particular provision of FCRA. In the present case, based on its interpretation of the definitions of "consumer report" and "consumer reporting agency," Southwest has urged that it is not subject to FCRA at all.

In summary, Southwest does not lose the potential protection of the "reasonable interpretation" defense, even if it never actually interpreted FCRA prior to the commencement of this lawsuit. Safeco requires only that "the company‟s reading of the statute is objectively reasonable," Safeco, 551 U.S. at 70 n.20 (emphasis added), and that the interpretation that would allow the conduct in question is "an interpretation that could reasonably have found support in the courts," id. Safeco does not require that the defendant actually have made such an interpretation at any particular point in time.

D. Southwest's Liability Under the Safeco Test

Fuges argues in the alternative that, even if Southwest is potentially entitled to shelter in Safeco‟s safe harbor, the District Court erred in holding that no reasonable jury could find that Southwest had acted recklessly, and therefore willfully, in treating FCRA as inapplicable.*fn16 Fuges contends that neither Southwest nor the District Court specifically identified any ambiguity in the statutory text,*fn17 and that any reading of FCRA as being inapplicable must be reckless.

To understand why Fuges is mistaken, it is helpful to consider why the "reasonable interpretation" test was met in Safeco. We noted in Long that there were three bases for the Supreme Court‟s decision in Safeco. First, FCRA gave no clear guidance on whether the auto insurers were required to view an initial rate offer as an "increase" in rates that would constitute adverse action and trigger a consumer notification requirement. Long, 671 F.3d at 376 (citing Safeco, 551 U.S. at 69-70).*fn18 Second, the insurers‟ proposed interpretation that their quotes were not an adverse action "had a "foundation in the statutory text ... and a sufficiently convincing justification to have persuaded the District Court to adopt it.‟" Id. (quoting Safeco, 551 U.S. at 69-70) (omission in original). And third, the insurers were interpreting the statute in the absence of any contrary authority on the meaning of "increase" because ""no court of appeals had spoken on the issue, and no authoritative guidance has yet come from the FTC.‟" Id. (quoting Safeco, 551 U.S. at 70).

The District Court here was satisfied that conditions similar to those that had rendered Safeco‟s reading of FCRA "not objectively unreasonable" were present in this case. First, the Court decided that the statutory definitions of "consumer reporting agency" and "consumer report" were ambiguous as applied to "a company like Southwest that sells so-called "current owner reports.‟" (App. at 10.) Second, the Court determined that Southwest‟s reading of FCRA‟s CRA definition as not covering Southwest "has a foundation in the statutory text."*fn19 (Id.) Third, the Court found "an absolute dearth of judicial or agency guidance regarding whether ... FCRA" covers the activities of Southwest. (Id. at 11.) The District Court thus concluded that Southwest did not act recklessly with respect to FCRA.

We agree with the District Court‟s analysis. First, the FCRA definitions of "consumer reporting agency" and "consumer report" are ambiguous as they relate to Southwest. The source of this ambiguity is the phrase "information on consumers" in the CRA definition, and the phrase "bearing on a consumer[ ]" in the definition of consumer report. Fuges argues, in essence, that any information in the Southwest property report that relates to her is information "on" or "bearing on" her as a consumer. But to take this argument to its limits, virtually any information gathered in connection with a consumer lending transaction can be characterized as information on, or bearing on, the individual applicant because it says something related to the applicant. Thus, the unbounded nature of these definitions renders them ambiguous when one tries to figure out just how broadly a sensible definition should reach.

Second, Southwest‟s reading of the applicable provisions of FCRA has some foundation in the statutory text, and was therefore not objectively unreasonable. The definition of a CRA requires that a company "engage[ ] in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers." 15 U.S.C. § 1681a(f). Southwest could reasonably interpret that provision to exclude information that it assembles with regard to a subject property, because such information is not "on consumers." Likewise, the definition of "consumer report" encompasses only reports that contain "information [assembled] by a [CRA] bearing on a consumer‟s credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living." 15 U.S.C. § 1681a(d)(1). Southwest could reasonably interpret that provision to exclude its property reports, both because it interpreted the CRA definition to exclude itself,*fn20 and because the information on property encumbrances does not necessarily "bear on" any of the characteristics of an individual consumer‟s personal creditworthiness listed in that provision.

Third, there is no judicial or agency guidance that would suggest that Southwest‟s reading of FCRA is contrary to the intended meaning of the provisions in question.*fn21

Under Safeco, the inquiry is whether "the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless." 551 U.S. at 69; see also Cortez v. Trans Union, LLC, 617 F.3d 688, 723 (3d Cir. 2010) (finding recklessness where defendant "substantially risked acting in violation of [FCRA]"). The District Court correctly determined that Southwest was not reckless because Southwest did not run a "substantial risk" in adopting its interpretation of FCRA, in the absence of authority contrary to that interpretation. As the District Court noted, there does not appear to be any judicial or agency guidance as to whether FCRA covers companies like Southwest. Cases concerning the CRA status of companies that are not credit bureaus but that still assemble "information on consumers" have typically addressed employee background investigatory reports that have little in common with the property reports at issue here. See, e.g., Poore v. Sterling Testing Sys., 410 F. Supp. 2d 557 (E.D. Ky. 2006) (holding that a company that reports on criminal records of job applicants is a CRA); Lewis v. Ohio Prof'l Elec. Network, LLC, 190 F. Supp. 2d 1049 (S.D. Ohio 2002) (same). Moreover, those companies qualify as CRAs under part of the FCRA "consumer report" definition that specifically addresses employment eligibility reports. See 15 U.S.C. § 1681a(d)(1)(B). Unlike Southwest, companies that assemble such reports indisputably assemble "information on consumers," namely the employment candidates who are the subject of the reports.*fn22

The District Court‟s ably stated conclusion that Southwest cannot be held liable for willful violations of FCRA is consistent with our holding in Long and finds support in numerous other cases in which courts have applied Safeco and declined to hold defendants liable absent evidence of a reckless approach to FCRA compliance. See, e.g., Long, 671 F.3d at 377-78 (finding no liability for willful FCRA violations despite the fact that the court rejected the defendant‟s interpretation of the statute); Birmingham, 633 F.3d at 1009 (finding no liability "because of the absence of evidence of intentional or reckless misconduct"); Levine, 554 F.3d at 1318-19 (finding no liability where defendant reasonably interpreted "account" as including a "closed account"). *fn23

In summary, Southwest‟s interpretation of the FCRA definitions of "consumer reporting agency" and "consumer report" is not unreasonable, and Southwest "did not run "a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.‟" Long, 671 F.3d at 378 (quoting Safeco, 551 U.S. at 69). Fuges therefore has not stated a claim for a willful violation of FCRA.*fn24

III. Conclusion

For the reasons stated above, we will affirm the judgment of the District Court.

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