United States: Gross v. Citimortgage: An Expansion Of The Duty To Investigate Under The FCRA

I. GROSS V. CITIMORTGAGE, INC.—SUMMARY

On May 16, 2022, the Ninth Circuit¹ reversed the summary judgment granted to CitiMortgage and held the furnisher had a duty to conduct a reasonable investigation of not only a factual inaccuracy but a legal inaccuracy as well.² The underlying facts were not complicated.

In January 2007, Marshall Gross purchased a single-family home in Arizona and took out two separate mortgages.³ The first loan covered 80% of the purchase price, and the junior mortgage covered 20%.⁴ Like many other homes during that period, the house went down in value.⁵  Mr. Gross, who experienced financial difficulties, stopped making payments on both loans in 2012.⁶ The senior lender foreclosed on the property in June 2013.⁷ The proceeds from the foreclosure sale were barely enough to satisfy the senior mortgage, and there were not enough proceeds to cover the junior mortgage that CitiMortgage had acquired.⁸ Because Arizona law precludes a suit on a foreclosure deficiency, CitiMortgage lost its entire investment.⁹

In 2017, Mr. Gross began searching for a new home but could not get approved for a mortgage.¹⁰ CitiMortgage was still reporting the junior mortgage as "past due" on his credit report, with accruing interest, late fees, and missed monthly payments.¹¹ This reporting prompted Mr. Gross to submit a written dispute through Trans Union in February 2018, which included a citation to the Arizona Statute that abolished the debt.¹² Trans Union sent CitiMortgage an "Automated Consumer Dispute Verification" (ACDV), which allegedly conveyed this information to CitiMortgage.¹³ In response to the ACDV, CitiMortgage continued to report the debt as owing and 180 days late.¹⁴ Mr. Gross disputed the debt with Experian and Trans Union again in May 2018.¹⁵ In response, CitiMortgage "charged the debt off" and reduced the mortgage balance to zero as of May 2018.¹⁶ Gross sued and alleged a claim under the Fair Credit Reporting Act (FCRA), claiming that CitiMortgage failed to reasonably investigate his dispute and provided inaccurate information.¹⁷

The district court eventually granted CitiMortgage's Motion for Summary Judgment, holding that the credit report was accurate as a matter of law and CitiMortgage reasonably investigated the dispute.¹⁸ Gross appealed to the Ninth Circuit, which reversed.¹⁹

The Ninth Circuit held that the information on Gross's credit report was inaccurate as a matter of law because no debt was due based on the Arizona Anti-Deficiency Statute, which abolished personal liability for mortgage deficiencies.²⁰ The court equated the impact of the Arizona statute to that of a bankruptcy discharge, distinguishing it from a statute that merely eliminates procedural remedies such as a statute of limitations.²¹ Once the Ninth Circuit determined the credit report was inaccurate, it turned its attention to whether the investigation was reasonable and decided that summary judgment was inappropriate.²² In reversing the summary judgment, the Ninth Circuit stated, "[t]his means that FCRA will sometimes require furnishers to investigate, and even to highlight or resolve, questions of legal significance."²³ The court also highlighted the amicus brief filed by the Consumer Financial Protection Bureau (CFPB), which argued the FCRA "does not categorically exempt legal issues from the investigations that furnishers must conduct."²⁴ The CFPB also argued that such a rule could invite furnishers to "evade their investigation obligation by construing the relevant dispute as a 'legal' one,"²⁵

A. Other Duty to Investigate Cases.

At first glance, it appears the Gross decision contradicts the Ninth Circuit's earlier decision in Carvalho v. Equifax Information Services, LLC. ²⁶ In Carvalho, the Ninth Circuit held "reinvestigation claims are not the proper vehicle for collaterally attacking the legal validity of consumer debts."²⁷ In reaching its conclusion, the court held that a credit reporting agency ("CRA") does not have a direct relationship with the consumer, and the furnisher of information or creditor is in a better position to make a thorough investigation of a disputed debt than the CRA.²⁸ In addition, the Ninth Circuit stated that the "CRA is not required . . . to provide a legal opinion on the merits" and is not required to report information on a disputed item just because a legal defense is asserted.²⁹

In reviewing Gross in detail, it does not appear to contradict the 2010 Carvalho opinion. Carvalho involved the credit reporting agencies,³⁰ where Gross involved CitiMortgage, which was a furnisher of information.³¹ In addition, Gross cites Carvalho for the proposition that a furnisher's obligation to investigate a dispute needs to be more extensive and thorough than that of a credit-reporting agency.³² The two opinions do not appear to be inconsistent. Still, it will be interesting to see how District Courts within the Ninth Circuit interpret Gross, especially if the legal issue is more nuanced than the Arizona anti-deficiency statute.

In addition to Gross, the CFPB has filed amicus briefs in a handful of other cases on this issue related to legal disputes. This includes a pending Eleventh Circuit appeal, Milgram v. JPMorgan Chase Bank, N.A., ³³ Case No. 22-10250, where the defendant prevailed on summary judgment in district court against an FCRA claim predicated upon alleged identity theft.³⁴ Among the arguments accepted by the District Court was that in order to prevail the plaintiff was required to prove a factual inaccuracy, not a legal dispute about responsibility for the account.³⁵

Milgram has a convoluted factual history,³⁶ but the crux of the case is that plaintiff, Shelly Milgram, was allegedly the victim of identity theft by an employee of her business, resulting in an outstanding balance of over $30,000.00 on a Chase credit card that the employee opened in her name.³⁷ Complicating the situation, Milgram allegedly did not discover the fraud until two years after the account had been opened, and during that time the employee's credit card payments were being paid through Milgram's personal bank accounts.³⁸

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Footnotes

1. Gross v. CitiMortgage, Inc., 33 F.4th 1246 (9th Cir. 2022).

2. Id. at 1249.

3. Id.

4. Id.

5. Id.

6. Gross, 33 F.4th at 1249.

7. Id.

8. Id.

9. Id.

10. Id.

11. Gross, 33 F.4th at 1249.

12. Id. at 1250.

13. Id.

14. Id.

15. Id.

16. Gross, 33 F.4th at 1250.

17. Id.

18. Id.

19. Id. at 1253.

20. Id. at 1252.

21. Gross, 33 F.4th at 1252.

22. Id.

23. Id. at 1253 (emphasis added).

24. Id.

25. Id. (emphasis added).

26. See Carvalho v. Equifax Info. Servs., LLC, 629 F.3d 876, 891–892 (9th Cir. 2010) (establishing credit reporting agencies do not have a duty to reinvestigate claims already investigated by the creditor)

27. Id. at 892 (emphasis added).

28. Id.

29. Id.

30. Id. at 881.

31. Gross, 33 F.4th at 1249.

32. Id. at 1253.

33. Milgram v. JPMorgan Chase Bank, No. 22-10250, 2022 (11th Cir. Jan. 20, 2022) (WestLaw).

34. Milgram v. JPMorgan Chase Bank, No. 19-60929-CIV, 2021 WL 6755283, at *1 (S.D. Fla. Dec. 30, 2021).

35. Id. at *10–11.

36. Appellant's Brief is seventy pages long, including twenty-two pages of "Factual Background."

37. Id. at *1.

38. Id. at *1, *3.

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