Recovering Statutory or Punitive Damages Under the Fair Credit Reporting Act

Under the Fair Credit Reporting Act, a consumer can only recover statutory or punitive damages if the defendant’s violation of the statute was “willful.” 15 U.S.C. § 1681n.

In the Supreme Court’s decision in Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007), the Court resolved a circuit split and found that willful violations include both knowing and reckless violations of the statute. In describing recklessness, the Court held that a “company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.” Id. at 69.

Thus, under Safeco, a company with a reasonable interpretation of the FCRA cannot be said to have behaved recklessly. But does a defendant invoking this defense need to show proof of a reasonable reading of the statute? Or can a defendant simply assert a “reasonable reading” defense based on a post-litigation interpretation of the statute? This distinction makes a difference as the likelihood of success for a defendant on a Rule 12(b)(6) motion or summary judgment increases if the defendant bears no evidentiary burden. The Safeco Court in a footnote addressed what evidence is relevant in considering whether an interpretation of the FCRA is reckless:

Respondent-plaintiffs argue that evidence of subjective bad faith must be taken into account in determining whether a company acted knowingly or recklessly for purposes of § 1681n(a). To the extent that they argue that evidence of subjective bad faith can support a willfulness finding even when the company’s reading of the statute is objectively reasonable, their argument is unsound. Where, as here, the statutory text and relevant court and agency guidance allow for more than one reasonable interpretation, it would defy history and current thinking to treat a defendant who merely adopts one such interpretation as a knowing or reckless violator. Congress could not have intended such a result for those who followed an interpretation that could reasonably have found support in the courts, whatever their subjective intent may have been.

Id. at n. 20. The scope of this footnote has been the subject of much debate among the courts. Defendants argue that the footnote bars any inquiry into a company’s pre-litigation interpretation of the FCRA because “subjective bad faith” is irrelevant. Plaintiffs, on the other hand argue, that while the reasons for why the company “adopt[ed]” a particular interpretation may be irrelevant, a company must still show that it actually “adopt[ed]” the interpretation it asserts in litigation.

Some courts have found that a defendant does not need to have a pre-litigation reading of the FCRA finding that such an inquiry was barred under footnote 20 of Safeco. See, e.g., Long v. Tommy Hilfiger, USA, 707 F.3d 241, 252 (3d Cir. 2012); Fuges v. Southwest Financial Services, Ltd, 707 F.3d 241, 252 (3d Cir. 2012). Recently, however, other courts have found that a defendant invoking Safeco necessarily needs to show that it relied on a particular interpretation of the statute. Haley v. TalentWise, Inc., No. C13-1915 MJP, 2014 WL 1648480 at *2 (W.D. Wash. Apr. 23, 2014); Singleton v. Domino’s Pizza, LLC, No. CIV.A. DKC 11-1823, 2012 WL 245965 (D. Md. Jan. 25, 2012); Heaton v. Soc. Fin., Inc., No. 14-CV-05191-TEH, 2015 WL 6744525, at *6 n.4 (N.D. Cal. Nov. 4, 2015). (Lawyers at Berger Montague represented the successful plaintiffs in Haley, Singleton, and Heaton.)

Recently, Judge Payne of the Eastern District of Virginia waded into the debate and found that a defendant does need to provide proof that it interpreted the statute and relied on such an interpretation. Milbourne v. JRK Residential Am., LLC, No. 3:12CV861, 2016 WL 4265741 (E.D. Va. Aug. 11, 2016)

In so finding, the court discussed Long and Fuges, and found those decisions to be unpersuasive:

Indeed, the footnote on which Long, Fuges, and JRK rely clearly contemplates that a court can, and should, determine a company’s “reading” of the statute and consider the reasonableness of that reading without any inquiry into subjective bad faith. And, that is perfectly logical because having an interpretation and relying on it at the time of the allegedly offending conduct is not a matter of subjective bad faith at all. Rather, whether a company had, and relied upon, an interpretation at the time it allegedly violated the act is an objectively demonstrable inquiry that simply determines what the company knew about the law at the time that it took the actions that are alleged to have violated the law, and whether it acted in reliance on that view of the law.

Id. at *7. As far as the authors of this blog are aware, the opinion in Milbourne is the first to explicitly find that Long and Fuges were incorrectly decided. Given the clear split in authority and the number of FCRA class actions currently being litigated, the pre-litigation interpretation issue will surely continue to be hotly contested.

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John Albanese, Esq.

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John Albanese, Attorney with Berger & Montague, P.C.

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