Tescher v. Experian Information Solutions, Inc.

Background

Chaim B. Tescher sued Experian Information Solutions, Inc., PHH Mortgage Services, Credit Plus Inc., and LoanDepot.com LLC under the Fair Credit Reporting Act. Experian, PHH, and Credit Plus had filed answers. LoanDepot.com LLC, referred to in the opinion as Defendant, moved to dismiss the claim against it under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim. It also moved under Rule 11 for sanctions against Tescher’s counsel.

Tescher alleged that he made one 30-day-late mortgage payment in December 2018. After LoanDepot transferred mortgage-servicing responsibilities to PHH, the two entities used different account numbers. Tescher alleged that both reported the same late payment, making his credit report appear to show two late mortgage payments. He said this inaccurate or misleading reporting harmed his creditworthiness, increased the difficulty of obtaining credit, led to higher interest rates and difficulty obtaining a mortgage, and caused embarrassment and emotional injury.

Motion to Dismiss

The court considered LoanDepot’s standing argument under Rule 12(b)(1), the rule governing challenges to federal subject-matter jurisdiction, even though LoanDepot had labeled its motion as arising only under Rule 12(b)(6). The court held that Tescher had plausibly alleged an injury sufficient to establish standing at the pleading stage.

The court dismissed any theories based on 15 U.S.C. § 1681s-2(a). That provision requires furnishers of credit information to provide accurate information and to identify disputed information, but the court explained that the Fair Credit Reporting Act does not give private plaintiffs a right to sue for violations of those duties. Accordingly, theories that LoanDepot failed to mark the account as disputed or continued reporting the information without that notation could not proceed.

The court did not dismiss Tescher’s claim under 15 U.S.C. § 1681s-2(b). That provision requires a furnisher, after receiving notice of a dispute from a consumer-reporting agency, to investigate, review relevant information, report the results, and correct inaccurate information. The court found Tescher’s allegations sufficient at this stage to plausibly claim that LoanDepot received notice through Experian, failed to conduct a reasonable investigation, and continued reporting information that could misleadingly appear to concern two late payments.

The court also rejected dismissal based on the alleged insufficiency of Tescher’s damages. Although it described the allegations as very thin, it found that his assertions about harm to his credit score, higher interest rates, difficulty obtaining a mortgage, embarrassment, humiliation, and emotional injuries were sufficient to survive the motion to dismiss.

The court declined to decide at this stage whether LoanDepot was responsible for PHH’s reporting. Resolving that issue would have required factual assumptions about which entity reported first and whether LoanDepot’s reporting was accurate. The court stated that LoanDepot could raise those arguments again in a summary-judgment motion after discovery.

Rule 11 Sanctions

LoanDepot sought sanctions against Tescher’s counsel, arguing that counsel had not reasonably investigated the allegations, knew they were false, made a frivolous claim about LoanDepot’s responsibility for another entity’s conduct, and acted in bad faith. The court denied the sanctions motion. It stated that the conclusions supporting its decision on the motion to dismiss undermined the sanctions request, while allowing that LoanDepot could renew the request after discovery if it could establish grounds for sanctions.

Disposition

The court’s conclusion states that LoanDepot’s motion to dismiss was granted in part only to the extent that claims based on a violation of 15 U.S.C. § 1681s-2(a) could not proceed. The motion to dismiss was otherwise denied. LoanDepot’s motion for sanctions was denied. The court directed LoanDepot to file its answer within fourteen days and directed the clerk to terminate the pending motion sequences.