5th Cir. Holds that Private Eye’s Obtaining Information on Commercial Defendant Did Not Violate FCRA Because There Was No “Consumer” Nexus

In Hall v. Phenix Investigations, Inc., 2016 WL 1238602, at *2-3 (5th Cir. 2016), a Law Firm hired private eyes to obtain information on a litigant in a commercial lease dispute, which the Law Firm used against the litigant in the litigation.  The litigant sued, alleging that the information obtained by the private eye was a “consumer report” under FCRA, and litigation was not a “permissible purpose” under FCRA.  The Court of Appeals for the Fifth Circuit disagreed, holding that no consumer transaction — and hence, no consumer report — was involved.

Without any factual connection to collection of a consumer account in their actual case, the Plaintiffs have only made a conclusory allegation. As the district court explained, it is not reasonable to infer that the report was made for such a purpose because the Plaintiffs conceded in their complaint that the report was commissioned for use in ongoing commercial litigation, which is not a qualifying purpose. See Ippolito v. WNS, Inc., 864 F.2d 440 445, 450–54 (7th Cir.1988), abrogated on other grounds by Safeco Ins. Co. of Amer. v. Burr, 551 U.S. 47 (2007) (recognizing that use of reports in trademark litigation is a commercial purpose and therefore cannot constitute “consumer reports” under the Act); see also Cavaliere v. Burke, 50 F.3d 1033, at *3–4 (5th Cir.1995) (per curiam) (citing Ippolito favorably and noting that “not every credit report is a consumer report” under the FCRA).  Ippolito held that reports containing an individual’s credit information were not consumer reports when used in a trademark litigation dispute, even though the preparer thought the reports would be used to evaluate prospective franchisees, because both such uses involved commercial, rather than consumer purposes. 864 F.2d at 444–45, 451–54. Although the underlying lawsuit did not involve a debt, the court’s reasoning focused on the commercial purpose of the lawsuit in which the reports were used. Id. at 453–54. As in Ippolito, the purpose of the lawsuit here is commercial in nature because it arose out of a commercial lease dispute. See id . at 452 (stating that “reports collected for business, commercial, and professional purposes do not fall under the FCRA” (internal quotations and citations omitted)); see also Bacharach v.. Suntrust Mortg., Inc., 2015 WL 6442493, at *3–4 (E.D.La. Oct. 23, 2015) (“[T]he FCRA does not apply where a consumer report is used for business purposes.”) (citing cases).  Even assuming that filing a lawsuit to collect on a judgment could constitute the collection of a consumer account within the meaning of the FCRA, there is no collection of a consumer account here because the judgment arose from a commercial transaction. Numerous courts have concluded that the FCRA does not cover reports used or expected to be used only in connection with commercial business transactions. Bacharach, 2015 WL 6442493, at *3–4 (surveying cases and concluding that the FCRA does not cover reports created for “business purposes”); Grigoryan v. Experian Info. Sols., Inc., 84 F.Supp.3d 1044, 1081–82 (C.D.Cal.2014) (the same); see also Ippolito, 864 F.2d at 452 (holding that reports used or expected to be used for commercial purposes do not qualify under the FCRA); Matthews v. Worthen Bank & Trust Co., 741 F.2d 217, 219 (8th Cir.1984) (holding that report’s “use[ ] solely for a commercial transaction” was not a qualifying purpose); Johnson v. Wells Fargo Home Mortg., Inc., 558 F.Supp.2d 1114, 1121–27 (D .Nev.2008) (explaining that information in report collected solely for commercial purposes in connection with plaintiff’s business did not qualify as a consumer report); Lucchesi v. Experian Info. Sols ., Inc., 226 F.R.D. 172, 173–74 (S.D.N.Y.2005) (holding that FCRA does not apply to report, even one containing consumer information, where the report was created for use in connection with the plaintiff’s business transaction).

The Court of Appeals also found no FDCPA violation, for wont of any consumer transaction under the Act.

The commercial nature of the underlying dispute also dooms Plaintiffs’ FDCPA claims even though the two federal statutes have different frameworks and terms. . .  Yet any disputed debt that the second state lawsuit sought to collect arose out of the first suit involving the Hooter’s lease, which Plaintiffs rightly admit was “commercial in nature.” See First Gibraltar Bank, FSB v. Smith, 62 F.3d 133, 134–36 (5th Cir.1995) (collection efforts related to personal guaranty of business debt are not “debts” within the meaning of the FDCPA because they are not for personal purposes); Scarola Malone & Zubatov LLP v. McCarthy, Burgess & Wolff, 2016 WL 536864, at *1–2 (2d Cir. Feb. 11, 2016) (holding that debt, even if not actually owed, “stem[ming] from telecommunication services provided by Verizon to [law firm] … ar[ose] out of a commercial transaction and [was] not covered by the FDCPA”); Goldman v. Cohen, 445 F.3d 152, 154 n. 1 (2d Cir.2006) (“[A]ctions arising out of commercial debts are not covered by the protective provisions of the FDCPA.”); Garza v. Bancorp Grp., Inc., 955 F.Supp. 68, 71–72 (S.D.Tex.1996) (holding that debt from equipment installed at two commercial establishments, even though used to provide security to family members working at the stores, “d [id] not transform the purpose into a noncommercial one” and was therefore not qualifying “debt” under the FDCPA). Once again the commercial nature of the debt rebuts any conclusory allegation that there was a consumer debt subject to the FDCPA. And additional support for this conclusion is again found in the fact that the judgment in the first lawsuit was entered against Texas Wing corporate entities. That means there was no “obligation of a consumer” (15 U.S.C. § 1692a(5)) being collected in the second lawsuit. The second lawsuit essentially sought to hold the individuals liable for that corporate obligation; it was not seeking to collect a preexisting personal debt.