Frazier v. Dovenmuehel Mortg.

1

TAMARA S. FRAZIER, Plaintiff, v. DOVENMUEHEL MORTGAGE, INC., Defendant.

No. 22 C 3900

United States District Court, N.D. Illinois, Eastern Division

August 7, 2023

MEMORANDUM OPINION AND ORDER

Harry D. Leinenweber, Judge United States District Court

Plaintiff Tamara Frazier (“Frazier”) brings this action against Defendant Dovenmuehle Mortgage (“Dovenmuehle” or “DMI”), alleging that DMI violated the Fair Credit Reporting Act (“FRCA”), 15 U.S.C. § 1681b et seq. by accessing her credit report in December 2020 without a “permissible purpose” [Dkt. No. 1]. DMI has moved to dismiss the Complaint for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and in the alternative, has advanced the affirmative defense of res judicata [Dkt. No. 14]. In her response, Plaintiff has requested leave to file an Amended Complaint [Dkt. No. 17].

For the reasons stated herein, the Court grants Defendant's Motion to Dismiss Plaintiff's Complaint based on the doctrine of res judicata [Dkt. No. 14] and denies Plaintiff's Request for Leave to Amend [Dkt. No. 17].

I. BACKGROUND

Plaintiff Tamara Frazier (“Frazier”), an Illinois resident incurred a mortgage obligation to Defendant Dovenmuehle Mortgage (“Dovenmuehle” or “DMI”) residential mortgage loan subservicer based in Illinois, in or about 2007. (Compl. ¶¶ 4-5 & 13, Dkt. No. 1.) In or about late 2015 or early 2016, Plaintiff settled the account for less than the full balance via a short sale, thereby eliminating any continuing obligation on the debt. (Id. ¶¶ 14-15.)

In 2020, Plaintiff discovered that Defendant had continued to report her in 2018, 2019, and 2020. (Id. ¶ 16.) Subsequently, on November 12, 2020, Plaintiff sued DMI based on alleged Fair Credit Reporting Act (“FRCA”) violations. (Id. ¶ 18; see also Frazier v. Dovenmuehle Mortg., Inc., No. 20 C 6721, 2022 U.S. Dist. LEXIS 146750, at *1 (N.D. Ill. 2022) (aff'd, 2023 U.S. App. LEXIS 16933 (7th Cir. 2023).) This earlier suit is hereafter referred to as Frazier I.

On or about December 1, 2020, Plaintiff served DMI with her complaint in the Frazier I suit. (Frazier I, Dkt. No. 6 ¶ 1.) On December 9, 2020, DMI pulled Plaintiff's credit report. (Compl. ¶ 19.) Plaintiff had no continuing obligation to DMI by this time and had not provided Defendant with permission to pull or check her credit. (Id. ¶ 20). Because DMI conducted a “hard pull” on Plaintiff's credit report, it adversely impacted her credit scores or credit profiles. (Id. ¶ 21).

On July 27, 2022, Plaintiff filed her instant Complaint, alleging that DMI's December 2020 credit check violated the FRCA § 1681b(a), 1681b(f), and 1681e(a) because the Defendant lacked a “permissible purpose” for obtaining Plaintiff's credit reports. (Id. ¶ 27.) Plaintiff further alleged that DMI violated Plaintiff's right to privacy by pulling her personal and credit information without a permissible purpose. (Id. ¶ 29.)

On October 18, 2022, DMI moved to dismiss Plaintiff's suit for failure to state a claim, and alternatively, advanced the affirmative defense of res judicata. (Dkt. No. 13.) On November 18, 2022, Plaintiff filed her opposition to Defendant's Motion to Dismiss and requested leave to amend her Complaint. (Dkt. No. 17.) On December 2, 2022, DMI filed its reply in support of its Motion to Dismiss. (Dkt. No. 18.)

II. LEGAL STANDARD

A Rule 12(b)(6) motion challenges a complaint's legal sufficiency. To survive a Rule 12(b)(6) motion, the allegations in the complaint must meet a “plausibility” standard. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 564 (2007). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The Court will accept all well-pleaded facts in the complaint as true and “construe the allegations in the light most favorable to the plaintiff.” Thulin v. Shopko Stores Operating Co., LLC, 771 F.3d 994, 997 (7th Cir. 2014). While the bar to survive a motion to dismiss is not high, Bonte v. U.S. Bank, N.A., 624 F.3d 461, 463 (7th Cir. 2010), “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014) (citing Iqbal, 556 U.S. at 678).

III. DISCUSSION

A. 15 U.S.C. § 1681b(a) Violation

While Plaintiff's Complaint alleges that DMI violated § 1681b(a), 1681b(f), and 1681e(a) of the FRCA, (Compl. ¶ 27), she asserts that Defendant lacked a “permissible purpose” for pulling her credit report, in specific reference to § 1681b(a). (Compl. ¶¶ 26 & 30.) Therefore, this Court's analysis will focus on this latter provision.

To state a claim under § 1681b, a complaint must allege that (1) there was a consumer report; (2) that the defendant used or obtained it; and (3) that the defendant did so without a permissible statutory purpose. Rogers v. Wells Fargo Bank, N.A., No. 19-cv-02596, 2020 U.S. Dist. LEXIS 39069, at *9 (N.D. Ill. Mar. 6, 2020). DMI acknowledges that it accessed Plaintiff's credit report on December 9, 2020. (Memorandum in Support of Motion to Dismiss (“MTD”), Dkt. No. 14 at 2.) Thus, the third requirement alone is at issue here.

Under FRCA § 1681b(a), entities may access a consumer's credit report under a limited number of circumstances. § 1681b(a). As relevant here, § 1681b(a)(3)(F) permits an entity to obtain a consumer's credit report if it has a “legitimate business need for the information . . . in connection with a business transaction that is initiated by the consumer.” § 1681b(a)(3)(F)(i).

DMI maintains that it accessed Plaintiff's credit report to “investigate the validity of Plaintiff's claims and to prepare for the Frazier I litigation,” (MTD at 2), and argues that this constituted a “legitimate business need” for the information under § 1681b(a)(3)(F)(i). See also Frazier I, 2022 U.S. Dist. LEXIS 146750, at *1. Specifically, because Plaintiff alleged in the Frazier I suit that DMI had failed to investigate reasonably Plaintiff's dispute of purportedly inaccurate credit information, id., Defendant contends that they had a permissible statutory purpose under § 1681b(a) to pull Plaintiff's credit report. (MTD at 5.)

The Seventh Circuit's precedent supports a broad reading of § 1681b(a)(3)(F)'s “legitimate business need” language. Ippolito v. WNS, Inc., 864 F.2d 440, 451 n. 11 (7th Cir. 1988) (referencing § 1681b(a)(3)(F) by its pre-amendment label, § 1681b(3)(E)). And courts in this district, as well as persuasive authority from other circuits, have construed § 1681b(a)'s “legitimate business need” language to include preparation for litigation. See, e.g., Minter v. AAA Cook County Consolidation, Inc., No. 02 C 8698, 2004 U.S. Dist. LEXIS 13629, at *13 (N.D. Ill. Jul. 19, 2004); Allen v. Kirkland & Ellis, 1992 U.S. Dist. LEXIS 12383, at *7 (N.D. Ill. Aug. 14, 1992). But such a reading of the phrase is not ubiquitous, and several courts in this district have been hesitant to adopt such a broad construction, particularly without an ongoing financial relationship between the parties. See, e.g., Hinton v. USA Funds, No. 03 C 2311, 2005 U.S. Dist. LEXIS 6275, at *29-30 (N.D. Ill. Mar. 30, 2005); Billups v. PHH Mortg. Corp., No. 19 C 7873, 2021 U.S. Dist. LEXIS 80398, at *7 (N.D. Ill. Apr. 27, 2021). Ultimately, whether Defendant possessed a “legitimate business need” to pull Plaintiff's credit report requires a fact sensitive inquiry.

Plaintiff alleges that at the time that DMI pulled her credit report in December 2020, she had “no ongoing obligation to DMI and had not provided them permission to pull or check her credit in anyway.” (Compl. ¶¶ 19 & 20.) While Defendant argues that it is “immaterial that Plaintiff's debt was previously satisfied,” (Reply in Support of Motion to Dismiss (“Reply”) at 5, Dkt. No. 18), the Court disagrees. This fact is directly relevant to the status of the parties' business relationship when DMI pulled Plaintiff's credit report, and by extension, its necessity at that time. Without an ongoing business relationship between the parties, DMI is left to argue that it required the report to “test whether Plaintiff's credit report contained inaccurate statements,” as alleged in the Frazier I complaint. But as the Hinton court correctly notes, § 1681b(a)'s plain language does not expressly authorize such a test as a permissible statutory purpose. Hinton, 2005 U.S. Dist. LEXIS 6275, at *28.

Defendant's cited case law provides only tepid support for its motion to dismiss. See, e.g., Minter, 2004 U.S. Dist. LEXIS 13629, at *16 (stating in dicta that it “seem[ed]” the defendant's proposed purpose of defending itself against the lawsuit “would be permissible” as a legitimate business need under § 1681b(a)); see also Duncan v. Handmaker, 149 F.3d 424, 428 (6th Cir. 1998) (musing that it is “not altogether impossible” that an entity may obtain a consumer's report for a permissible purpose where the dispute is unrelated to debt collection). Neither case categorically demonstrates that Plaintiff here has failed to state a plausible claim under § 1681b(a)(3)(F), particularly given courts' varied interpretations of the “legitimate business need” phrase within this circuit. And at this stage of the proceedings, “deciding the ‘permissible purpose' question is dangerously close to a factual finding, which the Court cannot make on a motion to dismiss.” Billups, 2021 U.S. Dist. LEXIS 80398, at *7.

Therefore, without determining the validity or likely success of Plaintiff's § 1681b(a) cause of action, this Court declines to grant Defendant's Motion to Dismiss for failure to state a claim.

B. Res Judicata

...