Xu v. Better Mortgage Corporation

Background

Jing Xu sued Better Mortgage Corporation and The Money Source, alleging negligent misrepresentation and violations of the Fair Credit Reporting Act (FCRA) and California’s Unfair Competition Law (UCL). Better Mortgage moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege enough facts to support a legally plausible claim.

Xu alleged that, after obtaining a loan from Better Mortgage and setting up an account with The Money Source, he believed automatic payments had been activated. He alleged that the loan was transferred to Ally Bank, that automatic payments ended, and that he was not notified. After a payment was missed, The Money Source allegedly reported to TransUnion that Xu’s account was 30 days past due. Xu alleged that he disputed the report, that The Money Source received notice of the dispute, and that The Money Source and Better Mortgage did not correct the report. He alleged that the report harmed his ability to obtain loans at lower rates and qualify for a loan to buy another property.

Fair Credit Reporting Act claim

The court held that Xu plausibly stated an FCRA claim against Better Mortgage based on The Money Source’s alleged conduct. Although Xu did not allege that TransUnion notified Better Mortgage directly, he alleged that The Money Source acted as Better Mortgage’s agent. The court concluded that federal law permits a company to be held responsible for an FCRA violation committed by an agent under ordinary agency principles.

The court found that Xu plausibly alleged an agency relationship because Better Mortgage directed him to use The Money Source’s account to make loan payments. Whether The Money Source’s apparent authority extended to credit reporting was a factual issue that could not be resolved on a motion to dismiss.

The court also rejected Better Mortgage’s argument that the reported information was necessarily accurate because Xu had missed a payment. Under the FCRA, technically accurate information can still be misleading if it creates a materially misleading impression. Xu plausibly alleged that reporting the payment as 30 days past due, without explaining that he believed he had followed Better Mortgage’s instructions to use automatic payments, was misleading and adversely affected credit decisions.

Negligent misrepresentation claim

The court dismissed Xu’s negligent misrepresentation claim. Under California law, negligent misrepresentation requires, among other things, a misrepresentation of a past or existing material fact and a lack of reasonable grounds for believing the statement was true.

Xu relied on Better Mortgage’s alleged statement that recurring payments would continue unless the loan was transferred and that he would be notified if a transfer ended the automatic payments. The court found that Xu plausibly alleged reliance and resulting harm, but not the required misrepresentation of an existing fact. The statement concerned actions that might occur in the future if an uncertain future event occurred. The court also found that Xu had not alleged facts showing that Better Mortgage lacked reasonable grounds for making the statement.

The court dismissed this claim without leave to amend because the alleged statement was a prediction about the future that, as a matter of law, could not support negligent misrepresentation.

Unfair Competition Law claim

The court held that Xu plausibly stated a UCL claim. The UCL separately prohibits unlawful, unfair, or fraudulent business practices. Xu’s UCL claim relied on the FCRA and negligent misrepresentation theories, and Better Mortgage conceded that the UCL claim rose or fell with those claims. Because the amended complaint adequately stated an FCRA claim, the court held that it also stated a UCL claim.

Disposition

The court granted Better Mortgage’s motion to dismiss the negligent misrepresentation claim without leave to amend. It denied the motion to dismiss the FCRA and UCL claims. The order therefore allowed the FCRA and UCL claims to continue while ending the negligent misrepresentation claim.