Opinion ID: 813176
Heading Depth: 2
Heading Rank: 4

Heading: Southwest’s Liability Under the Safeco Test

Text: 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.16 Fuges contends 16 At the outset of her treatment of this issue, Fuges suggests that “no court has ever found that it is jury question whether a defendant had an objectively reasonable reading of FCRA statutory text” because “[j]uries focus on facts, not [on] the interpretation of statutory text, particularly ambiguous statutory text.” (Appellant‟s Opening Br. at 50.) However, Fuges misapprehends the District Court in this regard. The District Court held only that a reasonable jury 20 that neither Southwest nor the District Court specifically identified any ambiguity in the statutory text,17 and that any reading of FCRA as being inapplicable must be reckless. could not find that Southwest had acted recklessly, and therefore willfully, based on the Court‟s own determination that the FCRA definitions of “consumer reporting agency” and “consumer report” were ambiguous, and that Southwest‟s interpretation was not objectively unreasonable. (See App. at 13 (emphasizing the “narrow scope of [the Court‟s] decision”).) After Safeco, a jury may be called on to determine whether violations of FCRA were willful or negligent, based on the facts surrounding defendants‟ adoption of a particular reading of the statute. See Cortez, 617 F.3d at 722 (considering the “jury‟s reasoned determination” that the defendant was “not merely careless” in determining that FCRA did not apply); see also id. (noting that “the verdict of this lay jury reveals an understanding of the distinction between negligent and willful”); id. at 723 (speculating that “[t]he jury may well have concluded” that the defendant deliberately risked violating FCRA because the offending consumer information “was a separate product that could be sold to customers at an additional cost”). 17 Fuges‟s argument misses the mark. She takes pains to demonstrate that the text of the specific FCRA provisions for which she alleges violations (15 U.S.C. §§ 1681e(a), (b), (c), (d), 1681h(c)) is unambiguous, and that courts of appeals (including this Court) have already construed those provisions. However, it was only the definitions of “consumer report” and “consumer reporting agency” in 15 U.S.C. § 1681a(d), (f) that the District Court concluded were unclear. (See App. at 12-13 (noting that these definitions add 21 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).18 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 “an additional layer of interpretive complexity,” as applied to Southwest, not found in other FCRA cases).) 18 The Safeco Court characterized the statutory text as “less-than-pellucid.” Safeco, 551 U.S. at 70. 22 definition as not covering Southwest “has a foundation in the statutory text.”19 (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. 19 The District Court focused on the requirement that an entity “assemble or evaluate „consumer credit information or other information on consumers‟” to be covered by the FCRA definition of “consumer reporting agency.” (App. at 9 (quoting 15 U.S.C. § 1681a(f)).) The Court concluded that Southwest‟s reading of that language to exclude it from coverage as a CRA, “because it reports on properties, not consumers,” id., was not objectively unreasonable. 23 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,20 and because the information on property 20 This case differs from other post-Safeco cases where the defendants claimed the Safeco defense for alleged willful violations of FCRA. In those cases, the defendant was indisputably a CRA, and the issue was whether the challenged conduct constituted a willful violation of a particular FCRA provision because the defendant had unreasonably interpreted that provision. See, e.g., Birmingham, 633 F.3d at 1009 (considering whether a CRA had “reasonable procedures” to assure accuracy as required by 15 U.S.C. § 1681e(b)); Levine, 554 F.3d at 1318-19 (considering whether a CRA had complied with requirement for sale of consumer report for “account review” pursuant to 15 U.S.C. § 1681b(a)(3)); Shannon v. Equifax Info. Servs., LLC, 764 F. Supp. 2d 714 (E.D. Pa. 2011) (considering 24 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.21 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 whether a CRA had “reasonable procedures” and conducted an investigation of allegedly inaccurate information as required by 15 U.S.C. §§ 1681e(b), 1681i(a), respectively). In this case, as the District Court noted, “Southwest disputed not only that its current owner reports fall within ... FCRA‟s definition of „consumer reports,‟ but also that it even qualifies as a „consumer reporting agency‟ in the first place.” (App. at A12 (noting that “[t]his adds an additional layer of interpretive complexity”).) 21 While the absence of contrary authority to a particular FCRA interpretation is persuasive as to the reasonableness of the adoption of that interpretation, it is not dispositive. “It merely establishes that the issue has not been presented to a court of appeals before. The credit agency whose conduct is first examined under that section of the [FCRA] should not receive a pass because the issue has never been decided.” Cortez, 617 F.3d at 722. 25 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.22 22 FTC guidance on FCRA coverage is similarly scant. FTC guidance letters, like the judicial opinions noted above, are largely limited to employment eligibility reports. See, e.g., FTC Staff Opinion 9-15-99 (addressing CRA status of law firm that researches criminal records of job applicants for its clients); FTC Staff Opinion 9-9-98 (addressing CRA status of company that provides information on prospective employees to fast food companies). See also Letter from Federal Trade Commission to Richard LeBlanc, Due Diligence, Inc. (June 9, 1998), available at http://www.ftc.gov/os/ statutes/fcra/ leblanc.shtm (confirming 26 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”). 23 that company that performs background checks and assembles and sells reports containing the information is a CRA). Even if there were FTC staff letters that address the applicability of FCRA to companies like Southwest, “the Supreme Court has expressly declined to describe such letters as „authoritative guidance.‟” Levine, 554 F.3d at 1319 (citing Safeco, 551 U.S. at 70 n.19). 23 Fuges principally relies on Cortez, supra, in support of her argument that Southwest acted recklessly in adopting its interpretation of FCRA. Cortez is, however, readily distinguishable from the present case in that the defendant‟s interpretation there was in direct opposition to published authority on the applicability of FCRA. In Cortez, the offending information was an erroneous notation in a consumer report that the plaintiff was on a Treasury Department list of terrorists and drug traffickers ineligible for credit. See Cortez, 617 F.3d at 704-05. The defendant claimed that the information did not “bear on” the consumer‟s 27 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.24 creditworthiness, and that it was therefore not subject to FCRA. However, Treasury Department regulations explicitly stated that information regarding a consumer‟s inclusion on the terrorist watch list was governed by FCRA when included in a consumer report. Id. at 722. Moreover, a Treasury Department website notified consumers that both FCRA and FTC regulations provided them with a remedy against a CRA that furnished incorrect information about their presence on the watch list. Id. Given this explicit contrary guidance, we concluded that the defendant “substantially risked acting in violation of the law,” as it adopted an interpretation of FCRA that was objectively unreasonable. Id. at 723; see also id. at 721 (“[T]he fact that [a defendant‟s] actions rest upon a legal conclusion does not immunize it from liability for reckless conduct under ... FCRA.”) In the absence of the sort of contrary guidance present in Cortez, we cannot say that Southwest was similarly reckless in believing that its activities are not covered by FCRA. 24 Like the District Court, we “need not, and do not, decide whether Southwest‟s business model, including its ... report on Fuges, falls within ... FCRA‟s sphere.” (App. at 13.) Because we have concluded that Southwest did not willfully violate FCRA, and because Fuges chose not to pursue her claim for negligent violations of the statute, see 28