2018-00233170-CU-BT

Nabil Samaan vs. Wells Fargo Bank, N.A.

Nature of Proceeding: Hearing on Demurrer to Plaintiff’s Second Amended Complaint

Filed By: Quinn Jr., Thomas P.

** If any party requests oral argument, then at the time the request is made, the requesting party shall inform the court and opposing counsel / opposing party in propria persona of the specific cause(s) of action or issue(s) on which oral argument is sought. **

The demurrer of Defendants Equifax Inc. and Equifax Information Services, LLC’s (collectively “Equifax”) is SUSTAINED in part without leave to amend and OVERRULED in part.

Overview

In the second amended complaint (SAC), Plaintiff Nabil Samaan (Plaintiff) alleges that he owns multiple residential properties, which he purchased with loans serviced by co-defendants Wells Fargo Bank, N.A., Cenlar Agency, Inc. and PennyMac Loan Services, Inc. (the Servicers). The Servicers report Plaintiff’s mortgage payment information to Equifax. Plaintiff faults the Servicers for “intentional, negligent or otherwise improper account, service and other unfair or wrongful business practices related to the mortgages and property insurances for said properties, which has resulted in damages to Plaintiff,” including erroneously reporting to credit reporting agencies that his loans were delinquent. (SAC, ¶¶ 14, 16.)

Plaintiff alleges that Equifax owed him a duty because they are “entrusted with making sure that information reported to them by third parties about Plaintiff is accurate. So, when Plaintiff reported to them that information from third parties had been falsely or otherwise inaccurately reported, said Defendants owe Plaintiff a duty to conduct an inquiry and/or investigation into the information reported by such third parties.” (Id., ¶ 55.) Plaintiff alleges that he disputed the Servicers’ reports and asked Equifax to correct them. Equifax allegedly failed to inquire / investigate, continued to report the false information and issue false / inaccurate credit information and consumer reports that were disseminated to third parties.

The SAC contains causes of action against Equifax for negligence, violation of California Fair Debt and Collection Practices Act (the Rosenthal Act), and violation of B&P Code § 17200. Equifax demurs to each of these causes of action on the ground that the allegations fail to state facts sufficient to state a valid cause of action. Plaintiff opposes.

The court sustained Equifax’s demurrer to the subject causes of action as stated in the first amended complaint (FAC). Leave to amend was granted.

Discussion

Negligence

The demurrer is OVERRULED.

Plaintiff’s theory is that Equifax negligently failed to correct or investigate the accuracy of the delinquencies the Servicers reported. When it sustained Equifax’s demurrer to the negligence cause of action in the FAC, the court did so based on principles of preemption discussed in Cisneros v. Trans Union, L.L.C. (D. Haw. 2003) 293 F.Supp.2d 1167. (See Order of 12/06/18.) The court in that case noted that the Federal Credit Reporting Act (FCRA) preempts consumers’ negligence lawsuits against credit reporters absent allegations of malice or willful intent to injure. (293 F.Supp.2d, p. 1176.) Equifax argues that, despite some amendments to the allegations, Plaintiff still has not alleged facts that can be construed to establish the requisite mental state. In making this argument, Equifax acknowledges new allegations that it failed to investigate or correct inaccuracies even though Plaintiff has attempted to substantiate the inaccuracies since filing this lawsuit. (See Moving Memo. at 4:11-5:6.) Equifax argues that such post-filing allegations are insufficient for multiple reasons.

First, Equifax argues that the post-filing allegations are not properly incorporated into the negligence cause of action because they only appear in subsequent causes of action. That argument lacks merit because some post-filing allegations appear in general allegations incorporated into the negligence cause of action. (See SAC, ¶ 20 [“Since the filing of this action, Plaintiff has provided additional documentation to Defendants establishing that their information is false or otherwise inaccurate…[t]o date, Plaintiff has been unable to get matters resolved”]; id., ¶ 46 [incorporating by reference all preceding allegations].)

Next, Equifax argues that the post-filing allegations cannot be construed to establish malice or a willful intent to harm because “[c]onduct in litigation does not trigger a credit reporting agency’s duty to conduct a reinvestigation of disputed credit information.” (Moving Memo. at 4:22-23.) On the one hand, Equifax cites Stewart v. Equifax Info. Svcs. (D. Kan. 2018) 320 F.Supp.2d 1186 for the proposition that it does not owe Plaintiff a continuing duty to revisit his dispute each time he forwards additional information. Stewart, however, only holds that those furnishing information to credit reporting agencies owe no continuing duties. (See 320 F.Supp.2d, pp. 1201-1202.) Absent an authority extending Stewart to credit reporting agencies themselves, Equifax has not established the nonexistence of any continuing duty.

On the other hand, Equifax argues that Plaintiff’s post-filing allegations cannot be construed to establish scienter because Equifax is only required to reinvestigate where the consumer “directly” notifies it of the dispute. (See Moving Memo. at 5:1-5.) In Equifax’s view, Plaintiff’s post-filing allegations cannot be construed to establish such a direct notification, and instead reflect indirect notification by way of civil discovery through counsel.

At this juncture, the court is limited to Plaintiff’s allegations and other judicially noticeable materials. In paragraph 20 of the SAC, Plaintiff alleges that “[s]ince the filing of this action, Plaintiff has provided additional documentation to Defendants establishing that their information is false or otherwise inaccurate[.]” In the next sentence, he alleges that he “also consulted third-party legal counsel regarding his claims.” Liberally construed, these allegations establish that Plaintiff sent documents directly to Equifax and advised of falsities in Plaintiff’s credit report.

To state malice under the FCRA, a consumer may tender facts that the reporting agency acted “’with knowledge that [the published information] was false or with reckless disregard of whether it was false or not.’” (Gorman v. Wolpoff & Abramson, LLP (9th. Cir. 2009) 584 F.3d 1147, 1168.) Given his allegation that he produced documentation establishing the falsity of his credit information, Plaintiff has met this standard, and the demurrer to the negligence cause of action is overruled. Whether the evidence will substantiate Plaintiff’s allegations is obviously a question for another day.

Because the court concludes that Plaintiff has allege the malice required to advance a common law negligence cause of action against a credit reporting agency, it does not address Plaintiff’s argument that the demurrer may be overruled for the independent reason that the allegations state statutory claims under the FCRA and its California counterpart.

The Fifth Cause of Action for Violation of the Rosenthal Act

The demurrer is SUSTAINED without leave to amend.

The court sustained Equifax’s demurrer to the Rosenthal cause of action in the FAC because the Rosenthal Act only applies to debt collectors, not credit reporting agencies. The FAC does not contain allegations establish that Equifax is a debt collector. In opposition to Equifax’s demurrer, Plaintiff merely argues that he should be allowed to amend his allegations to state other statutory claims.

The demurrer is sustained. If Plaintiff wishes to add new causes of action, he must do so by way of a motion for leave to amend pursuant to CRC 3.1324.

The Sixth Cause of Action for Violation of B&P Code § 17200

The demurrer is SUSTAINED without leave to amend.

As it did on demurrer to the FAC, the court concludes that the allegations do not establish a violation of § 17200. Plaintiff’s common law negligence cause of action cannot support a § 17200 cause of action. (See State Farm Fire & Cas. Co. v. Superior Court (1996) 45 Cal.App.4th 1093, 1103.) Because the allegations do not state a Rosenthal Act violation, that cause of action does not assist Plaintiff either.

In his opposition, Plaintiff argues that the allegations can be construed to establish an unfair or fraudulent business practice under § 17200. But even if Plaintiff were correct, he has not alleged facts entitling him to any relief under § 17200. Section § 17200 only affords equitable relief, not damages. There are no allegations that Equifax obtained anything of value from Plaintiff that it could equitably restore.

Although Plaintiff generally requests leave to amend his sixth cause of action, he has not demonstrated a reasonable likelihood he can allege facts entitling him to equitable relief from Equifax. Consequently, leave to amend is denied.

Disposition

The demurrer to the fourth cause of action is overruled.

The demurrers to the fifth and sixth causes of action are sustained without leave to amend.

Equifax shall file and serve its answer(s) to the SAC no later than 2/28/19.

The minute order is effective immediately. No formal order pursuant to CRC 3.1312 or further notice is required.