Marshall Gross v. Citimortgage, Inc.Marshall Gross v. Citimortgage, Inc.
FOR PUBLICATION
OPINION
Appeal from the United States District Court for the District of Arizona
Roslyn O. Silver, District Judge, Presiding
Argued and Submitted November 17, 2021
San Francisco, California
Filed May 16, 2022
Before: Sidney R. Thomas and M. Margaret McKeown, Circuit Judges, and Donald W. Molloy,* District Judge.
Opinion by Judge McKeown
SUMMARY**
Fair Credit Reporting Act
The panel reversed the district court‘s summary judgment in favor of CitiMortgage, Inc., in Marshall Gross‘s action alleging that CitiMortgage violated the Fair Credit Reporting Act (FCRA),
CitiMortgage erroneously reported a junior mortgage as “past due,” with accruing interest and late fees and a string of missed payments, even though Gross‘s liability on the debt had been “abolished” under the Arizona Anti-Deficiency Statute.
The panel held that Gross has more than satisfied his burden to make a prima facie showing of inaccurate reporting: he established as a matter of law that
CitiMortgage‘s reports were “patently incorrect.” The panel explained that the question is not, as the district court put it, whether the junior mortgage was entirely “extinguished” by Arizona law, or whether the debt continued to exist; the point is that, vis-à-vis Gross, no outstanding balance existed, because the statute abolished his personal liability.
The panel held that there is a genuine factual dispute about the reasonableness of CitiMortgage‘s investigation, and thus left it to the jury to determine the reasonableness.
Rejecting CitiMortgage‘s argument that even if liability is established, the district court should be affirmed on the ground that there are no damages,
COUNSEL
David A. Chami (argued), Price Law Group APC, Scottsdale, Arizona; for Plaintiff-Appellant.
K. Lee Marshall (argued), Bryan Cave Leighton Paisner LLP, San Francisco, California; Sean K. McElenney and Gregory B. Iannelli, Bryan Cave Leighton Paisner LLP, Phoenix, Arizona; for Defendant-Appellee.
Karen S. Bloom (argued), Senior Counsel; Steven Y. Bressler, Assistant General Counsel; John R. Coleman, Deputy General Counsel; Mary McLeod, General Counsel; Consumer Financial Protection Bureau, Washington, D.C.; for Amicus Curiae Consumer Financial Protection Bureau.
OPINION
McKEOWN, Circuit Judge:
Our nation‘s credit reporting system relies on accurate reporting both by credit reporting agencies and by the entities that provide information to those agencies about consumers’ debts (“furnishers“). When a consumer disputes an entry on his credit report, the furnisher must conduct a reasonable investigation—not merely rubberstamp information in the file. In this case, CitiMortgage, Inc. erroneously reported that Marshall Gross owed a debt that had been “abolished” under Arizona law. After Gross disputed the entry, CitiMortgage continued to report late payments on the debt and mounting interest and late fees. As a matter of law, the reports were false. Whether CitiMortgage‘s investigation was “reasonable” is a factual question that we leave to a jury. We reverse the district court‘s grant of summary judgment in favor of CitiMortgage.
BACKGROUND
In January 2007, Marshall Gross bought a single-family home in Arizona, taking out two separate mortgages to finance the purchase. In an arrangement known as an “80-20 loan,” the first (“senior“) mortgage covered 80% of the home‘s purchase price ($161,896), and the second (“junior“) mortgage covered the remaining 20% ($40,474). In 2012, Gross, experiencing financial difficulties, stopped making payments on both mortgages. After he defaulted, the senior lender began the foreclosure process. Gross eventually lost his home at a trustee sale in June 2013.
Like many properties during the national subprime mortgage crisis, Gross‘s home had lost significant value.
Although he bought the home for over $200,000 six years earlier, it sold for only $161,400, barely enough to satisfy the senior mortgage. The proceeds did not cover the junior mortgage, now owned by CitiMortgage. Because Arizona law precludes suit on a foreclosure deficiency, CitiMortgage, which bought the junior loan from a different bank in 2007, lost its investment entirely.
In 2017, Gross began shopping for a new home, but initially could not get approved for a mortgage. According to Gross, lenders denied his applications because CitiMortgage was still reporting the junior mortgage as “past due” on his credit report, with accruing interest and late fees, and with a string of missed monthly payments.
On May 3, 2018, Gross again disputed the debt with Experian and TransUnion, writing, “I don‘t owe any money on this loan. The house was foreclosed on June 13, 2013.”
This appeal primarily concerns what happened next. In response to the February dispute, after receiving notice from TransUnion, CitiMortgage reported a current balance of
$38,010 and a past due amount of over $50,000. CitiMortgage “updated” Gross‘s account to show that he was 180 days late, instead of 120 days late, on his monthly payments. The bank also added a note to the report stating the Gross had “disputed” the debt “under the Fair Credit Reporting Act.”
In response to the May 2018 dispute, CitiMortgage changed the mortgage balance to zero as of May 2018 and marked the account as “paid, closed” with $38,010 “charged off” as of April and May of 2018. As it turns out, CitiMortgage had in fact “charged the debt off,” meaning that the bank treated the debt as uncollectible and wrote it off on the bank‘s books.1
Discovery revealed how those notations came to be. At a deposition, CitiMortgage‘s Vice President and manager of research services testified that disputes like Gross‘s are routed to a third-party contractor that employs dispute agents based abroad. After Gross‘s first dispute, agents “verified” that there was an outstanding balance by consulting internal “transaction history,” “case notes,” and “system notes.”
As relevant here, Gross sued CitiMortgage under the Fair Credit Reporting Act (“FCRA“),
CitiMortgage, which is the only defendant in this appeal. Later, on cross-motions for summary judgment, the district court ruled for CitiMortgage, determining that its reports to the credit reporting agencies were accurate as a matter of law, and that CitiMortgage had reasonably investigated Gross‘s disputes. We review that decision de novo. U.S. Sec. & Exch. Comm‘n v. Hui Feng, 935 F.3d 721, 728 (9th Cir. 2019).
ANALYSIS
I. LAWSUITS AGAINST “FURNISHERS” UNDER FCRA
Congress enacted FCRA to ensure accurate reporting about the “credit worthiness, credit standing, credit capacity, character, and general reputation of consumers.”
FCRA regulates how furnishers must respond to a notice of dispute from a credit reporting agency. Among other things, the furnisher must correct or delete inaccurate information after conducting an “investigation with respect to the disputed information.”
cursory.” Gorman v. Wolpoff & Abramson, LLP, 584 F.3d 1147, 1157 (9th Cir. 2009). A consumer may sue a furnisher and recover damages if the furnisher willfully or negligently violated FCRA.
In this respect, a furnisher‘s duties resemble those of a credit reporting agency, which can also be liable for failing to “follow reasonable procedures to assure maximum possible accuracy” of information on a credit report.
claim against a furnisher, a consumer must make a prima facie showing that the furnisher‘s report was inaccurate.
II. CITIMORTGAGE‘S REPORTS WERE INACCURATE UNDER THE ARIZONA ANTI-DEFICIENCY STATUTE
The key to this case rests on the Arizona Anti-Deficiency Statute, which abolished Gross‘s liability for the debt that CitiMortgage reported. Enacted in 1971, this statute provides that after a trustee sale, if a mortgage deficiency remains, “no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness . . . .”
The Arizona Supreme Court first analyzed the Anti-Deficiency Statute in Baker v. Gardner, where the court rejected a lender‘s attempt to sue homeowners who had defaulted on their mortgages. The court held that the lender could only recover from the proceeds of the trustee sale and could not sue the lenders personally. Id. at 769, 772. The court rejected the argument that the Anti-Deficiency Statute was merely a “procedural” device governing the lender‘s remedy in a lawsuit. Id. at 770. According to the court, the Anti-Deficiency Statute “abolish[ed] the personal liability” of qualified Arizona homeowners for mortgage deficiencies, not just the lender‘s procedural remedies. Id. at 772.
With Gross‘s liability “abolished,” he was no longer obligated to repay the debt. See Black‘s Law Dictionary (11th ed. 2019) (defining “debt” as “[l]iability on a claim“); (defining “liable” as “[r]esponsible or answerable in law;
legally obligated“). Gross no longer owed a balance, so his payments were not late, and the loan should not have been accruing interest or late fees. It was “patently incorrect” for CitiMortgage to report otherwise. Gorman, 584 F.3d at 1163.
Although we recognize the difference between bankruptcy provisions and the Arizona Anti-Deficiency Statute, practically speaking, the situation was no different than a discharge under bankruptcy law, which extinguishes “the personal liability of the debtor.”
The question is not, as the district court put it, whether the junior mortgage was entirely “extinguished” by Arizona law, or whether the debt continued to exist. The point is that, vis-à-vis Gross, no outstanding balance existed, because the statute abolished his personal liability. CitiMortgage did not merely report that Gross‘s debt existed; it reported late payments, accruing interest, and an outstanding balance. Those reports were inaccurate.
Gross has more than satisfied his burden to make a prima facie showing of inaccurate reporting: he established as a matter of law that CitiMortgage‘s reports were “patently incorrect.” See Gorman, 584 F.3d at 1163 (defining inaccuracy under FCRA as information that is “patently incorrect” or materially misleading).
III. REASONABLENESS OF INVESTIGATION
Establishing an inaccuracy is not enough, however; Gross must also show that the inaccuracy was the product of an unreasonable investigation by CitiMortgage. Unless “only one conclusion about the conduct‘s reasonableness is possible,” the question is normally inappropriate for resolution at the summary judgment stage. Gorman, 584 F.3d at 1157 (quoting In re Software Toolworks Inc., 50 F.3d 615, 622 (9th Cir. 1994)). Here, as is ordinarily the case, this question is best left to the factfinder.
Federal regulations require furnishers to “establish and implement reasonable written policies” to ensure the
accuracy of their reports.
With these factors at play, there is a genuine factual dispute about the reasonableness of CitiMortgage‘s investigation. We thus leave it to the jury to determine the reasonableness.
IV. ACTUAL DAMAGES
If Gross persuades the jury that CitiMortgage was negligent, the remaining question is whether he is entitled to “actual damages.”
(“Causation is generally a question of fact for the jury . . .“).2
REVERSED AND REMANDED.