Tag Archives: Ninth Circuit

Ninth Circuit Holds That Fannie Mae Is Not a Consumer Reporting Agency under FCRA

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By: Wayne Streibich, Cheryl S. Chang, Diana M. Eng, and Christine Lee

On January 9, 2019, a divided Ninth Circuit panel ruled that the Federal National Mortgage Association, or Fannie Mae, was not a “consumer reporting agency” within the meaning of the Fair Credit Reporting Act (“FCRA”). In Zabriskie v. Federal National Mortgage Association, the Ninth Circuit reversed the Arizona District Court’s holding that Fannie Mae acts as a consumer reporting agency when it licenses its proprietary software, Desktop Underwriter (“DU”), to lenders and that it is therefore subject to the FCRA. Zabriskie v. Fed. Nat’l Mortgage Ass’n, Nos. 17-15807, 17-16000, 2019 WL 137931 (9th Cir. Jan. 9, 2019).

The FCRA defines a “consumer reporting agency” as “any person which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly engages in whole or in part in the practice of assembling or evaluating consumer credit information or other information on consumers for the purpose of preparing or furnishing consumer reports.” 15 U.S.C. § 1681a(f). In reaching its conclusion, the Ninth Circuit specifically examined whether Fannie Mae’s licensing of its DU software constituted: (1) regularly engaging in the practice of assembling or evaluating consumer credit information and (2) for the purpose of preparing or furnishing consumer reports.

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Ninth Circuit Holds that Consumer Alleging FCRA Claim Against Spokeo Sufficiently Pled a Concrete Harm to Article III Standing

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By: Wayne Streibich, Francis X. Crowley, Cheryl S. Chang, Diana M. Eng, and Nadia D. Adams

In Thomas Robins v. Spokeo, Inc., No. 11-56843 (9th Cir. Aug. 15, 2017) (“Spokeo III”), the United States Court of Appeals for the Ninth Circuit unanimously ruled that Thomas Robins (“Robins”), who accused Spokeo, Inc. (“Spokeo”) of violating the Fair Credit Reporting Act (the “FCRA”) by allegedly reporting inaccurate information about him on its website, claimed a sufficiently concrete injury to confer standing under Article III of the U.S. Constitution.

Background

Spokeo operates a website that compiles consumer data and builds individual consumer profiles containing details about a person’s life, including age, contact information, level of education, marital status, employment status and wealth. Spokeo also markets its services to businesses as a way to learn about prospective employees. Robins sued Spokeo for willful violations of the FCRA, which, among other things, requires credit reporting agencies to take steps to ensure the information they provide to potential employers is accurate. 15 U.S.C. § 1681 et seq. Robins alleged Spokeo published an inaccurate report about him on its website, including that he was wealthy and had a graduate degree when in fact, he was struggling to find work.

Initially, the district court dismissed Robins’s suit based on its determination that Robins lacked standing to sue under Article III of the U.S. Constitution because Robins had not adequately pled that the alleged violation caused him an injury-in-fact. Id. at p.6. Robins appealed and the Ninth Circuit reversed on the basis that Robins established a sufficient injury-in-fact because he alleged that Spokeo violated specifically his statutory rights, which Congress established to protect against individual rather than collective harms. Robins v. Spokeo, Inc. (Spokeo I), 742 F.3d 409, 413-14 (9th Cir. 2014) (emphasis added).

The United States Supreme Court Decision

On Certiorari review, the United States Supreme Court vacated the Spokeo I opinion, because although it agreed with the Ninth Circuit’s analysis and determination that Robins established an alleged injury sufficiently particularized to him, the Ninth Circuit’s standing analysis was incomplete. Spokeo, Inc. v. Robins (Spokeo II), 136 S. Ct. 1540 (2016). The Supreme Court held that a bare procedural statutory violation is insufficient to establish a concrete injury-in-fact to confer standing. Id. at 1548-49 (internal citations omitted). In Spokeo II, the Supreme Court reasoned that the reporting of an incorrect zip code, absent another misrepresentation, was unlikely to present any material risk of real harm. Id. at 1550. Thus, the Supreme Court remanded the case to the Ninth Circuit with instructions for it to consider whether, in addition to a particularized injury, Robins also sufficiently pled a concrete injury. Spokeo III at p.7.

The Ninth Circuit’s Decision on Remand

On remand, the Ninth Circuit held that Robins had alleged injuries that were sufficiently concrete for purposes of Article III, and because the alleged injuries were previously determined to be sufficiently particularized, Robins adequately alleged all of the elements necessary to establish Article III standing. Id. at p.2. In reaching its conclusion, the Ninth Circuit conducted a two-fold analysis.

First, it considered whether Congress established the FCRA to protect consumers’ concrete interest in accurate credit reporting about themselves, and held that it did. The Ninth Circuit further noted the “ubiquity and importance of consumer reports in modern life” and held that the “real-world implications of material inaccuracies in those reports seem patent on their face.” Id. at p.12.

Second, the Ninth Circuit considered whether the FCRA violations that Robins alleged actually harmed or created a “material risk of harm” to his concrete interest in accurate crediting reporting about himself. Id. at p.15. (Internal citations omitted). The Court noted that Robins’s allegations were not minor and could be deemed a real harm because Robins specifically alleged that Spokeo falsely reported—and published—several inaccurate facts including his marital status, age, employment status, educational background and level of wealth. Id. at p.16. Further, even though some of the inaccuracies could be considered flattering and the likelihood to harm could be debated, the inaccuracies alleged did not strike the Court as mere “technical violations” outside the scope of what Congress sought to protect with the FCRA. Id. (Internal citations omitted).

Importantly, however, the Ninth Circuit reiterated that Spokeo II “requires some examination of the nature of the specific alleged reporting inaccuracies to ensure that they raise a real risk of harm to the concrete interests that [the] FCRA protects.” Id. at p.17. The Ninth Circuit cautioned that not every minor inaccuracy would cause real harm. Id. at p.16. Thus, not every FCRA violation premised on some inaccurate disclosure of Robins’s information is sufficient. Id. at pp.16-17.

Conclusion

The Ninth Circuit’s decision is significant for several reasons. First, while declining to express an opinion on the circumstances in which alleged inaccuracies of the kind pled by Robins would or would not cause concrete harm, the Court held that the allegations of Robins’s FCRA class action complaint, which are premised on a “material risk of harm” to his employment opportunities, should proceed past the initial pleading stage. Second, because the Ninth Circuit did not set a bright-line rule for what information necessarily establishes a “concrete injury” and declined to comment on whether Robins would have alleged a concrete injury had Spokeo merely produced, but not published the information, businesses will operate (and litigate) in a gray area until a case law framework for “concrete injury” is established.

Mr. Streibich would like to thank Cheryl Chang, Diana Eng, and Nadia Adams for their assistance in developing this Alert.

NINTH CIRCUIT DENIES CLASS CERTIFICATION TO BORROWERS IN LOAN MODIFICATION CASE

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By: Louise Bowes Marencik

In Hanna Bernard, et al. v. CitiMortgage Inc., the Ninth Circuit held that a purported class of borrowers was not eligible for class certification in an action against CitiMortgage Inc. (“Citi”) because the individual issues related to their loan modification reviews were too numerous to justify certification under Fed. R. Civ. P. 23(b)(3). No. 13-57158 (Ninth Cir. March 2, 2016). The Plaintiffs’ brought claims for breach of contract and breach of good faith and fair dealing, wherein they claimed that Citi failed to provide timely decisions regarding permanent loan modifications to borrowers who had completed three-month trial modifications under the Home Affordable Modification Program, and also failed to honor promises to provide permanent modifications after the trial plans were completed.

The Court affirmed the United States District Court for the Central District of California’s decision that the individual issues outweighed the common issues in the purported class’ cases. Specifically, determining whether Citi’s loan modification decisions were untimely would require an inquiry into the specific facts of each borrower’s situation, including changes in income or incomplete documentation. The district court also determined that the Plaintiffs failed to provide sufficient support for their claim that class certification was justified in this case as required by Fed. R. Civ. P. 23(b)(1) because the Plaintiffs failed to adequately explain why the cases they cited supported their position that the cases could not be adjudicated individually. The Plaintiffs attempted to characterize their action as seeking declaratory relief for the first time on appeal, but the Court held that the Plaintiffs waived this issue by failing to raise it before the district court.  The Court’s decision constitutes a significant setback for the Plaintiffs, as the costs of litigating their individual cases may outweigh the amounts they could potentially recover.

Ninth Circuit Holds that Putative TCPA Class Action Is Not Subject to Arbitration Clause in Shrinkwrap Contract

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By Joe Patry

The Ninth Circuit recently held that a putative class action asserting violations of the federal Telephone Consumer Protection Act (“TCPA”) was not subject to arbitration because the representative plaintiff was unaware of the purported contract containing the arbitration provision.

In Knutson v. Sirius XM Radio Inc., No.12-56120 (9th Cir. Nov. 10, 2014), the plaintiff purchased a new Toyota that came with a 90-day trial subscription to Sirius XM satellite radio. After the plaintiff received the trial subscription, he received a Welcome Kit containing a Customer Agreement, which included an arbitration clause containing a class action waiver. Although the Customer Agreement in the Welcome Kit indicated that he had three days after the activation of his subscription to determine whether to cancel the subscription or it would automatically continue, the Welcome Kit arrived long after the three-day period had expired. The plaintiff did not contact Sirius XM either to continue or terminate his subscription.

During the 90-day trial subscription, he received three unauthorized telemarketing calls from Sirius XM on his cell phone, and brought a putative class action alleging violations of the TCPA. In response to the putative class action, Sirius moved to compel arbitration. The plaintiff opposed the motion, claiming that the Customer Agreement was not binding because he received it more than a month after the three-day cancellation period expired and, as a result, there was no mutual assent to the terms of the Customer Agreement. Sirius XM contended that the Customer Agreement was binding and thus the plaintiff was required to arbitrate the dispute. The trial court dismissed the case and granted Sirius XM’s motion to compel arbitration.

On appeal, the plaintiff argued that he had not entered into a binding contract with Sirius XM because there was no mutual assent to enter into the Customer Agreement, since he was not given the opportunity to accept or reject the Customer Agreement. Sirius XM asserted that after Knutson received the Customer Agreement, he had the opportunity to both review it and to notify Sirius XM if he wished to cancel his subscription, but that he had not done so. The Ninth Circuit rejected Sirius XM’s arguments, noting courts may decline to enforce these agreements if there are legal or equitable grounds to do so. Mutual assent is a principle to any contract and a party cannot be required to arbitrate a dispute if the party had not agreed to do so as part of the contract. Here, the plaintiff never agreed to the arbitration clause because he was not given the opportunity to accept or reject the Customer Agreement. Further, the Customer Agreement was within the Welcome Kit, which the plaintiff had not opened and read. The plaintiff believed that the Sirius XM trial subscription was a complimentary service for marketing purposes, and he did not know that he was entering into a contractual relationship with Sirius XM. The Court found that a reasonable person who had purchased a Toyota would not think that they had entered into a binding contract with another company, such as Sirius XM.

The Ninth Circuit also indicated that, although a “shrinkwrap agreement” (where a consumer buys a product before getting the detailed terms of the contract) is generally enforceable and a party cannot generally avoid the terms of a contract by failing to read the contract before signing it, this does not apply when the writing does not appear to be a contract and the terms are not conspicuous. Further, a “shrinkwrap agreement” is between the customer and the service provider. Here, the plaintiff had no idea that he was entering into a contract with Sirius XM, since the terms of the Customer Agreement were contained in the Welcome Kit, which the plaintiff did not think he needed to read. Because the plaintiff was not aware that he had entered into a purportedly binding contract with Sirius XM, the arbitration clause in the Customer Agreement was unenforceable.

The Ninth Circuit heavily relied on Schnabel v. Trilegiant Corp., 697 F.3d 110 (2d Cir. 2012), a Second Circuit Court of Appeals case that interpreted California law regarding the enforceability of arbitration clauses. In Schnabel, the plaintiffs clicked on a website, which indicated they had received a “Special Award.” In small print, the website advised that the customer would receive membership information and that there was no obligation to continue to receive benefits, but the plaintiffs’ credit cards were automatically charged until they cancelled their membership. Similar to Knutson, the Schanbel plaintiffs claimed that they did not intentionally or knowingly enroll into the discount service; however, unlike Knutson, the Schnabel plaintiffs entered their information into a separate enrollment form and had to click on a “Yes” button to indicate that they had read the terms and conditions of the discount membership website, which included an arbitration provision. The Second Circuit found that the arbitration provision was unenforceable because the plaintiffs received the terms of the contract after they enrolled in the service; there was no prior commercial relationship between the parties that would have suggested that terms sent after the initial enrollment would become part of their agreement with that merchant. Further, automatically charging the plaintiff’s credit cards was too “passive” to show that the plaintiffs had understood and agreed to be bound by the terms of the arbitration provision.

The Ninth Circuit found that Knutson had done even less than the Schnabel plaintiffs to manifest intent to enter into a binding contract, as he did not affirmatively enroll into a subscription service with Sirius XM, nor did he indicate that he had read the terms of the Customer Agreement. Thus, Knutson could not assent to Sirius XM’s arbitration provision because he did not know that he was entering into a contract with Sirius XM. Accordingly, the Ninth Circuit reversed the dismissal of the case and the granting of the motion to compel arbitration.

Based on Knutson, companies selling products or services to consumers with “shrinkwrap agreements” should take steps to conspicuously disclose the terms of such agreements. Consumers should receive explicit disclosures that purchasing the product or using a trial or gift subscription for a different product or service may cause a binding contract to be formed. In addition, consumers should be made aware that the product being purchased includes provisions that will control any future disputes based on the product.