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Anderson v. Wells Fargo Bank, N.A.

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

July 17, 2017

WELLS FARGO BANK, N.A., Defendant.




         Multiple plaintiffs filed this action against defendant Wells Fargo Bank, N.A. (Docket 6). Each plaintiff was an employee of defendant who was fired in approximately the last five years because of the plaintiff's criminal background information. Id. at pp. 3, 6, 12, 16, 22, 23, 25, 29-30, 32-33, 36 & 39-40; see Docket 12 at p. 8. Plaintiffs' complaint[1] advances 31 claims against defendant. Id. The court has jurisdiction pursuant to 28 U.S.C. § 1332 because there is complete diversity between the parties and the amount in controversy exceeds $75, 000. Id. at p. 2. Federal question jurisdiction pursuant to 28 U.S.C. § 1331 provides the court with jurisdiction over plaintiffs' claims grounded in federal law. Id.

         The complaint includes several state law causes of action. Each plaintiff alleges a fraud and deceit claim. Id. at pp. 4-5, 10-11, 14-15, 18-19, 21-24, 27-28, 30-31, 34-35, 37-38 & 41-42. Aside from Mr. Engelby, each plaintiff brings a claim for punitive damages. Id. at pp. 5-6, 11, 15, 19-20, 24-25, 28, 21-32, 35, 39 & 43. Five plaintiffs assert promissory estoppel claims against defendant: Ms. Anderson, Mr. Dary, Ms. Demers, Ms. Eastman and Mr. Hayden. Id. at pp. 4, 8, 17, 37 & 41. Only Mr. Dary alleges fraudulent inducement and fraudulent concealment claims against defendant. Id. at pp. 8-10.

         The complaint also sets forth violations of federal law in connection with each plaintiff. Plaintiffs collectively allege defendant violated the Fair Credit Reporting Act (“FCRA”) because it “failed to comply with the procedural protections and requirements of the FCRA when it used the consumer reports of Plaintiffs, and thousands of other employees, to make adverse employment decisions resulting in their termination.” Id. at p. 43. The plaintiffs claim defendant's conduct in firing them violated the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), and constituted a conspiracy to violate RICO, 18 U.S.C. § 1962(d). Id. at pp. 49-68. The core of plaintiffs' RICO claims is defendant fired them for the “purpose of terminating employees en masse, reducing payroll, eliminating earned and accrued employee bonuses and benefits, and depressing the relevant job market, all under the fraudulent pretext of compliance with federal regulation.” Id. at p. 61.

         Defendant filed a motion to dismiss some of plaintiffs' claims. (Docket 11). Defendant asserts the court should dismiss plaintiffs' FCRA claim under Federal Rule of Civil Procedure 12(b)(1) because plaintiffs lack standing to bring their FCRA claim. Id. at p. 3. Defendant argues plaintiffs' FCRA and RICO claims should be dismissed under Rule 12(b)(6) because they are time-barred. Id. According to defendant, Mr. English and Mr. Dallman's state law claims are also time-barred, warranting Rule 12(b)(6) dismissal. Id. Aside from timeliness, defendant argues the court should dismiss plaintiffs' RICO claims under Rule 12(b)(6) because they fail to state a claim upon which the court can grant relief. Id. Defendant alternatively moves the court to strike plaintiffs' complaint under Rule 12(f) to the extent it “fails to contain a short and plain statement of the claims upon which the Plaintiffs are seeking relief . . . .” Id. at p. 4 (citing Fed.R.Civ.P. 8(a)).


         I. Rule 12(b)(1) motion to dismiss

         “[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.

         Defendant argues the court should dismiss plaintiffs' FCRA claim because they lack standing. (Dockets 19 at pp. 18-23). For the FCRA allegation, the core issue is whether plaintiffs set 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).[2] 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][3] by “consumer reporting agenc[ies]”[4]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 6 at pp. 43-49). 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 12 at pp. 21-22). 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 6 at p. 47). 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 subchapter, as presented by the Bureau under section 1681g(c)(3) of this title.

Thomas held this section “delineates substantive rights[]” because it “provides a consumer with a right to certain information (the consumer report and a description of rights conferred by the FCRA) before an employer takes adverse action based on that report. By requiring that the consumer receive the foregoing information before adverse action is taken, the statute provides the consumer with a right to review the report and discuss it with his putative or current employer before adverse action is taken against him.” Thomas, 193 F.Supp.3d at 632 (emphasis in original) (citing H.R. Rep. No. 10-486, 103d Cong. 2d Sess. 30-31 (1994)).

         The FCRA background outlined above applies to § 1681b(b)(3)(A) just as it does § 1681b(b)(2)(A). See supra pp. 10-11. The reasoning underlying the court's determination § 1681b(b)(2)(A) grants substantive informational and privacy rights “is applicable not only to the disclosure requirements of § 1681b(b)(2)(A) but also to the notice requirements of § 1681b(b)(3)(A) . . . .” Mix, 2016 WL 7229140, at *6. Specifically, § 1681b(b)(3)(A) provides a consumer with a substantive right to information prior to adverse employment action. See Thomas, 193 F.Supp.3d at 632. Plaintiff's claims grounded in § 1681b(b)(3)(A) constitute an Article III concrete injury.

         Defendant claims because the information regarding plaintiff's background was accurate, he fails to allege a concrete injury. (Docket 12 at p. 20). “But the broad principle that the holding in Thomas rests on-that the violation of statutory rights may in itself be a concrete injury-is not limited to situations where the violation of those rights results in the dissemination of false information.” Mix, 2016 WL 7229140, at *5. Focusing on whether there is a risk of real harm, “[i]n the context of employment-related background checks, information that is true but amenable to contextual explanation, delivered without time to provide that explanation, does create a risk of real harm.” Id. (citing Thomas, 193 F.Supp.3d at 638). The crux of the injury here is not whether the information is accurate, it is defendant depriving plaintiff of his right to information before being fired.

         Defendant argues that finding plaintiff's FCRA claims constitute injuries is inconsistent with the United States Court of Appeals for the Eighth Circuit decision Braitberg v. Charter Commc'ns, Inc., 836 F.3d 925 (8th Cir. 2016). (Docket 12 at p. 23). Braitberg involved a cable company's retention of Mr. Braitberg's personal identifying information after he canceled his cable services, which violated the Cable Communications Policy Act (“CCPA”). Braitbertg, 836 F.3d at 926-27. Mr. Braitberg claimed a violation of his privacy rights because the CCPA provides “[a] cable operator shall destroy personally identifiable information if the information is no longer necessary for the purpose for which it was collected and there are no pending requests or orders for access to such information [by the subscriber] or pursuant to a court order.” 47 U.S.C. § 551(e); see Braitberg, 836 F.3d at 927. The Eighth Circuit held Mr. Braitberg lacked standing because he “identifies no material risk of harm from the retention; a speculative or hypothetical risk is insufficient. Although there is a common law tradition of lawsuits for invasion of privacy, the retention of information lawfully obtained, without further disclosure, traditionally has not provided the basis for a lawsuit in American courts.” Braitberg, 836 F.3d at 930. The United States Court of Appeals for the Third Circuit interprets Braitberg “as creating a requirement that a plaintiff show a statutory violation has caused a ‘material risk of harm' before he can bring suit . . . .” In re Horizon Healthcare Servs. Inc. Data Breach Litig., 846 F.3d 625, 637 (3d Cir. 2017).

         The court finds its determination that plaintiff alleges a concrete injury under the FCRA is consistent with Braitberg. First, the court disagrees with In re Horizon's view of Braitberg. In discussing Mr. Braitberg's failure to identify a “material risk of harm, ” the Eighth Circuit was not raising the standing bar-it was explaining why the CCPA claim was “ ‘a bare procedural violation, divorced from any concrete harm.' ” Braitberg, 836 F.3d at 930 (quoting Spokeo, 136 S.Ct. at 1549). Even if In re Horizon's interpretation is correct, plaintiff meets that standard here because he sufficiently showed risk of harm to his informational and privacy rights granted via § 1681b(b)(2)(A) and § 1681b(b)(3)(A). See supra pp. 10-13. Second, Braitberg deals with the CCPA, not the FCRA. The court grounds its conclusion regarding the substantive rights the FCRA confers in the statute's backdrop and text, so Braitberg's holding does not directly apply to this case. And third, Braitberg involves the retention of information lawfully obtained. The core of this case is plaintiff's information was obtained in violation of informational and privacy rights granted by the FCRA. The retention of information in Braitberg was an extension of the status quo, and the acquisition of information in this case was a disruption of a status quo where plaintiff's FCRA protections were intact.

         Because plaintiffs allege a concrete injury under the FCRA, the court finds they have Article III standing.

         II. Rule 12(b)(6) motion to dismiss

         Under Rule 12(b)(6), a plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). Two “working principles” underlie Rule 12(b)(6) analysis. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, courts are not required to accept as true legal conclusions “couched as . . . factual allegation[s]” in the complaint. See id. “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. (quoting Twombly, 550 U.S. at 555) (internal quotation marks omitted). The court does, however, “take the plaintiff's factual allegations as true.” Braden v. Wal-Mart Stores, Inc., 588 F.3d 585, 594 (8th Cir. 2009). Second, the plausibility standard is a “context-specific task that requires the reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at 678 (citation omitted). The complaint is analyzed “as a whole, not parsed piece by piece to determine whether each allegation, in isolation, is plausible.” Braden, 588 F.3d at 594.

         “A court may dismiss a claim under Rule 12(b)(6) as barred by the statute of limitations if the complaint itself establishes that the claim is time-barred.” Illig v. Union Elec. Co., 652 F.3d 971, 976 (8th Cir. 2011) ...

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