81 F. Supp. 3d 324
S.D.N.Y.2015Background
- Plaintiff Kevin Jones applied for a doorman job with Halstead (a Terra subsidiary), accepted a conditional offer, and completed employment paperwork.
- Terra engaged Sterling Infosystems to perform background checks; Sterling’s report allegedly (and incorrectly) showed multiple New York criminal convictions for Jones.
- Halstead/ Terra sent a July 17 “Pre-Adverse Action Notice” revoking the conditional offer based on Sterling’s report; Jones disputes the report and alleges he has no criminal history.
- Jones claims defendants failed to provide an FCRA-compliant standalone disclosure and failed to provide pre-adverse-action notice, a copy of the report, and a written description of FCRA rights with a meaningful opportunity to dispute before adverse action.
- Halstead and Terra contend Jones signed a Sterling disclosure form; Halstead argues that form complies with 15 U.S.C. § 1681b(b)(2). Sterling contends Halstead did not take adverse action until Sterling’s reinvestigation concluded.
- Procedural posture: Defendants moved to dismiss Counts I (disclosure violation) and II (pre-adverse action notice) of the Amended Complaint; Sterling also moved to dismiss several counts of the Third-Party Complaint by Terra (negligence, negligent misrepresentation, contribution, indemnification).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether FCRA disclosure satisfied §1681b(b)(2) (standalone disclosure) | Jones: No compliant standalone disclosure was provided; Halstead Disclosure insufficient; Sterling Disclosure contains extraneous material | Halstead: Sterling Disclosure (signed by Jones) satisfies statutory standalone-disclosure requirement | Court: Denied dismissal; plausible claim that neither disclosure complied because Sterling form contained extraneous material beyond permitted authorization |
| Whether alleged revocation constituted "adverse action" under §1681b(b)(3) such that pre-adverse notice/copy of report was required | Jones: The July 17 letter unequivocally revoked his conditional offer and occurred before he had a copy/meaningful chance to dispute | Sterling/Terra: Any decision to revoke was internal until communicated; no adverse action before reinvestigation completed | Court: Denied dismissal; drawing inferences for plaintiff, July 17 notice plausibly alleges adverse action and insufficient pre-adverse procedures |
| Whether Halstead’s alleged disclosure violations were willful (exposes to statutory damages under §1681n) | Jones: Inclusion of liability waivers and other extraneous terms makes any compliance claim objectively unreasonable -> plausibly willful | Halstead: Reliance on third-party vendor and a plausible (if mistaken) reading of FCRA negates willfulness | Court: Allegations sufficiently plead willfulness at this stage (objective unreasonableness plausible) |
| Whether Terra/ Halstead may pursue tort claims (negligence, negligent misrepresentation) and contribution/indemnification against Sterling in Third-Party Complaint | Terra: Sterling contracted to assist FCRA compliance and sent the notice; Sterling had duty to act in FCRA-compliant manner; indemnity/contribution available under state common law (and persuasive circuit authority) | Sterling: Tort claims are barred because duties were contractual; contribution/indemnity not available for FCRA violations under federal common law | Court: Negligence claim for sending noncompliant pre-adverse notices survives (duty extraneous to contract). Negligence claim based on accuracy of background check dismissed (no extracontractual duty pled). Negligent misrepresentation dismissed. Contribution/indemnification claims survive (court follows circuit authority recognizing such remedies at this stage) |
Key Cases Cited
- Safeco Ins. Co. of America v. Burr, 551 U.S. 47 (explains "willful" standard under FCRA is reckless or objectively unreasonable)
- Ashcroft v. Iqbal, 556 U.S. 662 (pleading standard for plausible claims)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (plausibility standard for pleading)
- DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104 (when courts may consider extraneous documents on Rule 12(b)(6) motion)
- Chambers v. Time Warner, Inc., 282 F.3d 147 (integral-document doctrine for motions to dismiss)
- Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt., LLC, 692 F.3d 42 (tort duty distinct from contract — when tort and contract claims can coexist)
- Kimmell v. Schaefer, 89 N.Y.2d 257 (elements for negligent misrepresentation and special relationship)
- Ultramares Corp. v. Touche, Niven & Co., 255 N.Y. 170 (standard of care for parties holding themselves out as experts)