Khankin v. JLR San Jose, LLC

Background

Darya Khankin leased a 2020 Land Rover, and Eliyahu Khankin, identified as Darya Khankin’s spouse, co-signed the lease. The Khankins alleged that the vehicle was out of service for more than 90 days while being repaired. They filed a related warranty-law case in state court. While that case was pending, they returned the vehicle to JLR San Jose, alleged that the dealership declined to process the return, and alleged that the bank reported them delinquent even though they had elected to rescind the lease. They later alleged that they paid off the remaining lease balance but that defendants continued reporting a past-due balance.

The complaint asserted four causes of action against all defendants: violations of the Fair Credit Reporting Act, defamation, unfair competition under California law, and declaratory relief. JLRNA, Chase, Equifax, and Trans Union moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not allege enough facts to state a legally plausible claim.

Chase

The court granted Chase’s motion to dismiss the Fair Credit Reporting Act claim with leave to amend. The Khankins did not identify the specific statutory provision in the complaint and did not allege facts showing that they notified Chase of the credit-reporting dispute or describing Chase’s investigation, or lack of investigation. The court also found that the complaint made generalized allegations against all defendants instead of identifying what Chase specifically did.

The court dismissed the defamation claim against Chase without leave to amend. It adopted the Fair Credit Reporting Act’s “total preemption” approach, under which state-law claims concerning a furnisher’s responsibilities under the Act are preempted. The court concluded that the defamation claim was based on allegedly false information Chase supplied to credit-reporting agencies and therefore concerned conduct regulated by the Act.

The court dismissed the unfair-competition claim against Chase without leave to amend. The claim relied on California Civil Code section 2987(g), which restricts a lessor or holder from reporting adverse information about certain early lease terminations. The court held that the Fair Credit Reporting Act preempted the claim and that the complaint did not allege a violation of the separate California provision that the Act expressly preserves.

The court dismissed the independent declaratory-relief claim against Chase without leave to amend because declaratory relief is a remedy, not an independent cause of action. The court’s conclusion stated that Chase’s motion to dismiss was granted in its entirety; the Fair Credit Reporting Act claim was dismissed with leave to amend, while the defamation, unfair-competition, and declaratory-relief claims were dismissed without leave to amend.

JLRNA

The court granted JLRNA’s motion to dismiss with leave to amend as to all claims except the independent declaratory-relief claim. The complaint identified JLRNA as the vehicle manufacturer but made no specific allegations about conduct by JLRNA. The court rejected the argument that discovery should be allowed to determine whether JLRNA was responsible, explaining that plaintiffs must first plead enough facts to make liability plausible.

The declaratory-relief claim against JLRNA was dismissed without leave to amend because declaratory relief is not an independent claim. The court’s conclusion stated that JLRNA’s motion was granted in its entirety, with the other claims dismissed with leave to amend and the declaratory-relief claim dismissed without leave to amend.

Equifax and Trans Union

Trans Union joined Equifax’s motion, and the court treated the two entities’ motions together. The court granted dismissal of the Fair Credit Reporting Act reinvestigation claim with leave to amend. The first alleged inaccuracy—that the agencies reported the Khankins as delinquent despite their alleged legal right to rescind the lease—was a legal dispute about their obligation to pay, not an inaccuracy the agencies had to resolve through reinvestigation. The related state warranty case was still pending, and the court held that credit-reporting agencies are not required to decide such legal questions.

The second alleged inaccuracy was that the agencies continued reporting a balance after the Khankins paid off the lease. The court considered the dispute letter referenced in the complaint and found that it said the Khankins had stopped making payments after returning the vehicle; it did not say that they had paid the remaining lease amount in full. Because the letter did not notify Equifax or Trans Union of that factual dispute, it did not trigger their duty to investigate that issue. The court nevertheless allowed amendment because the Khankins might be able to state a claim by alleging that they notified the agencies they had paid the lease in full and that the agencies failed to reasonably investigate.

The court granted dismissal of the defamation claims against Equifax and Trans Union with leave to amend. Under the Fair Credit Reporting Act, such claims require facts plausibly showing malice or a willful intent to injure. The court found that the alleged lack of notice meant the Khankins had not adequately alleged that the agencies knew the reported information was false and continued reporting it anyway.

The court dismissed the unfair-competition claims against Equifax and Trans Union with leave to amend. The court reasoned that section 2987(g) imposes requirements on lessors, while the complaint acknowledged that Equifax and Trans Union are consumer-reporting agencies, not lessors. The court allowed amendment because the claims might be capable of being saved. It dismissed the independent declaratory-relief claims against both entities without leave to amend.

Disposition

Judge Jacquelyn Scott Corley granted Chase’s motion to dismiss in its entirety, granted JLRNA’s motion to dismiss in its entirety, and granted Equifax’s motion, joined by Trans Union, in its entirety. For Chase, the Fair Credit Reporting Act claim was dismissed with leave to amend, while the other three claims were dismissed without leave to amend. For JLRNA, all claims except declaratory relief were dismissed with leave to amend, and declaratory relief was dismissed without leave to amend. For Equifax and Trans Union, the Fair Credit Reporting Act, unfair-competition, and defamation claims were dismissed with leave to amend, while declaratory relief was dismissed without leave to amend. The court ordered the Khankins to file an amended complaint by April 12, 2024.