Caseflicks

Court of Appeals for the Ninth Circuit • 2010

Pintos v. PACIFIC CREDITORS ASS'N

605 F.3d 665

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Takeaway

In short, this case narrowly read the FCRA’s debt-collection permissible-purpose provision: an unadjudicated debt arising from a tow the consumer did not request did not authorize a collection agency to obtain her credit report under § 1681b(a)(3)(A).

Background

Police directed the towing of Maria Pintos’s sport utility vehicle after finding it parked on a San Bruno street with expired registration. The towing company obtained a statutory lien for towing and impound charges. When Pintos did not reclaim the vehicle, the company sold it; because the sale did not cover its charges, it asserted a deficiency claim and assigned that claim to Pacific Creditors Association (PCA).

PCA, a collection agency, obtained Pintos’s Experian credit report while trying to collect the towing deficiency. Pintos sued PCA for obtaining the report without a permissible purpose under the Fair Credit Reporting Act (FCRA) and sued Experian for furnishing it. The district court granted summary judgment to both defendants, relying on Hasbun v. County of Los Angeles to conclude that debt collection authorized PCA’s request. It also denied, without explanation, Experian’s request to seal internal compliance documents that Pintos had attached to her cross-motion for partial summary judgment.

Issues

Issue #1

Whether FCRA § 1681b(a)(3)(A) gave PCA a permissible purpose to obtain Pintos’s credit report while collecting an unadjudicated towing deficiency claim.

Holding

No. PCA was not authorized under § 1681b(a)(3)(A) because Pintos neither initiated nor participated in the credit transaction that produced the towing debt, and PCA was not collecting a judgment debt.

Reasoning

Section 1681b(a)(3)(A) permits a consumer report only when the proposed use is connected both to a credit transaction involving the consumer and to the extension of credit to, or review or collection of an account of, that consumer. The district court considered only the latter requirement. But the statutory requirement that the credit transaction also involve the consumer has independent force.

Under Andrews v. TRW, a consumer is “involved” in a credit transaction when she is drawn in as a participant, not when she is merely obliged to become associated with it. Pintos did not seek towing services, request credit from the towing company, or otherwise initiate the transaction. Her ownership of the towed vehicle did not make her a participant in the ensuing credit transaction.

The court rejected the view that a consumer initiates a transaction merely by engaging in conduct that led another party to assert a claim. As in Mone v. Dranow, the fact that a person’s actions may start a chain of events does not convert a later effort to collect a claim into a consumer-initiated credit transaction.

Hasbun did not control because it concerned collection of court-ordered child-support arrears. A judicially established debt creates a credit transaction involving the consumer regardless of how the obligation initially arose. PCA’s towing deficiency claim had not been adjudicated, so PCA could not rely on Hasbun to obtain Pintos’s report. The court therefore reversed summary judgment but left defendants free on remand to argue a permissible purpose under another FCRA provision.

Issue #2

Whether Experian was entitled to summary judgment under FCRA § 1681e(a) because PCA had given Experian a blanket certification that it would use reports only for permissible purposes.

Holding

No. A blanket certification alone does not satisfy a consumer reporting agency’s independent duties under § 1681e(a).

Reasoning

Section 1681e(a) requires more than a subscriber’s general promise to obey the FCRA. A reporting agency must make a reasonable effort to verify the purposes certified by prospective subscribers, and it may not furnish a report when it has reasonable grounds to believe the report will be used impermissibly.

Although a reporting agency need not necessarily verify every individual request, Experian’s blanket certification from PCA could not by itself eliminate factual questions about whether Experian adequately verified PCA’s purposes generally or had reason to suspect impermissible use. Thus, § 1681e(a) did not provide an alternative basis to affirm summary judgment for Experian.

Issue #3

Whether Experian’s internal compliance documents, filed as attachments to Pintos’s cross-motion for partial summary judgment, could be sealed under the lower “good cause” standard.

Holding

No. Because the documents were attached to a dispositive motion and thereby became judicial records, Experian had to show compelling reasons, supported by specific factual findings, to overcome the presumption of public access.

Reasoning

The Ninth Circuit distinguishes between private discovery materials and judicial records. Private discovery materials ordinarily may be protected upon a showing of good cause under Federal Rule of Civil Procedure 26(c), while judicial records are subject to a strong public presumption of access and generally may be sealed only for compelling reasons.

The documents were not merely exchanged in discovery: Pintos filed them with a cross-motion for partial summary judgment. The good-cause rule for documents attached to nondispositive motions therefore did not apply. Instead, the district court had to determine whether compelling reasons, such as a concrete risk to trade secrets or another recognized confidentiality interest, outweighed public access.

The district court’s original denial gave no reasons, and its later indication that good cause existed applied the wrong standard. Without findings applying the compelling-reasons test, meaningful appellate review was impossible. The court therefore vacated the sealing ruling and remanded for proper consideration.

Dissents

Judge Bea

Reasoning

Judge Bea dissented, arguing that pintos was not comparable to the innocent identity-theft victim in Andrews. In Judge Bea’s view, Pintos chose to drive and leave an unregistered vehicle on a public street, exposing it to a lawful tow, and then failed to pay the charges or timely recover the car. Those choices made her meaningfully involved in the transaction that generated the debt.

Once the towing company towed the vehicle, California law gave it a possessory lien and a deficiency claim against Pintos for unpaid towing and storage charges. Judge Bea viewed that statutory obligation as a definite, legally recognized debt, making the towing company a creditor entitled to use Pintos’s report to collect its account. The fact that the obligation arose by operation of law rather than contract did not matter.

Judge Bea read Hasbun broadly: its principle was that a creditor collecting a delinquent account has a permissible purpose, not that a creditor must first obtain a judgment. He would have affirmed summary judgment for PCA and Experian on the FCRA claim, while joining the majority’s disposition of the sealing issue.

Chief Justice Kozinski

Reasoning

Chief Justice Kozinski concluded that the panel majority’s consumer-initiation requirement was contradicted by the FCRA’s text. Section 1681b(c) expressly imposes special restrictions when a report is furnished under § 1681b(a)(3)(A) in connection with credit transactions not initiated by the consumer. That provision necessarily presupposes that § 1681b(a)(3)(A) can cover some transactions the consumer did not initiate.

He further relied on § 1681a(m), which excludes a consumer report used by a person with whom the consumer has an account for purposes of collecting that account from the statutory definition of a transaction not initiated by the consumer. Because debt collection counts as collection of an account under Hasbun, he reasoned that PCA’s collection effort was not even a non-consumer-initiated transaction under that definition. He would have granted rehearing en banc.

Judge Gould

Reasoning

Judge Gould joined the reasoning of Judge Bea and Chief Justice Kozinski and added a practical concern. In his view, distinguishing between judgment creditors and other creditors would create unjustified categories of creditors, even though both seek reports to collect legitimate obligations.

Allowing creditors and collection agencies to use credit reports can make collections more efficient and less expensive. Restricting access in cases such as this one would increase collection costs, which could ultimately be passed on through higher towing charges or fines. He therefore dissented from the denial of rehearing en banc.