Marchisio v. Carrington Mortg. Servs., LLC - 919 F.3d 1288 (11th Cir. 2019)

Rule:

The Fair Credit Reporting Act, 15 U.S.C.S. § 1681, et seq., requires that credit reporting agencies and those entities that furnish information to them (furnishers) investigate any disputed information. Thus, when a consumer disputes information with a credit reporting agency, the agency must conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate. 15 U.S.C.S. § 1681i(a)(1)(A). As part of this investigation, the agency is required to notify the furnisher of the information that it has been disputed. 15 U.S.C.S. § 1681i(a)(2). Upon receipt of this notice, the furnisher of information must: (1) conduct an investigation with respect to the disputed information; (2) review all relevant information provided by the consumer reporting agency in connection with the dispute; and (3) report the results of the investigation to the credit reporting agency. 15 U.S.C.S. § 1681s-2(b)(1)(A)—(C). Should the investigation determine that the disputed information is inaccurate or incomplete or cannot be verified, the furnisher must as appropriate, based on the results of the reinvestigation promptly modify, delete or permanently block the reporting of that information to consumer reporting agencies.

Facts:

As part of the parties' settlement in 2009 of a foreclosure suit brought by Carrington, Plaintiffs Johnnie and Adrian Marchisio turned over their property to Carrington, which action mooted the foreclosure action and extinguished the Marchisios’ debt on the two pending loans. But Carrington failed to report correctly the status of the loans, and it continued trying to collect on the nonexistent debt, prompting the Marchisios to file their first federal action alleging violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq., among other things. The parties eventually settled this first federal lawsuit ("First Action"), entering into a settlement agreement that required Carrington to timely correct its reporting of the second loan and to pay the Marchisios $125,000. Carrington paid the agreed-upon settlement amount, but failed to report the second loan as having a zero balance within the deadline specified in the settlement agreement, instead issuing three reports that continued to inaccurately report the existence of a delinquent debt. Even with its eventual and tardy report of a zero balance, however, Carrington incorrectly reported that the Marchisios still owed a $34,985 balloon payment on this second loan due in March 2021. The Marchisios disputed with credit reporting agencies Carrington’s reporting of a balloon payment due on the second loan. Advised of the Marchisios’ disagreement with the report, Carrington purportedly investigated the dispute. Yet, notwithstanding their extensive litigation history with the Marchisios, including two previous settlement agreements acknowledging that the Marchisios owed nothing on the second loan, Carrington incorrectly confirmed to the reporting agencies that the Marchisios had a balloon payment pending. If that wasn't bad enough, Carrington then began charging the Marchisios for lender-placed insurance on the property that the Marchisios had turned over to Carrington years earlier and no longer owned. As a result, the Marchisios filed this second federal action ("Second Action") alleging three claims: violation of the federal Fair Credit Reporting Act ("FCRA"), violation of the Florida Consumer Collection Practices Act, Fla. Stat. § 559.55, et seq. (the "Florida Collections Act"), and breach of contract. Defendant filed a motion for summary judgment as to all claims; the Marchisios filed a motion for partial summary judgment. The district court granted the Marchisios motion for summary judgment on the FCRA claim, concluding that Carrington had willfully violated the FCRA and awarding statutory damages of $3,000, as well as attorney's fees and costs, all totaling $115,860.12. The district court, however, denied the Marchisios’ request for emotional distress and punitive damages, finding as a matter of law that the Marchisios had shown no entitlement to those damages. The district court granted summary judgment to Carrington on the Marchisios’ Florida Collections Act claim for various reasons. Finally, although it concluded that the Marchisios had proved that Carrington breached its settlement agreement, the district court granted summary judgment to Carrington on the Marchisios’ breach of contract claim, holding that the Marchisios had failed to prove any recoverable damages.

Issue:

Did the district court err in granting summary judgment regarding the violation of the FCRA?

Answer:

No.

Conclusion:

The district court is correct in holding that, as a matter of law, Carrington’s investigative efforts were not reasonable. Carrington argues that the erroneous verification of a balloon payment by Nguyen, the investigative employee, constituted a mere isolated human error that was promptly corrected. This argument is unpersuasive. First, Nguyen didn't make an error: he accurately reported what he found in the databases provided by his employer. The error can be laid at the feet of Carrington, which had failed to create a reliable system for inputting information regarding the settlement of litigation that might impact the data found on the relevant databases. Aware that whatever system it had to accomplish this was unreliable and aware that incorrect information concerning the Marchisios’ loan balance was still being reported, it was incumbent on Carrington to take steps to ensure that news of the terms of the settlement agreement be communicated to those who generate reports to reporting agencies. Given Carrington’s decision not to take those steps, it was quite foreseeable that any investigation of the disputed information here would yield an incorrect conclusion by the employee-investigator. Carrington’s position is that, on an ad hoc basis, it would log into databases pertinent information concerning relevant litigation. Yet, as the district court noted, there was a large "disconnect" between Carrington’s system for debt verification and its ad hoc handling of settlement-related changes to debt obligations. That disconnect manifested itself on multiple occasions over several years through Carrington’s: (1) failure to sufficiently log the settlement of the foreclosure suit and subsequent resumption of foreclosure litigation; (2) failure to sufficiently log the dismissal of the resumed foreclosure litigation with prejudice and subsequent debt collection efforts; (3) failure to sufficiently log settlement of the first district court action and subsequent breach of the settlement agreement; and (4) failure to provide sufficient notification and access to settlement terms to its verifiers, causing the subsequent verification of erroneous credit reports despite detailed dispute letters documenting the relevant litigation history. In short, Carrington failed to conduct a reasonable investigation. The above egregious facts also support the district court's conclusion that Carrington’s conduct was willful. Under 15 U.S.C. § 1681n(a), any person who willfully fails to comply with any requirement imposed under this subchapter is liable to the affected consumer for actual, statutory, or punitive damages. The Supreme Court has held that "reckless disregard of a requirement of FCRA would qualify as a willful violation within the meaning of § 1681n(a)." Recklessness means "conduct violating an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known."

Assuming arguendo that Carrington’s continued reporting of false information regarding the Marchisios’ debt was not intentionally done, the question then is whether Carrington acted in reckless disregard of its obligations under the FCRA, as the district court concluded. On the record before the appellate court, it clearly did so. Carrington’s actions—during an exceedingly long period of time in which the Marchisios sought to have Carrington cease its false reporting of a debt that Carrington well knew the Marchisios did not owe—entailed "an unjustifiably high risk of harm that is either known or so obvious that it should be known." No other conclusion can be drawn given the number of times that Carrington was put on notice of the false information being reported, yet, each time failed to take steps to insure that its records accurately reflected the absence of any debt by the Marchisios. Carrington failed to take appropriate measures after entering into a settlement agreement with the Marchisios in 2009 during the foreclosure action, in which Carrington agreed that the Marchisios’ prior two loans were extinguished and that the Marchisios owed Carrington nothing, but after which Carrington continued to report that Plaintiffs had a balance due. Following the 2013 settlement of the Marchisios’ resulting federal litigation, which demanded that Carrington correct its false report, Carrington belatedly corrected the false information found in earlier reports, but then Carrington began falsely reporting that Plaintiffs had a balloon payment due on the second loan. Yet, Carrington failed to take any corrective action when the Marchisios sought to have the federal district court enforce the settlement agreement by requiring Carrington to live up to its agreement and stop reporting that a balloon payment was due. That event alone clearly disclosed to Carrington and its counsel that Carrington was continuing to report false information concerning the Marchisios’ non-existent debt. Yet again, Carrington made no correction nor any effort to insure that the pertinent databases revealed the existence of the settlement and the fact that no debt was owed by the Marchisios. Meaning that when the Marchisios took the predictable next step of disputing this debt with the credit reporting agencies, the outcome of the investigation by Carrington’s employee was also quite predictable: the employee would incorrectly verify the existence of a continuing debt.