Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_05-cv-00462/USCOURTS-azd-3_05-cv-00462-1/pdf.json

Parties Involved:
David Stiff
Plaintiff
Wilshire Credit Corporation
Defendant

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

DAVID STIFF, )

)

Plaintiff, )

)

v. ) CIV 05-00462 PCT MEA

) 

WILSHIRE CREDIT CORPORATION, ) MEMORANDUM AND ORDER

)

 Defendant. )

_________________________________)

All of the parties have consented to the exercise of

magistrate judge jurisdiction over this case, including the

entry of final judgment. Before the Court is Defendant’s motion

[Docket No. 14] to dismiss Plaintiff’s amended complaint

pursuant to Rule 12(b)(6), Federal Rules of Civil Procedure, and

for an award of attorneys’ fees pursuant to Rule 11, Federal

Rules of Civil Procedure and 15 U.S.C. § 1681n(c). 

I. Background

On February 9, 2005, Plaintiff filed a complaint

asserting causes of action pursuant to the Fair Credit Reporting

Act and the Fair Debt Collections Practices Act. Docket No. 1.

Service of a summons and the complaint was executed on Defendant

on February 16, 2005. Docket No. 3. On September 19, 2005,

Defendant responded to the complaint with a motion to dismiss

Case 3:05-cv-00462-MEA Document 28 Filed 01/18/06 Page 1 of 11
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1

 This section of the Fair Credit Reporting Act provides:

Upon a finding by the court that an unsuccessful

pleading, motion, or other paper filed in

connection with an action under this section was

filed in bad faith or for purposes of harassment,

the court shall award to the prevailing party

attorney’s fees reasonable in relation to the

work expended in responding to the pleading,

motion, or other paper.

15 U.S.C. § 1681n (c) (1998 & Supp. 2005).

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the complaint pursuant to Rule 12(b)(6), Federal Rules of Civil

Procedure. Docket No. 6. In that pleading Defendant also

requested attorneys’ fees pursuant to 15 U.S.C. § 1681n(c).1

Plaintiff responded to the motion to dismiss by filing an

amended complaint on October 3, 2005, see Docket No. 9, and by

filing a response in opposition to Defendant’s motion for

attorneys’ fees. See Docket No. 10. On November 2, 2005, the

Court denied the motion to dismiss the original complaint as

moot and denied Defendant’s motion for an award of attorneys’

fees.

On October 25, 2005, Defendant filed their motion to

dismiss Plaintiff’s amended complaint. Defendant asserts that

the amended complaint fails to state a claim on which relief may

be granted pursuant to the FCRA or the FDCPA. See Docket No.

14. Defendant argues that, because Wilshire was legally

entitled to collect the assigned debt, Plaintiff has failed to

state a claim for relief pursuant to the FCRA and the FDCPA. On

December 27, 2005, Plaintiff filed a response (Docket No. 25) to

the motion to dismiss, and Defendant filed a reply (Docket No.

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2

 Plaintiff took a second mortgage on his home. Plaintiff

alleges he acquired mortgage insurance which to pay off the second

mortgage on the occasion of his default on the mortgage. Plaintiff

failed to make his mortgage payments, and the entity which held the

first mortgage on Plaintiff’s home foreclosed on the home. Plaintiff

avers upon information and belief that the second mortgage lender,

Defendant’s predecessor in interest, was paid the remaining balance

of the second mortgage, approximately $13,000, by the mortgage

insurance company. The parties do not dispute that the second

mortgage lender assigned its interest in the note to Defendant. 

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26) to Plaintiff’s response on January 3, 2006.

II. Analysis

When considering a motion to dismiss brought pursuant

to Rule 12(b)(6), all allegations of material fact in the

complaint are taken as true and the Court must construe the

facts in the light most favorable to the plaintiff. See, e.g.,

Enesco Corp. v. Price/Costco, Inc., 146 F.3d 1083, 1085 (9th

Cir. 1998). A claim should not be dismissed unless it appears

beyond a doubt that the plaintiff can prove no set of facts in

support of the claim that would entitle him to relief. See

Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). 

Plaintiff’s amended complaint alleges that Defendant

violated the Fair Credit Reporting Act, specifically 15 U.S.C.

§ 1681s-2(b), and the Fair Debt Collection Practices Act,

specifically 15 U.S.C. §§ 1692e, 1692e(2)(A), 1692e(8),

1692e(10) and 1692f(1). 

Plaintiff alleges that a collection account purporting

to represent a debt owed by Plaintiff was acquired by Defendant.

Plaintiff alleges that Defendant reported to credit reporting

agencies that Plaintiff had incurred a debt of $25,000, and

reported that this debt was still outstanding.2 Plaintiff

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further alleges that, in 2002, after becoming aware that

Defendant was reporting this debt to consumer reporting

agencies, Plaintiff filed disputes with the consumer reporting

agencies asserting that he did not owe the debt reported by

Defendant. 

The amended complaint alleges:

Prior to December 2002, Plaintiff disputed

the Wilshire ... tradelines reporting on his

Equifax credit file...

The December 2002 Equifax credit file

reflected ... that Wilshire had verified to

Equifax that its trade line was reported

correctly....

In June of 2003, Plaintiff received a copy of

his credit file from Equifax as a result of

a dispute.

The June 2003 Equifax credit file did not

show a trade line reported by Wilshire.

In July 2003, Plaintiff received a copy of

his credit file from Trans Union as a result

of a dispute. 

The July 2003 Trans Union credit file

reflected that Wilshire had verified the

information reporting in its trade line....

reporting a balance of approximately $25,000.

The May 2004 credit file reflected that

Plaintiff had disputed the Wilshire trade

line reported on his Experian credit

report....

The June 2004 Equifax credit file reflected

a Wilshire trade line with a zero balance....

In or about May 14, 2004 Plaintiff received

a letter from Wilshire stating that the loan

service of his account had been transferred

to Rescomm Holdings effective January 16,

2004. Upon information and belief, at that

time Wilshire transferred and/or sold the

account to Rescomm Holding, it failed to

notify Rescomm that Plaintiff disputed the

alleged debt.

Plaintiff alleges that Defendant violated the Fair

Credit Reporting Act because “Wilshire failed to conduct a

reasonable investigation of Plaintiff’s disputes and otherwise

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failed to comport with FCRA 1681s-2(b).” Id. at para. 58.

Plaintiff’s claim for relief pursuant to the Fair Debt

Collections Practices Act alleges:

Plaintiff repeats, realleges, and

incorporates by reference the foregoing

paragraphs.

Defendants violations of the FDCPA include,

but are not necessarily limited to, 15 U.S.C.

1692e, 1692e(2)(A), 1692e(8) 1692e(10), and

1692f(1). (sic)

Id. at paras. 64-65.

Plaintiff alleges that, in addition to being a

“furnisher” of information to credit reporting agencies as that

term is defined by the FCRA, Defendant is a “debt collector” as

that term is defined by the FDCPA at section 1692a(6).

Plaintiff does not allege that Defendant ever sought to collect

a debt from Plaintiff, nor does Plaintiff allege in the amended

complaint that he ever contacted Defendant directly regarding

the disputed debt. 

Plaintiff’s claims pursuant to the Fair Credit

Reporting Act (“FCRA”), specifically 15 U.S.C. § 1681s-2(b).

The FCRA was the product of congressional

concern over abuses in the credit reporting

industry. [] The legislative history of the

FCRA reveals that it was crafted to protect

consumers from the transmission of inaccurate

information about them, [], and to establish

credit reporting practices that utilize

accurate, relevant, and current information

in a confidential and responsible manner. []

These consumer oriented objectives support a

liberal construction of the FCRA. []

Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329, 1333 (9th

Cir. 1995).

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3 The Court notes that the question of whether Defendant did

conduct the reasonable investigation required by the FCRA may be

decided in a motion for summary judgment if there are no factual

issues in dispute. Compare Guimond v. Trans Union, 45 F.3d 1329, 1333

(9th Cir. 1995) (stating that the issue of whether a credit reporting

agency failed to follow “reasonable procedures” will be a “jury

question[] in the overwhelming majority of cases.”), with Schaffhausen

v. Bank of America, N.A., 393 F. Supp. 2d 853, 857 (D. Minn. 2005)

(concluding that, to survive summary judgment, the plaintiff must

present evidence that he disputed information in the credit reports

and that the defendant failed to reinvestigate the information, or

failed to confirm, correct, modify or delete that information, i.e.,

the plaintiff “must offer specific facts that could allow a

reasonable-fact-finder to determine that [the defendant’s] procedures

were not reasonable”), and Akalwadi v. Risk Mgmt. Alternatives, Inc., 336 F. Supp. 2d 492, 510 (D. Md. 2004), and Betts v. Equifax Credit

Info. Servs., Inc., 245 F. Supp. 2d 1130, 1135 (D. Or. 2003). 

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The FCRA requires that, after a credit reporting agency

receives notice of a dispute with regard to the accuracy of

information furnished to the agency, the furnisher of the

disputed information must conduct a reasonable investigation

regarding the information furnished to the credit reporting

agency and report the results of its investigation to the credit

reporting agency. If the investigation finds the information is

incomplete or inaccurate, the furnisher must report that finding

to all of the credit reporting agencies to whom the furnisher

has provided the disputed information. 15 U.S.C. § 1681s-2(b)

(1999 & Supp. 2005).

Plaintiff has alleged that he disputed the Wilshire

account directly with the consumer reporting agencies as

specified by the FCRA, and that the agencies sent notice of the

dispute to Wilshire, and that Wilshire verified the information

furnished to the agencies, but that Wilshire failed to conduct

a “reasonable investigation” of Plaintiff’s claims.3 Plaintiff’s

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Additionally, Plaintiff is only entitled to punitive damages

if any of Defendant's alleged failure to comply with the FCRA was

“willful,” see 15 U.S.C. § 1681n, a matter which may properly be

decided on summary judgment if Plaintiff fails to present sufficient

admissable evidence of Defendant’s willful non-compliance with the

FCRA. See, e.g., Guimond, 45 F.3d at 963. 

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complaint alleges that Defendant’s investigation into the

accuracy of the information provided to the credit reporting

agencies was not “reasonable” as that term is defined by the

FCRA. Therefore, Plaintiff has properly alleged a claim for

relief pursuant to the FCRA. See Gorman v. Wolpoff & Abramson,

LLP, 370 F. Supp. 2d 1005, 1012 (N.D. Cal. 2005); Alkan v.

Citimortgage, Inc., 336 F. Supp. 2d 1061, 1063 (N.D. Cal. 2004).

Although Defendant is not liable to Plaintiff if the undisputed

facts reveal Defendant took the steps required of a furnisher of

information by § 1681s-2(b), Plaintiff has appropriately pled

facts which, if proved, would entitle Plaintiff to relief

pursuant to the FCRA. See Nelson v. Chase Manhattan Mortgage

Corp., 282 F.3d 1057, 1060 (9th Cir. 2002).

Plaintiff asserts that Defendant is liable for

violation of the Fair Debt Collection Practices Act,

specifically 15 U.S.C. §§ 1692e, 1692e(2)(A), 1692e(8),

1692e(10) and 1692f(1).

The Fair Debt Collection Practices Act provides a cause

of action if a debt collector communicates to any person credit

information which is known or which should be known to be false,

including the failure to communicate that a debt is disputed by

the debtor. See 15 U.S.C. § 1692e(8) (1998 & Supp. 2005). This

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section provides, inter alia:

A debt collector may not use any false,

deceptive, or misleading representation or

means in connection with the collection of

any debt. Without limiting the general

application of the foregoing, the following

conduct is a violation of this section:

***

(2) The false representation of--

(A) the character, amount, or legal status of

any debt; or

***

(8) Communicating or threatening to

communicate to any person credit information

which is known or which should be known to be

false, including the failure to communicate

that a disputed debt is disputed.

***

(10) The use of any false representation or

deceptive means to collect or attempt to

collect any debt or to obtain information

concerning a consumer.

Plaintiff has alleged that the debt alleged to be owed

by Defendant was not owed, and that any amount owed was less

than that reported by Defendant and, therefore, that the

character and legal status of the debt reported by Defendant was

false. For purposes of deciding Defendant’s motion to dismiss

for failure to state a claim on which relief may be granted, the

Court must accept as true Plaintiff’s allegation that the debt

had been satisfied or that his liability for the debt was

otherwise precluded and, therefore, presume that Defendant was

falsely representing the character, amount, or legal status of

the debt. Plaintiff further alleges Defendant failed to

communicate to Rescomm, a debt collector, that Plaintiff

disputed that a legitimate debt was owed by Plaintiff to

Defendant. Because Plaintiff has alleged that Defendant was a

debt collector, and that Defendant misrepresented the amount of

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the debt and the legal status of the debt, and that Defendant

did not communicate to its assignee of the debt that Plaintiff

disputed the debt, Plaintiff has sufficiently alleged a

violation of section 1692e(8). See Patzka v. Viterbo Coll., 917

F. Supp. 654, 658-59 (W.D. Wis. 1996)(noting, however, that

“debt collectors may avoid liability if they prove by a

preponderance of the evidence that any violation of this

provision resulted from a bona fide error, notwithstanding the

maintenance of procedures reasonably adopted to avoid such

error. [] The term ‘error’ does not include mistakes of law.”).

The fact that Plaintiff does not allege that he notified

Defendant in writing that he disputed the debt does not preclude

Plaintiff’s claim for violation of subsection 1692e(8). See

Brady v. Credit Recovery Co., Inc., 160 F.3d 64, 67 (1st Cir.

1998).

The Court further concludes, however, that because

Plaintiff does not allege that Defendant ever tried to collect

the debt or that Defendant communicated to Plaintiff a

misrepresentation of the debt or that Defendant attempted to

obtain information about Plaintiff, Plaintiff has failed to

state a claim for relief pursuant to subsection 1692e(10),

prohibiting “[t]he use of any false representation or deceptive

means to collect or attempt to collect any debt or to obtain

information concerning a consumer.” (emphasis added).

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Defendant’s motion for an award of attorneys’ fees

Defendant bears the burden of establishing that

Plaintiff’s complaint was filed in bad faith or for the purpose

of harassment in the context of the motion for an award of

attorneys’ fees pursuant to 15 U.S.C. § 1681n. Cf., e.g.,

Morrison Knudsen Corp. v. Fireman’s Fund Ins. Co., 175 F.3d

1221, 1246 (10th Cir. 1999); Perry v. Stewart Title Co., 756

F.2d 1197, 1211 (5th Cir. 1985); Houghton v. New Jersey Mfrs.

Ins. Co., 615 F. Supp. 299, 309 (E.D. Pa. 1985), rev’d on other

grounds, 795 F.2d 1144 (3d Cir. 1986). The Court’s ultimate

finding regarding bad faith is a legal decision subject to clear

error review, however, the decision of whether to award

attorneys’ fees to Defendant is reviewed for an abuse of the

Court’s discretion. See Swanson v. Southern Or. Credit Serv.,

Inc., 869 F.2d 1222, 1229 (9th Cir. 1989); Horkey v. J.V.D.B. &

Assoc., Inc., 333 F.3d 769, 774 (7th Cir.), cert. denied, 540

U.S. 985 (2003); Johnson v. Eaton, 80 F.3d 148, 153 (5th Cir.

1996).

Defendant has not established that the complaint or the

amended complaint were filed in bad faith or for the purposes of

harassment. Defendant has established only that Defendant and

Plaintiff engaged in a dispute over Plaintiff’s financial

obligation to Defendant, and in a dispute regarding Defendant’s

statutory obligation to Plaintiff pursuant to the Fair Credit

Reporting Act and the Fair Debt Collection Practices Act.

Therefore, the Court declines to exercise its discretion to

award attorneys’ fees to Defendant with regard to the filing of

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Plaintiff’s initial complaint.

III Conclusion

Plaintiff has stated facts which, if proved, would

establish that Defendant violated specific provisions of the

Fair Debt Collection Practices Act and the Fair Credit Reporting

Act. Although Defendant might be entitled judgment as a matter

of law in their favor on some of Plaintiff’s claims if Defendant

can provide sufficient evidence that the debt reported by

Defendant was legitimately owed in the amount reported, for the

purposes of determining a motion to dismiss for failure to state

a claim on which relief may be granted, the Court must accept

the facts stated in the amended complaint as true and construe

them in the light most favorable to Plaintiff.

THEREFORE, IT IS ORDERED THAT Defendant’s motion to

dismiss is denied and Defendant’s motion for an award of

attorneys’ fees pursuant to 15 U.S.C. § 1681n(c) is denied .

DATED this 17th day of January, 2006.

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