Killingsworth v. Hsbc Bank Nevada, N.A.

• Decision Date: 09 November 2007
• Docket Number: No. 06-2178.,No. 06-1616.,06-1616.,06-2178.
• Citation: 507 F.3d 614
• Parties: Linda KILLINGSWORTH, Plaintiff-Appellant, v. HSBC BANK NEVADA, N.A., formerly known as Household Bank (SB), N.A., et al., Defendants-Appellees. Eric Sawyer, Plaintiff-Appellant, v. Ensurance Insurance Services, Incorporated, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

507 F.3d 614

Linda KILLINGSWORTH, Plaintiff-Appellant, v. HSBC BANK NEVADA, N.A., formerly known as Household Bank (SB), N.A., et al., Defendants-Appellees.

Eric Sawyer, Plaintiff-Appellant, v. Ensurance Insurance Services, Incorporated, Defendant-Appellee.

No. 06-1616.

No. 06-2178.

United States Court of Appeals, Seventh Circuit.

Argued December 7, 2006.

Decided November 9, 2007.

Daniel A. Edelman (argued), Edelman, Combs & Latturner, Chicago, IL, for Linda Killingsworth.

Robert N. Hochman (argued), Sidley Austin, Chicago, IL, for HSBC Bank Nevada, N.A.

Keith J. Keogh (argued), Chicago, IL, for Eric Sawyer.

David A. Jones (argued), Akin, Gump, Strauss, Hauer & Feld, San Antonio, TX, for Ensurance Insurance Services.

Before BAUER, MANION, and SYKES, Circuit Judges.

SYKES, Circuit Judge.

We have consolidated for purposes of disposition two cases that require us to determine whether an amendment to the Fair Credit Reporting Act ("FCRA") eliminating private rights of action has an impermissible retroactive effect when applied to FCRA claims that accrued prior to the amendment's effective date. Linda Killingsworth received a prescreened credit card offer from Household Bank, N.A., sometime prior to August 20, 2004. She claims the offer contained FCRA disclosures that were not clear and conspicuous. The plaintiff in the second suit, Eric Sawyer, applied for auto insurance with Ensurance Insurance Services, Inc. ("Ensurance") in October 2004. Ensurance obtained his credit report in connection with that application. Sawyer contends Ensurance violated the FCRA by charging him a higher rate based on negative information in his credit report without giving him notice of that adverse action, and also by using his initial credit information for subsequent renewals of his policy when corrected credit information would have qualified him for a lower rate.

Both plaintiffs filed class action lawsuits in the Northern District of Illinois. Both complaints were dismissed based on section 311 of the Fair and Accurate Credit Transactions Act of 2003 ("FACTA"), which amended the FCRA to eliminate enforcement of certain FCRA provisions by private civil suit. See 15 U.S.C. § 1681m(h)(8). Sawyer and Killingsworth argue that the amendment, effective December 1, 2004, impairs rights they possessed prior to the new statute's effective date and therefore has an impermissible retroactive effect if applied to them.

As to Killingsworth's claim, we agree and therefore reverse. In Sawyer's case, however, the retroactivity question cannot be decided at the pleading stage because the conduct alleged in his complaint straddles FACTA's effective date. The allegations, if true, could establish that an FCRA violation occurred before FACTA's effective date, and this is enough to survive the motion to dismiss.

I. Background

On December 4, 2003, Congress enacted FACTA, which amended portions of the FCRA. FACTA's section 311 added subsection (h) to § 1681m of the FCRA. Paragraph (8) of that subsection provides:

(8) Enforcement

(A) No civil actions. Sections 1681n and 1681o of this title [pertaining to private civil remedies] shall not apply to any failure by any person to comply with this section.

(B) Administrative enforcement. This section shall be enforced exclusively under section 1681s of this title by the Federal agencies and officials identified in that section.

15 U.S.C. § 1681m(h)(8). Congress authorized the Federal Trade Commission and the Board of Governors of the Federal Reserve System to set the effective dates of various FACTA provisions, including section 311. Fair and Accurate Credit Transactions Act of 2003, Pub.L. No. 108-59, 117 Stat.1952, at Sec. 3. On February 11, 2004, the Board of Governors promulgated regulations setting an effective date of December 1, 2004, for § 1681m(h)(8). 12 C.F.R. § 222.1(c)(3)(xiii).

Sometime prior to August 20, 2004, Linda Killingsworth received a prescreened offer of credit from Household Bank. This offer was based on Killingsworth's credit report, though she never gave Household authorization to access that information. These mailings, sent to at least 200 Illinois residents, targeted people with poor credit or who had recently obtained bankruptcy discharges. Enclosed with the offer was a pamphlet containing disclosures about credit terms and a statement of compliance with 15 U.S.C. § 1681m(d),¹ FCRA's notice provision.

In October 2005 Killingsworth filed a class action against Household Bank (now known as HSBC Bank Nevada), Household Credit Services, Inc., and HSBC North America Holdings, Inc. (collectively "Household"), claiming a violation of § 1681m(d).² Killingsworth alleged the statutorily required disclosures were "buried" in an insert and were neither clear nor conspicuous. Household answered and moved for judgment on the pleadings, arguing that § 1681m(h)(8), which eliminated private rights of action for § 1681m violations, applied to Killingsworth's claim and required dismissal of the suit. The district court granted the motion, holding that § 1681m(h)(8) applied to all cases filed after December 1, 2004 (the amendment's effective date), provided the noncomplying disclosure was received after December 4, 2003 (the amendment's date of enactment).

* * * * * *

Eric Sawyer applied for auto insurance with Ensurance in October 2004. As part of the application process, Ensurance pulled Sawyer's credit report and used information in that report to determine the cost of his policy. Sawyer's insurance took effect on December 20, 2004, and was renewed twice thereafter at six-month intervals.

Sawyer filed a class action alleging Ensurance violated § 1681m(a) of the FCRA by offering him a less favorable rate based on negative information in his credit report without providing him with an adverse action notice. Sawyer also alleged that Ensurance failed to consider interim changes to his credit rating and instead relied on his initial credit score when subsequently renewing his policy. His corrected credit report, he alleged, showed an improved credit score and would have resulted in a more favorable insurance rate. The district court granted Ensurance's motion to dismiss, holding that FACTA eliminated private causes of action under § 1681m(a) and this amendment to the FCRA applied to Sawyer's claim.

II. Analysis

In Sawyer's case, the district court dismissed the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim. We review the court's dismissal order de novo, accepting the complaint's well-pleaded allegations as true and drawing all favorable inferences for the plaintiff. Savory v. Lyons, 469 F.3d 667, 670 (7th Cir.2006). Rule 8(a) of the Federal Rules of Civil Procedure requires that a complaint contain a "short and plain statement of the claim showing that the pleader is entitled to relief." This "short and plain statement" must be enough "`to give the defendant fair notice of what the ... claim is and the grounds upon which it rests.'" Bell Atlantic Corp. v. Twombly, ___ U.S. ___, 127 S.Ct. 1955, 1964, 167 L.Ed.2d 929 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)). In Bell Atlantic, the Supreme Court retooled federal pleading standards, retiring the oft-quoted Conley formulation that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley, 355 U.S. at 45-46, 78 S.Ct. 99; see Bell Atlantic, 127 S.Ct. at 1969 (Conley's "famous observation has earned its retirement.").

The Court explained in Bell Atlantic that the "plaintiff's obligation to provide the `grounds' of his `entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic, 127 S.Ct. at 1964-65. Instead, the Court held, the factual allegations in the complaint "must be enough to raise a right to relief above the speculative level." Id. at 1965; see also EEOC v. Concentra Health Servs., Inc., 496 F.3d 773, 776-77 (7th Cir.2007); Airborne Beepers & Video, Inc. v. AT & T Mobility LLC, 499 F.3d 663 (7th Cir.2007). Although this does "not require heightened fact pleading of specifics," it does require the complaint to contain "enough facts to state a claim to relief that is plausible on its face." Bell Atlantic, 127 S.Ct. at 1974; see also St. John's United Church of Christ v. City of Chicago, 502 F.3d 616, 2007 WL 2669403 at *7 (7th Cir. Sept.13, 2007). In Airborne Beepers we read Twombly together with the Supreme Court's decision two weeks later in Erickson v. Pardus, ___ U.S. ___, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007), and observed that "we understand the Court to be saying only that at some point the factual detail in a complaint may be so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under Rule 8." Airborne Beepers, 499 F.3d at 667.

Here, Ensurance primarily raises a legal argument—that the FACTA amendment to the FCRA eliminated Sawyer's right to bring a private civil action—but it also challenges the complaint's factual sufficiency.

In Killingsworth's case, the district court entered judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. Like Rule 12(b)(6) dismissals, we review judgments on the pleadings de novo. Forseth v. Vill. of Sussex, 199 F.3d 363, 368 (7th Cir.2000). Household argued, as did Ensurance, that the repeal of private rights of action for § 1681m violations meant that Killingsworth had no statutory cause of action, essentially a Rule 12(b)(6) argument. If a defendant raises a Rule 12(b) defense in a Rule 12(c) motion, a Rule 12(b)(6)-type analysis applies. Alexander v. City of Chicago, 994 F.2d 333, 336 (7th Cir.1993). Household argued in the alternative that...