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9th Cir. Holds Company Willfully Violated FCRA by Including Liability Waiver in Disclosure Document

In a case of first impression, the U.S. Court of Appeals for the Ninth Circuit recently held that a prospective employer violated the federal Fair Credit Reporting Act by including a liability waiver in the same document as the statutorily required disclosure notice for obtaining a job applicant’s consumer report.

In so ruling, the Ninth Circuit held that the company’s conduct was “willful” as a matter of law, because the language of the statute clearly contradicted the company’s interpretation, and whether or not the company “actually believed that its interpretation was correct is immaterial.”

A copy of the opinion in Syed v. M-I, LLC is available at:  Link to Opinion.

The plaintiff applied for a job with the defendant company in 2011. As part of the process, he signed a “Pre-employment Disclosure Release,” which informed him that his credit history and other information would be considered by the company in deciding whether to hire him, authorized the company to obtain the applicant’s consumer report, and waived his right to sue for violations of the FCRA.

In May 2014, the plaintiff filed a putative class action in federal court on behalf of himself and any persons whose consumer report was obtained by the company after receiving the subject disclosure within the two-year statute of limitations period.

The complaint alleged that the liability waiver violated FCRA, at 15 U.S.C. § 1681b(b)(2)(A)(i), because FCRA requires that the disclosure document consists “solely” of the disclosure.  The complaint did not seek to recover actual or compensatory damages, but instead sought to recover statutory and punitive damages, as well as attorney’s fees and costs.

The district court dismissed the complaint without prejudice for failure to state a claim because “willfulness” was insufficiently pleaded. The amended complaint recited the same facts, but added citations to Federal Trade Commission opinion letters and district court opinions that allegedly supported the plaintiff’s argument that the company knew or should have known that its disclosure document violated the FCRA.

The district court again dismissed the complaint, this time with prejudice, because the plaintiff still had not sufficiently pleaded willfulness, reasoning that the FTC opinion letters “were informal staff opinions, not authoritative guidance[,]” and the district court opinions cited were inapposite because they were decided after the disclosure document at issue had been given to the plaintiff. The plaintiff appealed.

On appeal, the Ninth Circuit began its analysis by finding that the plaintiff had standing to sue because he alleged more than a “bare procedural violation,” which if “divorced from any concrete harm,” fails to satisfy the standing test established by the Supreme Court in Spokeo, Inc. v. Robins.

This, the Ninth Circuit held, is because the “disclosure requirement at issue, 15 U.S.C. § 1681b(b)(2)(A)(i), creates a right to information by requiring prospective employers to inform job applicants that they intend to procure their consumer reports as part of the employment application process. The Ninth Circuit held that the authorization requirement, § 1681b(b)(2)(A)(ii), creates a right to privacy by enabling applicants to withhold permission to obtain the report from the prospective employer, and a concrete injury when applicants are deprived of their ability to meaningfully authorize the credit check.

By providing a private cause of action for violations of section 1681b(b)(2)(A), the Court held that Congress recognized the harm such violations cause, thereby articulating a ‘chain[] of causation that will give rise to a case or controversy.’”

The Ninth Circuit then turned to the question of whether the defendant company violated the FCRA by incorporating a liability waiver into the required disclosure notice, a matter of first impression in the federal appellate courts. The Court concluded that this practice violated the FCRA.

First, the Court looked to the plain meaning of the statutory text, rejecting the company’s argument that the language was inconsistent and ambiguous. The Ninth Circuit held that “[a]llowing an authorization on the same document as the disclosure is consistent with the purpose of the [FCRA]. … Had the statute required disclosure without conditioning the procurement of a consumer report on the job applicant’s authorization, it would have failed to give the applicant control over the procurement of the personal information contained in the consumer report. On the other hand, had the statute conditioned the procurement of a report on the job applicant’s authorization without mandating clear disclosure by the prospective employer Congress’s purpose would have been frustrated because applicants would not understand what they were authorizing. The disclosure and authorization clauses therefore work in tandem to further the congressional purpose of protecting consumers from ‘improper invasion[s] of privacy.’”

The Court also found that the FCRA did not implicitly authorize including a liability waiver in the same document as the disclosure, reasoning that just because Congress allowed the disclosure document to be combined with the authorization “does not mean that the statute contains other implicit exceptions as well.”

Relying on the common law maxim of statutory interpretation “expressio unius est exclusio alterius,” the Ninth Circuit rejected the company’s argument that “a liability waiver is an implicit exception to the ‘solely’ requirement in 15 U.S.C. § 1681b(b)(2)(A)(i).” In addition, “an implied exception permitting the inclusion of a liability waiver on the same document as the disclosure does not comport with the FCRA’s basic purpose … [and] would frustrate Congress’s goal of guarding a job applicant’s right to control the dissemination of sensitive personal information.”

The Ninth Circuit also rejected the company’s argument that the FCRA contains explicit language allowing combination of the disclosure with the liability waiver because “a liability waiver is one type of authorization.” The Court refused to speculate about the breadth of the term “authorization” because “Congress told us exactly what it meant when it described the authorization as encompassing only ‘the procurement of [a consumer] report.”

Even if the statute were not as clear as the Court thought it to be, the Court reasoned that the company’s argument was “inconsistent with the plain meaning of the term ‘authorize.’ … A consumer may authorize the procurement of a consumer report or waive an employer’s liability, but he may not ‘authorize’ a ‘waiver.’”

The company also argued that “its inclusion of the liability waiver was permissible because even with the waiver, the disclosure was still ‘clear and conspicuous.’” However, the Ninth Circuit found this argument to be irrelevant “[b]ecause the question of whether a disclosure is ‘clear and conspicuous’ within the meaning of Section 1681b(b)(2)(A)(i) is separate from the question of whether a document consists ‘solely’ of a disclosure….”

Having found that the FCRA was violated, the Ninth Circuit addressed whether the violation was willful, finding that it was willful as a matter of law.

First, it explained that the Supreme Court has clarified that “willfulness” includes “actions taken in ‘reckless disregard of statutory duty,’ in addition to actions ‘known to violate the Act.’”

The Ninth Circuit rejected the company’s argument that it did not act willfully because the statute’s text is unclear, finding that the company’s reading of the statute was not objectively reasonable because “the FCRA unambiguously bars a prospective employer from including a liability waiver on a disclosure document provided a job applicant pursuant to Section 1681b(b)(2)(A).”  The Court held that the statute clearly contradicted the company’s interpretation, whether or not the company “actually believed that its interpretation was correct is immaterial.”

The Court found that because the company “ran an ‘unjustifiably high risk of violating the statute… [and] acted in ‘reckless disregard of statutory duty … [i]ts violation of the FCRA was therefore willful under 15 U.S.C. § 1681n.”

Finally, the Ninth Circuit rejected the company’s argument that the FCRA’s two-year statute of limitations barred the plaintiff’s claim because he discovered the violation when the disclosure was given to the plaintiff, reasoning that “a prospective employer does not violate Section 1681b(b)(2)(A) by providing a disclosure that violates the FCRA’s disclosure requirement. … The employer violates the FCRA only where, after violating its disclosure procedures, it ‘procure[s] or cause[s] to be procured’ a consumer report about the job applicant.”

The Court concluded that since the FCRA “unambiguously bars the inclusion of a liability waiver on the same document as a disclosure made pursuant to 15 U.S.C. § 1681b(b)(2)(A)[,] [the company] willfully violated the statute by procuring [plaintiff’s] consumer report without providing a disclosure ‘in a document that consist[ed] solely of the disclosure.’”

Accordingly, the trial court’s dismissal order was reversed and the case remanded.

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Patrick Kane practices in Maurice Wutscher’s commercial litigation, consumer credit litigation, insurance recovery and advisory, intellectual property litigation, and equine law practice groups. Patrick has substantial experience in a variety of civil matters including business litigation, insurance recovery, foreclosure litigation, wrongful death, product liability, general tort litigation and general liability defense. Among other achievements, he has served as first chair in a five-day jury trial and as second chair during a weeklong arbitration. In 2012, the San Diego Daily Transcript named him a “Young Attorney of the Year.” Patrick's equine practice focuses on the representation of industry participants at administrative hearing and appeals, purchase and sale agreements, partnership and limited liability creation, gaming law, regulatory matters, and equine related negligence actions. In 2015, he was appointed to serve the California Horse Racing Board as a hearing officer. Patrick graduated from the University of San Diego School of Law. He obtained his undergraduate degree from the University of Arizona where he majored in Animal Science and was a graduate of the Race Track Industry Program; there he received the Mildred Vessels Scholarship Award and the Race Track Industry Program’s Scholarship Award.

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