Courts "should be reluctant to skip to the negligence or willfulness issue without answering the threshold question of whether the defendant violated the FCRA," the Ninth Circuit panel stressed.
Upholding a federal trial court’s grant of summary judgment to Ocwen Loan Servicing LLC on the factual record before it, a three-judge panel of the U.S. Court of Appeals for the Ninth Circuit rejected the plaintiff-consumers’ claim that the mortgage-loan servicer willfully violated the Fair Credit Reporting Act (15 U.S.C. § 1681n) when it obtained credit reports about consumers whose mortgage loans had been discharged in bankruptcy. The appellate panel discarded the consumers’ contention that Ocwen lacked a "permissible purpose" under the FCRA by continuing to obtain their credit reports after the bankruptcy discharges. The panel determined that Ocwen, which continued to hold liens on the consumers’ homes, reasonably interpreted the FCRA provision (§ 1681b(a)(3)(A)) as allowing the company to obtain the credit reports so as to offer the consumers alternatives to foreclosure. Further, noting that the lower court did not make a factual finding as to whether the loan servicer’s conduct constituted an FCRA violation but, rather, ruled "as a matter of law" that any violation could not have been willful, the Ninth Circuit panel asserted that, to "prevent the law in this area from stagnating, courts should be reluctant to skip to the negligence or willfulness issue without answering the threshold question of whether the defendant violated the FCRA" (Marino v. Ocwen Loan Servicing LLC, Oct. 20, 2020, Adelman, L.).
The three plaintiff-consumers filed for bankruptcy and then each eventually received a discharge of his or her respective personal liability for the underlying mortgage debt. Still, the liens on the plaintiffs’ homes survived the bankruptcies, and Ocwen, as the consumers’ mortgage loan servicer, held this type of lien on the consumers’ respective homes. After the bankruptcy discharges, Ocwen obtained the credit reports of the plaintiff-consumers.
Seeking statutory and punitive damages, the consumers alleged in their FCRA lawsuit that Ocwen willfully violated the FCRA when it obtained their respective credit reports when their mortgage loans had been discharged in bankruptcy proceedings. For a willful violation of the FCRA, the consumers were required to show that the mortgage loan servicer "either knowingly violated the Act or recklessly disregarded the Act’s requirements."
Respective stances of Ocwen, consumers. Ocwen took the stance that its periodic review of the consumers’ credit reports was justifiable because the consumers continued to hold the title to their homes and Ocwen continued to hold liens against the homes. In other words, a "credit relationship" between the parties continued along these lines as well. In contrast, the consumers contended that any issue of "willfulness" was not germane because the consumers had "surrendered and vacated" the mortgaged premises before Ocwen obtained their credit reports. Because they no longer lived in these homes and their personal liability for the mortgage debts had been discharged, "Ocwen couldn’t possibly have had legitimate reasons to continue reviewing their credit reports," the consumers contended. In reply, Ocwen maintained that it had viable reasons for continuing to review the consumers’ credit—for instance, seeking to determine whether the consumers’ "were eligible for alternatives to foreclosure or other ‘loss mitigation’ opportunities."
After the federal trial court granted summary judgment to Ocwen on the consumers’ FCRA claims, the consumers appealed to the Ninth Circuit.
Permissible purpose. First, the Ninth Circuit appellate panel examined the applicable "permissible purpose" section of the FCRA, which provides that a consumer report may be obtained when the user "intends to use the information in connection with a credit transaction involving the consumer on whom the report is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer" (15 U.S.C. § 1681b(a)(3)(A)).
In upholding the federal trial court’s determination that Ocwen did not violate the specified FCRA "permissible purpose" provision (§ 1681b(a)(3)(A)), the panel majority communicated that "we do not mean to suggest that there is never a point at which a mortgage servicer or lender will lack a permissible purpose to review the credit report of a consumer whose mortgage debt has been discharged. We imagine that if a consumer clearly informs the servicer or lender that he or she has no interest in avoiding foreclosure, then the servicer or lender might lack a permissible purpose for continuing to review the consumer’s credit. But to resolve this case, we do not need to identify the precise point at which review of the consumer’s credit must stop. All we hold is that, based on the evidence in the summary judgment record, a reasonable finder of fact could not conclude that Ocwen lacked a permissible purpose for obtaining the plaintiff’s credit reports."
No "willful" violation. Next, the appellate panel pointed out that, because the plaintiff-consumers sought "only statutory and punitive damages" (and not compensatory damages), to avoid summary judgment the consumers were required to present evidence allowing "a reasonable fact finder to reach two conclusions: (1) that Ocwen’s post-discharge credit inquiries violated the FCRA, and (2) that Ocwen’s violations were willful."
While the panel agreed with the trial court that a reasonable fact finder could not conclude that Ocwen’s alleged violations were "willful" under the FCRA (§ 1681n), the court observed that the trial court "addressed only the willfulness issue" and did not separately consider "whether Ocwen’s conduct amounted to a violation of the FCRA." While stating that it is not an "ironclad rule," the appellate panel underscored that it encouraged "courts in this circuit to determine whether the defendant committed a violation of the FCRA before turning to questions of negligence and willfulness."
Since the panel had already determined that the consumers did not adequately present evidence showing that Ocwen violated the "permissible purpose" prong of the FCRA, the panel concluded that "the issue of willfulness is essentially moot." At the same time, "for the sake of completeness," the panel stated its "agreement with the district court that Ocwen did not willfully violate the FCRA." Because the panel interpreted the FCRA "to mean what Ocwen thought it means, Ocwen could not have intentionally or recklessly misinterpreted the Act."
Concurring opinion. Circuit Judge Carlos Bea concurred in the result and in the reasoning on which the appellate panel affirmed the federal trial court’s grant of summary judgment to the mortgage loan servicer because the plaintiff consumers, who sought statutory and punitive damages under the FCRA (and not compensatory damages), "did not adduce evidence sufficient to raise a triable issue of fact as to the material issue—whether Ocwen recklessly or willfully violated the FCRA." However, Judge Bea concurred separately from the panel majority because he would not have included "discussion of two matters not essential to the determination of this case": (i) that Ocwen’s conduct did not constitute a statutory violation of the FCRA; and (ii) "a hypothetical, which Plaintiffs did not plead nor prove, that the majority states may constitute a statutory violation of the FCRA."
The case is No. 19-15530.
Attorneys: Scott C. Borison (Legg Law Firm LLP) and Peter A. Holland (Holland Law Firm PC) for Christopher Marino, Joshua Hardin, and Kristen Hardin. John Lynch (Troutman Sanders LLP) for Ocwen Loan Servicing LLC.
Companies: Ocwen Loan Servicing LLC
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