JOHNNIE TERESA MARCHISIO, ADRIAN MARCHISIO, Plaintiffs-Appellants-Cross Appellees,
v.
CARRINGTON MORTGAGE SERVICES, LLC, Defendant-Appellee-Cross Appellant.
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 ...