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Nye Lavalle
Ameriquest sues credit agencies for negligence
After being accused in a class action suit of accessing consumers’ credit reports without “permissible purpose,” Ameriquest Mortgage Company turned around and sued three credit reporting agencies who compiled consumer lists for its direct mail program, claiming the agencies were negligent and breached their contracts. Read on to see whether either side could claim a victory from a federal court.

Ameriquest Mortgage Company went on the offensive after it was accused in a class action suit of violating the Fair Credit Reporting Act for failing to give firm offers of credit, and accessing credit reports without “permissible purpose.” The company sued three credit agencies for breach of contract and negligence, but on March 5, the U.S. District Court, Northern District of Illinois, Eastern Division, ruled to deny part of the claims while allowing others.

Credit reporting agencies ChoicePoint Precision Marketing LLC, Equifax Information Services LLC (EIS) and Equifax Credit Marketing Services (ECMS) allegedly entered into a series of written and verbal agreements with Ameriquest Mortgage Company. The agreements called for Ameriquest to pay the agencies to provide information about consumers.

Pursuant to the agreements, ChoicePoint and ECMS used Equifax data to provide consumer lists to Ameriquest for its direct mail program, to allow Ameriquest to write to pre-screened consumers. The marketing letters allegedly made “firm offers of credit” containing “clear and conspicuous disclosures to consumers” as the FCRA required. EIS provided and data “and/or developed and marketed the computerized process/systems for generating the consumer lists” to be used in Ameriquest’s direct mail program.

Consequences for contacting consumers

A consolidated complaint filed by non-borrowers, alleging that Ameriquest violated the FCRA by accessing credit reports of the putative class members without permissible purpose, since the solicitation letters sent to consumers didn’t constitute “firm offers of credit,” and/or by failing to include required notices and disclosures.

Ameriquest then filed a nine-point complaint on July 5, 2007 against the agencies, citing a breach of contract and negligent conduct, claiming ChoicePoint and Equifax falsely induced it to enter into the contracts. The complaint also noted intent to seek rescission or contribution on the contracts.

ChoicePoint and Equifax responded by arguing they couldn’t be held liable for breach of contract because they had no duty to ensure the legality of the letters under the subscriber agreement, which they claimed governed the parties’ relationships. The agreement, however, wasn’t included in the third-party complaint, and therefore couldn’t be examined by the court.

Furthermore, Ameriquest claimed there were several written and oral contracts in place. The federal court, citing Federal Rule 12(b)(6), found it had to accept Ameriquest’s claim of multiple contracts as true, and thus the court said it couldn’t assume that the subscriber agreement was the only operative contract between the parties.

Can FCRA protect companies?

Ameriquest then asserted that it was owed indemnification and/or contribution from the defendants under the principles of equity. Responding, ChoicePoint and Equifax noted that courts typically have found that there is no right to indemnification or contribution under the FCRA. The federal court in this case, however, found that neither the FCRA nor the federal common law allowed indemnification or contribution under these circumstances.

The federal court determined that federal statute 14 U.S.C. § 1681n(b) would not grant Ameriquest any right to seek contribution or indemnification from the credit agencies. Only one portion of the FCRA’s provisions even remotely addresses Ameriquest’s claims, the court said, where it states “any person who obtains a consumer report from a (credit agency) under false pretenses or knowingly without a permissible purpose shall be liable to the (credit agency) for actual damages sustained by the (credit agency), or $1,000, whichever is greater.”

This provision apparently sliced through Ameriquest’s attempt to recover damages from the credit agencies.

“Thus,” the federal court noted, “Congress explicitly permits a CRA to recover damages under certain circumstances from a ‘person who obtains a consumer report.’ Congress, however, did not authorize users of consumer reports, like Ameriquest, to recover from CRAs under any circumstances.”

The intent of the FCRA was to “protect consumer privacy without stifling commerce, not to protect users of credit information in their dealings with a CRA,” the court said.

Additionally, the court found that Ameriquest failed to cite any statutory provision or authority that would demonstrate that the defendants owed it a common law duty. The only case the plaintiff cited, the court said, was brought by a consumer, not a subscriber.

“The existence of these statutory duties to consumers does not translate into a common law obligation to Ameriquest, particularly where no such obligation is contemplated by the statute itself,” explained the court. “Based on our review of the statute … we conclude there is no compelling reason to extend federal common law … to create an action for contribution or indemnification under the FCRA in this case.”

The court therefore dismissed Ameriquest’s claims seeking indemnity and contribution.

In its claim of negligent misrepresentation, Ameriquest alleged that the credit agencies told the mortgage firm that they were aware of the FCRA’s requirements regarding making firm offers of credit and/or clear disclosures, and allegedly indicated to Ameriquest that they were compliant with those rules.

Ameriquest claimed that if the allegations in the non-borrowers’ complaint against it were found to be true, then at the time the credit agencies made their representation to the mortgage firm, they knew or should have known that their representations were materially false. Since the alleged misrepresentations concerned past or existing facts, instead of law or opinion, the court found that Ameriquest’s negligent misrepresentation claim could proceed on the alleged statements.

Agencies’ duty questioned

The negligence claim against the credit agencies didn’t fare as well. The court pointed out that in order to prove negligence, a plaintiff has to establish that the defendant owed a duty of care, breached the duty and as a result the plaintiff suffered damages caused by the breach. In Ameriquest’s case, that didn’t happen.

Although Ameriquest claimed that in compiling the consumer lists, the defendants had a duty to follow “all and any federal laws relating to identifying/contacting customers who would qualify for prescreened credit in connection with mortgage loans,” the federal court said the mortgage firm failed to allege how the FCRA or any state statute or common law would give rise to such a duty. The negligence claim was therefore dismissed without prejudice.

In its claim seeking rescission of its unspecified contracts with the credit agencies, Ameriquest alleged that the defendants alleged misrepresentations entitled it to succeed on the claim. The defendants countered that the court should dismiss the claim based on procedural reasons under Georgia law — where the credit agencies are based — to which Ameriquest did not specifically respond. Instead, the mortgage firm said only that “the sufficiency of this claim may not be determined under Georgia law at this stage.” That response wasn’t enough for the federal court.

“Although Ameriquest did not indicate what state’s law should be controlling, we nonetheless agree that a choice-of-law analysis is required before we can determine the sufficiency of the rescission allegations,” the court said, thereby denying motions to dismiss the rescission claim, but saying it could “revisit this issue as appropriate.”

Therefore, the motions by ChoicePoint and Equifax to dismiss three claims of breach of contract were denied. The claims of rescission and negligent misrepresentation were denied, while the motions for indemnification and contribution were dismissed with prejudice. The negligence claim was dismissed without prejudice.

Ameriquest Mortgage Co. v. Trans Union LLC.
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