Marchisio v. Carrington Mortgage Services, LLC

          Appeals from the United States District Court for the Southern District of Florida D.C. No. 2:14-cv-14011-FJL

          Before ROSENBAUM, HULL and JULIE CARNES, Circuit Judges.

          JULIE CARNES, CIRCUIT JUDGE:

          This is the second federal action filed by Plaintiffs Johnnie Teresa Marchisio and Adrian Marchisio against Defendant Carrington Mortgage Services, LLC. Defendant's repeated failures to accurately report the status of Plaintiffs' mortgage loans prompted both actions. Specifically, as part of the parties' settlement in 2009 of a foreclosure suit brought by Defendant, Plaintiffs turned over their property to Defendant, which action mooted the foreclosure action and extinguished Plaintiffs' debt on the two pending loans. But Defendant failed to report correctly the status of the loans, and it continued trying to collect on the nonexistent debt, prompting Plaintiffs to file their first federal action alleging violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq., among other things.

         The parties eventually settled this first federal lawsuit ("First Action"), entering into a settlement agreement that required Defendant to timely correct its reporting of the second loan and to pay Plaintiffs $125, 000. Defendant paid the agreed-upon settlement amount, but failed to report the second loan as having a zero balance within the deadline specified in the settlement agreement, instead issuing three reports that continued to inaccurately report the existence of a delinquent debt. Even with its eventual and tardy report of a zero balance, however, Defendant incorrectly reported that Plaintiffs still owed a $34, 985 balloon payment on this second loan due in March 2021.

         Plaintiffs disputed with credit reporting agencies Defendant's reporting of a balloon payment due on the second loan. Advised of Plaintiffs' disagreement with the report, Defendant purportedly investigated the dispute. Yet, notwithstanding their extensive litigation history with Plaintiffs, including two previous settlement agreements acknowledging that Plaintiffs owed nothing on the second loan, Defendant incorrectly confirmed to the reporting agencies that Plaintiffs had a balloon payment pending. If that wasn't bad enough, Defendant then began charging Plaintiffs for lender-placed insurance on the property that Plaintiffs had turned over to Defendant years earlier and no longer owned.

         As a result, Plaintiffs filed this second federal action ("Second Action") alleging three claims: violation of the federal Fair Credit Reporting Act ("FCRA"), violation of the Florida Consumer Collection Practices Act, Fla. Stat. § 559.55, et seq. (the "Florida Collections Act"), and breach of contract. Defendant filed a motion for summary judgment as to all claims; Plaintiffs filed a motion for partial summary judgment. The district court granted Plaintiffs' motion for summary judgment on the FCRA claim, concluding that Defendant had willfully violated the FCRA and awarding statutory damages of $3, 000, as well as attorney's fees and costs, all totaling $115, 860.12. The district court, however, denied Plaintiffs' request for emotional distress and punitive damages, finding as a matter of law that Plaintiffs had shown no entitlement to those damages. The district court granted summary judgment to Defendant on Plaintiffs' Florida Collections Act claim for various reasons. Finally, although it concluded that Plaintiffs had proved that Defendant breached its settlement agreement, the district court granted summary judgment to Defendant on Plaintiffs' breach of contract claim, holding that Plaintiffs had failed to prove any recoverable damages.

         The parties filed cross-appeals contesting the district court's adverse rulings on the above claims, as well as its award of fees, which Plaintiffs viewed as inadequate and Defendant viewed as excessive. After careful review and with the benefit of oral argument, we: (1) affirm the district court's finding of a willful FCRA violation, but reverse the court's denial of emotional distress and punitive damages; (2) reverse the grant of summary judgment for Defendant on the Florida Collections Act claim; (3) reverse the grant of summary judgment for Defendant on the breach of contract claim; (4) vacate the award of attorney's fees to Plaintiffs so that the district court can recalculate those fees at the conclusion of the litigation;^[1] and (5) remand for proceedings consistent with this opinion.

         I. BACKGROUND

         A. The Foreclosure Action

         Defendant serviced two mortgage loans extended to Plaintiffs for the purchase of a house. In August 2008, Plaintiffs defaulted on both loans. Through its trustee, Defendant filed a foreclosure action on Plaintiffs' property in state court. The parties resolved the foreclosure through a settlement agreement on December 9, 2009. The settlement agreement obligated Plaintiffs to convey the deed to the property to Defendant. In exchange, Defendant agreed to report to the credit reporting agencies (Equifax, TransUnion, and Experian) that the mortgage was discharged with a zero balance owed. Plaintiffs filed the deed in lieu of foreclosure on December 11, 2009, and vacated the property.

         In April 2011, Plaintiffs obtained a dismissal of the foreclosure suit with prejudice, the court confirming that Plaintiffs had transferred full ownership of the property to Defendant. For more than a year, however, Defendant failed to meet its obligations under the settlement agreement. Specifically, Defendant resumed its debt collection efforts and reported Plaintiffs' debt as delinquent, even though Plaintiffs owed Defendant no money.

         B. The First Federal Action

         1. Partial Correction by Defendant

         In response, in July 2012, Plaintiffs filed an action in the United States District Court for the Southern District of Florida, Case No. 12-cv-14264-DLG, alleging, among other things, that Defendant violated the FCRA and the Florida Collections Act. In this First Action, Plaintiffs complained that, despite the state court order, Defendant continued to seek payment on the discharged mortgage and falsely reported to credit reporting agencies that the debt was delinquent.

         During this First Action, Defendant corrected its misreporting of the first loan by sending an automated universal dataform ("AUD") to the credit reporting agencies, requesting that they update the first loan to reflect that it had a zero balance effective December 31, 2009. But Defendant continued to misreport that Plaintiffs owed money under the second loan.

         2. The Release and Settlement Agreement

         The parties resolved the First Action, entering into a "Release and Settlement Agreement" on January 23, 2013. It is this settlement agreement that Plaintiffs now contend Defendant breached. In exchange for dismissal of the district court action, Defendant agreed to (1) pay Plaintiffs $125, 000 and (2) "report the Second Loan as having a zero balance as of December 9, 2009 to the same agencies and in the same fashion as it reported the First Loan, which reporting shall be done as soon as reasonably possible, but in any case within 90 days." The parties agreed that "[i]n the event of a material breach hereunder, the prevailing party in any action commenced to enforce [the] Agreement shall be awarded its reasonable attorneys fees, expenses, and costs." The parties acknowledged that "time is of the essence in the performance of the obligations of this Agreement."

         3. Post-Settlement Activity

         Despite a settlement agreement that should have resolved all outstanding issues, Plaintiffs continued to be plagued by Defendant's failure to accurately report extinguishment of the second loan. Given Defendant's intransigence, Plaintiffs were forced to file a second lawsuit to prompt Defendant to cease falsely reporting Plaintiffs' debt.

         a. Defendant's Failure to Update Plaintiffs' Credit Report

         Rather than correct its reporting of Plaintiffs' second loan, Defendant continued to send automated monthly reports to the credit reporting agencies with inaccurate information about the second loan. Defendant sent inaccurate reports in February, March, and April 2013. The negative reports caused Plaintiffs' credit history to show the second loan as an open account with: (1) a balance of $61, 356; (2) a past due amount totaling $14, 264; and (3) being late over 120 days. None of this information was correct.

         The settlement agreement required Defendant to report to the credit reporting agencies, as soon as reasonably possible, but no later than 90 days, that Plaintiffs' second loan had a zero balance. Defendant missed this deadline. It was only after Plaintiffs complained that Defendant, on April 25, 2013-two days after the 90-day deadline-submitted an AUD to the credit reporting agencies requesting that they update the second loan to show a zero balance, effective December 29, 2009.^[2] Yet, even though it corrected the balance-due entry, Defendant incorrectly reported the second loan as having a balloon payment of $34, 985, due on March 1, 2021.

         b. Plaintiffs Finance Vehicle Purchases

         On February 23, 2013-a month after settling the First Action, and while Defendant was still falsely reporting that Plaintiffs owed it money on this second loan and were behind on their payments-Plaintiffs financed the purchase of two used vehicles. AutoNation Cadillac of West Palm Beach required Mr. Marchisio to pay $5, 000.00 down and finance the $8, 211.71 balance at 17.99% interest. Grieco Nissan required Mrs. Marchisio to pay $10, 300.00 down and finance the $6, 070.73 balance at 24.49% interest. Plaintiffs allege that, because Defendant had affirmatively misstated that Plaintiffs owed it money-and thereby had failed to correct its reporting of the second loan-Plaintiffs had to make larger down payments and pay higher interest rates on these automobile loans.

         c. Mrs. Marchisio Receives Automated Calls from Defendant

         Mrs. Marchisio testified that several months later, in the fall of 2013, Defendant called her cell phone several times using an autodialing system. On one call that she answered, Defendant informed her that Plaintiffs' home would be foreclosed and that they owed a balloon balance. Call records that would have shown Defendant's outgoing calls were no longer available when requested by Plaintiffs. However, Mr. Marchisio corroborated his wife's testimony, testifying that she contemporaneously reported Defendant's calls to him.

         d. Defendant Erroneously Verifies Inaccurate Reporting of Second Loan

         Chagrined at Defendant's continuing false reports that Plaintiffs owed them money, in August 2013, Plaintiffs filed a motion in the First Action to enforce the settlement agreement. The district court, however, dismissed the action, declining to exercise jurisdiction over the settlement agreement.^[3]

         Accordingly, on November 7, 2013, Plaintiffs informed the credit reporting agencies that they disputed the information reported regarding the second loan. In their dispute letters, Plaintiffs described the litigation history and the foreclosure court order relieving them of their debt obligation. Plaintiffs also explained that Defendant had agreed in the settlement of the First Action that Plaintiffs did not owe any money under the mortgages.

         Plaintiffs' dispute letters triggered a process typically followed by credit reporting agencies and furnishers of credit information to investigate disputed credit reports. The credit reporting agencies create an automated credit dispute verification form ("ACDV") that summarizes what the credit reporting agencies are reporting and the information the consumer is disputing. The credit reporting agencies then forward the ACDV electronically to the credit furnisher, which in this case was Defendant. The furnisher determines whether the disputed information should be verified, modified, or deleted. The furnisher then sends the completed ACDV to the credit reporting agencies providing the results of its investigation.

         Danh Nguyen, a member of Defendant's research department, investigated and processed the ACDVs generated by Plaintiffs' dispute letters the day he received them. Following standard procedure, Nguyen consulted Defendant's FISERV database to check the accuracy of Plaintiffs' credit reports. Defendant characterizes FISERV as "a universal database that houses all relevant information regarding its borrowers' loans." But, for disputed reasons, the FISERV database did not have information regarding the January 2013 settlement agreement. Unaware of this latest settlement or the previous litigation history, Nguyen sent an ACDV to the credit reporting agencies verifying as accurate the report that Plaintiffs owed a balloon payment on the second loan. Consequently, Plaintiffs' November 21, 2013 credit report continued to erroneously reflect a $34, 985 balloon payment, due March 2021, for the second loan. As noted above, the January 23, 2013 settlement agreement had required Defendant to report a zero balance on this second loan as soon as reasonably possible, but no later than 90 days after the date of the agreement: that is, by April 23, 2013. Defendant's issuance of this November credit report incorrectly indicating the existence of a balloon note meant that seven months after the deadline for issuing a report showing a zero balance, Defendant had still failed to do so.

         e. Defendant's Insurer Charges Plaintiffs for Insurance Coverage on Property Owned by Defendant

         Defendant's failure to update its databases to reflect settlement of the second loan had other consequences. In addition to its other systems, Defendant stored Plaintiffs' loan information in an insurance tracking software system called Co-Trak. Defendant's insurance vendor, Southwest Business Corporation ("Southwest"), used Co-Trak to administer property insurance for Defendant's loans.

         On November 30, 2013, Southwest deleted Plaintiffs' first loan from Co-Trak. Although Defendant has a policy of not requiring insurance for second loans, deletion of the first loan triggered the loading of the second loan into the system. The record for the second loan indicated a balance due and expired insurance. That caused Southwest to send automated lender-placed insurance coverage letters to Plaintiffs on November 30, 2013 and December 31, 2013. Those letters bore Defendant's letterhead and were signed "Fire Insurance Processing Center, Carrington Mortgage Services, L.L.C." The letters informed Plaintiffs that their loan agreement required them to keep fire insurance on the property and that insurance would be purchased and charged to Plaintiffs if Plaintiffs did not provide proof of insurance.

         Shortly thereafter, on January 17, 2014, another lender-placed insurance letter entitled "Notice of Lender Placed Fire Coverage"-also on Defendant's letterhead and bearing the same signature as the previous insurance letters- informed Plaintiffs that insurance had been purchased for the property previously owned by Plaintiffs and that Plaintiffs' escrow account would be charged $2, 659 in monthly installments. Plaintiffs also received a nearly identical "Notice of Lender Placed Fire Coverage" dated January 22, 2014. All of the insurance letters informed Plaintiffs that "this communication is from a debt collector and it is for the purpose of collecting a debt."

         C. The Second Federal Action

         As a result of Defendant's continuing wrongful insistence that Plaintiffs still owed it money, Plaintiffs' November 2013 effort to dispute the reporting of the balloon payment for the second loan failed. Left with little other option to obtain relief, Plaintiffs filed this second federal action against Defendant on January 8, 2014, alleging breach of the settlement agreement entered in the First Action and violations of the FCRA and the Florida Collections Act.

         1. Defendant Corrects Its Errors Shortly After Plaintiffs' Filing of this Action

         Although Plaintiffs' previous efforts to end their ongoing nightmare had failed, their filing of a second federal action apparently caught Defendant's attention. On January 28, 2014, shortly after Plaintiffs filed this Second Action, Defendant finally saw fit to issue an AUD requesting that the credit reporting agencies delete from Plaintiffs' credit reports any reference to a balloon-payment obligation. Defendant also cancelled the lender-placed insurance, effective January 28, 2014, and issued Plaintiffs a refund. Thus, by the end of January 2014, more than four years after settlement of the foreclosure action and prompted only by two subsequent lawsuits, Defendant finally managed to update its databases, correct its previous errors, and accurately report the status of Plaintiffs' second loan.

         2. Procedural History of this Action

         On November 13, 2015, Plaintiffs filed an Amended Complaint, alleging: Count I, Violation of FCRA; Count II, Violation of Florida Collections Act; Count III, Breach of Contract (i.e., Breach of the Second Settlement); Count IV, Preliminary Injunctive Relief; and Count V, Permanent Injunctive Relief. The parties filed cross-motions for summary judgment in July 2016.

         Defendant filed a motion for summary judgment on all claims. Plaintiffs filed a verified Declaration in opposition to Defendant's motion for summary judgment. Plaintiffs also filed a motion for partial summary judgment on some aspects of its claims and of Defendant's defenses. As discussed below, the district court granted summary judgment for Defendant on some things and for Plaintiffs on others.

         II. STANDARD OF REVIEW

         We review de novo the district court's rulings on the parties' cross motions for summary judgment. Owen v. I.C. Sys., Inc., 629 F.3d 1263, 1270 (11th Cir. 2011). Summary judgment is appropriate when "there is no genuine dispute as to any material fact" and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A genuine issue of material fact exists when "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The Court reviews the evidence and draws all reasonable inferences in the light most favorable to the non-moving party. Owen, 629 F.3d at 1270.

         III. DISCUSSION

         A. Plaintiffs' FCRA Claim (Count I)

         1. The District Court's Ruling

         Consistent with the settlement agreement of the First Action, in which Defendant agreed to correct its false reporting that a balance was due on the second loan, in April 2013 Defendant finally disseminated revised reports to indicate that Plaintiffs had a zero balance on this loan. Yet, in making this correction, Defendant introduced a new false entry into the report: the existence of a balloon payment of almost $35, 000 due in 2021 on this (non-existent) second loan.

         Defendant was put on notice of this newest problem through an attempt by Plaintiffs in August 2013 to enforce the earlier settlement agreement: an attempt that was rebuffed by the district court on jurisdictional grounds. Plaintiffs then filed the dispute letter with credit reporting agencies that led to the filing of the present FCRA claim. Plaintiffs disputed the existence of a balloon loan, which communication prompted the agencies to contact Defendant for the latter to investigate and inform the agencies whether the disputed information was accurate. As set out more fully in the factual discussion, the databases available to Defendant's investigative employee continued to show that a balloon payment was due. None of them included information regarding the settlement agreement. Had they included this information, the employee would have been aware that, in its settlement of Plaintiffs' earlier claims, Defendant had agreed that Plaintiffs owed nothing on this particular loan. But unaware of the settlement, the employee incorrectly confirmed to the credit reporting agencies that Plaintiffs did have a balloon payment due in the future.

         Plaintiffs' present claim alleges that Defendant failed to conduct a reasonable investigation of the disputed entry, as required by the FCRA. The district court agreed that Defendant had failed to conduct a reasonable investigation. It further concluded that, given all the litigation concerning the question whether Plaintiffs owed anything more on the second loan, Defendant's conduct was willful, and it granted summary judgment on that element. Defendant appeals these decisions. As to damages, the court awarded statutory damages of $3, 000, which Defendant does not oppose, assuming the existence of a violation. The court, however, ruled that Plaintiffs were not entitled to any damages for emotional distress or as punitive damages. Plaintiffs appeal the district court's grant of summary judgment to Defendant as to these damages.

         2. Reasonableness and Willfulness of Defendant's Conduct

         It is obvious that Defendant failed to conduct a reasonable investigation of Plaintiffs' challenge of Defendant's report that Plaintiffs owed a balloon payment on the second loan, and we therefore affirm the district court's grant of summary judgment on this issue. The FCRA requires that credit reporting agencies and those entities that furnish information to them ("furnishers") investigate any disputed information. Thus, when a consumer disputes information with a credit reporting agency, the agency must "conduct a reasonable reinvestigation to determine whether the disputed information is inaccurate." 15 U.S.C. § 1681i(a)(1)(A). As part of this investigation, the agency is required to notify the furnisher of the information that it has been disputed. Id. § 1681i(a)(2). Upon receipt of this notice, the furnisher of information must: (1) "conduct an investigation with respect to the disputed information"; (2) "review all relevant information provided by the consumer reporting agency" in connection with the dispute; and (3) "report the results of the investigation to the credit reporting agency." Id. § 1681s-2(b)(1)(A)-(C). Should the investigation determine that the disputed information is "inaccurate or incomplete or cannot be verified," the furnisher must "as appropriate, based on the results of the reinvestigation promptly . . . modify[, ] . . . delete [or] permanently block the reporting" of that information to consumer reporting agencies. Id. § 1681s-2(b)(1)(E). See generally Hinkle v. Midland Credit Mgmt., Inc., 827 F.3d 1295, 1301 (11th Cir. 2016).

         "The 'appropriate touchstone' for evaluating a furnisher's investigation under § 1681s-2(b) is 'reasonableness.'" Felts v. Wells Fargo Bank, N.A., 893 F.3d 1305, 1312 (11th Cir. 2018) (quoting Hinkle, 827 F.3d at 1301-02). "[W]hat constitutes a 'reasonable investigation' will vary depending on the circumstances of the case." Id. "When a furnisher ends its investigation by reporting that the disputed information has been verified as accurate, the question of whether the furnisher behaved reasonably will turn on whether the furnisher acquired sufficient evidence to support the conclusion that the information was true." Id.

         We agree with the district court that, as a matter of law, Defendant's investigative efforts were not reasonable. Defendant argues that the erroneous verification of a balloon payment by Nguyen, the investigative employee, constituted a mere isolated human error that was promptly corrected. This argument is unpersuasive. First, Nguyen didn't make an error: he accurately reported what he found in the databases provided by his employer. The error can be laid at the feet of Defendant, which had failed to create a reliable system for inputting information regarding the settlement of litigation that might impact the data found on the relevant databases. Aware that whatever system it had to accomplish this was unreliable and aware that incorrect information concerning Plaintiffs' loan balance was still being reported, it was incumbent on Defendant to take steps to ensure that news of the terms of the settlement agreement be communicated to those who generate reports to reporting agencies. Given Defendant's decision not to take those steps, it was quite foreseeable that any investigation of the disputed information here would yield an incorrect conclusion by the employee-investigator.

         Defendant's position is that, on an ad hoc basis, it would log into databases pertinent information concerning relevant litigation. Yet, as the district court noted, there was a large "disconnect" between Defendant's system for debt verification and its ad hoc handling of settlement-related changes to debt obligations. That disconnect manifested itself on multiple occasions over several years through Defendant's: (1) failure to sufficiently log the settlement of the foreclosure suit and subsequent resumption of foreclosure litigation; (2) failure to sufficiently log the dismissal of the resumed foreclosure litigation with prejudice and subsequent debt collection efforts; (3) failure to sufficiently log settlement of the first district court action and subsequent breach of the settlement agreement; and (4) failure to provide sufficient notification and access to settlement terms to its verifiers, causing the subsequent verification of erroneous credit reports despite detailed dispute letters documenting the relevant litigation history.

         In short, Defendant failed to conduct a reasonable investigation. The above egregious facts also support the district court's conclusion that Defendant's conduct was willful. Under 15 U.S.C. § 1681n(a), any person who willfully fails to comply with any requirement imposed under this subchapter is liable to the affected consumer for actual, statutory, or punitive damages. Collins v. Experian Info. Sols., Inc., 775 F.3d 1330, 1336 (11th Cir. 2015), on reh'g sub nom. Collins v. Equable Ascent Fin., LLC, 781 F.3d 1270 (11th Cir. 2015). The Supreme Court has held that "reckless disregard of a requirement of FCRA would qualify as a willful violation within the meaning of § 1681n(a)." Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 71 (2007); see also Harris v. Mexican Specialty Foods, Inc.,564 F.3d 1301, 1310 (11th Cir. 2009) ("A violation is 'willful' for the purposes of the FCRA if the defendant violates the terms of the Act with knowledge or reckless disregard for ...