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Benson v. Wells Fargo Bank, N.A.

United States District Court, D. South Dakota, Western Division

June 26, 2017

WELLS FARGO BANK, N.A., Defendant.




         This is an action plaintiff Charles Scott Benson brought against defendant Wells Fargo Bank, N.A. (Docket 1). Defendant filed a motion to dismiss counts nine and ten of plaintiff's first amended complaint. (Docket 5). Plaintiff filed a motion for leave to file a second amended complaint. (Docket 20). Plaintiff also filed a motion to compel defendant's payment of the fees associated with defendant's deposition of plaintiff's expert witness. (Docket 15).


         Plaintiff applied for a job with defendant's home mortgage division on September 25, 2007. (Docket 1-1 at p. 3). Recruiters affiliated with defendant had been in contact with plaintiff about the job since October 2006. Id. at pp. 1-2. Plaintiff indicated to the recruiters he had a misdemeanor theft conviction from several years earlier. Id. at pp. 2-4. In his job application plaintiff disclosed his conviction. Id. at pp. 3-4. The recruiters told plaintiff his conviction would not affect his employment. Id. Defendant completed a background check of plaintiff, offered him a job and he started work in November 2007. Id.

         In January 2011, defendant screened the backgrounds of many of its employees. Id. at p. 5. Defendant states it conducted the screenings to comply with recently-enacted federal law. (Docket 6 at p. 2). The screening of plaintiff revealed the conviction he disclosed in his original job application. (Docket 1-1 at p. 5). Defendant believed the Financial Institutions Reform, Recovery and Enforcement Act (“FIRRE”), 12 U.S.C. § 1829(a), required terminating plaintiff. (Docket 1-1 at p. 5). FIRRE prohibits a person convicted of a crime involving dishonesty from working in plaintiff's position at a federally insured institution. 12 U.S.C. § 1829(a); (Docket 1-1 at p. 5). Defendant terminated plaintiff's employment on February 15, 2011. (Docket 1-1 at p. 5).

         Plaintiff filed his original complaint against defendant in South Dakota state court on March 18, 2011. (Docket 14-3). The complaint revolved around defendant firing plaintiff and included nine counts: breach of contract, promissory estoppel, fraudulent inducement, fraudulent concealment, fraud and deceit, negligent misrepresentation, intentional infliction of emotional distress, negligent infliction of emotional distress and punitive damages. Id. at pp. 5-11. On June 6, 2016, the state court granted plaintiff leave to file an amended complaint, and he filed his first amended complaint on June 13, 2016. (Docket 1-1).

         Plaintiff's first amended complaint introduces two new counts. Id. at pp. 12-32. At count nine of the first amended complaint plaintiff sets forth a claim based on violations of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681. (Docket 1-1 at pp. 12-16). Plaintiff claims defendant “failed to comply with the procedural protections and requirements of the FCRA when it used the consumer reports of [p]laintiff and hundreds of other employees to make adverse employment decisions resulting in their termination.” Id. at p. 12. Plaintiff alleges:

59. Years after hiring Plaintiff, Defendant ordered a background check, which is a consumer report, from First Advantage Background Services Corp. ("First Advantage"), which is a consumer reporting agency . . . .
66. . . . Defendant failed to provide a clear and conspicuous written disclosure in a document that consists solely of that disclosure to Plaintiff, that a consumer report may be obtained for employment purposes.
67. Defendant further failed to obtain a valid authorization to procure a consumer report for employment purposes from Plaintiff.
68. Defendant further failed to provide Plaintiff with the required notice and a copy of the consumer report upon which it based its decision to take adverse employment action against Plaintiff, within the timeframes required under the FCRA.
69. Defendant further failed to provide Plaintiff with a written summary of his FCRA rights prior to taking adverse employment action against him.
70. Defendant terminated Plaintiff without providing any advance notice of such adverse action.

Id. at pp. 13-14. Paragraphs 66 and 67 delineate violations of the FCRA's disclosure and authorization requirements in 15 U.S.C. §§ 1681b(b)(2)(A)(i)-(ii). This section provides that when a consumer report is procured for employment purposes, the consumer must first authorize the procurement in writing and receive “a clear and conspicuous disclosure . . . in a document that consists solely of the disclosure” before the report is obtained. Id. Paragraphs 68 and 69 of plaintiff's first amended complaint assert violations of the FCRA's “[c]onditions on use [of consumer reports] for adverse actions . . . .” 15 U.S.C. § 1681b(b)(3) (bold omitted). These conditions require the consumer to receive a copy of the credit report and a description of the consumer's rights before “any adverse action based in whole or in part on the report” may occur. 15 U.S.C. §§ 1681b(b)(3)(A)(i)-(ii).

         The first amended complaint's tenth count sets forth a claim based on violations of the Racketeer Influenced Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1962, 1964. (Docket 1-1 at pp. 16-32). Plaintiff alleges defendant hired him and numerous other people with criminal records disqualifying them from their jobs, and defendant deliberately failed to obtain consent from the Federal Deposit Insurance Corporation (“FDIC”) as federal law required. Id. at pp. 17-18; see 18 U.S.C. § 1829. Plaintiff asserts defendant's termination of his employment was part of a “Background Checks Project” (“Project”) defendant instituted to terminate “employees en masse . . . under the auspices of compliance with federal regulation . . . .” (Docket 1-1 at p. 21). During this Project, plaintiff claims defendant “explicitly instructed the operative group for the Background Checks Project not to share [the project's] information, or the fact that the Project was actually a ‘business decision, ' with lower level management and rank-and-file employees.” Id. at pp. 21-22 (emphasis in original).

         Plaintiff states the Project constituted a pattern of racketeering activity affecting interstate commerce carried out by a “higher-level group” of defendant's employees. Id. at p. 24. According to plaintiff, the purpose of the Project was “terminating employees in mass, reducing payroll, eliminating earned and accrued employee bonuses and benefits, and depressing the relevant job-market, under the fraudulent pretext of compliance with federal regulation.” Id. Plaintiff alleges defendant made “affirmative fraudulent representations” regarding federal law requiring termination of employees and “deliberately conceal[ed] and omit[ted] material facts to [p]laintiff” so it could advance its scheme. Id. at p. 28.


         I. STANDING

         “[S]tanding is an essential and unchanging part of the case-or-controversy requirement of Article III [of the United States Constitution.]” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992). “Standing . . . is a jurisdictional requirement, and thus ‘can be raised by the court sua sponte at any time during the litigation.' ” Pucket v. Hot Springs Sch. Dist. No. 23-2, 526 F.3d 1151, 1156-57 (8th Cir. 2008) (quoting Delorme v. United States, 354 F.3d 810, 815 (8th Cir. 2004)). “The [standing] doctrine limits the category of litigants empowered to maintain a lawsuit in federal court to seek redress for a legal wrong. In this way, the law of Article III standing . . . serves to prevent the judicial process from being used to usurp the powers of the political branches, and confines the federal courts to a properly judicial role . . . .” Spokeo, Inc. v. Robins, 136 S.Ct. 1540, 1547 (2016) (internal citations omitted) (internal quotation marks omitted).

         “The ‘irreducible constitutional minimum' of standing consists of three elements.” Id. (quoting Lujan, 504 U.S. at 560). “The plaintiff must have (1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.” Id. (citations omitted). “Where, as here, a case is at the pleading stage, the plaintiff must ‘clearly . . . allege facts demonstrating' each element” Id. (quoting Warth v. Seldin, 422 U.S. 490, 518 (1975)). “In assessing a plaintiff's Article III standing, we must ‘assume that on the merits the plaintiffs would be successful in their claims.' ” Am. Farm Bureau Fed'n v. U.S. Envtl. Prot. Agency, 836 F.3d 963, 968 (8th Cir. 2016) (quoting Muir v. Navy Fed. Credit Union, 529 F.3d 1100, 1106 (D.C. Cir. 2008)).

         The second and third elements of standing tend to be straightforward, but the injury element is harder to pin down. The United States Supreme Court recently ruled on the injury element in Spokeo. Spokeo clarified the requirements that the injury suffered is “concrete and particularized . . . .” Spokeo, 136 S.Ct. at 1548 (citing Lujan, 504 U.S. at 560) (internal quotation marks omitted). A particularized injury “affect[s] the plaintiff in a personal and individual way[, ]” as opposed to an injury affecting an undifferentiated collection of people. Id. (citations omitted). A concrete injury is one that “actually exist[s].” Id. It can be a tangible injury, such as physical pain, or it can be intangible, like curtailing someone's right to free speech. Id. at 1549 (citing Pleasant Grove City v. Summum, 555 U.S. 460 (2009)). Spokeo acknowledged Congress can create statutes providing people rights, which, if violated, may result in an Article III injury. Id.; see, e.g., Fed. Election Comm'n v. Akins, 524 U.S. 11, 20-25 (1998) (holding that certain voters' “inability to obtain information” Congress chose to make accessible to them yielded an Article III injury). However, Spokeo held “Article III standing requires a concrete injury even in the context of a statutory violation. . . . [A plaintiff] could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Spokeo, 136 S.Ct. at 1549.

         Based on the parties' briefing and the court's view of this case, the court must determine standing in relation to plaintiff's FCRA claims only. See Dockets 28, 29 & 32. For the FCRA allegations, the core issue is whether plaintiff sets forth violations of substantive rights sufficient to constitute a concrete injury or whether he asserts “a bare procedural violation, divorced from any concrete harm . . . .” Spokeo, 136 S.Ct. at 1549.

         The court notes this precise issue divides many United States District Courts. Compare Thomas v. FTS USA, LLC, 193 F.Supp.3d 623, 629-37 (E.D. Va. 2016); Banks v. Cent. Refrigerated Servs., Inc., No. 2:16-CV-356, 2017 WL 1683056, at *3 (D. Utah May 2, 2017), with In re Michaels Stores, Inc., Fair Credit Reporting Act (FCRA) Litigation, MDL No. 2615, 2017 WL 354023, at *4- 11 (D.N.J. Jan. 24, 2017); Fisher v. Enterprise Holdings, Inc., No. 15-CV-00372, 2016 WL 4665899, at *2-4 (E.D. Mo. Sept. 7, 2016).[1] In Thomas and Banks, the courts concluded the FCRA violations before them set forth concrete injuries because they involved substantive rights. See Thomas, 193 F.Supp.3d at 637 (“Section 1681b(b)(3), like § 1681b(b)(2)(A), provides the consumer with a legally cognizable right to specific information.”); Banks, 2017 WL 1683056, at *3 (noting “[s]everal courts have recognized that multiple sections of the FCRA provide consumers with a [substantive] right to information”). In contrast, the courts in In re Michaels Stores and Fisher determined the FCRA claims did not constitute more than procedural rights, which alone do not amount to concrete injuries. See In re Michaels Stores, Inc., 2017 WL 354023, at *7 (“I respectfully disagree with Thomas's conclusion that the disclosure requirements set forth in § 1681b(b)(2)(A)(i) are substantive rather than procedural.”); Fisher, 2016 WL 4665899, at *4-5.

         In reaching its conclusion about the nature of the rights the FCRA confers, Thomas started, “as Spokeo instructs, [by] look[ing] to the common law and to the judgment of Congress, as reflected in the FCRA, to determine whether the violations of that statute alleged by [the plaintiff] constitute concrete injuries that satisfy the case or controversy requirement.” Thomas, 193 F.Supp.3d at 631.

         The Spokeo Court itself explained the background of Congress passing the FCRA:

The FCRA seeks to ensure “fair and accurate credit reporting.” § 1681(a)(1). To achieve this end, the Act regulates the creation and the use of “consumer report[s]”[2] by “consumer reporting agenc[ies]”[3] for certain specified purposes, including credit transactions, insurance, licensing, consumer-initiated business transactions, and employment. See §§ 1681a(d)(1)(A)-(C); § 1681b. . . . [T]he FCRA applies to companies that regularly disseminate information bearing on an individual's “credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living.” § 1681a(d)(1).
The FCRA imposes a host of requirements concerning the creation and use of consumer reports. . . . [T]he Act requires consumer reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of” consumer reports, § 1681e(b); to notify providers and users of consumer information of their responsibilities under the Act, § 1681e(d); to limit the circumstances in which such agencies provide consumer reports “for employment purposes, ” § 1681b(b)(1); and to post toll-free numbers for consumers to request reports, § 1681j(a).

Spokeo, 136 S.Ct. at 1545.

         The sections at issue in this case are 15 U.S.C. §§ 1681b(b)(2)(A) & 1681b(b)(3)(A). (Docket 1-1 at p. 13); see supra 3-4. Section 1681b(b)(2)(A) stated in full reads:

[A] person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless: (i) a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes; and (ii) the consumer has authorized in writing (which authorization may be made on the document referred to in clause (i)) the procurement of the report by that person.

         The Thomas court held § 1681b(b)(2)(A) establishes two rights. Thomas, 193 F.Supp.3d at 631-32. “First, it establishes a right to specific information in the form of a clear and conspicuous disclosure, ” which is supported by “the textual command that the disclosure be clear and conspicuous.” Id. at 631. “Second, [it] establishes a right to privacy in one's consumer report that employers may invade only under stringently defined circumstances.” Id. at 631-32. Thomas held those rights “are clearly substantive, and neither technical nor procedural.” Id. at 632; see Demmings v. KKW Trucking, Inc., No. 14-CV-494, 2017 WL 1170856, at *8 (D. Or. Mar. 29, 2017) (“The Court finds persuasive these, and other cases that similarly hold that the Sections 1681b(b)(2)(B) and (b)(3)(B) and similar provisions of the FCRA establish substantive informational and privacy rights held by the consumer.”); Mix v. Asurion Ins. Servs. Inc., No. CV-14-02357, 2016 WL 7229140, at *6 (D. Ariz. Dec. 14, 2016) (“Violations of FCRA that unfairly deprive a consumer of relevant information, or obtain consent for a background check without a statutorily-proper disclosure, implicate the harms Congress identified in FCRA, and thus cause concrete harms.”); Moody v. Ascenda USA Inc., No. 16-CV-60364, 2016 WL 5900216, at *5 (S.D. Fla. Oct. 5, 2016) (holding § 1681b(b)(2)(A) confers substantive rights); Meza v. Verizon Commc'ns, Inc., No. 16-CV-0739, 2016 WL 4721475, at *3 (E.D. Cal. Sept. 9, 2016) (same).

         In Syed v. M-I, LLC, the United States Court of Appeals for the Ninth Circuit adopted the view that § 1681b(b)(2)(A) is a grant of substantive rights. 853 F.3d 492, 499 (9th Cir. 2017). The Ninth Circuit held:

Syed alleges more than a “bare procedural violation.” The disclosure requirement at issue, 15 U.S.C. § 1681b(b)(2)(A)(i), creates a right to information by requiring prospective employers to inform job applicants that they intend to procure their consumer reports as part of the employment application process. The authorization requirement, § 1681b(b)(2)(A)(ii), creates a right to privacy by enabling applicants to withhold permission to obtain the report from the prospective employer, and a concrete injury when applicants are deprived of their ability to meaningfully authorize the credit check. By providing a private cause of action for violations of Section 1681b(b)(2)(A), Congress has recognized the harm such violations cause, thereby articulating a “chain[ ] of causation that will give rise to a case or controversy.” See Spokeo, 136 S.Ct. at 1549 (quoting Lujan, 504 U.S. at 580 (Kennedy, J., concurring)).

         The court is aware other courts have come to the opposite conclusion: that § 1681b(b)(2)(A) consists of procedural rights the violation of which does not amount to an Article III injury. See In re Michaels Stores, Inc., 2017 WL 354023, a *7-8; Landrum v. Blackbird Enters., LLC, No. CV 16-0374, 2016 WL 6075446, at *3-4 (S.D. Tex. Oct. 3, 2016). The court respects the well- reasoned rulings in In re Michaels Stores and Landrum. But the court disagrees with their analysis of the FCRA.

         “In determining whether an intangible harm constitutes injury in fact, both history and the judgment of Congress play important roles.” Spokeo, 136 S.Ct. at 1549. The FCRA's backdrop the Ninth Circuit explained in Syed supports concluding § 1681b(b)(2)(A) grants substantive rights. In 1996, Congress amended the 26-year-old FCRA with the specific concern that “prospective employers were obtaining and using consumer reports in a manner that violated job applicants' privacy rights.” Syed, 853 F.3d at 496 (citing S. Rep. No. 104-185 at 35 (1995)). “The disclosure and authorization provision codified at 15 U.S.C. § 1681b(b)(2)(A) was intended to address this concern by requiring the prospective employer to disclose that it may obtain the applicant's consumer report for employment purposes and providing the means by which the prospective employee might prevent the prospective employer from doing so-withholding of authorization.” Id. (citing S. Rep. No. 104-185 at 35)). Section 1681b(b)(2)(A) advances Congress' broader goals of “ensuring accurate credit reporting, promoting efficient error correction, and protecting privacy.” Id. at 496-97. By enacting the FCRA, Congress found there “is a need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy.” 15 U.S.C. § 1681(a)(4). As time moved forward and technology developed, the “modern information age has shined a spotlight on information privacy, and on the widespread use of consumer credit reports to collect information in violation of consumers' privacy rights.” Syed, 853 F.3d at 495.

         Turning to § 1681b(b)(2)(A) with this background in mind, it is clear the statute takes the consumer's personal information and grants the consumer substantive protections regarding its release. To protect the consumer's personal information, § 1681b(b)(2)(A) grants the consumer a right to information in a disclosure form and a right to privacy an employer “may invade only under stringently defined circumstances.” See Thomas, 193 F.Supp.3d at 631-32. If an employer does not secure the consumer's disclosure authorization as the statute requires, the employer may “unfairly deprive a consumer of relevant information, or obtain consent for a background check without a statutorily-proper disclosure, [which] implicate[s] the harms Congress identified in FCRA, and thus cause[s] concrete harms.” Mix, 2016 WL 7229140, at *6. “It is clear from the statute's legislative history that Congress intended that the FCRA be construed to promote the credit industry's responsible dissemination of accurate and relevant information and to maintain the confidentiality of consumer reports. To that end, it was Congress' judgment, as clearly expressed in §§ 1681b(b)(2) and (3), to afford consumers rights to information and privacy.” Thomas, 193 F.Supp.3d at 633.

         Defendant argues it did not violate the FCRA's disclosure and authorization requirements because plaintiff was not confused by the disclosure form. (Docket 29 at p. 6). The fundamental point is that defendant's deviation from the statute's disclosure standards did not vitiate plaintiff's authorization for defendant to obtain his background information. However, the “proper inquiry is whether a procedural violation [of § 1681b(b)(2)(A)] creates a ‘risk of real harm.' ” Mix, 2016 WL 7229140, at *5 (quoting Spokeo, 136 S.Ct. at 1549-50). The court finds an employer “does create a real risk of harm” when it uses “a disclosure that, because it is merely one section of a larger document, results in ‘information overload' which inhibits a consumer's ability to agree to a background check with full knowledge of their rights and the potential consequences.” Id. “Drawing all reasonable inferences in favor of the non-moving party, ” Syed, 853 F.3d at 499, the court finds plaintiff's allegations that the disclosure was “wordy” and not in a “stand-alone document” sufficiently show the disclosure created a risk of real harm. (Docket 1-1 at p. 15). Plaintiff's claims grounded in § 1681b(b)(2)(A) allege a concrete injury under Article III.

         The second section of the FCRA at issue in this case, § 1681b(b)(3)(A), provides:

[I]n using a consumer report for employment purposes, before taking any adverse action based in whole or in part on the report, the person intending to take such adverse action shall provide to the consumer to whom the report relates: (i) a copy of the report; and (ii) a description in writing of the rights of the consumer under this ...

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