Faircloth v. AR Resources, Inc.

Background

James Faircloth sued AR Resources, Inc. under the California Consumer Credit Reporting Agencies Act. He alleged that AR Resources reported a fabricated medical debt to credit-reporting agencies before notifying him, failed to properly investigate his dispute, and continued reporting the debt without telling the agencies that he disputed it. The complaint alleged violations of California Civil Code sections 1785.26(a)(2) and (b), 1785.25(c), and 1785.25(f).

The case had originally included federal claims under the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, but Faircloth’s second amended complaint asserted only California-law claims. The court considered whether it had jurisdiction because of the remaining state-law claims. It found that the parties were completely diverse and that the amount in controversy exceeded $75,000, because the claimed statutory damages could total $15,000 and attorney’s fees could reasonably exceed $60,000.

Federal Preemption

Federal preemption means that federal law displaces certain state-law requirements. The court held that the Fair Credit Reporting Act preempted Faircloth’s claims under California Civil Code sections 1785.25(c), 1785.25(f), and 1785.26(b). Those provisions concern conduct regulated by the federal law, and the court concluded that they were covered by the federal law’s express preemption provision.

The court held that section 1785.25(a) was expressly excluded from federal preemption. That provision prohibits furnishing information about a transaction to a credit-reporting agency when the person knows or should know that the information is incomplete or inaccurate. However, the court found that Faircloth’s allegations still did not state a valid claim under that provision.

Sufficiency of the Remaining Claim

Under Rule 12(b)(6), a court may dismiss a complaint that does not adequately state a claim for relief. Faircloth alleged that AR Resources violated section 1785.25(a) by reporting a debt that did not exist and by failing to tell credit-reporting agencies that the debt was disputed.

The court held that the failure to report a dispute was not the type of incomplete or inaccurate information covered by section 1785.25(a). Instead, the allegation belonged under section 1785.25(c), which the court had already found preempted.

The court also held that Faircloth had not adequately alleged that the reported debt was false. He acknowledged receiving medical services and owing a $50.20 balance, while providing no additional facts explaining why the debt was “fabricated.” The court had identified the same pleading problem when it dismissed his first amended complaint and gave him leave to amend, but the second amended complaint repeated the same allegation without adding supporting facts.

Disposition

The court granted AR Resources’ motion to dismiss and dismissed the case with prejudice because Faircloth had not cured the previously identified defects and further amendment appeared futile. The clerk was directed to enter judgment for AR Resources and close the case.

The court denied AR Resources’ motion for sanctions under Rule 11. Although the court dismissed the complaint, it found that Faircloth’s claims were not frivolous, baseless, or presented for an improper purpose. The court also vacated the scheduled hearings.