Nissou-Rabban v. Capital One Bank (USA), N.A.

Citation: 285 F. Supp. 3d 1136Docket: Case No.: 15cv1673–JAH (RBB)

Court: District Court, S.D. California; January 22, 2018; Federal District Court

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Capital One Bank (USA, N.A.) filed a Motion to Strike parts of Sandy Nissou-Rabban's Second Amended Complaint (SAC) and a Motion to Dismiss the SAC, both under the Federal Rules of Civil Procedure. Nissou-Rabban also sought permission to file an amended complaint with class action allegations. After thorough review, the Court granted Nissou-Rabban's motion to amend, denied Capital One's motion to strike, and denied the motion to dismiss.

In the SAC, Nissou-Rabban alleges violations of the Fair Credit Reporting Act (FCRA) and California's Consumer Credit Reporting Agencies Act (CCRAA) due to Capital One's inaccurate reporting of debts discharged in bankruptcy and its failure to investigate disputed credit report information. The factual background includes Nissou-Rabban opening accounts with Capital One, falling behind on payments, and eventually having those accounts charged off in 2013. After filing for Chapter 7 bankruptcy in November 2014, her debts to Capital One were discharged in February 2015. However, her credit report continued to reflect the status of the accounts as 'charged off' rather than 'discharged in bankruptcy.' 

Nissou-Rabban disputed the reporting with Equifax, asserting that the accounts should be marked as discharged, and alleges that Capital One did not adequately investigate her dispute and has a policy of failing to notify credit reporting agencies about discharged debts. She claims this policy negatively impacts her and similarly situated class members' ability to secure credit or employment, prompting her legal action against Capital One.

Plaintiff filed a lawsuit against Defendants Capital One, Nordstrom, Inc., and Equifax Information Services LLC on July 28, 2015, alleging violations of the Fair Credit Reporting Act (FCRA) and California Consumer Credit Reporting Agencies Act (CCRAA). A Motion to Dismiss was filed by Defendants on November 20, 2015, and in December 2015, Nordstrom and Equifax were dismissed with prejudice. On September 21, 2016, the Court granted the Motion to Dismiss without prejudice. Subsequently, Plaintiff filed a Second Amended Complaint (SAC) on October 21, 2016. Defendants then filed a Motion to Strike parts of the SAC and a Motion to Dismiss the SAC. The Court took all motions under submission.

The legal standard for a Motion to Strike, pursuant to Federal Rule of Civil Procedure 12(f), allows a court to strike 'immaterial, impertinent, or scandalous matter' to streamline litigation and avoid unnecessary costs. The court must view pleadings favorably to the nonmoving party and will only strike pleadings that are unrelated to the controversy, confuse issues, or prejudice a party.

Defendant argues that Plaintiff's attempt to join a punitive class and add allegations violates a prior Scheduling Order by exceeding the deadline for joining new parties. Additionally, Defendant claims the Court's prior order did not allow for the addition of parties or class allegations. In response, Plaintiff contends her amendments comply with the existing order since it lacked limitation language, and asserts good cause for the eight-month delay due to a deposition occurring after the order. Plaintiff also argues that Defendant should be estopped from enforcing the Scheduling Order due to previous extensions granted by her.

A motion to strike gives the Court significant discretion regarding whether to remove allegations from a complaint, as established in precedent. The Court agrees with the Plaintiff that the Motion to Dismiss Order permitted the amendment of the First Amended Complaint within thirty days and did not impose further restrictions. Although the Plaintiff added a new party and class allegations after the Scheduling Order's deadline, she demonstrated good cause for this delay. Even if the amendment is procedurally questionable, it does not qualify as 'redundant, impertinent, immaterial, or scandalous' under Federal Rule of Civil Procedure (Fed. R. Civ. P.) 12(f). Consequently, the Court denies the Defendant's Motion to Strike.

Regarding the Plaintiff's Motion for Leave to Amend, Fed. R. Civ. P. 15(a) allows for amendments after responsive pleadings when the court grants leave, which is typically given freely when justified. Factors influencing this decision include undue delay, bad faith, potential prejudice to the opposing party, futility, and prior amendments. The most critical factor is whether the amendment would prejudice the nonmovant, who carries the burden of proof against granting leave to amend.

The Plaintiff argues that good cause exists for her delay in amending the complaint to include class allegations, stemming from her inability to gather necessary information until after a deposition of the Defendant's key witness. The Defendant contests this, asserting that the Plaintiff has not demonstrated good cause under Rule 16, claims the amendment would cause undue prejudice and is futile, and suggests it was made in bad faith. However, the Court finds sufficient good cause for the delay, supported by a declaration from Plaintiff's counsel citing the deposition as the basis for class allegations, which occurred after the deadline. The Court also finds no evidence of bad faith. While the Defendant claims that the amendment will increase litigation costs and prolong the case, the Court concludes that additional expenses or time do not equate to undue prejudice.

Plaintiff's Second Amended Complaint (SAC) retains its original substantive claims while introducing new legal theories regarding Defendant's internal policies, which were not previously known at the time of filing the First Amended Complaint (FAC). Late amendments with new theories are generally viewed unfavorably if the party was aware of relevant facts from the start of the case. However, the Defendant has benefited from significant work product accumulated during litigation. Under Federal Rule of Civil Procedure 15(a), amendments should be allowed when justice requires, and Plaintiff's delay in presenting class allegations is justified by information revealed during Defendant’s deposition. Consequently, the Court grants Plaintiff's Motion for Leave to Amend.

Regarding motions to dismiss under Rule 12(b)(6), a dismissal is appropriate when a complaint fails to present a legitimate legal theory or lacks sufficient factual allegations. The plaintiff must provide a concise statement of the claim and notify the defendant of the grounds for the claim, as stipulated in Rule 8(a)(2). To avoid dismissal, the complaint must include factual details that plausibly suggest the defendant's liability. Courts assess plausibility contextually, relying on judicial experience and common sense, and must assume the truth of all factual allegations while viewing them favorably for the nonmoving party. Legal conclusions, however, are not granted the same presumption. The court may consider various documents and facts when ruling on a motion to dismiss and should allow leave to amend unless the complaint is irreparable.

Plaintiff alleges a violation of the Fair Credit Reporting Act (FCRA), specifically under 15 U.S.C. § 1681 et seq. The FCRA, enacted in 1970, aims to ensure fair credit reporting, enhance banking efficiency, and protect consumer privacy. It imposes duties on furnishers of credit information to ensure the accuracy of credit reports. Section 1681s-2(a) prohibits furnishers from reporting known or suspected inaccurate information, but there is no private right of action for this section. Conversely, Section 1681s-2(b) establishes a private right of action and mandates that furnishers conduct investigations upon receiving notice of a consumer dispute from a Credit Reporting Agency (CRA). These duties do not arise from direct consumer notifications. Liability under subsection (b) occurs when a furnisher fails to report a bona fide dispute that could affect the understanding of the reported debt.

Defendant moves to dismiss the FCRA claims, contending that Plaintiff has not alleged that Capital One's reported account information was inaccurate or that it failed to investigate adequately. Defendant claims that Plaintiff has not made a prima facie case of inaccuracy, particularly by not providing essential dates related to the account reporting. The court previously noted that Plaintiff's First Amended Complaint (FAC) lacked necessary dates to substantiate her claims, such as the timing of the charged-off reporting relative to her bankruptcy proceedings. Although Plaintiff asserts in her Second Amended Complaint (SAC) that the historical reporting of "Charged Off" was accurate, she argues that the inaccuracy lies in Capital One's ongoing reporting of her accounts as "Charged Off" despite notifications of their discharge in bankruptcy.

Plaintiff alleges that Defendant inaccurately reported her accounts in May 2015, despite the accounts being discharged in bankruptcy in February 2015. The court previously dismissed Plaintiff's First Amended Complaint (FAC) due to vague allegations about derogatory reporting post-bankruptcy petition date, clarifying that the discharge date is critical. In her Second Amended Complaint (SAC), Plaintiff acknowledges that Capital One's reporting as "charged off" before the discharge was accurate but claims inaccuracies arose post-discharge due to Capital One's failure to correct the reporting. 

Plaintiff cites violations of Metro 2 guidelines, asserting they require furnishers to update accounts discharged in bankruptcy with an "E" notation. Defendant counters that the SAC does not specify applicable Metro 2 guidelines for their situation, arguing that the guidelines do not obligate furnishers who have sold or transferred debt to update the status post-discharge. However, the court finds that the SAC sufficiently alleges a violation of Metro 2 standards, especially since the guidelines imply a duty to report new statuses for discharged accounts.

Defendant further contends that mere noncompliance with Metro 2 guidelines does not constitute a valid claim under the Fair Credit Reporting Act (FCRA). They reference case law to support this claim, although the court clarifies that these cases do not definitively state that deviations from Metro 2 guidelines cannot support FCRA claims. The allegations regarding Defendant's noncompliance are deemed sufficient for the purposes of a motion to dismiss, as all allegations and inferences must be viewed favorably towards the Plaintiff.

Plaintiff's Second Amended Complaint (SAC) alleges that her credit was negatively impacted due to Defendant's non-compliance with the Metro 2 guidelines, claiming that such deviation leads to inaccurate or misleading credit reporting. She cites a precedent, Nissou-Rabban v. Capital One Bank, where a court allowed Fair Credit Reporting Act (FCRA) claims based on improper Metro 2 reporting. However, the Defendant argues that the current case involves accurate reporting prior to bankruptcy discharge, contrasting it with Nissou-Rabban, where reporting was deemed inaccurate during bankruptcy. The court finds this distinction unconvincing, asserting that violations of Metro 2 can support an FCRA claim. Yet, it agrees with Defendant's view that historically accurate information does not become inaccurate post-bankruptcy discharge as long as it conveys a complete picture to future creditors. The Sheridan case supports this, indicating that if a credit report clearly states a debt was discharged, historical negative information is less likely to adversely affect credit decisions. The court notes that Plaintiff's credit report does not indicate her debt was discharged, leading to the conclusion that the reporting was not inaccurate, but rather incomplete.

The Ninth Circuit has determined that a credit report item can be deemed 'incomplete or inaccurate' under the Fair Credit Reporting Act (FCRA) if subsequent events affect the accuracy of initially correct information. In Carvalho v. Equifax Info. Servs. LLC, the court emphasized that barring claims based on subsequent inaccuracies would undermine the FCRA's consumer protection goals. The Court found that the Plaintiff provided enough facts to suggest that the Defendant's reporting may be misleading when all allegations are taken as true.

To prevail, the Plaintiff must demonstrate that the industry standard requires updating the status of accounts discharged in bankruptcy, show that Capital One deviated from this standard, and establish how this deviation could negatively impact credit decisions. The court also addressed the Defendant's argument for dismissal based on insufficient allegations regarding the investigation into disputed information. Specifically, the Defendant claimed that without details of the Plaintiff's dispute letter to Equifax, the reasonableness of their investigation could not be assessed. The Plaintiff countered that her Second Amended Complaint (SAC) included relevant information to show the investigation's inadequacy.

However, the court noted that the Plaintiff's failure to include the letter’s contents makes it challenging to judge the investigation's reasonableness. The court reiterated that an investigation is not deemed unreasonable merely because it leads to an unfavorable outcome for the consumer. The Plaintiff also alleged that the Defendant had a policy of not updating credit reports post-bankruptcy discharge, asserting this policy hinders reasonable investigations. This claim suggests that the Defendant pressures individuals to pay debts they are no longer legally obliged to, thereby maintaining inaccurate information on credit reports.

Plaintiff contends that Defendant cannot conduct a reasonable investigation due to an inherently unreasonable policy maintained by Capital One, despite limited factual support for this claim. A reasonable inference suggests that Defendant lacks the capacity to investigate effectively under such a policy. Defendant possesses the relevant documents concerning its policies, placing it in the best position to clarify these issues. Consequently, the court denies Defendant's Motion to Dismiss regarding the Fair Credit Reporting Act (FCRA) claim.

For the California Consumer Credit Reporting Agencies Act (CCRAA) claim, Defendant argues for dismissal on grounds of insufficient allegations or preemption by the FCRA. Plaintiff cites California Civil Code Section 1785.25(a), which prohibits furnishing incomplete or inaccurate information to consumer credit reporting agencies. Although the FCRA typically preempts state law claims related to information furnishers, it does not preempt claims under Section 1785.25(a). The court notes that Plaintiff's Second Amended Complaint (SAC) claims Defendant violated the CCRAA by providing inaccurate information knowingly. The CCRAA's standards for accuracy align with those of the FCRA, making federal judicial interpretations relevant for state claims. Plaintiff alleges that Defendant has systematically failed to update credit information, knowingly violating the law. The court concludes that, taking all allegations as true, there is a reasonable inference that Defendant was aware of the inaccuracies. Therefore, Defendant's Motion to Dismiss the CCRAA claims is also denied.

Defendant's Motion to Strike is denied, while Plaintiff's Motion for Leave to Amend is granted. Additionally, Defendant's Motion to Dismiss is denied concerning both the Fair Credit Reporting Act (FCRA) and California Consumer Credit Reporting Agencies Act (CCRAA) claims. The term "charged off" refers to accounts deemed as bad debt by creditors, a point not disputed in the case despite not being specifically alleged in the Second Amended Complaint (SAC). The Court will evaluate the potential prejudice to Defendant from allowing the amended complaint, particularly regarding the new class action allegations, in a subsequent section. The Metro 2 format, used for electronic data reporting by credit agencies, was voluntarily adopted by Defendant. Defendant contends that the provided Metro 2 guidelines do not clarify how to report a charged-off account sold to a third party and included in bankruptcy. The Court accepted these guidelines as they were referenced but not attached to the complaint, with their authenticity unchallenged.