Opinion ID: 844281
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Heading Rank: 2

Heading: The Scope of FCRA Preemption

Text: (4) Congress enacted FCRA in 1970 to ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy. ( Safeco Ins. Co. of America v. Burr (2007) 551 U.S. 47, 52 [167 L.Ed.2d 1045, 127 S.Ct. 2201]; see also § 1681(a)(4) [the FCRA was designed to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy].) Specifically, the FCRA requires consumer reporting agencies to adopt procedures for ensuring that consumer credit information is collected, maintained, and dispensed in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information. . . . (§ 1681(b); see also TRW Inc. v. Andrews (2001) 534 U.S. 19, 23 [151 L.Ed.2d 339, 122 S.Ct. 441].) As originally enacted, the FCRA contained a broad savings clause, confirming Congress had no intention of displacing state law except to the extent state law and the FCRA were in irreconcilable conflict. [4] As well, the FCRA at first focused solely on consumer reporting agencies and imposed no duties on furnishers, i.e., those that provide information to a consumer reporting agency. [5] (See Pulver v. Avco Financial Services (1986) 182 Cal.App.3d 622, 633 [227 Cal.Rptr. 491].) Consequently, consumers remained free to sue furnishers under state law, subject only to a provision limiting certain state law tort claims to instances where a defendant had acted maliciously or with the intent to injure. (§ 1681h(e).) [6] (5) The Consumer Credit Reporting Reform Act of 1996 (Pub.L. No. 104-208 (Sept. 30, 1996) 110 Stat. 3009-426; 1996 Reform Act) amended the FCRA in two ways significant to this case. For the first time, Congress imposed affirmative duties on furnishers. (§ 1681s-2; see Sen.Rep. No. 104-185, 1st Sess., p. 49 (1995) [discussing proposed new section and noting that [c]urrently, the FCRA contains no requirements applying to those entities which furnish information to consumer reporting agencies].) Additionally, it amended the savings clause by carving out from the general no-preemption rule a series of discrete areas in which federal law henceforth would govern to the exclusion of state law. (§ 1681t(b).) [7] One such area is at issue here: that covered by section 1681t(b)(1)(F), relating to the preemption of claims against furnishers.
We begin with the text of section 1681t(b)(1)(F): (b) No requirement or prohibition may be imposed under the laws of any State[¶] (1) with respect to any subject matter regulated under [¶] . . . [¶] (F) section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies, except that this paragraph shall not apply [¶] (i) . . . [¶] (ii) with respect to section 1785.25(a) of the California Civil Code (as in effect on September 30, 1996). (Italics added.) (6) When analyzing an express preemption clause, our task is to `identify the domain expressly pre-empted' by its language. ( Medtronic, Inc. v. Lohr, supra, 518 U.S. at p. 484, quoting Cipollone v. Liggett Group, Inc., supra, 505 U.S. at p. 517.) The scope of this preemption clause therefore hinges on an interpretation of what the subject matter regulated under section 1681s-2 is. (7) As noted, section 1681s-2 was enacted to, for the first time, impose certain affirmative duties on furnishers of information to consumer reporting agencies. Broadly speaking, section 1681s-2 regulates the actions of furnishers in two areas: it imposes a duty to provide accurate information (§ 1681s-2(a)), and it dictates what furnishers must do upon receiving official notice from a consumer reporting agency of a dispute concerning the completeness or accuracy of information they have provided (§ 1681s-2(b)). (See Sanai v. Saltz (2009) 170 Cal.App.4th 746, 763-764 [88 Cal.Rptr.3d 673]; Stafford v. Cross Country Bank (W.D.Ky. 2003) 262 F.Supp.2d 776, 782-784.) [8] The subject matter regulated under section 1681s-2 is ambiguous because the level of generality at which one is to characterize that subject matter is unclear, and thus, so is the domain expressly preempted by section 1681t(b)(1)(F). Characterized most narrowly, section 1681s-2 regulates only two discrete areas: what a furnisher must do to ensure the information it provides is accurate (a subject covered in exhaustive detail by the many subparts of § 1681s-2(a)), and what a furnisher must do upon receiving official notice that the accuracy or completeness of its information is in dispute (covered in somewhat less detail by § 1681s-2(b)). The operative preemption provision could thus be read as preempting only state laws that attempt also to regulate a furnisher's duties with respect to accuracy or the handling of disputes after receiving official notice. Numerous federal district courts have adopted this view. In Stafford v. Cross Country Bank, supra, 262 F.Supp.2d at pages 785-787, for example, the court rejected the argument that section 1681t(b)(1)(F) preempted all state law furnisher claims, rather than only those arising out of the two furnisher duties actually regulated by section 1681s-2. A contrary interpretation, in the court's view, would extend [section 1681t(b)(1)(F)] well beyond its express terms. ( Stafford, at pp. 785-786.) In Pasternak v. Trans Union (N.D.Cal., Apr. 3, 2008, No. C07-04980 MJJ) 2008 U.S.Dist. Lexis 115442, the district court rejected section 1681t(b)(1)(F)'s preemption of a claim that the defendant creditor had failed to properly investigate and cease collection efforts upon being informed personally by the plaintiff that she was the victim of identity theft. (See Civ. Code, § 1798.92 et seq.) The court compared the duty asserted to the precise duties actually regulated by section 1681s-2 and, finding no overlap, allowed the plaintiff to proceed. ( Pasternak, at pp. -.) In Carlson v. Trans Union, LLC (N.D.Tex. 2003) 259 F.Supp.2d 517, 521-522, the district court rejected preemption of a defamation claim against a furnisher because the subject matter of the claim was significantly different from that regulated by section 1681s-2 ( Carlson, at p. 522), reasoning that the duty at issue in a defamation suit does not overlap with the duties actually addressed in section 1681s-2. (See also Dornhecker v. Ameritech Corp. (N.D.Ill. 2000) 99 F.Supp.2d 918, 930-931 [on reasoning analogous to that in Carlson, concluding common law claims involving duties not regulated by § 1681s-2 were not preempted by § 1681t(b)(1)(F)].) Alternatively, the subject matter of section 1681s-2 could be read more broadly as encompassing all [r]esponsibilities of furnishers of information to consumer reporting agencies, as the provision is captioned, and thus preempting any attempt by the several states to enforce laws imposing on furnishers duties additional to the two specific duties imposed by the sectionthat is, as embodying a congressional determination to impose on furnishers these, and only these, duties and to immunize them from any other legal obligations. The Court of Appeal, apparently overlooking this ambiguity, assumed the latter understanding of the subject matter regulated by section 1681s-2 was correct and thus concluded that [t]he plain language of section 1681t(b)(1)(F) preempts state law relating to the duties of furnishers of information to consumer reporting agencies, i.e., laws relating to any furnisher duty, not just the two general duties expressly regulated by the section. In light of the ambiguity, however, we are not at liberty to assume this reading is correct; instead, we must determine which of the two plausible readings of section 1681t(b)(1)(F) described above actually hews most closely to congressional intent. (8) In making this determination, we are assisted by the strong presumption against displacement of state law that applies in the preemption context. That presumption applies not only to the existence, but also to the extent, of federal preemption. ( Farm Raised Salmon Cases, supra, 42 Cal.4th at p. 1088.) Because of it, courts should narrowly interpret the scope of Congress's `intended invalidation of state law' whenever possible. ( Olszewski v. Scripps Health, supra, 30 Cal.4th at p. 815, quoting Medtronic, Inc. v. Lohr, supra, 518 U.S. at p. 485; see also Cipollone v. Liggett Group, Inc., supra, 505 U.S. at p. 518 [the presumption reinforces the appropriateness of a narrow reading of an express preemption provision]; Cipollone, at p. 533 (conc. & dis. opn. of Blackmun, J.) [We do not, absent unambiguous evidence, infer a scope of pre-emption beyond that which clearly is mandated by Congress' language.].) Indeed, the presumption against preemption is sufficiently powerful to impose upon courts a duty to accept the reading that disfavors pre-emption as among equally plausible interpretations of an express preemption clause. ( Bates v. Dow Agrosciences LLC (2005) 544 U.S. 431, 449 [161 L.Ed.2d 687, 125 S.Ct. 1788]; see also Altria Group, Inc. v. Good (2008) 555 U.S. 70, ___ [172 L.Ed.2d 398, 129 S.Ct. 538, 543] [[W]hen the text of a pre-emption clause is susceptible of more than one plausible reading, courts ordinarily `accept the reading that disfavors pre-emption.'].) It follows from the foregoing that absent persuasive evidence Congress intended more expansive preemption, we must prefer the narrower reading of the scope of section 1681t(b)(1)(F)'s preemption clause, the reading that extends preemption only to state laws relating to furnisher accuracy or dispute resolution. Relying on certain federal total preemption cases, Mortensen argues that section 1681t(b)(1)(F) preempts all state law claims against furnishers involving the same general subject matter as section 1681s-2. (See, e.g., Roybal v. Equifax (E.D.Cal. 2005) 405 F.Supp.2d 1177, 1181-1182; Howard v. Blue Ridge Bank (N.D.Cal. 2005) 371 F.Supp.2d 1139, 1144; Davis v. Maryland Bank, N.A. (N.D.Cal., June 19, 2002, No. C XX-XXXXXX SBA) 2002 U.S.Dist. Lexis 26468, pp. -.) Although Mortensen has the burden of establishing preemption ( Bronco Wine Co. v. Jolly (2004) 33 Cal.4th 943, 956-957 [17 Cal.Rptr.3d 180, 95 P.3d 422]), and thus the burden of demonstrating a clear and manifest congressional intent to preempt ( id. at p. 957, italics omitted), his argument offers little that would support a broader displacement of state law. The total preemption cases he relies on represent but one of three approaches the federal courts have taken to reconciling section 1681t(b)(1)(F) with the potentially overlapping sphere of section 1681h(e), which partially bars and partially permits certain common law claims against furnishers (see ante, fn. 6 and accompanying text), none of which are at issue here. ( Buraye v. Equifax (C.D.Cal. 2008) 625 F.Supp.2d 894, 898; see, e.g., Carruthers v. American Honda Finance Corp. (N.D.Fla. 2010) 717 F.Supp.2d 1251, 1257-1258 [total preemption approach]; Sites v. Nationstar Mortgage LLC (M.D.Pa. 2009) 646 F.Supp.2d 699, 708-709 [statutory preemption approach]; Woltersdorf v. Pentagon Federal Credit Union (N.D.Ala. 2004) 320 F.Supp.2d 1222, 1225-1227 [temporal preemption approach].) [9] Given the different preemption question at issue here, we do not find these cases instructive. Nor, for that matter, do we have occasion here to agree or disagree with either of the two alternative approachesstatutory and temporal preemptionthe federal courts have taken to reconciling sections 1681t(b)(1)(F) and 1681h(e). Under any of these approaches, a threshold issue is whether the state law claim involves the same subject matter as that regulated by section 1681s-2. If the claim does not, there is no preemption. It is on that point our analysis turns. Our own inspection of the overall statutory scheme and the pertinent legislative history reveals evidence suggesting Congress never intended in section 1681t(b)(1)(F) to preempt state laws regulating medical privacy and thereby to relieve entities otherwise obligated to maintain confidentiality of the duty to do so when reporting credit information. We find instructive both (1) Congress's passage of HIPAA at the same time as the 1996 Reform Act and (2) the legislative history of the 1996 Reform Act.
Recognizing the importance of protecting the privacy of health information in the midst of the rapid evolution of health information systems, Congress passed HIPAA in August 1996. ( South Carolina Medical Assn. v. Thompson (4th Cir. 2003) 327 F.3d 346, 348; see Pub.L. No. 104-191 (Aug. 21, 1996) 110 Stat. 1936.) Portions of HIPAA were intended to facilitate information exchange among participants in the health care system (42 U.S.C. §§ 1320d to 1320d-8 (HIPAA §§ 261-262, Pub.L. No. 104-191, §§ 261-262 (Aug. 21, 1996) 110 Stat. 2021-2031)), but Congress foresaw that with easier transmission of intimate medical details would come a heightened risk of privacy loss (65 Fed.Reg. 82469 (Dec. 28, 2000); see also Northwestern Memorial Hosp. v. Ashcroft (7th Cir. 2004) 362 F.3d 923, 928-929 [the sensitivity that lies behind HIPAA is concern for the natural sensitivity that people feel about the disclosure of their medical records]). Accordingly, Congress tasked the federal Department of Health and Human Services (Department) with recommending privacy standards for the handling of personal medical information (42 U.S.C. § 1320d-2 note (HIPAA, § 264(a), Pub.L. No. 104-191, § 264(a) (Aug. 21, 1996) 110 Stat. 2033)) and, if no legislation was forthcoming within a specified period, with promulgating regulations setting forth national medical information privacy standards ( id. (HIPAA, § 264(c)(1), Pub.L. No. 104-191, § 264(c)(1) (Aug. 21, 1996) 110 Stat. 2033)). When Congress failed to agree on legislation, the Department fulfilled its mandate and issued a wealth of detailed regulations, commonly known as the Privacy Rule. (Stds. for Privacy of Individually Identifiable Health Information, 65 Fed.Reg. 82462 (Dec. 28, 2000), codified at 45 C.F.R. §§ 160, 164 (2010) [original Privacy Rule]; Stds. for Privacy of Individually Identifiable Health Information, 67 Fed.Reg. 53182 (Aug. 14, 2002), codified at 45 C.F.R. §§ 160, 164 (2010) [final modifications to the Privacy Rule].) Three points about HIPAA and the Privacy Rule are germane here. First, at the time of HIPAA's passage it was expressly contemplated that Congress or the Department would closely regulate the obligations of health plans, medical providers, and their agents to maintain patient confidences. (42 U.S.C. § 1320d-2 note (HIPAA, § 264(b), (c)(1), Pub.L. No. 104-191, § 264(b), (c)(1) (Aug. 21, 1996) 110 Stat. 2033); see 42 U.S.C. § 1320d-1(a) [identifying entities to be covered by new standards].) The Privacy Rule does so, defining and restricting the ability of covered entities to divulge confidential medical information. (See 45 C.F.R. § 164.502(a) (2010) [prohibiting use or disclosure of personal health information except as provided under the Privacy Rule].) The Department's regulations expressly address such matters as the extent to which personal medical information may be disclosed when seeking payment, including to consumer reporting agencies. (See id., § 164.506 [permitting disclosure of personal health information for purposes of payment]; id., § 164.501 [defining payment to include certain limited disclosures of personal health information to consumer reporting agencies].) (9) Second, both HIPAA and the Privacy Rule's implementation of it expressly favor additional, more protective state legislation. Although HIPAA generally preempts state laws (42 U.S.C. § 1320d-7(a)(1); see 45 C.F.R. § 160.203 (2010)), Congress carved out a different rule for privacy regulation (42 U.S.C. § 1320d-7(a)(2)(B)), directing that only conflicting or less stringent state law be preempted, while more stringent state law be preserved ( id., § 1320d-2 note (HIPAA, § 264(c)(2), Pub.L. No. 104-191, § 264(c)(2) (Aug. 21, 1996) 110 Stat. 2033-2034); see 45 C.F.R. §§ 160.202, 160.203(b) (2010)). [10] As the Department explained when announcing the Privacy Rule: It is important to understand this regulation as a new federal floor of privacy protections that does not disturb more protective rules or practices. . . . The protections are a mandatory floor, which other governments and any covered entity may exceed. (65 Fed.Reg. 82471 (Dec. 28, 2000).) (10) Third, HIPAA was enacted just one month before the 1996 Reform Act. While in construing statutes we will always prefer interpretations that harmonize them with other legislation ( Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1095 [103 Cal.Rptr.3d 767, 222 P.3d 214]), that canon is particularly appropriate here, where the very same Congress within a few weeks passed both HIPAA and the 1996 Reform Act. Given their contemporaneous nature and overlapping privacy concerns, we must when possible interpret HIPAA and the 1996 Reform Act as a coherent whole. The 104th Congress could have amended the FCRA to address the scope of a medical provider's duties when furnishing information to a consumer reporting agency, or it could have addressed it as part of HIPAA. It chose to address it as part of HIPAA, authorizing the Department to adopt regulations on the subject, while at the same time inviting the states to continue to regulate to the extent they desired to enact more stringent, privacy-favoring legislation. (See 42 U.S.C. § 1320d-2 note (HIPAA, § 264(c)(1), (2), Pub.L. No. 104-191, § 264(c)(1), (2) (Aug. 21, 1996) 110 Stat. 2033-2034).) We see no plausible basis for reading into sections 1681t(b)(1)(F) and 1681s-2, which are silent on the duties of a furnisher to preserve medical confidentiality, a clear and manifest congressional intent to preempt state legislation on that topic, when the same Congress in HIPAA had just authorized and encouraged further state regulation of such matters. Far more credible is to assume Congress intended preemption only with respect to the specific furnisher duties for which it adopted standards in section 1681s-2, while leaving to other laws and their preemption provisions or savings clauses the task of articulating additional, more general duties and identifying what the several states' roles might be in enacting supplemental legislation. [11]
Additionally, we consider whether anything in the sparse legislative history of the 1996 Reform Act, of which section 1681t(b)(1)(F) is a part, supports Mortensen's and the Court of Appeal's assumption that a broader reading of that preemption provision clearly was intended. [12] Nothing does. The 1996 Reform Act was the product of years of discussion and negotiations. (Wu et al., Fair Credit Reporting (7th ed. 2010) p. 16.) On April 6, 1995, Senators Bond and Bryan introduced the Consumer Reporting Reform Act of 1995 (Sen. No. 709, 104th Cong., 1st Sess. (1995)), a bill based in large part on earlier legislative efforts that had narrowly missed enactment. Senator Bond described the measure as providing limited Federal preemption to ensure that there are uniform Federal standards to govern a number of procedural issues which are part of credit reporting and which will reduce the burdens on the credit industry from having to comply with a variety of different State requirements. (Remarks of Sen. Bond, 141 Cong. Rec. S5450 (daily ed. Apr. 6, 1995).) Senator Bryan assured that the bill tried to only preempt those areas of this law which affect the operational efficiencies of businesses but do not harm consumers, and that it was not intended to preempt States' rights in the area of liability. (Remarks of Sen. Bryan, 141 Cong. Rec. S5450 (daily ed. Apr. 6, 1995).) Preemption was appropriate only in order to set a national uniform standard on matters such as disclosure forms or timetables; such limited preemption would not set the consumer movement back, yet should help the business community operate more efficiently. ( Ibid. ) The Senate Committee on Banking, Housing, and Urban Affairs's subsequent report on the bill reflected the same understanding. (Sen.Rep. No. 104-185, 1st Sess. (1995).) [13] The committee explained the new preemption provisions were intended to ensure the FCRA stood as the national uniform standard in these [preempted] areas. (Sen.Rep. No. 104-185, p. 55.) The committee made equally clear that broad field preemption was not intended: Additionally, the Committee understands that states have the power to protect their own citizens, including protection from abuses in the credit reporting industry. Therefore, the FCRA, as amended by the Committee bill[,] will not infringe upon the rights of states to legislate more stringent requirements that fall outside the scope of those areas specifically preempted to the extent such requirements are not inconsistent with any provisions of the FCRA. ( Id. at p. 56.) To the extent these remarks shed light on the intent behind section 1681t(b), they suggest Congress intended preemption only in a few discrete areas where it had in fact adopted a standard intended to serve as a uniform national standard. (See Watkins v. Trans Union, L.L.C. (N.D.Ala. 2000) 118 F.Supp.2d 1217, 1222 [the legislative history behind § 1681t(b) supports only discrete and sharply drawn areas of preemption].) Given this history, it seems more plausible that section 1681t(b)(1)(F) was intended to preempt only those areas governing furnishers where Congress had adopted an actual standard, i.e., for furnisher accuracy in submitting information and furnisher responsiveness in reacting to disputes, than that the section was, in an act of minifield preemption, intended to preempt all state laws implicating any duty that could have been regulated by section 1681s-2 but was not. In short, nothing in the legislative history evinces a clear and manifest congressional intent to displace state law more broadly.
Mortensen offers one textual argument in support of his construction of section 1681t(b)(1)(F). The provision selects out two specific state statutes for exclusion from preemption. (See § 1681t(b)(1)(F)(i), (ii) [saving Mass. Ann. Laws, ch. 93, § 54A(a) and Cal. Civ. Code, § 1785.25, subd. (a)].) It follows, Mortensen argues, that under the principle of expressio unius est exclusio alterius other state laws, including the Confidentiality Act (Civ. Code, § 56 et seq.), are not saved from preemption. The argument is flawed. That Congress saved two state statutes from preemption evinces an intent to save those particular statutes in light of an understanding that in the absence of an exemption the statutes would have been subject to a colorable claim of preemption. [14] As Mortensen correctly surmises, other state statutes involving the same subject matter as section 1681s-2, but not specially exempted, are preempted. But the argument begs the point. Congress obviously did not need to, and did not, specially exempt from preemption any of the thousands of state statutes further afield that do not touch on the same subject matter as section 1681s-2. It is that issue whether claims under the Confidentiality Act involve the same subject matter as section 1681s-2that is dispositive here. (11) For all the foregoing reasons, we conclude section 1681t(b)(1)(F) preempts state law claims only insofar as they arise out of a requirement or prohibition with respect to the specific furnisher duties regulated by section 1681s-2, i.e., the duties to provide accurate information and to take action upon being notified of a dispute. We turn to whether the claims in Brown's operative complaint do so.