Kodrick v. Ferguson

• Decision Date: 16 February 1999
• Docket Number: No. 98 C 576.,98 C 576.
• Citation: 54 F.Supp.2d 788
• Parties: Lynn A. KODRICK Plaintiff, v. Cheryl L. FERGUSON and Accubanc Mortgage, Defendants.
• Court: U.S. District Court — Northern District of Illinois

54 F.Supp.2d 788

Lynn A. KODRICK Plaintiff, v. Cheryl L. FERGUSON and Accubanc Mortgage, Defendants.

No. 98 C 576.

United States District Court, N.D. Illinois, Eastern Division.

February 16, 1999.

Peter W. Andjelkovich, Bradley J. Wartman, Peter Andjelkovich & Assoc., Chicago, IL, for Lynn A. Kodrick.

Patrick T. Driscoll, Jr., Patrick T. Driscoll, Jr., P.C., Chicago, IL, for Cheryl L. Ferguson.

Steven Jay Teplinsky, Adam Carl Smedstad, Michael, Best & Friedrich, Chicago, IL, for Accubanc Mortgage.

MEMORANDUM AND ORDER

MORAN, Senior District Judge.

Plaintiff Lynn Kodrick (Kodrick) has filed a two-count claim against Cheryl Ferguson (Ferguson) and Ferguson's former employer Accubanc Mortgage (Accubanc) seeking damages under the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq. The complaint charges, inter alia, that Accubanc was negligent in complying with the FCRA when it did not prevent Ferguson from using Accubanc facilities to obtain Kodrick's credit report under false pretenses. For the purpose of deciding Accubanc's motion to dismiss the plaintiff's well-pleaded allegations are accepted as true, as are all reasonable inferences therefrom. Dawson v. General Motors, 977 F.2d 369, 372 (7th Cir.1992). The motion may be granted only where it appears beyond doubt that the plaintiff can prove no set of facts in support of her claim which would entitle her to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Even so, because we do not believe Accubanc can be held liable under the FCRA for Ferguson's actions, we grant the motion to dismiss counts I and II as against Accubanc.

Background

As a senior loan officer at Accubanc, Ferguson was authorized to obtain and review the confidential credit histories of Accubanc's customers. On two occasions in 1997, Ferguson used that authority to obtain a copy of plaintiff's credit report, ostensibly to process a real estate loan. Kodrick, however, had not applied for any loan, nor did she have any business relationship with Accubanc whatsoever. In fact, the real reason Ferguson wanted the information is that Kodrick is now married to Ferguson's ex-husband.

Both parties acknowledge that Ferguson acted without the express approval of her supervisors at Accubanc. There is also no suggestion in the pleadings that liability must be imputed to Accubanc because Ferguson's high rank makes her Accubanc's alter ego. See Burlington Industries, Inc. v. Ellerth, 524 U.S. 742, ___, 118 S.Ct. 2257, 2267, 141 L.Ed.2d 633 (1998) (discussing § 219(2)(a) of the Restatement (2d) of Agency (1957)). Instead, plaintiff argues that Accubanc is liable because its negligence allowed "its authorized agent and officer to use its facilities to obtain credit reports under false pretenses" (plf's mem. in opp. at 2) To determine whether this allegation is sufficient to state a claim under the Fair Credit Reporting Act, we must review both the text and the purpose of the statute.

a. Fair Credit Reporting Act

The Fair Credit Reporting Act was passed in 1968 as Title VI of the Consumer Credit Protection Act. Pub.L.No. 90-321, Title VI, § 602, codified as amended by Pub.L.No. 91-508, Title VI, § 601, 84 Stat. 1128 (1970) at 15 U.S.C. § 1681 et seq. It was designed to "insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy." 15 U.S.C. § 1681(a). Section 1681(b) further provides that

[i]t is the purpose of this subchapter to require that consumer reporting agencies adopt reasonable procedures for meeting the needs of commerce for consumer credit, personnel, insurance, and other information in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information in accordance with the requirements of this subchapter.

The principle vehicle for accomplishing this goal was the enumeration of permissible circumstances under which consumer reporting agencies (CRAs) could furnish confidential consumer reports. Section § 1681b(a) contains the exclusive list of permissible purposes, including employment prescreening, § 1681b(a)(3)(B); responses to a court order, § 1681b(a)(1); compliance with the written instructions of the consumer, § 1681b(a)(2); and where the user has a "legitimate business need in connection with a business transaction that is initiated by the consumer," § 1681b(a)(3)(F)(i). Litigation under this section has focused on the credit agency's knowledge as to whether the requesting party sought the information for permissible purposes. See, e.g., Heath v. Credit Bureau of Sheridan Inc., 618 F.2d 693, 696 (10th Cir.1980) (finding that judicial inquiry into credit reporting agency motives was necessary component of § 1681b analysis, and holding that union member stated claim for relief against credit bureau on theory that it had delivered consumer report knowing that union had requested report for the impermissible purpose of humiliating its member). The FCRA also created civil liability for both negligent and willful violations of the Act, § 1681n-o, and provided a criminal penalty not to exceed $5000, one-year imprisonment, or both, for persons who obtain consumer information under false pretenses, § 1681q.

Notwithstanding these initial restrictions, rapidly evolving computer technology and an explosion in available consumer credit over the past two decades contributed to what one member of Congress referred to as an "Orwellian nightmare of erroneous and unknowingly disseminated credit reports" (140 Cong. Rec. H9797-05, H9810 (statement of Rep. Kennedy)). Thus, after much congressional debate and input from both consumer advocates and the credit industry, Congress passed the Consumer Credit Reporting Reform Act of 1996 (Reform Act) "to improve both the accuracy and privacy of consumer reports" (id.; Title II, Subtitle D, Chapter 1, of the Omnibus Consolidated Appropriations Act for Fiscal Year 1997, Pub.L.No.104-208, 110 Stat. 3009-426 (enacted Sept. 30, 1996; effective Sept. 30, 1997), codified as amended at 15 U.S.C. § 1681 et seq). The Reform Act gives the FTC expanded civil enforcement authority over credit bureaus and information providers, regulates when CRAs may charge consumers a fee for credit reports, and expands the required disclosures to consumers when they are denied credit or employment based on a third party's report. The maximum sentence under the criminal provision was increased to two years, a new civil liability provision was created for those who obtain a report under false pretenses, and an attorney's fee provision was included to deter the filing of frivolous lawsuits.

In addition to strengthening the penalty provisions, the amendments also changed the language of the existing civil liability provisions, replacing "[a]ny consumer reporting agency or user of information which is negligent in failing to comply with any requirement" with "[a]ny person who is negligent in failing to comply with any requirement" (§ 1681o (emphasis added); see Reform Act, Pub.L.No. 104-208, Div. A., Title II, § 2412(a) to (c), (e)(1)). The term "person" is now defined at § 1681a(b) as "any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity."

Analysis

Plaintiff argues that the altered language of the civil liability provisions evinces a congressional desire to hold corporations liable for the violative activity of their employees (plf's mem. in opp. at 7). That is one possible interpretation.¹ The practical implication of this change, in any case, is to immediately focus our analysis on whether the FCRA imposed a "requirement," i.e. a duty, on the defendant that has been negligently violated. Hansen v. Morgan, 582 F.2d 1214, 1219 (9th Cir.1978) ("The crucial issue is what constitutes `any requirement imposed under this subchapter' for purposes of § 1681n and § 1681o."). If an entity negligently fails to comply with such a requirement, it will be liable whether or not it is classified as a "credit reporting agency" or a "user." Thus, we must decide whether the FCRA established a duty on the part of Accubanc to prevent its employees from obtaining credit reports for personal use.

The FCRA does not explicitly impose requirements on "subscribers," i.e. those individuals or companies, like Accubanc, who contract with credit reporting agencies for the right to regularly access consumer information. There is no language in the statute, for example, requiring subscribers to limit requisition access to supervisors or other employees with special training regarding permissible purposes. Plaintiff contends that it is the new language in § 1681b(f) that imposes a duty on Accubanc to prevent willful violations (plf's mem. in opp. at 5).² This new provision provides that "[a] person shall not use or obtain a consumer report for any purpose unless (1) the consumer report is obtained for a purpose for which it is authorized to be furnished under this section; and (2) the purpose is certified in accordance with § 1681e of this title by a prospective user³ of the report through a general or specific certification". 15 U.S.C. § 1681b(f). In the context of this motion no one disputes that Ferguson obtained the report herself, falsely certified the permissible purpose, and used the report for personal reasons. The question then is whether her unauthorized actions are also imputed to Accubanc such that the corporation itself has "obtained a consumer report" for an impermissible purpose and without the appropriate certification. Or, stated another way, is Accubanc deemed a "user" or "obtainer" any time its facilities are used to obtain a report?

This, of course, is an agency question on which the statute remains silent. What do we take from this silence? Would Congress have wanted us to apply...