Debt Collector’s Duty to Mark Credit Account as Disputed


on behalf of herself and all others    )
similarly situated     )
) C.A. No. 05-3523
Plaintiff,     )
vs.           )
and      )
Defendants.   )


Plaintiff Larkay D. Wesley, through counsel, hereby respectfully submits this Memorandum of Law in opposition to Defendants Cavalry Investments, LLC and Cavalry Portfolio Svcs’s (“Cavalry”) Motion for Judgment on the Pleadings (“Motion”).   For the reasons set forth below, the first part of Defendants’ Motion should be denied.
This is a consumer class action brought under the Fair Debt Collection Practices Act, 15 U.S.C. §§ 1692, et seq. (“FDCPA”), a federal statute that prohibits debt collectors from engaging in abusive, deceptive and unfair collection practices.  Plaintiff claims that Defendants systematically violate the FDCPA by communicating to third parties credit information which is known or which should be known to be false, “including the failure to communicate that a disputed debt is disputed,” in violation of FDCPA section 1692e(8).  (See Compl. at ¶¶ 8-11, 15-19, 36).
In their Motion, Defendants contend that they are entitled to judgment on the pleadings because the purportedly “undisputed evidence” shows that Plaintiff cannot set forth a “cognizable claim.”   (See Def. Mem. at 1, 6).  Then Defendants proceed to completely ignore the facts set forth in Plaintiff’s Complaint, and instead predicate their arguments on a different set of facts.  For example, Plaintiff’s Complaint asserts that Defendants failed to mark as “disputed” a Cavalry collection account that Defendants reported to the Trans Union consumer reporting agency (“CRA”), also known as a credit bureau.  (Compl. at ¶¶ 17-19).  Defendants simply ignore those facts and instead discuss a different credit-reporting transaction, taking place on a different date, involving a communication from a different CRA (the Equifax credit bureau).   (See Def. Mem. at 6-7, and Exhibit A to Def. Answer).  This is not a minor mistake, as the very factual basis for Plaintiff’s claim in this case is the Trans Union credit-reporting transaction.  Defendants cannot expect to prevail on a motion on the pleadings when they simply ignore the pleadings.
Moreover, Defendants’ contention that they have no legal duty to mark disputed accounts as disputed when they communicate credit information to a CRAs is completely unsupported by any authority and is simply belied by the face of the FDCPA, federal case-law, as well as Defendants’ own conduct.  Defendants’ untenable belief that their (purported) compliance with section 1681s-2(b) of a different federal statute, the Fair Credit Reporting Act (“FCRA”), makes them immune form liability under FDCPA section 1692e(8) is not grounded in any conventional understanding of statutory construction, or in reality.  Defendants can and must comply with both the FCRA and the FDCPA.  Under the facts pled in this case, Plaintiff has set forth a cognizable claim as to why Defendants fail to comply with the FDCPA.
Accordingly, Defendants’ Motion must be denied.
The pleadings in the case consist only of Plaintiff’s Class Action Complaint (“Complaint”) and Defendants’ Answer and Affirmative Defenses (“Answer”).  (See Docket Entry Nos. 1 and 10).   For the sake of brevity, Plaintiff will not recite each averment paragraph- by-paragraph, but will for the convenience of this Court attached the Compliant and Answer hereto as Exhibits 1 and 2, respectively.
Additionally, Plaintiff believes it is important to underscore certain particular averments, which Defendants seem to completely ignore in their Motion.  Specifically, at paragraphs 17 through 19 of the Complaint, Plaintiff pleads as follows:
17. Plaintiff viewed her consumer report from Trans Union in or about May 2005. After examining her consumer report, Plaintiff learned that Defendants were reporting false and derogatory information about her, namely that Plaintiff had an auto loan that was derogatory which did not belong to her.  Accordingly, she immediately disputed the accuracy of the account.
18. On or about June 6, 2005, Trans Union sent Plaintiff a revised consumer disclosure that described the results of her dispute regarding the account with Defendants.  In that disclosure, Trans Union stated that the Defendants verified the account and made no change as to its status, including the failure to list the account as “disputed.”
19. Defendants did not mark the debt as “disputed” to Trans Union, nor did Defendants otherwise mark the debt as “disputed.”

(Compl. at ¶¶ 17-19).  Defendants not only deny these allegations (thereby creating issues of material fact), they also ignore them it their Motion.  Defendants answer these averments by a general denial and also by then stating that they received both a telephone dispute and CDV [Consumer Dispute Verification form] dispute from the Equifax credit bureau on June 9, 2005, and responded to that different dispute (which expressly stated that Plaintiff’s account was a product of “fraud”) by immediately marking the account as “disputed.”  (Answer at ¶¶ 17-19).
Defendants further deny Plaintiff’s allegation that their “practice and policy, upon completion of their ‘investigation,’ is to report the results to the CRA(s) without updating the tradeline [or account] to report as ‘disputed’ unless the consumer has alleged the account is the result of fraud and/or identity theft.”    (See Compl. at ¶ 15; Answer at ¶ 15).  Indeed, Defendants deny the truthfulness of virtually every paragraph of Plaintiff Complaint.  (See Answer at ¶¶ 1-4; 8-13, 15-30).  One of Defendants’ few admissions in the pleading is that they do, in fact, report credit information to the major CRAs, including Trans Union.  (See Compl. at ¶ 7; Answer at ¶ 7).

Under Federal Rule of Civil Procedure 12(c), judgment on the pleadings may not be granted unless “the movant clearly establishes there are no material issues of fact, and he is entitled to judgment as a matter of law.”  Sikirica v. Nationwide Ins. Co., 416 F.3d 214, 220 (3d Cir. 2005).   All “inferences to be drawn therefrom [must be made] in the light most favorable to the nonmoving party.”  Id.    A court “must view the facts presented in the pleadings,” and not facts outside of the pleadings.  Id.; see also Fed. R. Civ. P. 7(a) (defining limits of federal “pleadings”).  Indeed, Rule 12(c) expressly provides that:
If, on a motion for judgment on the pleadings, matters outside the pleadings are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.

Fed. R. Civ. P. 12(c) (emphasis added).  Here, this Court has already properly decided to defer the summary judgment aspects of the pending Motion until after the close of discovery.  Only the first part of Defendants’ Motion (i.e., the motion for judgment on the pleadings) is presently before the Court.  (See Order entered February 13, 2006; Docket Entry No. 15).  That first part of the Motion fails because, on the face of the pleadings, there exist many genuine issues of material fact and Defendants have failed to show that they are entitled to judgment as a matter of law.   Plaintiff’s Complaint clearly alleges that Defendants failed to communicate to Trans Union that the alleged debt was disputed.  As such, Plaintiff has properly pled a claim under FDCPA section 1692e(8).
Defendants cannot be entitled to a judgment on the pleadings by ignoring the pleadings.  Genuine issues of material fact exist, as Defendants’ own Answer makes abundantly clear.  Moreover, Plaintiff has pled a cognizable claim under the FDCPA.  Defendants, therefore, have also failed to show that they are entitled to judgment as a matter of law.
A. Judgment On The Pleadings Is Inappropriate In This Case Because There Exist Genuine Issues Of Material Fact

Defendants acknowledge that a judgment on the pleadings is not possible where there exist genuine issues of material fact.  (See Def. Mem. at 3) (citing Rule 12(c) and Soc’y Hill Civic Ass’n v. Harris, 632 F.2d 1045, 1054 (3d Cir. 1980)).  The case at bar is nothing short of a case study on disputed issues of material fact.  Indeed, Defendants have denied virtually every factual averment in Plaintiff’s Complaint.  (See Answer at ¶¶ 1-4; 8-13, 15-30).  Defendants cannot deny virtually all of Plaintiff’s factual allegations and then, with a proverbial straight face, represent to this Court that a judgment on the pleadings is appropriate because the “undisputed evidence” shows that they are entitled to judgment as a matter of law.  (See Def. Mem. at 6).  Even a cursory look at Defendants’ Answer makes it abundantly clear that this case is hotly contested at every factual turn.
In particular, even the specific facts surrounding the very transaction that gives rise to the claim that Defendants fail to mark disputed debts as disputed — unless the magic words “fraud” or “identity theft” are used in the dispute — are themselves in dispute.  First, Defendants deny that they have a policy or practice of not marking accounts as disputed except in the limited instances where the terms “identity theft” or “fraud” are used.  (See Compl. at ¶ 15; Answer at ¶ 15).   Moreover, Defendants deny that they communicated credit information to the Trans Union credit bureau on or about June 6, 2005 regarding a disputed account and failed to mark that account as “disputed.”  (See Compl. at ¶¶ 18-19; Answer at ¶¶ 18-19).
Although Defendants deny these allegations in their pleadings (thus creating genuine issues of material facts, and also making any judgment on the pleadings inappropriate), it is worth observing that the record evidence, once fully presented to this Court upon the close of discovery, will sharply contradict the representations that Defendants make in the present Motion.  For example, even though Defendants deny the policy and practice of not marking accounts as disputed except in the limited instances where the terms “identity theft” or “fraud” are used, the very corporate representative who has been designated to give testimony as a 30(b)(6) witness in this case, Mr. Gino Archer, has previously testified under oath to the contrary:
8      Q         Mr. Archer, focusing on consumer credit
9      disputes that Cavalry receives through the
10      bureaus; only those disputes, other than where
11      the communication clearly advises Cavalry that
12      the consumer is disputing an item as fraudulent
13      or the result of identity theft, are there any
14      other instances in which Cavalry will advise the
15      bureaus to mark the item as disputed in their
16      response back to the bureau?

17      A         Not to my knowledge.

18      Q         Okay.  So, every other type of dispute
19      Cavalry will answer, but not advise the bureau
20      that the item should be listed or marked as
21      disputed?

22      A         Correct.

(See Dep. of G. Archer, 3/30/05, at pp. 48, in Baksh v. Experian et al., Civ. No. 04-1088, E.D. Pa.) (emphasis added) (cited pages attached hereto as Exhibit 3).
The above testimony supports Plaintiff’s theory of the case that Defendants will mark credit accounts as “disputed” only in certain circumstances, but not in all circumstances as required by the FDCPA.   So does Defendants’ admission that they actually marked as disputed the Cavalry account in communicating back to the credit bureaus after Equifax presented them with a CDV [Consumer Dispute Verification] form that claimed that Plaintiff’s account was a product of “fraud.” (See Answer ¶ 18).
Further, Defendants’ own collection notes, also referenced in their Answer, corroborate Plaintiff’s allegation that there was a communication between Defendants and Trans Union on or about June 6, 2005, where the disputed account was not marked as disputed.  (See Compl. at ¶¶ 18-19; Answer at ¶¶ 18-19) (Answer referring to Cavalry Collection System Notes for June 6 and 10, 2005).  Those collection notes state as follows with respect to June 6, 2005:  “Brenda from Trans union cld ……ver acct not in dispute.”  (See Def. Answer at Exhibit B, p. 2) (emphasis added).
Thus, despite Defendants’ contention that they have no duty to mark accounts as disputed, at the close of discovery there will be ample evidence presented to show that Cavalry, in fact, marks certain credit accounts as disputed to the CRAs.  In many other instances, however (the ones at issue in this case), where the credit bureau dispute does not use the magic words “fraud” or “identity theft” the dispute will be ignored and the communication back to the CRAs will not mark the account as disputed, as in the case of the June 6, 2006 communication between Cavalry and Trans Union concerning Plaintiff.  (See Def. Answer at Exhibit B, p. 2); (See Compl. at ¶¶ 18-19).  That is precisely Plaintiff’s complaint in this case, and she is ideally suited to both show the absurdity of Cavalry’s policy  and to represent similarly situated consumers for disputes that do not use the magic words of “fraud” or “identity theft.”
But this foray into the factual record is unnecessary for now, as only the pleadings and Defendants’ Motion for Judgment on the Pleadings is before this Court.   Because there exist many genuine issue of material facts in this case (as plainly demonstrated by Defendants’ Answer to Plaintiff’s Complaint) no judgment on the pleadings can be appropriate.  Defendants’ Motion must therefore be denied on that basis alone.
B. Judgment On The Pleadings Is Also Inappropriate In This Case Because Defendants Have Failed To Show That Plaintiff Has Not Pled A Legally Cognizable Claim

Defendants also argue that they have no legal obligation to mark an account as disputed under FDCPA section 1692e(8) when contacted by a CRA to conduct an investigation under FCRA section 1681s-2(b).  (See Def. Mem. at 4).   According to Defendants, so long as they fulfill their obligations under section 1681s-2(b) of the FCRA and respond to the dispute, they have no further duties – and certainly no duty to mark a disputed account as disputed.  (See Def. Mem. at 4-6).    That proposition is mistaken, both under the FCRA and the FDCPA.
As a threshold matter it must be observed that Defendants (despite their bald contentions), in fact, mark certain credit accounts as “disputed” in the course of FCRA 1681s-2(b) investigation; they just do not do it in all instances.  The case of the June 9, 2005 Equifax “fraud” dispute that Defendants reference in their Answer is an instance when Defendants do recognize the obligation to respond back to credit bureau disputes by marking accounts as disputed.  (See Answer ¶ 18).  If they have no such obligation whatsoever, then there would be no practical reason for Defendants to ever mark accounts as disputed, or to have done so in connection with the Equifax dispute.
Separate from the inferences that one may reasonably draw from Defendants’ own conduct, Defendants are simply mistaken in arguing that they have no legal obligation to mark disputed debts as disputed when the dispute comes in the form of an FCRA dispute.  The FCRA itself, provides as follows:
(3) Duty to provide notice of dispute

If the completeness or accuracy of any information furnished by any person to any consumer reporting agency is disputed to such person by a consumer, the person may not furnish the information to any consumer reporting agency without notice that such information is disputed by the consumer.

15 U.S.C. § 1681s-2(a)(3).  Defendants’ contention that they have no further obligations under the FCRA so long as they investigate and timely respond to a credit bureau dispute (under section 1681s-2(b)) is therefore wrong.  FCRA section 1681s-2(a)(3) clearly imposes an additional obligation to mark disputed accounts as disputed.  Because that duty is set forth under FCRA subsection 1681s-2(a), however, as opposed to FCRA subsection 1681s-2(b), Plaintiff has no private cause of action for the violation of that provision of the law, and thus has not brought such as claim.  See 15 U.S.C. § 1681s-2(c) & (d).  Only the Federal Trade Commission may enforce that duty against credit furnishers.
Because Cavalry is also a debt collector, however, as well as a credit furnisher, they are also regulated by the FDCPA, in addition to the FCRA. Naturally not all debt collectors also report credit information to the credit bureaus.  Similarly, not all companies that furnish credit data are debt collectors.  In fact, most are not debt collectors.  Companies such as Defendants that engage both in debt collection and credit reporting are, by virtue of that dual role, covered by both the FDCPA and FCRA.
Importantly, the FDCPA imposes a special set of duties upon debt collectors separate and apart from any duties that they may have under the FCRA or any other law.   One such duty is set forth at FDCPA section 1692e(8):
A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. Without limiting the general application of the foregoing, the following conduct is a violation of this section . . . Communicating or threatening to communicate to any person credit information which is known or which should be known to be false, including the failure to communicate that a disputed debt is disputed.

15 U.S.C. §§ 1692e(8) (emphasis added).  There is nothing in the FDCPA that ever remotely suggests, as Defendants contend, that debt collectors are relieved of this duty to mark disputed debts as disputed if they (purportedly) comply with section 1681s-2(b) of the FCRA.  Similarly, nothing in the FCRA suggests that compliance with section 1681s-2(b) relieves any party of any duties that it may have under the FDCPA or any other federal statute.  And Defendants cite no authority to that effect.  As with other instances where more than one federal statute governs the conduct of an actor, the actor must comply with both statutes.
Indeed, it is a basic cannon of statutory construction that in construing two or more federal statutory provisions or statutes, a court must give effect to both wherever possible.  See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1017-1018, 104 S.Ct. 2862, 2881 (1984) (“where two statutes are capable of co-existence, it is the duty of the courts, absent a clearly expressed congressional intention to the contrary, to regard each as effective”); Morton v. Mancari, 417 U.S. 535, 551, 94 S.Ct. 2474, 2483 (1974) (quoting United States v. Borden Co., 308 U.S. 188, 198, 60 S.Ct. 182, 188 (1939)) (“The courts are not at liberty to pick and choose among congressional enactments, and when two statutes are capable of co-existence, it is the duty of the court, absent a clearly expressed congressional intention to the contrary, to regard each as effective.  ‘When there are two acts upon the same subject, the rule is to give effect to both if possible.’”); United States v. Menasche, 348 U.S. 528, 538-39, 75 S.Ct. 513, 519-20 (1955) (courts should avoid a construction of a statute that renders any provision superfluous); see generally Cushman v. Trans Union Corp., 115 F.2d 220, 225 (3d Cir. 1997) (in comparing two statutory provisions with different duties, “[w]e strive to avoid a result that would render statutory language superfluous, meaningless or irrelevant”).
Contrary to Defendants’ suggestion, there is nothing irreconcilable or onerous about Defendants having to comply with both their duties under FCRA section 1681s-2(b) and FDCPA section 1692e(8).  In fact, according to their own admissions, Defendants manage to comply just fine with respect to fraud disputes by simply adding the one additional word to their communication to the credit bureaus in that context, namely that the account is “disputed.”   (See Answer ¶ 18).  Nor has Congress anywhere expressed its intent, as Defendant may wish, to immunize debt collectors from liability under FDCPA section 1692e(8) if they (purportedly) comply with the requirements of FCRA section 1681s-2(b).
Even the single decision that Defendants cite in support of their argument contradicts their absurd reading of the statutes.  (See Def. Mem. at 4 & 6) (citing Farren v. RJM Acquisitions Funding, LLC, Civ. No. 04-995, 2005 WL 1799413 (E.D. Pa. July 26, 2005)).  In Farren, the court did not find that compliance with FCRA section 1681s-2(b) means that a debt collector who was also furnishing credit information need not mark as “disputed,” under the FDCPA, a disputed account.  To the contrary, the Farren court allowed the plaintiff-consumer to proceed to trial both with his claim that a debt collector violated FCRA section 1681s-2(b) by conducting a negligent investigation and also with his claim that the same debt collector violated FDCPA section 1692e(8) by failing to mark the disputed debt as disputed in its communication back to the credit bureaus. Farren, Civ. No. 04-995, 2005 WL 1799413 at * 8 & *10, 11 (denying summary judgment as to both FCRA section 1681s-2(b) and FDCPA section 1692e(8) claims).   At least one other federal court in this District has similarly held that a consumer may proceed to trial against a debt collector who reports credit with both an FCRA section 1681s-2(b) claim and a separate FDCPA section 1692e(8) claim for failing to mark a disputed debt as disputed.  See Agosta v. InoVision, Inc., Civ. No. 02-806, 2003 WL 22999213 at *5 & *7  (E.D. Pa. Dec. 16, 2003) (denying summary judgment as to both FCRA section 1681s-2(b) and FDCPA section 1692e(8) claims); see also Sullivan v. Equifax, Civ. No. 01-4336, 2002 WL 799856 at *2, 4 (E.D. Pa. Apr. 19, 2002) (reporting collection account to credit bureaus is debt collection activity that subjects debt collector to potential liability under FCRA and separately under FDCPA).
In sum, the statutory language and case-law makes it abundantly clear that, contrary to Defendants’ contentions, companies such as Cavalry have separate statutory duties under both FCRA section 1681s-2(b) and FDCPA section 1692e(8).  In the case at bar, Plaintiff has set forth a legally cognizable claim under the FDCPA and the facts of this case as they exist in the pleadings.  Accordingly, Defendants’ Motion must therefore be denied.
For all of the reasons set forth above, Defendants’ Motion for Judgment on the Pleadings should be denied.

Respectfully submitted,
BY:  __________________________
Land Title Building, 19th Floor
100 South Broad Street
Philadelphia, PA 19110
(215) 735-8600
Dated: February 28, 2006   Attorneys for Plaintiff and the Class