MEMORANDUM
I. INTRODUCTION
In this putative class action, plaintiffs allege that defendant’s system for conducting background checks violates the Fair Credit Reporting Act (FCRA), 15 U.S.C. § 1681 et seq. Plaintiffs are employees who were fired by their employers, and potential employees who were denied employment, based on background checks that defendant conducted as a service to those employers.
Defendant LexisNexis Screening Solutions, Inc.,
II. BACKGROUND
A. The Esteem System
Defendant operates a proprietary system called Esteem that helps organizations identify applicants with [a] history of theft or fraud. (Compl. ¶¶ 14, 15.) Subscribing member employers (members) pay a fee based on the number of their employees,
When a member requests information about a current or potential employee, defendant searches its system for possible matches between the employee’s personal information and a record on file. (Id. ¶ 28.) If a match is found, defendant verifies the match by comparing the personal data from the inquiry with the incident data and the admission statement supporting the incident. (Id.) Once a match is verified, defendant classifies the employee in accordance with adjudication scores agreed upon by defendant and the member (adjudication). (Id. ¶ 45.) If the employee falls below a certain threshold, defendant assigns the employee a noncompetitive score. (Id. ¶ 46.) Defendant then generates a report detailing the match and the adjudication and sends the report to the inquiring member. (Id. ¶ 31.) The admission statement is not provided as part of the report. (Id. ¶ 32.)
The FCRA requires, inter alia, that before taking any adverse action against an employee, the person taking such action must send the employee a copy of the report and a notice of the consumer’s rights under the FCRA. 15 U.S.C. § 1681b(b)(3). As an additional service, defendant sends these pre — -adverse action letters on members’ letterhead to employees or potential employees whose information results in a match. (Id. ¶ 50.) Defendant sends the pre — adverse action letter to employees or potential employees after it completes the adjudication and sends the report to the member. (Id. ¶ 48.) While the pre — adverse action letter contains a copy of the report, it does not contain a copy of the admission statement. (Id. ¶¶ 50, 51.) The pre — adverse action letter also contains a disclaimer that defendant did not participate in any employment decision and will be unable to provide any specific reasons as to why [the employer] may choose to take an adverse employment action. (Id. Ex. B.) Several days after it sends the pre — adverse action letter, defendant sends the employee a final adverse action letter on the member’s letterhead. (Id. ¶ 48.)
B. Facts Pertaining to Plaintiff Keesha Goode
Plaintiff Keesha Goode worked as a customer service representative and cashier in a Forman Mills store from November 2006 to October 2008. (Id. ¶ 53.) Forman Mills is a subscribing member of Esteem. (Id. ¶ 54.) Forman Mills fired Ms. Goode in October 2008 based upon an accusation of theft against her. (Id. ¶¶ 54, 61.) For-man Mills submitted an incident report, including an admission statement, to defendant following Ms. Goode’s termination. (Id. ¶¶ 60, 61.)
In May 2009 Ms. Goode applied for a job at a store owned by the Family Dollar Stores chain. (Id. ¶ 57.) Soon after applying, she received a pre-adverse action letter from defendant telling her that it had matched her information to the incident report Forman Mills submitted in October 2008. (Id. Exs. B, C.) The preadverse action letter was on Family Dollar
Some time thereafter, Ms. Goode sent defendant a letter requesting her entire file and disputing the alleged theft from Forman Mills.
C. Facts Pertaining to Plaintiff Victoria Goodman
From June 2005 to June 2006 Ms. Goodman worked as a cashier and stock person at a Dollar General store. (Id. ¶ 69.) In June 2006, her supervisor informed her that Dollar General was investigating her in relation to a theft and that she should go home. (Id. ¶ 70.) Dollar General asked Ms. Goodman to sign an admission -statement, which she did. (See Def.’s Mem. Law Ex. 2.) Dollar General never informed her of the outcome of its investigation, and Ms. Goodman applied and was approved for unemployment compensation benefits.
On October 2, 2006, Ms. Goodman began work as a cashier at a Rite Aid store. (Id. ¶ 75.) In November 2009, she applied for a promotion. (Id. ¶ 76.) In response to Ms. Goodman’s application, Rite Aid submitted an inquiry to the Esteem system. (Id. ¶ 78.) Rite Aid fired her on November 30, 2009. (Id. ¶ 79.) On December 2, 2009, defendant sent her a pre — adverse action letter on Rite Aid’s letterhead with the report attached. (Id. Exs. G, H.) Defendant sent Ms. Goodman a final adverse action letter on Rite Aid’s letterhead on December 7, 2009. (Id. Ex. I.)
Ms. Goodman wrote to defendant during December 2009 disputing the report. (Id. ¶ 91.) Defendant responded on December 22, 2009, stating that it had completed [its] reinvestigation of the disputed information and ... verified that the original information provided on the background report was reported accurately. (Id. ¶ 92.) Ms. Goodman contacted Community Legal Services, which sent defendant a request for Ms. Goodman’s admission statement. (Id. Ex. L.) Defendant did not respond. (Id. ¶ 93.) Ms. Goodman later filed a union grievance and was reinstated as a cashier at Rite Aid. (Id. ¶ 94.)
Defendant attached Ms. Goodman’s admission statement to its motion to dismiss.
III. LEGAL STANDARD
To survive a motion to dismiss under Rule 12(b)(6), a civil plaintiff must allege facts that ‘raise a right to relief above the speculative level.’ Victaulic Co. v. Tieman,
In Twombly, the Supreme Court used a two-pronged approach, which it later formalized in Iqbal. Iqbal,
IV. DISCUSSION
The Complaint contains two counts. The Court addresses each in turn.
A. Count I: Violation of 15 U.S.C. § 1681b(b)(3)(A)
Plaintiffs claim that defendant violated 15 U.S.C. § 1681b(b)(3)(A), which states:
in 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 sub-chapter. ...
Under the FCRA, plaintiffs are consumers, § 1681a(e), defendant is a person, § 1681a(b), and the reports are consumer reports, § 1681a(d)(1)(B). Thus, § 1681b(b)(3)(A) required defendant to send each plaintiff a pre-adverse action letter containing a copy of the report and a description of her rights before taking any adverse action against her. The ‘clear purpose’ of this section is to afford employees time to ‘discuss reports with employers or otherwise respond before adverse action is taken.’ Lynne B. Barr, The New FCRA: An Assessment of the First Year, 54 Bus. Law. 1343, 1348 (1999) (quoting Letter from William Haynes, Attorney, FTC, to Harold R. Hawkey, Attorney, Employers Association of New Jersey (Dec. 18, 1997), available at http://www.ftc. gov/os/statutes/fcra/hawkeycb.htm), cited
Plaintiffs argue that defendant took an adverse action against them when it verified an Esteem match and adjudicated them as noncompetitive. This occurred before defendant sent them the pre — adverse action letters, in violation of § 1681b(b)(3)(A).
Defendant makes three arguments in response. First, defendant argues that verifying an Esteem match and adjudicating the employee do not qualify as adverse actions. Second, defendant argues that the employer, not the consumer reporting agency (CRA), is solely responsible for fulfilling the requirements of § 1681b(b)(3)(A). Finally, defendant argues that, as an agent for the employer, it cannot be liable under § 1681b(b)(3)(A). The first argument poses the question of when — that is, does the adverse action take place when defendant adjudicates the employee or when the employer formally fires or rejects the employee? The second and third arguments pose the question of who — that is, who is liable for a violation of § 1681b(b)(3)(A): the CRA, the employer, or both? This Memorandum will address these two questions in turn.
1. When Does the Adverse Action Take Place?
In the employment context, an adverse action is a denial of employment or any other decision for employment purposes that adversely affects any current or prospective employee. 15 U.S.C. § 1681a(k)(1)(B)(ii). The FCRA definition of adverse action also includes a catch-all clause: any action taken or determination that is (I) made in connection with an application that was made by, or a transaction that was initiated by, any consumer, ...; and (II) adverse to the interests of the consumer. § 1681a(k)(l)(B)(iv). Plaintiffs argue that defendant’s adjudication of plaintiffs as noncompetitive is an adverse action because it is, in effect, a denial of employment or any other decision for employment purposes that adversely affects plaintiffs. § 1681a(k)(l)(B)(ii). Plaintiffs argue in the alternative that defendant’s adjudication of plaintiffs as noncompetitive fits the catch-all definition in § 1681a(k)(l)(B)(iv). Plaintiffs are correct on both points.
i. Defendant Took an Adverse Action Against Plaintiffs Under the Definition in § 1681a(k)(1)(B)(ii).
In Adams v. National Engineering Service Corp., plaintiff Adams sought work through a temporary employment staffing agency.
Defendant attempts to distinguish Adams based on the fact that the adverse action in that case was taken by a staffing agency rather than the CRA. Defendant’s argument is unpersuasive. As explained below, see infra Section IV.A.2, any person who takes an adverse action must comply with § 1681b(b)(3)(A), be it a CRA, an employer, or a staffing agency. Adams holds that a decision to furnish a report to an employer can be an adverse action. That is the case even though the party taking the adverse action did not have the ultimate authority to make the hiring decision. Adams,
In arguing that it did not take an adverse action, defendant relies principally on Obabueki v. International Business Machines Corp.,
Obabueki argued that IBM took an adverse action when members of its human resources department met to review the background check on October 11, 1999. Because that occurred before IBM sent Obabueki its pre — adverse action letter on October 13, 1999, Obabueki argued that IBM violated § 1681b(b)(3)(A). The court disagreed, holding that [a]n internal decision to rescind an offer is not an adverse action. Id. at 391.
Obabueki is distinguishable from the present case. In Obabueki, IBM made its ultimate decision to revoke the offer after careful consideration of the results of the background check and Obabueki’s response. Id. at 377. Thus, when IBM sent Obabueki the pre — adverse action letter on October 13, 1999, Obabueki had a genuine opportunity to contest the accuracy of the report or explain his prior criminal conviction. See id. at 392 (After receipt of the [October 13, 1999,] letter, plaintiff could have come forward with information re
Unlike IBM’s role in Obabueki, plaintiffs allege that the member employers in this case do not conduct any analysis or engage in any decisionmaking after defendant adjudicates the employee or prospective employee. As another court distinguishing Obabueki put it, an adverse action occurs when the decision is carried out, when it is communicated or actually takes effect, and an actor has until that time to take the necessary steps to comply with the FCRA’s requirements. Burghy v. Dayton Racquet Club, Inc.,
Defendant hlso cites In re Farmers Insurance Co., Inc. FCRA Litigation, in which the court held that an insurance company did not take an adverse action against plaintiffs when it made an internal decision to raise their rates based in part on their credit reports. No. CIV-03-158,
ii. Defendant Also Took an Adverse Action Against Plaintiffs Under § 1681a(k)(l)(B)(iv).
Obabueki and In re Farmers are distinguishable for another reason; they did not
Defendant argues that the catch-all definition should apply only in contexts that are wholly distinct from those specified in subsections (A) and (B)(i)-(iii) and should not apply to situations ostensibly covered by one of those subsections. Those subsections deal with extensions of credit (subsection (A)), insurance (subsection (B)(i)), employment (subsection (B)(ii)), and government licensing (subsection (B)(iii)). Defendant relies on an FTC Staff Report stating that subsection (B)(iv) provides a specific ‘adverse action’ definition in the context of consumer transactions other than those involving credit, insurance, employment or government benefits, such as an apartment rental or a purchase by personal check. Fed. Trade Comm’n, 40 Years of Experience with the Fair Credit Reporting Act 35 (July 2011) (emphasis added) (attached as Exhibit A to Reply Brief in Further Support of Defendant LexisNexis Risk Solutions Inc.’s Motion to Dismiss).
Defendant’s argument is unavailing. First, although the FTC Staff Report states that subsection (B)(iv) applies in contexts other than those specified in subsections (A) and (B)(i)(iii), it does not say that it is limited to those other contexts or that subsection (B)(iv) cannot be used in contexts related to those covered by subsections (A) or (B)(i)-(iii).
Second, even if the FTC Staff Report were read to bar the use of subsection (B)(iv) in contexts ostensibly covered by subsections (A) or (B)(i)-(iii), this Court would decline to follow it. Agency interpretations like this FTC Staff Report that do not carry the force of law are ‘entitled to respect’ ... but only to the extent that they are persuasive. Christensen v. Harris Cnty.,
For the above-stated reasons, the Court concludes that defendant took an adverse action against plaintiffs when it adjudicated them as noncompetitive. This occurred before defendant sent plaintiffs the required notice under § 1681b(b)(3)(A). Thus, plaintiff has pled facts sufficient to state a claim for relief.
2. Who Is a Proper Defendant?
Nothing in the text of § 1681b(b)(3)(A) excludes defendant, as a CRA, from its scope. The requirements of 15 U.S.C. § 1681b(b)(3)(A) apply to any person intending to take such adverse action. Under the FCRA, ‘person’ means any individual, partnership, corporation, trust, estate, cooperative, association, government or governmental subdivision or agency, or other entity. § 1681a(b). Thus, defendant is a person and must comply with § 1681b(b)(3)(A).
Defendant offers two arguments as to why a CRA cannot be liable for a violation of 15 U.S.C. § 1681b(b)(3)(A). First, defendant cites two 1998 Federal Trade Commission (FTC) staff opinion letters stating that an employer is liable for a violation of § 1681b(b)(3)(A) even if the employer hires an outside company to fulfill its FCRA obligations. Letter from William Haynes, Attorney, Federal Trade Commission, to A. Michael Rosen, Senior Vice President and General Counsel, Background America, Inc. (June 9, 1998) (attached as Exhibit 3 to Def.’s Mem. Law); Letter from William Haynes, Attorney, Federal Trade Commission, to John Beaudette, Operations Manager, Employment Screening Services (June 9, 1998) (attached as Exhibit 4 to Def.’s Mem. Law). However, the FTC letters say only that the employer does not absolve itself of liability by outsourcing FCRA compliance. They do not say that the CRA cannot be liable itself.
Second, defendant argues that, as an agent for the member employers, it cannot be liable for a violation of § 1681b(b)(3)(A). In support of this, defendant cites Weidman v. Federal Home Loan Mortgage Corp.,
Weidman is distinguishable from the present case. The Weidman court relied on the fact that the caution label was intended to be filtered by an autonomous decision-maker with the authority to offer credit. Weidman,
Defendant’s arguments as to who is a proper defendant are thus unavailing.
3. Willful Noncompliance and Damages
Under § 1681n(a)(2), a willful failure to comply with the FCRA makes defendant liable for statutory and punitive damages. If the violation is negligent, plaintiffs can recover only actual damages under § 1681o(a). Plaintiffs seek damages under § 1681n, and thus must show that defendant’s violation was willful. See Long v. Tommy Hilfiger U.S.A., Inc., No. 09-1701,
The Supreme Court defined the standard for willful failure to comply under § 1681n in Safeco Insurance Co. of America v. Burr,
Plaintiffs have failed to plead facts demonstrating that defendant’s reading of the definition of adverse action in the FCRA was objectively unreasonable, and thus, that defendant’s violation of § 1681b(b)(3)(A) was willful. See id. at 69,
Only paragraphs 113 and 114 of the Class Action Complaint specifically address the question of willfulness under § 1681n. In those paragraphs, plaintiff points out that defendant executed a consent order in a prior case from the East
Contrary to plaintiffs’ argument, the Beverly Consent order does not demonstrate that defendant willfully violated § 1681b(b)(3)(A). The Beverly court did not discuss whether defendant’s furnishing the report to the member employers or adjudicating plaintiffs as noncompetitive were adverse actions. Instead, it held only that defendant must wait five days after sending a pre — adverse action letter before sending a final adverse action letter. Thus, the Beverly consent order has no bearing on the willfulness of defendant’s alleged violation of § 1681b(b)(3)(A).
For the reasons stated above, the Court concludes that plaintiffs have failed to plead facts sufficient to state a plausible claim of willfulness under § 1681n. Accordingly, plaintiffs’ relief is limited to actual damages, costs, and reasonable attorney’s fees as determined by the [C]ourt under § 1681o(a) for defendant’s alleged violation of § 1681b(b)(3)(A).
B. Count II: Violation of 15 U.S.C. 1681g(a)(l)
15 U.S.C. § 1681g(a)(l) states that every CRA shall, upon request ... clearly and accurately disclose to the consumer all information in the consumer’s file. Plaintiffs contend that defendant violated this provision when it refused to turn over the admission statements upon plaintiffs’ request. Further, plaintiffs argue that such violation was willful, which would allow plaintiffs to recover punitive damages. See § 1681n. In its Motion to Dismiss, defendant argues that, even if it did violate § 1681g(a)(1), such violation was not willful. Thus, the question is whether, at the time of the events in question, the law was clear that § 1681g(a)(1) required defendant to turn over the admission statement as being information in the consumer’s file. See Safeco,
The FCRA defines file as all of the information on [a] consumer recorded and retained by a consumer reporting agency regardless of how the information is stored. § 1681g(a)(l). Under a plain reading of the statute, the admission statement is clearly part of the file and defendant was required to turn it over to plaintiffs upon plaintiffs’ request. Moreover, [a] primary purposes of the statutory scheme provided by the disclosure in § 1681g(a)(l) is to allow consumers to identify inaccurate information in their credit files and correct this information. Gillespie v. Equifax
Defendant argues that its violation of § 1681g(a)(1) was not willful because the law was unsettled at the time of the events in question. In support of this, defendant cites one case: Gillespie v. Trans Union Corporation,
The Third Circuit recently distinguished Gillespie on similar grounds in Cortez v. Trans Union, LLC,
Defendant also cites FTC commentary on § 1681g(a)(1) that concludes that [t]he term ‘file’ denotes all information on the consumer that is recorded and retained by a consumer reporting agency that might be furnished, or has been furnished, in a consumer report on that consumer. 16 C.F.R. pt. 600, app. § 603. Defendant argues that it interpreted this statement to mean that § 1681g(a)(1) required it to turn over only the actual report, and nothing more. The Court disagrees. If the admission statement is not information on the consumer, the Court cannot fathom what might be. Further, defendant’s interpretation would give file and consumer report identical meanings. This interpretation is rejected because it would make § 1681g(a)(1) superfluous. Congress clearly intended for § 1681g(a)(1) to give consumers the opportunity to request something more — all information in the consumer’s file — than the report they automatically receive under § 1681b(b)(3)(A).
For the above-stated reasons, the Court concludes that plaintiffs have stated a claim against defendant for a willful violation of § 1681g(a)(l).
y. CONCLUSION
Plaintiffs have stated a claim against defendant for a violation of 15 U.S.C. § 1681b(b)(3)(A). Thus, defendant’s Motion to Dismiss is denied in this respect. However, plaintiffs have failed to plead sufficient facts to demonstrate that such violation was willful. Plaintiffs are thus entitled only to actual damages, costs and reasonable attorney’s fees as determined by the [Cjourt under § 1681o for Count I, which asserts a violation of § 1681b(b)(3)(A).
Plaintiffs have alleged facts sufficient to state a claim against defendant for a willful violation of § 1681g(a)(1). Thus, defendant’s Motion to Dismiss is denied as to Count II, which asserts a willful violation of § 1681g(a)(l).
ORDER
AND NOW, this 22nd day of March, 2012, upon consideration of Defendant’s Motion to Dismiss (Document No. 9, filed July 25, 2011), Plaintiffs’ Brief in Opposition to Defendant’s Motion to Dismiss (Document No. 13, filed August 19, 2011), Reply Brief in Further support of Defendant LexisNexis Risk Solutions Inc.’s Motion to Dismiss (Document No. 14, filed August 29, 2011), Defendant LexisNexis Risk Solutions Inc.’s Notice of Supplemental Authority in support of Motion to Dismiss (Document No. 16, filed March 8, 2012), and Plaintiffs’ Response to Defendant’s Notice of Supplemental Authority and Plaintiffs Cross-Notice of Supplemental Authority (Document No. 17, filed March 14, 2012), for the reasons set forth in the Memorandum dated March 22, 2012, IT IS ORDERED that Defendant’s Motion to Dismiss is GRANTED IN PART AND DENIED IN PART as follows:
1. That part of Defendant’s Motion to Dismiss that seeks dismissal of Count I of the Complaint is DENIED. However, recovery under Count I is LIMITED to actual damages, costs, and attorney’s fees under 15 U.S.C. § 1681o(a).
2. That part of Defendant’s Motion to Dismiss that seeks dismissal of the allegations of a willful violation of 15 U.S.C. § 1681b(b)(3)(A) in Count II of the Complaint is DENIED.
IT IS FURTHER ORDERED that the Court will conduct a telephone conference to schedule further proceedings in due course.
Notes
. Defendant was formerly known as Choice-Point Work Solutions, Inc. (Mem. Law Supp. of Def. LexisNexis Screening Solutions Inc.'s Mot. Dismiss (Def.'s Mem. Law) 3 n. 4.). Its name was changed to LexisNexis Screening Solutions, Inc. This Memorandum will refer to it simply as LexisNexis.
. Defendant filed its Motion to Dismiss on July 25, 2011. Plaintiffs filed their response on August 19, 2011, and defendant filed a reply on August 29, 2011. At the request of the parties, the Court deferred ruling on the Motion to Dismiss until the question of settlement was fully explored, by Order of September 13, 2011. The parties reported to the Court on March 2, 2012, that they failed to reach a settlement and requested that the Court decide the pending Motion to Dismiss.
. As required on a motion to dismiss, the Court takes all plausible factual allegations contained in plaintiffs' complaint to be true.
. In this letter, Ms. Goode stated, I was accused of not reporting on a former .employee who was stealing merchandise, but I did not steal anything myself. (Id. Ex. D.)
. Plaintiffs state in the Complaint that had she, in fact, been discharged for committing a theft or other 'willful misconduct,' Dollar General would not have been liable for her Unemployment Compensation. (Compl. ¶ 74.)
. Rite Aid may have also violated the FCRA when it fired Ms. Goodman on November 30, 2009, three days before she received the pre— ■ adverse action letter. However, Rite Aid is not named in this case, and Ms. Goodman’s only claim is that defendant violated the FCRA when it adjudicated her as noncompetitive before sending her a pre — adverse action letter.
. The Complaint does not define the role member employers play once defendant adjudicates the employee or potential employee. For instance, Ms. Goode never heard from Family Dollar Stores after the adjudication. Further, when Ms. Goode challenged her adjudication, defendant sent her a letter stating, [a]t your request, LexisNexis will notify anyone you specify who received your background report ... that the information was disputed. (Letter from LexisNexis Consumer Center to Keesha Goode (August 6, 2009), Compl. Ex. E.) However, that letter arrived months after Ms. Goode received the preadverse action letter from defendant, presumably too late for Ms. Goode to effectively contest the adjudication with the employer. (Compl. ¶¶ 56, 65.) In Ms. Goodman's case, Rite Aid fired her before defendant sent her the pre-adverse action letter and she had a chance to contest the adjudication. (Compl. ¶¶ 79, 80.) At the very least, this evidences a lack of coordination between defendant and the member employers.
. The other cases upon which defendant relies are similarly distinguishable. Austin v. J.C. Penney Co., Inc.,
Defendant also cites Johnson v. ADP Screening and Selection Servs., Inc.,
. Interpretations such as those in opinion letters — like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law— do not warrant Chevron — style deference. Christensen,
. Courts frequently state that willfulness is a question of fact for the jury. See, e.g., Howley v. Experian Info. Solutions, Inc.,
. Ms. Goodman's admission statement makes this point clear. The admission statement had two different sets of handwriting and denies that she intended to steal the merchandise, undermining defendant's adjudication in her case.
. The Gillespie court cited this FTC commentary to exclude the purge dates from the definition of file because they were not information on the consumer that had ever been, or ever would be, furnished as part of a consumer report.