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Illinois App. Court (3rd Dist) Rejects FCRA ‘Punitive Damages’ Claim Due to Insufficient Supporting Allegations

fair credit reporting actThe Appellate Court of Illinois, Third District, recently reversed a trial court’s order dismissing a debtor’s federal Fair Credit Reporting Act counterclaim against a bank.  

In so ruling, the Appellate Court held that:

(1) The declaration supporting the bank’s motion to dismiss improperly denied substantial allegations in the debtor’s FCRA counterclaim; and

(2) The trial court properly rejected the debtor’s motion to amend his claim to include a prayer for punitive damages, because the debtor did not allege any facts to support an allegation that the bank willfully violated the FCRA.

A copy to the opinion in Bank of America, N.A. v. Yun is available at:  Link to Opinion.

The appeal arose from a collection action filed by bank (“Creditor”) against a credit card account holder (“Debtor”). Debtor asserted counterclaims against Creditor including claims for violation of the federal Truth in Lending Act (TILA) and the FCRA.  Creditor moved to dismiss the counterclaims as time barred and the trial court granted the motions. Debtor appealed (the “First Appeal”) and the Appellate Court affirmed the dismissal of the TILA claim but reversed the dismissal of the FCRA claim. 

On remand, Debtor moved to amend his FCRA claim to include a prayer for relief of punitive damages and his motion was denied.

Creditor moved to dismiss, arguing the FCRA claim failed as a matter of law because there was no evidence that Creditor received a dispute as alleged.  Debtor also filed a cross-motion to strike Creditor’s motion to dismiss and for civil contempt. 

The trial court denied Debtor’s motions and granted Creditor’s motion to dismiss the FCRA claim with prejudice. Debtor appealed the orders denying leave to amend, civil contempt relief, and to strike Creditor’s motion, and the order granting Creditor’s motion to dismiss.

Debtor argued the trial court erred in granting the motion to dismiss as Creditor did not provide any admissible affirmative matter to negate his counterclaim. Creditor argued that the trial court properly ruled that Debtor’s FCRA claim failed as a matter of law.

As you may recall, under FCRA, a furnisher party may be subject to civil liability if it fails to comply with the requirements of the FCRA. See 15 U.S.C. §§ 1681n, 1681o (2018). The FCRA requires a consumer reporting agency (“CRA”) to notify a furnisher when it receives a notification from a consumer of an alleged error in the consumer’s credit report. See 15 U.S.C. §§ 1681i(a), 1681s-2(b) (2018). A furnisher’s duty to investigate does not arise under the FCRA until after the CRA notifies the creditor of a dispute. 

Debtor alleged that he notified a CRA of the alleged billing errors of Creditor, that Creditor failed to correct the errors, and that Creditor continued to issue erroneous negative credit reports based on the errors. 

With its motion to dismiss, Creditor provided the declaration of the assistant vice president and Creditor’s operations consultant in Creditor’s legal order and case resolution operations group. The declaration stated that Creditor had no record of receiving an automatic consumer dispute verification (“ACDV”) from any CRA in reference to Debtor’s account in the subject time period. 

Debtor argued the declaration was insufficient as it was not an affidavit and did not provide any affirmative matter sufficient to support Creditor’s motion to dismiss.

The Appellate Court found the declaration sufficient in form as the information was based on the declarant’s personal knowledge, a search of Creditor’s records, and was made under penalties of perjury. See Ill. S. Ct. R. 191 (eff. Jan. 4, 2013); see also 735 ILCS 5/1-109 (West 2018). 

However, the Appellate Court also found that despite the form being sufficient, the substance of the declaration was not “affirmative matter” but instead “evidence that refutes a well-pleaded fact of the complaint.” Griffin v. Universal Casualty Co., 274 Ill. App. 3d 1056, 1063 (1995) (citing Chicago Title & Trust Co. v. Weiss, 238 Ill. App. 3d 921 (1992)). 

The Appellate Court explained that the declaration simply identified a factual matter which was not appropriate for motion to dismiss, as it denied a substantial allegation in Debtor’s FCRA counterclaim. Therefore, the Appellate Court reversed the order granting Creditor’s motion to dismiss.

Debtor next argued that the trial court erred in denying his motion to amend his claim to include a prayer for punitive damages. Punitive damages are only available where a defendant acted willfully, under the FCRA. See 15 U.S.C. § 1681n (2018). Conduct that creates “‘an unjustifiably high risk of harm that is either known or so obvious that it should be known’” is willful. Redman v. RadioShack Corp., 768 F.3d 622, 627 (7th Cir. 2014) (quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)). 

The Appellate Court noted that, as the trial court correctly found, Debtor did not allege any facts to support an allegation that Creditor willfully violated the FCRA. As such, the Appellate Court found the trial court’s ruling was not an abuse of discretion.

Finally, Debtor argued the trial court erred in denying his motion for civil contempt. Debtor argued Creditor manipulated court orders and submitted court orders without the consent of Debtor or the trial court. The Appellate Court found the record disproved this argument, and thus affirmed the denial of the motion for civil contempt.

Accordingly, the Appellate Court reversed the trial court’s order granting Creditor’s motion to dismiss and affirmed the remaining orders.

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The attorneys of Maurice Wutscher are seasoned business lawyers with substantial experience in business law, financial services litigation and regulatory compliance. They represent consumer and commercial financial services companies, including depository and non-depository mortgage lenders and servicers, as well as mortgage loan investors, financial asset buyers and sellers, loss mitigation companies, third-party debt collectors, and other financial services providers. They have defended scores of putative class actions, have substantial experience in federal appellate court litigation and bring substantial trial and complex bankruptcy experience. They are leaders and influencers in their highly specialized area of law. They serve in leadership positions in industry associations and regularly publish and speak before national audiences.

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