Curative Measures: Subsequent Remedial Measures

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Curative Measures: Subsequent Remedial Measures Reply with quote

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Swinton v. Potomac Corp., 270 F.3d 794, 811(9th Cir. 2001) ("Curative measures simply do not tend to prove that a prior violation did not occur.")

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O'Brien v. Equifax Information Services, LLC,
382 F.Supp.2d 733, E.D.Pa., August 11, 2005 (No. Civ.A.03-CV-6583.)

[1] Title 15 U.S.C. § 1681e(b) provides: “Whenever a consumer reporting agency prepares a consumer report it shall follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates.” A case of negligent noncompliance with § 1681e(b) consists of four elements: (1) inaccurate information was included in a consumer's credit report; (2) the inaccuracy was due to defendant's failure to follow reasonable procedures to assure maximum possible accuracy; (3) the consumer suffered injury; and (4) the consumer's injury was caused by the inclusion of the inaccurate entry. Philbin v. Trans Union Corp., 101 F.3d 957, 963 (3d Cir.1996).

[2] [3] Equifax argues that the O'Briens, as a matter of law, fail to establish the second element of a § 1681e(b) claim, that the inaccuracy in their credit report was due to Equifax's failure to follow reasonable procedures to ensure maximum possible accuracy.FN7 Reasonable procedures are those that “a reasonably prudent person would undertake under the circumstances.” Philbin, 101 F.3d at 963 (internal quotations and citations omitted). “Judging the reasonableness of a credit reporting agency's procedures involves weighing the potential harm from inaccuracy against the burden of safeguarding against such inaccuracy.” Id. Typically, the question of whether a credit reporting agency followed reasonable procedures is reserved for a jury. See Cousin v. Trans Union Corp., 246 F.3d 359, 368 (5th Cir.2001); Cahlin v. General Motors Acceptance Corp., 936 F.2d 1151, 1156 (11th Cir.1991).


FN7. Equifax does not dispute that there was an inaccuracy in the O'Briens' consumer credit reports, the first element of a § 1681e(b) claim. Nor does Equifax contest that the O'Briens put forth sufficient evidence of injury and causation to go to a jury on the third and fourth elements of a § 1681e(b) claim.


In Philbin, the Third Circuit discussed three possible standards for plaintiff's burden of proof on the second element of a § 1681e(b) claim (hereinafter referred to as the “reasonable procedures element”). 101 F.3d at 963-66. The Third Circuit specifically declined to endorse any one of the three possible standards. Id. at 965. Under the most stringent possible standard, the burden of proving the second element remains with the plaintiff throughout the entire case, and the “plaintiff must minimally present some evidence from which a trier of fact can infer that the consumer reporting agency failed to follow reasonable procedures in preparing a credit report.” Philbin, 101 F.3d at 964 (citing Stewart v. Credit Bureau, Inc., 734 F.2d 47 (D.C.Cir.1984)). In order to survive summary judgment, the plaintiff must present “some unspecified quantum of evidence beyond mere inaccuracy.” Id. at 965.FN8


FN8. Even under the most stringent standard for the reasonable procedures element, there are “certain instances” when the “inaccurate credit reports by themselves can be read as evidencing unreasonable procedures.” Philbin, 101 F.3d at 964. Philbin only provided one example of these “certain instances:” if a credit reporting agency issued two inconsistent credit reports on the same consumer, those credit reports by themselves can provide sufficient grounds for inferring that an agency acted negligently in failing to verify information. Id. In the instant case, Equifax did not generate two inconsistent credit reports on the O'Briens.


*737 Under the least stringent possible standard for plaintiff's burden of proof on the reasonable procedures element, once a plaintiff demonstrates inaccuracies in a credit report, the burden shifts to the defendant to prove as an affirmative defense the presence of reasonable procedures. Philbin, 101 F.3d at 965. Thus, “prior to sending a § 1681e(b) claim to the jury, a credit reporting agency can usually only prevail if a court finds, as a matter of law, that the credit report was ‘accurate.’ ” or the defendant is able to “produce evidence that demonstrates as a matter of law that the procedures it followed were reasonable.” Id. (citing Guimond v. Trans Union Credit Information Co., 45 F.3d 1329 (9th Cir.1995); Cahlin, 936 F.2d 1151).

Under the “middle” possible standard, the burden of proving that the credit reporting agency failed to follow reasonable procedures remains with the plaintiff, even after the plaintiff demonstrates inaccuracies in a credit report. As with the least stringent standard, the “plaintiff may present his case to the jury on the issue of reasonable procedures merely by showing an inaccuracy in the consumer report.” Philbin, 101 F.3d at 965. Also, under this middle standard, “once a plaintiff has demonstrated inaccuracies in the report, a defendant could prevail on summary judgment only if it were to produce evidence that demonstrates as a matter of law that the procedures it followed were reasonable.” Philbin, 101 F.3d at 965.

Under two of the three possible standards discussed in Philbin, the O'Briens satisfy their burden at the summary judgment stage simply because they have produced unrebutted evidence of an inaccuracy in their credit report. (Pl.'s Resp. Ex. J (letter from HSBC stating that the O'Briens never had an HSBC account in bankruptcy).)

[4] The O'Briens also survive summary judgment under the most stringent standard because, by presenting evidence of additional or alternative procedures that Equifax could have taken, the O'Briens “minimally present some evidence from which a trier of fact can infer that the consumer reporting agency failed to follow reasonable procedures in preparing a credit report.” Philbin, 101 F.3d at 964. The O'Briens present evidence of an automated procedure that cross-references reports that a consumer has an account that is included in bankruptcy with the public records section of the consumer's credit file. (Hudziak Dep. at 21-23.) In generating a consumer credit report under this automated procedure, if the consumer supposedly has an account that is included in bankruptcy but there is no public record of the consumer ever filing bankruptcy, then the consumer's credit report would not indicate that the account was included in bankruptcy. Id. Had this procedure been in place in June 2003, there would not have been an inaccuracy in the O'Briens' credit report. ( Id. at 22.) A trier of fact could find that a reasonably prudent person would undertake such automated cross-referencing whenever there is an account reported as being included in bankruptcy. A trier of fact could also find that the potential harm from an inaccurate report that an account is included in bankruptcy outweighs the burden of automatically cross-referencing such reports with the public records section of a consumer's credit file. Thus, the O'Briens present evidence as to the second element of their § 1681e(b) claim, that Equifax's failure to undertake *738 such cross-referencing in June 2003 was a failure to follow reasonable procedures to assure maximum possible accuracy and that this failure caused the inaccuracy in the O'Briens' credit report.FN9


FN9. The O'Briens preemptively argue in their response to Equifax's motion that evidence of this automated procedure is not excluded by Federal Rule of Evidence 407 governing the admissibility of subsequent remedial measures. (Pl.'s Resp. at 17 n. 6.) Equifax does not make such an objection in its briefs. Therefore, there is no need to address the admissibility of this evidence.


Equifax argues that the procedures it followed were reasonable as a matter of law. (Def.'s Reply at 9-13.) Equifax states, “it is reasonable for Equifax to rely upon the accuracy of information from credit grantors and absent prior notice that a furnishing source is unreliable, it should not be required to engage in an investigation just because the account was reported as included in bankruptcy.” (Def.'s Reply at 13.) Equifax argues that HSBC is one such reliable source and that it was reasonable for Equifax to report information that it received from HSBC. Prior to the O'Briens' contacting Equifax, Equifax had no notice that the information it received from HSBC regarding the O'Briens' account was unreliable. Right after the O'Briens' contacted Equifax, Equifax removed the information from their credit report. According to Equifax, without prior notice that the information from HSBC was unreliable, Equifax's inclusion of the information from HSBC in the O'Briens' credit report constituted reasonable procedures.

In making this argument, Equifax relies on Sarver v. Experian Information Solutions, 390 F.3d 969 (7th Cir.2004). In Sarver, the defendant, Experian, inaccurately reported that plaintiff, Sarver, had an account that was included in bankruptcy. 390 F.3d at 970. Experian presented evidence that it reported credit information that originated from over 40,000 sources. Sarver argued that Experian, in generating his credit report, should have noticed that no other accounts on Sarver's credit report were shown to be involved in a bankruptcy. Id. at 972. The Seventh Circuit found that, in attempting to show that Experian failed to follow reasonable procedures, Sarver was essentially asking that “each computer-generated report be examined for anomalous information and, if it is found, an investigation be launched.” Id. The court held that “[i]n the absence of notice of prevalent unreliable information from a reporting lender, which would put Experian on notice that problems exist, we cannot find that such a requirement to investigate would be reasonable given the enormous volume of information Experian processes daily.” Id.FN10


FN10. In coming to its conclusion, the Sarver court noted that:

The Commentary of the Federal Trade Commission [“FTC”] to the FCRA, 16 C.F.R. pt. 600, app., section 607 at 3.a, states that the section does not hold a reporting agency responsible where an item of information, received from a source that it reasonably believes is reputable, turns out to be inaccurate unless the agency receives notice of systemic problems with its procedures.

390 F.3d at 972. The FTC's commentary to the FCRA does not control in the instant case. Indeed, the FTC's commentary specifically provides that “[t]he interpretations in the Commentary are not trade regulation rules or regulations, and ... they do not have the force or effect of statutory provisions.” 16 C.F.R. § 600.2. Additionally, in the same subsection noted by the Sarver court, the FTC discusses the reliability of sources and states, “Requirements are more stringent where the information furnished appears implausible or inconsistent....” 16 C.F.R. pt 600, app., section 607 at 3.d. In the instant case, the information allegedly provided by HSBC appeared “implausible or inconsistent.” The O'Briens did not have any other accounts that were reported as being included in bankruptcy and there were no public records of the O'Briens ever filing for bankruptcy. Therefore, the FTC commentary indicates that the requirements placed on Equifax should be more stringent than simply repeating information received from a supposedly reputable source.


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Evidence of the clean up might be introduced for purposes other than proof of culpability. See eg. Swinton v. Potomac Corp., 270 F.3d 794, 811(9th Cir. 2001) discussing Fed.R.Evid. 407 and the instances where the evidence may be admissible.