Smith v. Result Matrix, Inc.

• Decision Date: 03 May 2022
• Docket Number: C21-5380-BHS-SKV
• Parties: JOSEPH and ADAM SMITH, Plaintiffs, v. RESULT MATRIX, INC., et al. Defendant/Cross Claimant, v. DALE PEROZZO, Cross Defendant.
• Court: U.S. District Court — Western District of Washington

JOSEPH and ADAM SMITH, Plaintiffs,
v.
RESULT MATRIX, INC., et al. Defendant/Cross Claimant,
v.
DALE PEROZZO, Cross Defendant.

No. C21-5380-BHS-SKV

United States District Court, W.D. Washington, Seattle

May 3, 2022

REPORT AND RECOMMENDATION

S. KATE VAUGHAN UNITED STATES MAGISTRATE JUDGE

INTRODUCTION

Plaintiffs Joseph and Adam Smith filed this civil suit naming Result Matrix, Inc., d/b/a Straight Arrow Screening (RMI), and Dale Perozzo, d/b/a Perozzo Premier Properties (Perozzo), as Defendants, and alleging violations of the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681, et seq., and state law. Dkt. 1. RMI filed crossclaims against Perozzo, alleging its entitlement to equitable indemnity under state law based on Perozzo's negligence and Perozzo's statutory liability under § 1681n(b) of the FCRA. Dkts. 23 & 26. Plaintiffs entered into a

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settlement with Perozzo and stipulated to the dismissal of their claims against Perozzo. Dkts. 2425.

Perozzo now moves to dismiss RMI's Amended Cross Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). Dkt. 28. Because Perozzo filed an Answer prior to the filing of RMI's motion, Dkt. 26, the Court construes the Motion to Dismiss for Failure to State a Claim as a Motion for Judgment on the Pleadings under Rule 12(c). RMI opposes the motion. Dkt. 29. The Court, having considered the motion and opposition, recommends Perozzo's motion, Dkt. 28, be GRANTED in part and RMI's crossclaim against Perozzo for statutory liability under § 1681n(b) of the FCRA be DISMISSED. However, because Perozzo waived any challenge to RMI's state law crossclaim by only raising arguments in his reply, the Court recommends a judgment on the pleadings in relation to that claim be DENIED.

BACKGROUND

As set forth in the Complaint, Plaintiffs applied to rent property from Perozzo, a licensed real estate broker, and authorized Perozzo to obtain their credit files. Dkt. 1, ¶¶4.7-.9. Perozzo did not have an account with a credit reporting agency or background check company and utilized an RMI account held by friends at Lewis and Clark Properties, LLC (Lewis and Clark). Id., ¶¶ 4.10-.15. Perozzo obtained “mixed” reports, containing information belonging to individuals other than Plaintiffs, including an individual with a criminal history as a sex offender. Id., ¶¶4.1, 4.16. Perozzo thereafter denied Plaintiffs' application and inaccurately disclosed to others - including law enforcement, Plaintiffs' references/clients, and their then current landlord - that Plaintiffs were sex offenders. Id., ¶¶4.17-.22.

Plaintiffs allege that they requested, but neither Perozzo, nor RMI provided them with copies of the credit reports. Id., ¶¶4.26-.32. They allege RMI violated the FCRA through the

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publication of incorrect information and through a failure to disclose all of the information in their credit files at the time of their request for the same. Id., ¶¶5.1-6.6. They alleged Perozzo's actions constituted defamation and violated the Washington Consumer Protection Act through the communication of incorrect information to third parties. Id., ¶¶7.1-8.14. While Plaintiffs reached a settlement with Perozzo, RMI filed its crossclaims before the claims against Perozzo were dismissed. See Dkts. 18, 23-24, 26.

In the Amended Cross Complaint, RMI asserts that, in its role as a credit/consumer reporting agency (CRA)^[1] under the FCRA, it ran background checks on Plaintiffs when Perozzo, without RMI's knowledge or consent, used the Lewis and Clark subscription with RMI. Dkt. 26, ¶¶2.1-.7. RMI asserts that the reports include information about other individuals with the same first and last names and caution users to “filter” information so as not to rely on information pertaining to such other individuals. Id., ¶¶2.8, 2.10. In this case, the reports identified criminal violations attributable to individuals other than Plaintiffs, included warnings as to the limited effectiveness of any service not using fingerprint analysis, directed that all additional identifying information be used to confirm accuracy, and contained a photograph of the person with the alleged criminal history to allow for a matching with the applicant. Id., ¶¶2.9-.10.

RMI alleges that, before Perozzo ever saw or received copies of the reports, Lewis and Clark informed him they included convictions for sexual offenses and that Perozzo, without reviewing the reports or otherwise verifying the information for accuracy, contacted Plaintiffs' former landlord and inquired about sex offender convictions. Id.,¶¶3.2-.3. RMI alleges Perozzo failed to exercise his duty of reasonable care to determine the validity of information before he

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conveyed false information to others and made a rental denial decision, and that, but for Perozzo's unauthorized use of a third party subscription to obtain the reports and his “careless dissemination” of information intended only for RMI subscribers, Plaintiffs would not have suffered the harm alleged and would have had no reason to bring an action against RMI. Id., ¶3.4-.6. RMI asserts Perozzo's liability under the principle of equitable indemnification for the harm RMI has suffered as a result of Perozzo's negligence. Id., ¶3.10-.11. RMI also alleges Perozzo's liability under § 1681n(b) of the FCRA in that, as a person who obtained RMI's reports under false pretenses, Perozzo is liable to RMI for damages sustained. Id., ¶4.1.

LEGAL STANDARD

“After the pleadings are closed - but early enough not to delay trial - a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). Similar to a Rule 12(b)(6) motion, the court accepts all factual allegations in the complaint as true and construes them in the light most favorable to the non-moving party. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009). The analysis for a Rule 12(c) motion is “substantially identical” to the analysis for a Rule 12(b)(6) motion. Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012). “[U]nder both rules, a court must determine whether the facts alleged in the complaint, taken as true, entitle the plaintiff to a legal remedy.” Id. (internal quotation marks and citation omitted). Judgment on the pleadings is appropriate when there is no issue of material fact in dispute and the moving party is entitled to judgment as a matter of law. Fleming, 581 F.3d at 925.

A complaint must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). A claim is plausible when the plaintiff pleads “factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).

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While the Court construes the facts in the light most favorable to the non-moving party, it is not required to “‘assume the truth of legal conclusions merely because they are cast in the form of factual allegations.'” Fayer v. Vaughn, 649 F.3d 1061, 1064 (9th Cir. 2011) (per curiam) (quoted source omitted). A complaint cannot survive if it is solely supported by “conclusory allegations of law and unwarranted inferences[.]” Adams v. Johnson, 355 F.3d 1179, 1183 (9th Cir. 2004).

DISCUSSION

RMI's Amended Cross Complaint sets forth claims against Perozzo for negligence-equitable indemnity under state law and for statutory liability under 15 U.S.C. § 1681n(b). Dkt. 26. In the dispositive motion now pending before the Court, Perrozo argues the crossclaims should be dismissed because there is no right to contribution or equitable indemnification under the FCRA or federal common law and because § 1681n(b) is not applicable to Perozzo's conduct. Dkt. 28. Perozzo also, but only in his reply, raises challenges to the state law claim for negligence-equitable indemnity. Dkt. 31.

A. Liability Under § 1681n(b) of the FCRA

The FCRA serves 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)(4). Consistent with that goal, CRAs may provide consumer reports - a category defined to include credit reports, 15 U.S.C. § 1681a(d)(1) - only for specific permissible purposes. 15 U.S.C. § 1681b.

While § 1681b imposes requirements only on CRAs, the FCRA also provides “a mechanism for monitoring and limiting the actions of parties who request credit information

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from credit reporting agencies.” Williams v. AT & T Wireless Servs., Inc., 5 F.Supp.2d 1142, 1148 (W.D. Wash. 1998). Specifically:

Users of credit reports who violate specific provisions of the Act are subject to criminal and civil penalties. See §§ 1681n-q. Sections 1681n and 1681o create civil liability for willful (§ 1681n) or negligent (§ 1681o) noncompliance by a consumer reporting agency or user of information who fails to comply with “any requirement under this

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