District Court (Cal.) Finds No FDCPA Claim Based on Reporting Account as “Disputed” When Debtor Did Not Dispute the Debt

In a strange fact pattern, in Samano v. LVNV Funding, LLC, No. 1:21-cv-01692-SKO, 2022 U.S. Dist. LEXIS 72102, at *11-14 (E.D. Cal. Apr. 18, 2022), Magistrate Judge Oberto dismissed FDCPA claims derived from Plaintiff’s complaint that the debt collector reported the Account as disputed when the Plaintiff previously had written to the debt collector to advise that he did not dispute the debt.    Magistrate Judge Oberto found that the communication reporting the Account as “disputed” was not made “in connection with the collection of the debt”.

Defendant first contends that the reporting of the debt to the credit reporting agencies as “disputed” was not made in connection with the collection of the debt because the recipient of the communication was not the debtor himself, but rather, the credit reporting agencies. (Doc. 16 at 15, 16.) However, § 1692e does not require that the alleged communication be made to the debtor in order to be actionable. See McIvor v. Credit Control Servs., Inc., 773 F.3d 909, 913 (8th Cir. 2014) (“[L]iability under § 1692e is not confined to statements by collectors to consumers.”). In fact, the statute imposes liability on a debt collector who communicates false credit information to “any person,” including credit reporting agencies. See 15 U.S.C. § 1692e(8); Bourgeois v. Ocwen Loan Servicing, LLC, No. 15CV1655-GPC(BLM), 2016 U.S. Dist. LEXIS 7724, 2016 WL 245526, at *11 (S.D. Cal. Jan. 21, 2016) (“Under the FDCPA, an allegation that a debt collector provided false credit reporting to the credit reporting agencies can violate § 1692e(8).”); Quigley v. Verizon Wireless, No. C-11-6212 EMC, 2012 U.S. Dist. LEXIS 75027, 2012 WL 1945784, at *6 (N.D. Cal. May 30, 2012) (claim that debt collector failed to report to the credit reporting agencies that the debtor disputed the debt was viable). Defendant’s second, and last, argument with respect to debt collection is that Plaintiff’s claim does not concern debt collection activity because it is “based on [] credit reporting allegations,” and therefore fails as a matter of law, like in Martin v. Litton Loan Servicing LP, No. 2:12-cv-970-MCE-EFB PS, 2016 U.S. Dist. LEXIS 125836, 2016 WL 4943832 (E.D. Cal. Sept. 15, 2016). (Doc. 16 at 16.) Martin, however, is inapposite. In Martin, the plaintiff alleged that the debt collector “did not provide her with an opportunity to rebut incorrect credit reports or take action after being advised about disputed information.” 2016 U.S. Dist. LEXIS 125836, [WL] at *7. The court held, based on those allegations, that the plaintiff’s claim was not viable because “[t]he FDCPA does not contain any provision requiring a debt collector to provide a debtor with an opportunity to correct false information submitted to a credit reporting agency, or take any corrective action when faced with such a situation.” 2016 U.S. Dist. LEXIS 125836, [WL] at *8. Here, Plaintiff does not allege that Defendant deprived him of an opportunity to correct the false information provided to the credit reporting agencies, but rather that Defendant provided false information to those agencies in the first place. While there appears no affirmative duty by a debt collector to report a debt to the credit reporting agencies as disputed (or no longer disputed), see Kozlowski v. Bank of Am., N.A., No. 1:18-cv-00131-DAD-EPG, 2018 U.S. Dist. LEXIS 179475, 2018 WL 5099765, at *5 (E.D. Cal. Oct. 18, 2018), if the debt collector “elects to communicate ‘credit information’ about a consumer,” its communication must not be false, deceptive, or misleading, id. (quoting Wilhelm v. Credico, Inc., 519 F.3d 416, 418 (8th Cir. 2008)). Accord Irvine v. I.C. Sys., Inc., 176 F. Supp. 3d 1054, 1064 (D. Colo. 2016) (finding summary judgment for plaintiff on her § 1692e(8) claim appropriate where she alleged that defendant communicated the debt on plaintiff’s account to CRAs, “but failed to communicate the material piece of information that the balance was disputed”). Consistent with the foregoing, Plaintiff alleges that Defendant violated the FDCPA by communicating false credit reporting information to the credit reporting agencies by continuing to report his accounts as disputed even though he had withdrawn his dispute. See Bourgeois, 2016 U.S. Dist. LEXIS 7724, 2016 WL 245526, at *11 (finding the plaintiff stated a claim for violation §1692e(8) where he alleged that the debt collector “provided false credit reporting by either removing the dispute status and/or failing to report the debt as disputed even though he had disputed the debt.”) Even though it has rejected Defendant’s arguments, the Court is still left with the question of whether Plaintiff has sufficiently alleged that Defendant’s communications to the credit reporting agencies were made “in connection with the collection of any debt.” The Court concludes that he has not. While neither the FDCPA nor the Ninth Circuit have defined the phrase, “in connection with the collection of any debt,” a generally accepted definition derived from other Circuit Courts of Appeals is that “for communication to be in connection with the collection of a debt, an animating purpose of the communication must be to induce payment by the debtor.” Carter v. Richland Holdings, Inc., No. 2:16-cv-02967-RFB-VCF, 2019 U.S. Dist. LEXIS 168010, 2019 WL 4773806, at *4 (D. Nev. Sept. 30, 2019) (citing Grden v. Leikin Ingber & Winters PC, 643 F.3d 169, 173 (6th Cir. 2011)); see also McIvor, 773 F.3d at 914; Gburek v. Litton Loan Servicing LP, 614 F.3d 380, 385-86 (7th Cir. 2010). Here, Plaintiff does not allege any “animating purpose” for the communications at issue and pleads no facts from which a collection-related motivation could be inferred. Instead, Plaintiff suggests that any reporting of a debt to a credit reporting agency constitutes activity in connection with the collection of a debt. (See Doc. 19 at 8-9.) At least one Circuit Court of Appeals has rejected that argument. See McIvor, 773 F.3d at 915 (holding that every communication between a debt collector and a credit reporting agency does not necessarily constitute collection activity). The Court agrees, and finds that Plaintiff has not plausibly alleged that Defendant’s communications to the credit reporting agencies were made “in connection with the collection of any debt.” Therefore, the Motion will be granted as to that ground.

But, the Court allowed a 1692e(8) theory to proceed on leave to amend based on the failure to remove a dispute code.

Pursuant to § 1692e(8), if a debt collector knows or should know that a given debt is disputed, the debt collector must disclose the debt’s disputed status to persons inquiring about a consumer’s credit history. See Katzakian, 2013 U.S. Dist. LEXIS 1561, 2013 WL 57712, at *5 (E.D. Cal. Jan. 4, 2013) (“[I]f a debt collector elects to communicate ‘credit information’ about a consumer, it must not omit a piece of information that is always material, namely, that the consumer has disputed a particular debt.”) (quoting Wilhelm, 519 F.3d at 418). “[T]he failure to report the disputed status of an account to credit reporting agencies was material, because ‘the failure to inform a credit reporting agency that the debtor disputed his or her debt will always have influence on the debtor, as this information will be used to determine the debtor’s credit score.'” Patterson v. Peterson Enterprises, Inc., No. 2:18-CV-161-RMP, 2018 U.S. Dist. LEXIS 182164, 2018 WL 5269810, at *3 (E.D. Wash. Oct. 23, 2018) (quoting Evans v. Portfolio Recovery Assocs., LLC, 889 F.3d 337, 346-48 (7th Cir. 2018) (abrogated on different grounds) (emphasis in original). Thus, under the FDPCA, after Plaintiff’s initial dispute of his accounts, Defendant would be subject to liability had it reported the debt to credit reporting agencies without indicating that the accounts had been disputed. See Patterson, 2018 U.S. Dist. LEXIS 182164, 2018 WL 5269810, at *3. But here, Plaintiff seeks to hold Defendant liable for reporting that his accounts remained in dispute even after receiving notice from him that Defendant no longer disputed them. (Doc. 1 ¶ 31). Simply put, Plaintiff alleges that Defendant’s failure to remove the “account in dispute” notation and continued reporting to the credit reporting agencies after receiving notice that Plaintiff no longer disputed his accounts violated the FDCPA because Defendant communicated information that it knew to be false. Defendant argues that Plaintiff fails to state a claim because § 1692e(8) “does not cover the opposite scenario from the one mentioned in the text of the statute.” The Court finds that, accepting all factual allegations in the complaint as true and construing them in the light most favorable to Plaintiff, Fleming, 581 F.3d at 925, Defendant may be held liable for failing to change the accounts status from disputed to undisputed and continuing to report those accounts to the credit reporting agencies as such. Given that whether “the consumer has disputed a particular debt” is “always material” and thus a debt collector must disclose that an account is disputed when it “elects to communicate ‘credit information[,]'” the fact that an account is no longer disputed “would also be material.” Green v. Americollect, Inc., No. 4:20-CV-01096-SRC, 2021 U.S. Dist. LEXIS 120976, 2021 WL 2665937, at *4 (E.D. Mo. June 29, 2021). See also Evans, 889 F.3d at 349 (“Whether or not a consumer is disputing a debt is no minor matter that could be deemed an immaterial aspect of the debt.”) (abrogated on different grounds) (emphasis in original). The misstating of a debt obligation is no “mere technical falsehood,” and, according to Plaintiff, in fact misled his mortgage lender who refused to grant him a loan (see Doc. 19-1). See Sayles v. Advanced Recovery Sys., Inc., 206 F. Supp. 3d 1210, 1216 (S.D. Miss. 2016) (The false reporting of a debt on a consumer’s credit report “may affect how the Plaintiff’s potential application for a loan, housing, or employment is received.”) Finally, while Defendant points out § 1692e(8) singles out “failure communicate that a disputed debt is disputed,” this is merely an example of an improper communication under the FDCPA—the use of the term “including” in the statute indicates that § 1692e(8) bars more than just communications that a debt is disputed. See 15 U.S.C. § 1692e(8). The Court therefore finds that Plaintiff has plausibly alleged that the false representation by Defendant to credit reporting agencies regarding his no-longer-disputed accounts constituted a material misrepresentation. The Motion will be denied as to that ground.