Duncan v. Handmaker

• Decision Date: 08 June 1998
• Docket Number: No. 96-6523,96-6523
• Citation: 149 F.3d 424
• Parties: James DUNCAN, Annette Duncan, Plaintiffs-Appellants, v. Kenneth S. HANDMAKER, Middleton & Reutlinger, P.S.C., Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

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149 F.3d 424

James DUNCAN, Annette Duncan, Plaintiffs-Appellants, v. Kenneth S. HANDMAKER, Middleton & Reutlinger, P.S.C. Defendants-Appellees.

No. 96-6523.

United States Court of Appeals Sixth Circuit.

Argued Dec. 2, 1997.

Decided June 8, 1998.

David B. Mour (argued and briefed), Borowitz & Goldsmith, Louisville, KY, for Plaintiffs-Appellants.

Jennifer L. Robinson (briefed), Douglass C. Farnsley (argued), Stites & Harbison, Louisville, KY, for Defendants-Appellees.

Before: NORRIS, SUHRHEINRICH, and CUDAHY, ^* Circuit Judges.

OPINION

CUDAHY, Circuit Judge.

Information is power, as any good attorney knows. Those who hunger for information often need look no further than to a person's consumer report--which summarizes, among other things, credit history and credit worthiness. Given the value of this data, and the rise of the credit reporting industry, it is not surprising that Congress passed the Fair Credit Reporting Act (FCRA) to regulate consumer reporting agencies and the users of consumer reports. See generally Hovater v. Equifax, Inc., 823 F.2d 413, 416-17 (11th Cir.1987). Nor is it surprising that some individuals seek to capitalize on general language in the FCRA and thereby construe it as allowing them access to the data they desire. In this appeal, the information-seekers--an attorney and his law firm--argue that the FCRA permits them to obtain consumer reports in the course of defending their client against a lawsuit. We conclude, however, that the FCRA does not generally permit consumer reports to be procured for this purpose. We also find genuine issues of fact with respect to whether the attorney and his firm may be held civilly liable for violations of the FCRA.

I. Background

In 1992, James and Annette Duncan purchased residential property in Bullitt County, Kentucky. The Federal Housing Authority guaranteed the loan and Bankers Mortgage Corporation served as the private lender. Less than a year after the closing, the Duncans learned that their well was contaminated with fecal coliform. Eventually they filed suit against several parties involved in the purchase of the property, including Bankers Mortgage. The Duncans alleged that Bankers Mortgage was negligent because it failed to ensure that the water supply had been inspected prior to extending the loan and closing the transaction.

Bankers Mortgage employed Kenneth Handmaker to defend against the Duncans' suit. Approximately a year and a half after the action commenced, Handmaker deposed Mrs. Duncan. His questions led the Duncans to suspect that Handmaker had reviewed their consumer reports in preparation for the deposition. Handmaker later affirmed that he had requested and received the Duncans' reports pursuant to a service agreement between his law firm, Middleton & Reutlinger, and Trans Union Corporation, a consumer reporting agency.

The Duncans filed suit against Handmaker and Middleton & Reutlinger, alleging a violation of the FCRA, 15 U.S.C. § 1681 et seq. Pursuant to § 1681n, the complaint sought to hold the defendants civilly liable for procuring the Duncans' consumer reports under false pretenses. ¹ See Compl. at pp 20-21. As a general rule, a person is proceeding under false pretenses when she (1) knowingly and willfully obtains a consumer report for a purpose that is not sanctioned by the FCRA and (2) fails to disclose her true motivation to the consumer reporting agency. ² See Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41, 46 n. 6 (2d Cir.1997); Zamora v. Valley Fed. Sav. & Loan Ass'n, 811 F.2d 1368, 1370-71 (10th Cir.1987); cf. Kennedy, 747 F.2d at 370 (Wellford, J., concurring).

The district judge granted Handmaker and Middleton & Reutlinger's motion for summary judgment on the ground that they had obtained the reports for a purpose that is permissible under the FCRA. Of course, summary judgment is proper only if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. See Tate v. Boeing Helicopters, 55 F.3d 1150, 1153 (6th Cir.1995). On appeal, we review the district court's grant of summary judgment de novo and consider "the evidence in the light most favorable to the nonmoving party." Id.

II. Permissible Purposes Under the FCRA

The defendants obtained the consumer reports to prepare for the Duncans' suit against their client, Bankers Mortgage. Appellees' Br. at 8. The Duncans' complaint alleged that their property was "virtually unmarketable and uninhabitable" because of the contaminated well. In answers to interrogatories, the Duncans further stated that the value of their property had "been reduced to zero." At Mrs. Duncan's deposition, armed at least in part with information from the consumer reports, Handmaker asked Mrs. Duncan whether she described the property as worthless on applications for loans she received subsequent to filing the lawsuit against Bankers Mortgage. Handmaker also questioned Mrs. Duncan about why she did not list an existing mortgage as a contingent liability on her application for the loan from Bankers Mortgage.

Section 1681b of the FCRA lists the purposes for which a party may obtain a consumer report A consumer reporting agency may furnish a consumer report under the following circumstances and no other:

....

(3) To a person which it has reason to believe--

(A) intends to use the information in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer; or

(B) intends to use the information for employment purposes; or

(C) intends to use the information in connection with the underwriting of insurance involving the consumer; or

(D) intends to use the information in connection with a determination of the consumer's eligibility for a license ... or

(E) otherwise has a legitimate business need for the information in connection with a business transaction involving the consumer.

15 U.S.C. § 1681b. ³ Relying on § 1681b(3)(E), Handmaker and his firm assert that they had a legitimate business need for the consumer reports--preparing for the litigation the Duncans initiated. Moreover, the defendants argue, this need was connected to the underlying business transaction between Bankers Mortgage and the Duncans--the extension of the mortgage loan.

Unfortunately for Handmaker and his firm, we must reject their effort to shoehorn the use of the Duncans' consumer reports into § 1681b(3)(E). Basic principles of statutory construction prevent us from interpreting § 1681b(3)(E) in a fashion that allows a party to obtain a consumer report for a purpose only tangentially related to the extension of credit. The rule of ejusdem generis suggests that when general words--such as those that appear in § 1681b(3)(E)--follow specific terms, the general words should be construed "to embrace only objects similar in nature to those objects enumerated by the preceding specific words." See Houghton v. New Jersey Mfrs. Ins. Co., 795 F.2d 1144, 1150 (3d Cir.1986) (citing Harrison v. PPG Indus., Inc., 446 U.S. 578, 588, 100 S.Ct. 1889, 64 L.Ed.2d 525 (1980)). Section 1681b(3)(A) of the FCRA focuses on the extension of credit and the collection of debt. It permits a party to obtain a consumer report "in connection with a credit transaction ... involving the extension of credit to, or review or collection of an account of, the consumer." If we were to interpret § 1681b(3)(E) too broadly, we would render the specificity of § 1681b(3)(A) meaningless. See Houghton, 795 F.2d at 1150; see also Mone v. Dranow, 945 F.2d 306, 308 (9th Cir.1991) (collecting cases). We also would inadvertently transform § 1681b(3)(E) into a provision that enabled information-seekers to circumvent the restrictions of the FCRA.

While a lawsuit occasionally may give rise to a "legitimate business need" for a consumer report, see Spence v. TRW, Inc., 92 F.3d 380 (6th Cir.1996), trial preparation generally does not fall within the scope of § 1681b. See Mone, 945 F.2d at 308; Houghton, 795 F.2d at 1149; see also Allen v. Calvo 832 F.Supp. 301, 303 (D.Or.1993) (finding that § 1681b does not permit a party to obtain a consumer report in connection with a criminal investigation and prosecution). In the limited instances where courts have allowed parties to obtain consumer reports pursuant to § 1681b(3)(E) for use in litigation, the legal dispute typically has related to the collection of a debt owed by the consumer. In Allen v. Kirkland & Ellis, for example, a district court permitted a law firm to obtain a consumer report to prepare for litigation over funds owed to its client. See Allen v. Kirkland & Ellis, No 91-c-8271, 1992 WL 206285 at * 2 (N.D.Ill. Aug. 17, 1992); see also Zeller v. Samia, 758 F.Supp. 775 (D.Mass.1991). In finding that § 1681b(3)(E) applied, the Allen court emphasized, "The legal dispute which justified Kirkland & Ellis' request for plaintiff's credit report related to the collection of an alleged business debt. A different result may have been reached if the report had been acquired in connection with litigation that did not involve liability for a commercial obligation deriving from a business transaction between the parties." Id. at

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n. 4. This interpretation of § 1681b(3)(E) comports with the rule of ejusdem generis. So long as the lawsuit involves the collection of a debt, the attorney is likely to procure the consumer report for a purpose analogous to those enumerated in § 1681b. See § 1681b(3)(A) (permitting reports to be obtained "in connection with a credit transaction involving the ... collection of an account."). As a lawsuit moves outside the realm of debt collection, however, it is less likely--although not altogether impossible--that an attorney will obtain the report for a purpose that is within the purview of § 1681b. Cf. Spence, 92 F.3d at 383 (explaining that an agency may furnish a consumer...