In a case of first impression in that circuit, the U.S. Court of Appeals for the Ninth Circuit recently reversed a trial court’s dismissal of a consumer’s Fair Credit Reporting Act (FCRA) claim for lack of standing and failure to state a claim, holding that the plaintiff had Article III standing.
In so ruling, the Ninth Circuit held that the consumer suffered a concrete injury in fact when a bank obtained her credit report for a purpose not authorized by the statute, and it was irrelevant whether the report was published or used by the party requesting it.
The Court further held that: (1) in order to state a claim under this provision of the FCRA, a plaintiff only needs to allege that the credit report was obtained for an unauthorized purpose; (2) the defendant must then plead that it was obtained for an authorized purpose; and (3) the plaintiff need not plead the actual purpose, but only facts creating a reasonable inference the report was obtained for an improper purpose.
A copy of the opinion in Nayab v. Capital One Bank is available at: Link to Opinion.
A consumer reviewed her credit report from one of the “big three” credit reporting agencies and discovered that a bank with whom she allegedly had no prior or existing relationship had requested her credit report. The consumer filed suit alleging that the bank violated the FCRA by obtaining her credit report without her consent and not for any of the purposes authorized under the Act.
The trial court dismissed the complaint with prejudice for lack of standing and failure to state a claim, and the plaintiff appealed.
On appeal, the Ninth Circuit noted that the case presented two issues of first impression in that circuit: “(1) whether a consumer suffers a concrete Article III injury in fact when a third-party obtains her credit report for a purpose not authorized by the FCRA and (2) whether the consumer-plaintiff must plead the third-party’s actual unauthorized purpose in obtaining the report to survive a motion to dismiss.”
The Court answered “yes” to the first question and “no” to the second, holding that “a consumer suffers a concrete injury in fact when a third-party obtains her credit report for a purpose not authorized by the FCRA … [,] a consumer-plaintiff need allege only that her credit report was obtained for a purpose not authorized by the statute to survive a motion to dismiss[,] [and] the defendant has the burden of pleading it obtained the report for an authorized purpose.”
The Court noted that the FCRA prohibits a person from using or obtaining a consumer report for any purpose unless it is obtained for an authorized purpose and the user certifies the authorized purpose for which it is obtained or used.
As you may recall, the FCRA provides that a “consumer reporting agency” can only furnish a consumer report for certain enumerated purposes “and no other.” See 15 U.S.C. § 1681(b)(a).
These permissible purposes include, among other things, that the consumer report was obtained in response to a court order, or pursuant to the consumer’s written instructions, or only “[t]o a person which it has reason to believe — (A) intends to use the information in connection with a credit transaction involving the consumer … and involving the extension of credit to, or review or collection of an account of, the consumer; (B) … for employment purposes; or (C) in connection with the underwriting of insurance involving the consumer; or (D) … in connection with a license or other benefit granted by a governmental instrumentality …; or (E) [to] a potential investor or servicer, or current insurer …; or [who] otherwise has a legitimate business need for the information—(i) in connection with a business transaction that is initiated by the consumer; or (ii) to review an account to determine whether the consumer continues to meet the terms of the account.”
On the issue of standing, the Court explained that Article III of the U.S. Constitution limits federal courts’ power “only to ‘Cases’ and ‘Controversies’ … [and] ‘[s]tanding to sue is a doctrine rooted in the traditional understanding of a case or controversy.’ … ‘[T]he irreducible constitutional minimum’ of standing consists of three elements. The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.’”
According to the Ninth Circuit, the case at bar primarily involved the first “injury in fact” element, with the Court explaining that “[t]o establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ … ‘Concrete’ is not, however, necessarily synonymous with ‘tangible.’ Although tangible injuries are perhaps easier to recognize … intangible injuries can nevertheless be concrete.’”
“‘In determining whether an intangible harm constitutes injury in fact, both history and the judgment of Congress play important roles … [and] it is instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.’ … ‘The … injury required by Art. III may exist solely by virtue of ‘statutes creating legal rights, the invasion of which creates standing.’”
The Ninth Circuit further recited that “a bare procedural violation may not establish a concrete harm sufficient for Article III standing[,]” but “an alleged procedural violation [of a statute] can by itself manifest concrete injury where Congress conferred the procedural right to protect a plaintiff’s concrete interests and where the procedural violation presents ‘a risk of real harm’ to that concrete interest.”
The Court also explained that it has “recognized a distinction between violations of a procedural right …and a substantive right … [and a] violation of a substantive right invariably ‘offends the interests that the statute protects.’”
Based on the foregoing prior rulings, the Court concluded that the plaintiff had standing to sue under FCRA section 1681b(f)(1) because “[f]irst, obtaining a credit report for a purpose not authorized under the FCRA violates a substantive provision of the FCRA.”
This is because, the Ninth Circuit held, this section of the FCRA, “which prohibits obtaining a credit report for a purpose not otherwise authorized—protects the consumer’s substantive privacy interest. The section does not merely ‘describe a procedure’ that one must follow. Rather, [it] is the central provision protecting the consumer’s privacy interest: every violation invades the consumer’s privacy right that Congress sought to protect in passing the FCRA.”
Accordingly, the Court held, “the Plaintiff ‘need not allege any further harm to have standing.’”
Second, the Court noted that it had “previously found the invasion of the interest at issue — the right to privacy in one’s consumer credit report — confers standing.”
“Third, historical practice also supports a finding of standing … [because] [t]he harm attending a violation of §1681b(f)(1) of the FCRA is closely related to—if not the same as—a harm that has traditionally been regarded as providing a basis for a lawsuit: intrusion upon seclusion (one form of the tort of invasion of privacy).”
The Ninth Circuit concluded that the plaintiff had “standing to vindicate her right to privacy under the FCRA when a third-party obtains her credit report without a purpose authorized by the statute, regardless whether the credit report is published or otherwise used by that third-party.”
The Court then turned to the second issue of first impression: “[m]ust the consumer-plaintiff plead the third-party’s actual unauthorized purpose in obtaining the credit report to survive a motion to dismiss? The Court answered “no,” finding that “[t]he trial court erred in holding that … [plaintiff] has the burden of pleading the actual purpose behind [defendant’s] procurement of her credit report. A plaintiff need allege only facts giving rise to a reasonable inference that the defendant obtained his or her credit in violation of §1681b(f)(1) to meet their burden of pleading.”
As with any affirmative defense, the defendant bears “the burden of pleading it had an authorized purpose to acquire [plaintiff’s] credit report[,] … first, because “the FCRA generally prohibits obtaining a credit report, … but then provides a numerous and diverse list of exceptions[.] … As such, the authorized purposes … are matters of exception that the defendant must plead as a defense.”
“Second, placing the burden on the plaintiff would be unfair, as it would require the plaintiff to plead a negative fact that would generally be peculiarly within the knowledge of the defendant.”
Finally, the Ninth Circuit concluded that the complaint contained “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Here, the Court noted that the plaintiff alleged “that she did not have a credit relationship with [defendant]” and made “factual assertions which negative each permissible purpose for which [defendant] could have obtained her credit report and for which [plaintiff] could possibly have personal knowledge.”
Accordingly, the trial court’s order of dismissal was reversed and the case was remanded.