Washington v. CSC Credit Services Inc.

• Decision Date: 07 January 2000
• Docket Number: No. 98-31209,98-31209
• Citation: 199 F.3d 263
• Parties: (5th Cir. 2000) BERNITA WASHINGTON; KEVIN WASHINGTON; PEGGY MALBROUGH; ROY MALBROUGH, JR; BERNICE AUGUSTINE GUICHARD; VERNON GUICHARD, JR, Plaintiffs - Appellees, v. CSC CREDIT SERVICES INC; EQUIFAX CREDIT INFORMATION SERVICES INC, Defendants - Appellants
• Court: U.S. Court of Appeals — Fifth Circuit

Page 263

199 F.3d 263 (5th Cir. 2000)

BERNITA WASHINGTON; KEVIN WASHINGTON; PEGGY MALBROUGH; ROY MALBROUGH, JR; BERNICE AUGUSTINE GUICHARD; VERNON GUICHARD, JR, Plaintiffs - Appellees, v. CSC CREDIT SERVICES INC; EQUIFAX CREDIT INFORMATION SERVICES INC, Defendants - Appellants.

No. 98-31209

UNITED STATES COURT OF APPEALS, FIFTH CIRCUIT

January 7, 2000

Revised February 22, 2000

Appeal from the United States District Court for the Eastern District of Louisiana

Before KING, Chief Judge, and REYNALDO G. GARZA and EMILIO M. GARZA, Circuit Judges.

EMILIO M. GARZA, Circuit Judge:

Plaintiffs-appellees Bernita and Kevin Washington (the "Washingtons"), Peggy and Ray Malbrough (the "Malbroughs"), and Bernice and Vernon Guichard (the "Guichards") (collectively, the "consumers") allege that defendants-appellants CSC Credit Services, Inc. ("CSC") and Equifax Inc. ("Equifax") (collectively, the "reporting agencies") violated the Fair Credit Reporting Act ("FCRA" or "the Act"). The district court certified the consumers as class representatives and the reporting agencies challenge this ruling. We reverse in part, vacate in part, and remand.

I

The consumers brought suit against the reporting agencies for failing to "maintain reasonable procedures" before providing their credit reports to insurance companies. They seek statutory, compensatory, and punitive damages, as well as attorney fees and prejudgment interest. Additionally, they request declaratory and injunctive relief "ordering defendants to desist from providing credit reports to insurers in connection with claims investigations."

The district court initially certified the class under Federal Rule of Civil Procedure 23(b)(2). See Washington v. CSC Credit Servs., Inc., 178 F.R.D. 95, 103 (E.D. La. 1998). The court subsequently denied Equifax's motion for reconsideration, but in doing so, the court amended the class definition¹ and alternatively certified the class under Rule 23(b)(3). See Washington v. CSC Credit Servs., Inc., 180 F.R.D. 309, 312-16 (E.D. La. 1998).

II

We have jurisdiction over this interlocutory appeal under 28 U.S.C. 1292(b). We review the district court's decision to certify the class for an abuse of discretion. See Allison v. Citgo Petroleum Corp., 151 F.3d 402, 408 (5th Cir. 1998). However, we review de novo whether the district court applied the correct legal standard to grant certification. See id.

To proceed as a class, plaintiffs must first meet the four requirements set forth in Rule 23(a): "(1) the class is so numerous that joinder of all members is impracticable [numerosity], (2) there are questions of law or fact common to the class [commonality], (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class [typicality], and (4) the representative parties will fairly and adequately protect the interests of the class [adequacy]." Fed. R. Civ. P. 23(a). Then, the plaintiffs must show that the action is maintainable as a class action under one of Rule 23(b)'s subsections. See generally Castano v. American Tobacco Co., 84 F.3d 734, 740 (5th Cir. 1996) (noting that plaintiffs have the burden of showing that certification is appropriate).

The district court found that the consumers satisfied the Rule 23(a) prerequisites and certified the class under both Rule 23(b)(2) and 23(b)(3). To maintain a class action under Rule 23(b)(3), plaintiffs must show: (1) that "[c]ommon questions . . . predominate over any questions affecting only individual members" ("predominance"); and (2) that "class resolution [is] superior to other available methods for the fair and efficient adjudication of the controversy" ("superiority"). Mullen v. Treasure Chest Casino, LLC, 186 F.3d 620, 623-24 (5th Cir. 1999) (internal quotations omitted) (quoting Amchem Products, Inc. v. Windsor, 521 U.S. 591, 615, 117 S. Ct. 2231, 2246, 138 L. Ed. 2d 689, (1997)). To maintain a class action under Rule 23(b)(2), plaintiffs must show that the "predominant relief sought is injunctive or declaratory." Allison, 151 F.3d at 411.

The reporting agencies argue that the consumers do not have individual standing to bring FCRA claims, do not meet the "typicality" and "commonality" requirements of Rule 23(a), cannot maintain an action under Rule 23(b)(3) because they cannot show "superiority" or "predominance," and cannot maintain an action under Rule 23(b)(2) because the FCRA does not allow them to obtain injunctive relief. Resolution of these arguments depends on whether the district court properly interpreted the FCRA.

A

Enacted in 1970, the FCRA governs "consumer reporting agencies" like Equifax and CSC which maintain credit information on consumers and provide it to third parties. See 15 U.S.C. 1681 (stating the purpose of the FCRA); id. 1681a(f) (defining "consumer reporting agencies"). A central purpose of the Act is to ensure the "confidentiality, accuracy, relevancy, and proper utilization of [consumers' credit] information." Id. 1681(b).

Section 1861b of the Act specifies the two instances in which a reporting agency may provide consumer reports to an insurance company: (1) when the consumer consents in writing; and (2) when the agency "has reason to believe" that the insurance company "intends to use the information in connection with the underwriting of insurance involving the consumer." Id. 1681b(a). To ensure that agencies do not provide reports outside these two circumstances, 1681e(a) requires reporting agencies to "maintain reasonable procedures designed . . . to limit the furnishing of consumer reports to the purposes listed under section 1681b of this title." Id. 1681e(a);² see also 16 C.F.R. pt. 600 app. 607 (stating FTC commentary on "reasonable procedures").

The crucial issue in this case is whether a plaintiff can bring an action for failure to "maintain [the] reasonable procedures" required by 1681e(a) without first showing that a report was disclosed in violation of 1681b. The district court found that a plaintiff claiming a violation of 1861e does not need to show improper disclosure in violation of 1681b, but instead only needs to show that the reporting agency did not maintain the required reasonable procedures and that it released a report to an insurance company. See Washington, 178 F.R.D. at 99-100.

The only other two courts which have considered this issue disagree with the district court's interpretation of 1861e. In Andrews v. Trans Union Corp., 7 F. Supp. 2d 1056 (C.D. Cal. 1998), the court found that where a "disclosure was made for a permissible purpose [under 1681b], then the inquiry ends, and no investigation of the reasonableness of the consumer reporting agency's procedures are necessary." Id. at 1067. The court reasoned that "[i]t makes no sense for a consumer whose file was disclosed only for permissible purposes to nevertheless be able to challenge the reasonableness of the consumer reporting agency's procedures." Id. Similarly, in Middlebrooks v. Retail Credit Co., 416 F. Supp. 1013 (N.D. Ga. 1976), the court endorsed the proposition that, "once it is shown that the information was relevant and for a permissible purpose, this court need not inquire into the reasonableness of the underlying procedures adopted by the agency to assure that the information will be furnished for purposes defined as permissible under the Act." Id. at 1016.

We find these cases persuasive. Section 1681e(a) requires reporting agencies to "maintain reasonable procedures designed . . . to limit the furnishing of consumer reports to the purposes listed under section 1681b." 15 U.S.C. 1681e(a). As the above-cited courts reason, this purpose is not furthered unless a plaintiff suffers the harm the procedures are meant to prevent.

Similarly, Congress has stated that it adopted the "reasonable procedures" requirement to "meet[] the needs of commerce for consumer credit . . . in a manner which is fair and equitable to the consumer, with regard to the confidentiality, accuracy, relevancy, and proper utilization of such information." 18 U.S.C. 1681(b) (emphasis added). Congress identified actual injuries-including breaches of "confidentiality" and "[im]proper utilization"-which only occur if there is an improper disclosure, suggesting that a general claim of improper procedures is by itself inadequate. Id.

In light of the purposes of the FCRA, we find that the actionable harm the FCRA envisions is improper disclosure, not the mere risk of improper disclosure that arises when "reasonable procedures" are not followed and disclosures are made. Accordingly, a plaintiff bringing a claim that a reporting agency violated the "reasonable procedures" requirement of 1681e must first show that the reporting agency released the report in violation of 1681b.³

The consumers cite no contrary authority interpreting 1681e. Instead, they make a plain language argument, quoting language from the civil liability provisions of the FCRA which holds reporting agencies liable for "failing to comply with any requirement imposed under this subchapter." 15 U.S.C. 1681n, 1681o. The consumers argue that because maintaining reasonable procedures is a requirement under 1681e(a), the FCRA imposes liability for a failure to comply with this requirement. We disagree. The language in 1681e(a) indicates-by qualifying the purpose of the procedural requirement-that the "requirement imposed under" 1681e(a) is maintaining "reasonable procedures" in order to prevent improper disclosures. See, e.g., id. 1681e(a) ("No consumer reporting agency may furnish a consumer report to any person if it has reasonable grounds for believing that the consumer report will not be used for a purpose listed in section 1681b of this title.").

B

In sum, the district court erroneously ruled that the consumers need not show that their reports were improperly disclosed under 1861b in order to maintain their claims under 1861e. This error requires us to vacate in part the...