Burden of Proof Shifts to CRAs to Prove Procedures;MUST READ

Maximum Possible Accuracy
David A. Szwak

Burden of Proof Shifts to CRAs to Prove Procedures;MUST READ

Postby David A. Szwak » Wed Oct 26, 2005 5:15 pm

It seems that Guimond v. Trans Union Credit Info. Co., 45 F.3d 1329 (9th Cir. 1995) [Cal.], and Cahlin v. GMAC, 936 F.2d 1151, 1156 [11th Cir. 1991], may be read to hold that once a plaintiff demonstrates that inaccuracies exist in a credit report then the burden of proof shifts to the credit bureau-defendant to prove, as an affirmative defense, the presence of reasonable procedures. Plaintiff may present his case to the jury by merely showing an inaccuracy in the report. The issue of reasonable procedures should be defendant’s burden. A jury may infer from the inaccuracy that defendant failed to prove reasonable procedures.

David A. Szwak

Postby David A. Szwak » Thu Oct 27, 2005 5:47 pm

The Ninth and Eleventh Circuits have held that the defendant has the burden of proof. Guimond v. Trans Union, 45 F.3d at 1333 [9th Cir.]; Cahlin, 936 F.2d at 1156 [11th Cir.]. Only the D.C. Appellate Circuit and the Fourth Circuit have held otherwise. Stewart, 236 U.S.App.D.C. 146 [1984]; Dalton v. Capital Associated Industries, Inc., 257 F.3d 409, 416 [4th Cir. 2001] [noting the split].

Like Bank One, Equifax assumed that plaintiff must prove the unreasonableness of its procedures, however, courts are split on who bears the burden of proof under the parallel and analogous sections 1681e[b] and 1681i[a], with the latter, 1681i[a], being held to be a standard of “reasonable reinvestigation.” [[Dalton v. Capital Associated Industries, Inc., 257 F.3d 409, 416 [4th Cir. 2001]. Bruce v. First USA Bank, 103 F.Supp.2d 1135 [U.S.D.C. E.D. Mo. 2000]. One court specifically remarked: “...that §1681s-2[b] is analogous to §1681i[a], which courts have interpreted as imposing a reasonableness requirement despite the lack of such language in that provision.” Kronstedt v. Equifax, 2001 U.S.Dist.Lexis 25021, at p.48 [U.S.D.C. W.D. Wisc. 2001]. In accord: Thomas v. Trans Union LLC, 197 F.Supp.2d 1233 [U.S.D.C. Ore. 2002].]] All courts are consistent in holding that “reasonableness” is a question of fact reserved solely unto the jury. Guimond v. Trans Union, 45 F.3d, at 1333 [9th Cir.] ["The reasonableness of the procedures and whether the agency followed them will be jury questions in the overwhelming majority of cases."]; Andrews v. TRW Inc., 225 F.3d 1063, 1068 [9th Cir. 2000] reversed on other grounds, TRW v. Andrews, 534 U.S. 19, 151 L.Ed.2d 339, 122 S.Ct. 441, 447 [2001]; Dalton v. Capital Associated Industries, Inc., 257 F.3d 409 [4th Cir. 2001]; Mathews v. GEICO, 23 F.Supp.2d at 1164; Thomas v. Trans Union, LLC, 197 F.Supp.2d 1233 [U.S.D.C. Ore. 2002]; Crabill v. Trans Union, 259 F.3d 662, 664 [7th Cir. 2001]; Olwell v. Medical Info. Bureau, 2003 U.S.Dist.Lexis 442 [U.S.D.C Minn. 2003]; Thomas v. Trans Union, L.L.C., 197 F.Supp.2d 1233, 1237 [U.S.D.C. Or. 2002]; Batdorf v. Trans Union, 2002 U.S.Dist.Lexis 9489 [U.S.D.C. N.D. Cal. 2002]; Obabueki v. IBM, 145 F.Supp.2d 371, 379 [U.S.D.C. S.D. N.Y. 2001]; Cotto v. Jenney, 721 F.Supp. 5 [U.S.D.C. Mass. 1989].

David A. Szwak

Postby David A. Szwak » Thu Oct 27, 2005 8:26 pm

O'Brien v. Equifax Information Services, LLC
382 F.Supp.2d 733
E.D.Pa.,2005.

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).

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.

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).)

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 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.


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