Jones v. Halstead Mgmt. Co.

• Decision Date: 27 January 2015
• Docket Number: No. 14–CV–3125 VEC.,14–CV–3125 VEC.
• Citation: 81 F.Supp.3d 324
• Parties: Kevin A. JONES, on behalf of himself and others similarly situated, Plaintiff, v. HALSTEAD MANAGEMENT COMPANY, LLC, Brown Harris Stevens LLC Group, Brown Harris Stevens, LLC, and Terra Holdings, LLC, Defendants. Halstead Management Company, LLC, Brown Harris Stevens LLC Group, Brown Harris Stevens, LLC, and Terra Holdings, LLC, Third–Party Plaintiffs, v. Sterling Infosystems, Inc., d/b/a Sterlingbackcheck, Third–Party Defendant.
• Court: U.S. District Court — Southern District of New York

81 F.Supp.3d 324

Kevin A. JONES, on behalf of himself and others similarly situated, Plaintiff

v.HALSTEAD MANAGEMENT COMPANY, LLC, Brown Harris Stevens LLC Group, Brown Harris Stevens, LLC, and Terra Holdings, LLC, Defendants.

Halstead Management Company, LLC, Brown Harris Stevens LLC Group, Brown Harris Stevens, LLC, and Terra Holdings, LLC, Third–Party Plaintiffs

v.Sterling Infosystems, Inc., d/b/a Sterlingbackcheck, Third–Party Defendant.

No. 14–CV–3125 VEC.

United States District Court, S.D. New York.

Signed Jan. 27, 2015.

Monica Welby, Sally B. Friedman, New York, NY, David A. Searles, James A. Francis, John Soumilas, Francis & Mailman, P.C., Philadelphia, PA, for Plaintiff.

Edmund M. O'Toole, Sarah Sohyun Park, Venable LLP, New York, NY, for Defendants/Third–Party Plaintiffs.

Michael Charles O'Neil, Albert Edward Hartmann, Reed Smith LLP, Chicago, IL, Casey Devin Laffey, Evan K. Farber, Reed Smith LLP, New York, NY, for Third–Party Defendant.

ORDER

VALERIE CAPRONI, District Judge:

Congress enacted the Fair Credit Reporting Act (“FCRA” or “Act”), 15 U.S.C. § 1681 et seq., to “ensure fair and accurate credit reporting ... and protect consumer privacy.” Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 52, 127 S.Ct. 2201, 167 L.Ed.2d 1045 (2007). As is relevant here, the Act covers the furnishing of a consumer report that is used for the purpose of determining whether a person is eligible to be hired for a particular job. 15 U.S.C. § 1681a(d)(1)(B).

Halstead Management Co. (“Halstead”), a large property management firm in New York owned by defendant Terra Holdings LLC (collectively “Terra”), understandably conducts criminal records checks prior to employing staff for any of the buildings it manages.¹ Plaintiff Kevin Jones alleges that he was offered a job as a doorman by Halstead but that his offer was revoked on the basis of an inaccurate background report furnished by third-party defendant Sterling Infosystems, Inc. (“Sterling”).² According to Plaintiff, the report was provided to Halstead even though he was not given notice of the report or a written description of his rights under the FCRA. Compl. ¶ 4 (Dkt. 52). He claims that he did not have a meaningful opportunity to challenge the erroneous report before Halstead took adverse action with respect to his employment. Compl. ¶ 6. Count I of the Amended Complaint alleges that Halstead failed to disclose, in an FCRA-compliant way, that a consumer report may be obtained for employment purposes. Compl. ¶¶ 62–64. Count II of the Amended Complaint alleges that Halstead willfully or negligently violated the FCRA by failing to provide Plaintiff with pre-adverse action notice, a copy of his consumer report, or a written description of his rights under the FCRA with sufficient time to dispute the report before Halstead took an adverse action with regard to his employment application based on the information contained in the report. Compl. ¶¶ 66–72.³

The Terra Defendants filed a Third–Party Complaint against Sterling alleging that, because Terra engaged Sterling to perform background checks and issue pre-adverse action notices on its behalf, Sterling would be liable for any claim that the Terra Defendants failed to comply with the FCRA. Dkt. 24.

Halstead moved to dismiss Count I of the Amended Complaint based on a signed disclosure form (the “Sterling Disclosure”) that it attached as an exhibit to its motion, see Park Decl. Ex. A (Dkt. 60–1), but that was not attached to or incorporated into the Amended Complaint, see Halstead Mem. at 2. Halstead argues that the Sterling Disclosure Form complied with Section 1681b(b)(2) of the FCRA and, therefore, Count I of the Complaint failed to state a claim for relief. Sterling,⁴ joined by the Terra Defendants, moved to dismiss Count II of the Amended Complaint, arguing that Count II failed to state a cause of action because Plaintiff was given an opportunity to dispute the adverse information allegedly contained in Plaintiff's report prior to Halstead taking adverse action. Dkt. 64, Halstead Mem. at 11. By separate motion, Sterling moved to dismiss the Third–Party Complaint's claims for negligence (Count II), negligent misrepresentation (Count III), and common-law indemnification (Count IV) and contribution (Count V). Dkt. 44.

For the reasons set forth below, the motions to dismiss the Amended Complaint are DENIED. Sterling's motion to dismiss Count III of the Third–Party Complaint is GRANTED; the remainder of Sterling's motion to dismiss the Third–Party Complaint is DENIED.

I. FACTUAL ALLEGATIONS⁵

a. Facts Relating to Plaintiff's Complaint Under the FCRA

Plaintiff applied for a position as a doorman at a Halstead-managed property on July 12, 2012. Compl. ¶¶ 25–26. Following an interview, Plaintiff was offered the job and accepted. Id. He was told that the opening needed to be filled promptly and that he would start “as soon as possible.” Id. Plaintiff completed employment paperwork that included Halstead's standard authorization and disclosure form (the “Halstead Disclosure”). Compl. ¶ 27; Compl. Ex. A. The Halstead Disclosure authorized Halstead to obtain a consumer or investigative consumer report about Plaintiff, and advised Plaintiff that he was entitled to be advised of the nature and scope of the investigation requested within a reasonable time after making a written request for the same. It also contained various other acknowledgements and waivers, including, for example: an acknowledgement that Halstead, as the managing agent, collects and processes applications but that all actual employment decisions are made by the client building; a waiver of any claim against Halstead arising from employment by a client building; and an authorization to Halstead to obtain information about his background, including his criminal record, in making an employment decision. Compl. ¶¶ 27–29; Compl. Ex. A.

Although not mentioned in the Amended Complaint, Plaintiff also signed a document on a form from Sterling (the “Sterling Disclosure”). The Sterling Disclosure, which was provided to the Court by the Terra Defendants in their Motion to Dismiss the Amended Complaint, was signed by Plaintiff⁶ and authorized the “Company”⁷ to obtain a consumer or investigative consumer report about Plaintiff “as part of the hiring process” and included an authorization from Plaintiff. Park Decl. Ex. A (Dkt. 60–1).

Terra's human resources department sent the materials to Sterling to obtain a credit check, criminal background check, and drug test. Compl. ¶ 41. Under Sterling's contract, it would “score” the results of an applicant's background check based on a Terra-approved adjudication matrix and indicate to Terra whether the applicant was “eligible” or “ineligible” for employment. Compl. ¶¶ 15, 18, 20. On July 13, 2012, Terra received Plaintiff's background report from Sterling, which, inaccurately, reported four criminal convictions.⁸ Compl. ¶ 42. On July 16, 2012, Terra informed Halstead that Plaintiff's background report contained several criminal charges and that Plaintiff “did not meet the building's hiring criteria.” Compl. ¶ 44. That day, a Halstead representative called Plaintiff and informed him over the phone that his background check contained criminal history information. Compl. ¶ 45. Plaintiff told the representative that the report was inaccurate because he had no criminal record history. Compl. ¶ 46.

Plaintiff received a letter by mail dated July 17, 2012, on Halstead letterhead⁹ titled “Pre–Adverse Action Notice” (the “Notice”). Compl. ¶ 47; Compl. Ex. B. The Notice stated:

Sterling Infosystems, Inc. has reported to us the following information:

Criminal Report.

Based on this information, subject to you successfully challenging the accuracy of this information, we have decided to revoke your conditional offer of employment.

....

If you believe the information above is not accurate, please contact Sterling Infosystems, Inc. within five business days of receipt of this letter.

This will give you an opportunity to contact us if you want to dispute the report submitted by Sterling Infosystems, Inc.

Sincerely,

Halstead Management, LLC as agent for 45 East 62nd Street Corp.

Compl. Ex. B (bolded emphasis in original, italicized emphasis added). The criminal report was not accurate; Plaintiff obtained an official Record of Arrest and Prosecution from the New York State Division of Criminal Justice Services on August 29, 2012, confirming that he has no arrests or convictions in New York State. Compl. ¶ 52.

Plaintiff argues that the Notice, dated July 17, revoked his offer of employment based upon the consumer report furnished by Sterling—a revocation that occurred before he received notice that Halstead intended to take adverse action on the basis of the report, before he was provided with a copy of the report, and before he had a meaningful opportunity to dispute it—all in violation of FCRA. Compl. ¶ 48.

b. Facts Relating to the Third–Party Complaint¹⁰

The Third–Party Complaint alleges that, during the relevant time period, the Third–Party Plaintiffs, through their parent Terra, engaged Sterling to provide background checks for employment applicants. TPC ¶¶ 2, 9. Terra used Sterling to conduct credit check and criminal background checks on applicants for employment to any of its various subsidiaries. TPC ¶¶ 10, 16. If Terra determined that the information furnished in the report necessitated a “pre-adverse action” notice, it instructed Sterling to send the notice on behalf of whatever company (e.g., Halstead) was the prospective employer. TPC ¶¶ 12, 14.

Consistent with this practice, Terra directed Sterling to send Plaintiff a “pre-adverse action” notice on July 16, 2012, based on the criminal offenses reported in Sterling's background check. TPC ¶¶ 17–18. Later that day, Sterling reported to Terra that Plaintiff had contacted Sterling to dispute the criminal results; Sterling assured Terra that it would “reach out to the courthouse and investigate further” and update the...