9th Cir. Allows FCRA “Permissible Purpose” Action to Proceed Despite Plaintiff Not Know the Purpose for Which the Credit Report Was Accessed

In Nayab v. Capital One Bank USA, No. 17-55944, 2019 U.S. App. LEXIS 32575, at *24-32 (9th Cir. Oct. 31, 2019), the Court of Appeals for the Ninth Circuit found that an FCRA Plaintiff met the Spokeo and Iqbal/Twombly standards for pleading a “Permissible Purpose” action under the FCRA.

Nayab has pleaded facts sufficient to give rise to a reasonable inference that Capital One obtained her credit report for an unauthorized purpose. Nayab pleaded that she did not have a credit relationship with Capital One of the kind specified in 15 U.S.C. § 1681b(a)(3)(A)-(F). Pl’s First Am. Compl. ¶¶ 11, 40, 47, 50. Nayab specifically pleaded that, [*25]  “upon review of her Experian credit report, Plaintiff discovered that Defendant submitted numerous credit report inquiries to Experian.” Id., ¶ 18. Nayab then puts forward factual assertions which negative each permissible purpose for which Capital One could have obtained her credit report and for which Nayab could possibly have personal knowledge: (1) Plaintiff did not initiate any credit transaction with Defendant as provided in 15 U.S.C. § 1681b(a)(3)(A). (2) Plaintiff was not involved in any credit transaction with Defendant involving the extension of credit to, or review or collection of an account of, the consumer as provided in 15 U.S.C. § 1681b(a)(3)(A). (3) Plaintiff is not aware of any collection accounts, including any accounts that were purchased or acquired by Defendant that would permit Defendant to obtain Plaintiff’s credit report as provided in 15 U.S.C. § 1681b(a)(3)(A). (4) Plaintiff does not have any existing credit accounts that were subject to collection efforts by Defendant as provided in 15 U.S.C. § 1681b(a)(3)(A). (5) Plaintiff did not engage Defendant for any employment relationship as provided in 15 U.S.C. § 1681b(a)(3)(B). (6) Plaintiff did not engage Defendant for any insurance as provided in 15 U.S.C. § 1681b(a)(3)(C). (7) Plaintiff did not apply for a license or other benefit granted by a governmental instrumentality  as provided in 15 U.S.C. § 1681b(a)(3)(D). (8) Plaintiff did not have an existing credit obligation that would permit Defendant to obtain her credit report as provided in 15 U.S.C. § 1681b(a)(3)(E). (9) Plaintiff did not conduct any business transaction nor incur any additional financial obligations to Defendant as provided in 15 U.S.C. § 1681b(a)(3)(F).  (10) Defendant’s inquiry for Plaintiff’s consumer report information falls outside the scope of any permissible use or access included in 15 U.S.C. section 1681b. Id. ¶¶ 24-35. These are factual allegations that, when taken as true, rule out many of the potential authorized purposes for obtaining a credit report. Further, Nayab alleges that she discovered Capital One obtained her credit report only upon review of her Experian credit report. The implication is that she never received a firm offer of credit from Capital One. These allegations, together with Nayab’s allegation that Capital One, in fact, obtained her report, state a plausible claim for relief. These are not simply bare conclusions devoid of facts supporting them.  By contrast, in Twombly the Court determined that the plaintiff had not adequately pleaded an antitrust claim where he alleged parallel conduct by the defendants but did not include facts tending to exclude the possibility [*27]  they acted independently. Twombly, 550 U.S. at 554-55. The Court decided a claim for restraint of trade under the Sherman Act, 15 U.S.C.A. § 1, must allege facts sufficient for a court to infer an illegal agreement among the defendants and that discovery would reveal evidence of that illegal agreement. Id. at 556-57. The Court decided the plaintiff instead alleged facts that were merely consistent with an illegal agreement (parallel activity among competitors), but more likely explained by lawful market behavior and, therefore, failed to state a claim. Id. at 565, 570. Similarly, the Court in Iqbal held the plaintiff failed to state a Bivens claim for purposeful and unlawful discrimination for an alleged policy of holding post-September 11th detainees in the ADMAX SHU facility once they were categorized as of “high interest.” Iqbal, 556 U.S. at 682. The Court determined that a showing the defendants’ adopted the policies “for the purpose of discriminating” was a necessary factor in stating the Bivens claim alleged. Id. at 676-77. The Court concluded the plaintiff must, in his complaint, allege facts sufficient to show the defendants purposefully adopted and implemented the policy of classifying detainees as “high interest”, so that defendants could then house detainees in the ADMAX SHU, [*28]  because of the detainees’ race, religion, or national origin. Id.  The plaintiff’s only factual allegations to support his contention were that many Arab Muslim men had been arrested and held at the ADMAX SHU with defendants’ approval. Id. at 681. The Court decided that because there were more likely explanations for the “disparate, incidental impact” of defendants’ activity on Arab Muslims than a discriminatory motive, the plaintiff had not shown, and a court could not infer, that the defendants had acted with a discriminatory state of mind. Id. at 683. Further, the Court concluded, because showing the defendants acted “for the purpose of discriminating” was a necessary factor in stating the Bivens claim the plaintiff alleged, and the plaintiff had not done so, the plaintiff failed to state a claim. Id. at 676-77.  Neither Twombly nor Iqbal dealt with a plaintiff who had stated a prima facie case in the complaint but had failed to also negative each possible affirmative defense. Here, Nayab asserts a claim under the FCRA, which generally prohibits any person from using or obtaining a consumer’s credit report unless for an authorized purpose provided under section 1681b(a). 15 U.S.C. § 1681b(a), (f) (“A person shall not use or obtain a consumer report for [*29]  any purpose unless—”). When this Court has evaluated similarly drafted provisions of other statutes, it has decided that the provision is an affirmative defense, which a plaintiff need not negative in his complaint. Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1044 (9th Cir. 2017); see Tourgeman v. Nelson & Kennard, 900 F.3d 1105, 1110 (9th Cir. 2018).  In Van Patten, the court affirmed a district court’s grant of summary judgment in favor of defendants on a claim for violation of the Telephone Consumer Protection Act (“TCPA“), 47 U.S.C.A. § 227. Van Patten, 847 F.3d at 1049. The TCPA generally prohibited using automatic dialing systems to make unsolicited advertising phone calls to recipients within the United States, unless the call was “for emergency purposes or made with the prior express consent of the called party.” Id. at 1041-42; 47 U.S.C.A. § 227(b)(1). This court determined that express consent was “not an element of a plaintiff’s prima facie case” but was “an affirmative defense for which the defendant bears the burden of proof.” Id. at 1044 (citing Grant v. Capital Mgmt. Servs., L.P., 449 Fed. Appx. 598, 600 n.1 (9th Cir. 2011); In the Matter of Rules & Regulations Implementing the Tel. Consumer Prot. Act of 1991, 23 F.C.C. Rcd. 559, 565 (Jan. 4, 2008)). The Court decided the consumer had given prior express consent and not revoked it. Id. at 1046, 1048. In Tourgeman, this court reviewed provisions of the Fair Debt Collection Practices Act (“FDCPA“), 15 U.S.C. § 1692, et seq., in affirming a district court’s dismissal of the plaintiff’s consumer class [*30]  action. Tourgeman, 900 F.3d at 1107. The court stated that “certain elements of a plaintiff’s claim may be shifted to defendants, when such elements can fairly be characterized as affirmative defenses or exemptions.” Id. at 1109 (quoting Schaffer ex rel. Schaffer, 546 U.S. at 57). The court determined that evidence of the defendant’s net worth was a required element of the provision at issue, § 1692k(a)(2)(B), rather than an affirmative defense because the statute required the fact finder to determine the amount in calculating statutory damages. Id. The provision limited statutory damaged to “the lesser of $500,000 or one percent of the defendant’s net worth,” so the defendant’s net worth was a prerequisite to establishing statutory damage. Id.  The court compared § 1692k(a)(2)(B) with another provision of the FDCPA, section § 1692b(3). Tourgeman, 900 F.3d at 1110. Section 1692b(3) prohibits a debt collector from contacting a third party “more than once unless requested to do so by” the third party. Id. (emphasis added) (citing Evankavitch v. Green Tree Servicing, LLC, 793 F.3d 355, 362 (3d Cir. 2015)). In Evankavitch, the Third Circuit reasoned that use of “unless” in § 1692b(3), was “telltale language . . . indicative of an affirmative defense.” Evankavitch, 793 F.3d at 362. The Third Circuit affirmed a jury verdict for the plaintiff, deciding the plaintiff did not have the burden of disproving an exception in its case-in-chief, but rather the “party seeking [*31]  shelter in an exception— [the defendant]—has the burden to prove it.” Id. at 360, 363. The Tourgeman court reasoned that if Congress intended to make net worth an affirmative defense or exemption to a rule, like the affirmative defenses in § 1692b(3), it could have used the same telltale language and “limited liability to $500,000 unless the defendant could establish that one percent of its net worth is less than that amount.” Tourgeman, 900 F.3d at 1110 (emphasis original).  Here, the FCRA § 1681b(f), like the TCPA § 227(b)(1) and FDCPA § 1692b(3), uses the “telltale language” of prohibiting defendant from engaging in conduct “unless” an affirmative defense or exception applies. As with the other provisions, the exceptions to the general prohibition in § 1681b(f) are not elements of Nayab’s prima facie case which she must negative to state a claim, rather they are affirmative defenses for which Capital One bears the burden. Van Patten, 847 F.3d at 1044; see Tourgeman, 900 F.3d at 1109. By alleging facts giving rise to a reasonable inference that Capital One obtained her credit report for a purpose not authorized by statute, Nayab has asserted a plausible claim for relief under the FCRA. See Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41, 49 (2d Cir. 1997) (“Although Northrop’s complaint does not allege the purpose for which defendants obtained her [credit] report, we believe it would be premature, in light of the liberal pleading principles of Rule 8 of the Federal Rules of Civil Procedure, to dismiss the complaint prior to discovery . . . .”).

In a footnote, the Court of Appeals noted that no one really knew why the customer’s consumer report was accessed:

At oral argument, Capital One argued that Nayab should be aware of the actual purpose behind Capital One obtaining her credit report. Counsel for Capital One stated that the alleged purpose may be included within a code on documentation sent to the consumer. However, this would identify only Capital One’s alleged purpose, not necessarily the actual purpose. Moreover, upon questioning at oral argument, counsel for Capital One admitted they were not aware of the actual purpose for obtaining Nayab’s credit report. Nor could counsel read any such code, so to inform the court of Capital One’s purpose. If counsel for Capital One still do not know the purpose of Capital One’s action, how can one expect Nayab to know it?