Hrebal v. Seterus, Inc.

          Mark L. Vavreck, Gonko & Vavreck PLLC, 401 North Third Street, Suite 600, Minneapolis, MN 55401 and Thomas J. Lyons, Jr., Consumer Justice Center PA, 367 Commerce Court, Vadnais Heights, MN 55127 for Plaintiff.

          Ernest P. Wagner, Maurice Wutscher LLP, 105 West Madison Street, Suite 1800, Chicago, IL 60602; Eric Tsai, Maurice Wutscher LLP, 71 Stevenson Street, Suite 400, San Francisco, CA 94105; and Andrea M. Hauser, Eldon J. Spencer, Jr. & Paul Shapiro, Leonard, O'Brien, Spencer, Gale & Sayre Ltd., 100 South Fifth Street, Suite 2500, Minneapolis, MN 55402 for Defendant.

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         This litigation arises under the Fair Credit Reporting Act (“FCRA”). In essence, the parties dispute whether Defendant Seterus, Inc. (“Seterus”) provided “inaccurate” or “materially misleading” information to the three major credit reporting agencies (“CRAs”) in 2016, when Seterus reported Plaintiff Charles Hrebal (“Hrebal”) as delinquent on his mortgage, shortly after Hrebal successfully completed a Chapter 13 bankruptcy plan. The parties also dispute whether Seterus's FCRA violations (if any) were willful, as well as whether Seterus's FCRA violations (again, if any) caused Hrebal to suffer actual damages. With discovery complete, both sides now move for summary judgment.

         After carefully reviewing the record and applicable case law, the Court grants in part and denies in part Seterus's motion, and denies Hrebal's motion.

         I. BACKGROUND

         A. The Parties

         Plaintiff Charles Hrebal lives in Annandale, Minnesota with his wife, Christina, and three of his four children. (See Tsai Dec., Ex. A [Doc. No. 37] at 9 (“Charles Hrebal Deposition”); Lyons Dec., Ex. I [Doc. No. 44-7] ¶ 8 (“Christina Hrebal Declaration”).) Hrebal works in car sales. (See Hrebal Dep. at 9-10.) In October 2007, Hrebal took out a mortgage loan from CitiMortgage, Inc. (See Compl. [Doc. No. 1] ¶ 22]; An. [Doc. No. 7] ¶ 22; see also McNeil Aff., Exs. A-B [Doc. No. 36] (“Original Note and Mortgage”).)

         Defendant Seterus, Inc. is a national loan servicing company. (See Compl. [Doc. No. 1] ¶ 5; An. [Doc. No. 7] ¶ 5.) Seterus has serviced Hrebal's home mortgage loan since February 1, 2014, when the Federal National Mortgage Association (“Fannie Mae”) purchased Hrebal's loan from CitiMortgage, and contracted with Seterus to service Hrebal's loan on its behalf. (See McNeil Aff. [Doc. No. 36] ¶ 4.)

         A. The Chapter 13 Bankruptcy

         In 2010, Hrebal's car dealership began experiencing financial difficulties. (See Hrebal Dep. at 33.) As such, on September 1, 2010, he filed for Chapter 13 bankruptcy. (See Tsai Dec., Ex. B [Doc. No. 37] (“Chap. 13 Petition”); see generally Lyons Dec., Ex. J [Doc. No. 44-8] (“Bankruptcy Case Docket”).) At the time Hrebal filed for bankruptcy, he was four payments behind on his home mortgage, which was then owned by CitiMortgage. (See McNeil Aff., Ex. C [Doc. No. 36] at ECF p. 39 (“CitiMortgage Payment History”).) Consequently, Hrebal's initial Chapter 13 plan, dated August 27, 2010, stated that Hrebal owed CitiMortgage $10, 200 in arrears (i.e., four months' worth of payments), and set forth a plan to repay that debt. (See Tsai Dec., Ex. C [Doc. No. 37] (“First Chapter 13 Plan”).)

         However, for unclear reasons, on September 22, 2010 CitiMortgage filed a Proof of Claim stating that Hrebal only owed it $6, 152.37 in pre-petition arrears (i.e., two months' worth of payments). (See Tsai Dec., Ex. D [Doc. No. 37] (“CitiMortgage Proof of Claim”).)^[1]A few months later, on January 5, 2011, Hrebal filed an amended Chapter 13 plan reflecting this (lower) arrearage. (See Tsai Dec., Ex. F [Doc. No. 37] (“Am. Chapter 13 Plan”); Bankruptcy Docket, No. 23.) CitiMortgage did not object to this plan, and, on March 18, 2011, the Bankruptcy Court approved Hrebal's amended plan following a hearing. (See Tsai Dec., Ex. G [Doc. No. 37] (“Order Confirming Modified Post-Confirmation Chapter 13 Plan”).)

         The relevant portion of Hreabl's final confirmed plan stated that Hrebal would cure “the actual amounts of default” by gradually paying $6, 152.37 to the Trustee, who in turn would pay CitiMortgage. (Am. Chapter 13 Plan § 6.) The plan also stated that Hrebal would “pay the [mortgage] payments that come due after the date the petition was filed directly to the creditor.” (Am. Chapter 13 Plan § 6; accord 11 U.S.C. § 1322(b)(5) (allowing an individual who owes arrears on their home mortgage to create a Chapter 13 plan that “provide[s] for the curing of any default within a reasonable time and maintenance of payments while the case is pending”).) It is undisputed that, from October 2010 onwards, Hrebal timely made both his plan payments and his regular mortgage payments. (See Tsai Dec., Ex. I [Doc. No. 37] at 33-34 (“Michael McNeil Deposition I”).)

         According to internal CitiMortgage servicing records produced in discovery, sometime around January 2012, CitiMortgage realized that its Proof of Claim was incorrect. (See Lyons Aff., Ex. D [Doc. No. 47] at ECF pp. 2-3 (“Servicing Notes”).) However, despite dozens of internal notes from 2012 through 2014 suggesting that CitiMortgage should file an amended Proof of Claim, including a note stating that an amended Proof of Claim had been sent out “for filing” (see id. at 2), CitiMortgage never in fact amended its Proof of Claim. (See McNeil Dep. I at 22-25 (confirming these facts); Lyons Dec., Ex. A [Doc. No. 44-1] at 88-105 (“Michael McNeil Deposition II”) (providing further detail).) Moreover, it seems that, because the Trustee had already paid off the arrears detailed in CitiMortgage's Proof of Claim when CitiMortgage sold Hrebal's loan to Fannie Mae/Seterus in February 2014, Seterus did not investigate this issue any further during the bankruptcy proceeding. (See McNeil Dep. I at 41-45; see also Tsai Dec., Ex. H [Doc. No. 37] (“Trustee Payment History”) (showing that the Trustee had paid CitiMortgage its entire $6, 152.37 Proof of Claim by December 27, 2011).) Rather, Seterus continued to accept Hrebal's normal monthly mortgage payments without filing an amended Proof of Claim or otherwise notifying the Bankruptcy Court or Trustee about the missing arrears. (Id.) Indeed, when Hrebal called to inquire about his mortgage's status during this time period, Seterus appeared to inform him that he was “current on all payments.” (See Servicing Notes at ECF p. 93 (noting, in response to a call from Hrebal, that there were “no missing payments” on Hrebal's account); see also C. Hrebal Dec. ¶ 4 (stating that, when Hrebal called Seterus during the bankruptcy, they told him “your account is current”); Hrebal Dep. at 15 (similarly noting that, the first “couple times” he called Seterus, “they said I was fine and there wasn't anything wrong”).)

         On October 27, 2015, Hrebal successfully completed his modified Chapter 13 plan, and the Bankruptcy Court granted him a discharge under 11 U.S.C. § 727. (See Tsai Dec., Ex. J [Doc. No. 37] (“Bankruptcy Discharge”).)

         However, the issue of the “missing two payments” returned to the fore on November 3, 2015, when the Bankruptcy Trustee sent Fannie Mae/Seterus a Notice of Final Cure Payment. (See McNeil Aff., Ex. E [Doc. No. 36] (“Notice of Final Cure”).) The notice stated that, in the Trustee's view, Hrebal had “paid in full the amount required to cure the default under [CitiMortgage/Fannie Mae's] claim” and requested a response confirming or denying this fact, as well as inquiring if Hrebal was behind on his “post-petition” payments. (Id.; see also Fed. R. Bankr. P. 3002.1(f) (requiring this notice for claims “secured by a security interest in the debtor's principal residence”).)

         Fannie Mae/Seterus timely responded, and asserted (seemingly for the first time) that, although Hrebal had “paid in full the amount required to cure the default [prior to the bankruptcy], ” “as of November 17, 2015 . . . [Hrebal] was [not] current on all post-petition payments, fees, expenses, and charges.” (McNeil Aff., Ex. F [Doc. No. 36] (“Response to Notice of Final Cure”) (emphasis added); see also Fed. R. Bankr. P. 3002.1(g) (requiring the creditor to file a statement “itemiz[ing] the required cure or postpetition amounts, if any, that the holder contends remain unpaid as of the date of the statement”).) In particular, Fannie Mae/Seterus claimed that Hrebal was “past due” on his mortgage payments for October 2015 and November 2015. (Id.)

         Because Hrebal knew he had made his mortgage payments for these months (just as he had made all of his required mortgage payments since filing the Chapter 13 petition back in September of 2010), Hrebal (and, apparently, his bankruptcy attorney) assumed Fannie Mae/Seterus was mistaken. (See Hrebal Dep. at 35-37.) Consequently, Hrebal did not follow up on this letter. (Id. at 35-37; cf. Fed. R. Bankr. P. 3002.1(h) (allowing debtor to request a “hearing” after receiving a response to a notice of final care, to “determine whether the debtor has cured the default and paid all required postpetition amounts”).)

         Seterus viewed the situation differently. As its corporate witness, Michael McNeil, testified, “even though [Hrebal] made every monthly payment [after entering bankruptcy], [because] there was two outstanding payments [from before the bankruptcy], it [made] [Hrebal] still outstanding at the end because it wasn't included in [the] bankruptcy like it should have been.” (McNeil Dep. I at 35.) Although “if everything [had been] done right, [Hrebal] should have been current coming out of the bankruptcy, ” McNeil asserted, the erroneous Proof of Claim resulted in Hrebal “walk[ing] out of bankruptcy still two payments behind.” (Id. at 36.) Moreover, Seterus was apparently treating these missing pre-petition payments as part of Hrebal's ongoing mortgage balance (i.e., late in October and November 2015), rather than as uncured pre-petition arrears (i.e., late in August and September 2010), because, in McNeil's words, “when you make a payment . . . and the loan is delinquent, it's going to go to the prior month payment.” (Id. at 37; accord Tsai Dec., Ex. E [Doc. No. 37] at 97-98, 143-45 (“Sequoia Watts Deposition”); McNeil Aff., Ex. B [Doc. No. 36] at 4 § 2 (“Hrebal Mortgage”) (stating that payments will be applied “in the order in which [they] become due”).) Therefore, in Seterus's view (as evidenced by its internal payment records), Hrebal had been continuously “two months behind” on his mortgage since Seterus began servicing his loan in 2014, even as Hrebal timely made his usual monthly mortgage payments; Seterus simply refrained from enforcing these two back payments while Hrebal was still in bankruptcy. (Id.; see also McNeil Aff., Ex. D [Doc. No. 36] (“Hrebal Payment Records”) (showing how Hrebal's “regular payments” were applied to months prior to the month in which Hrebal paid).)^[2]

         B. The Post-Bankruptcy Credit Reports

         The situation worsened when Hrebal began checking his credit reports in early 2016. Hrebal discovered that Seterus was informing the three major CRAs (i.e., Experian, Equifax, TransUnion) that he was delinquent on his mortgage, even though, in his view, he had been making timely payments for over five years and had just (successfully) emerged from bankruptcy. As Hrebal explained it, “I just knew that this wasn't right . . . and I had to get this taken care of. Those payments were wrong, and it wasn't my fault.” (Hrebal Dep. at 15.)^[3]

         Accordingly, on March 1, 2016, Hrebal called Seterus to dispute the delinquency. (See Servicing Notes at ECF p. 120; accord Hrebal Dep. at 15; Watts Dep. at 85-87.) The Seterus representative told Hrebal to send his dispute in writing to the CRAs, which Hrebal appeared to do that day. (Id.) Thus, on March 1, Seterus received an Automated Credit Dispute Verification (“ACDV”)^[4] from Experian, containing the following message from Hrebal: “I was never late. I have proof that I always paid on time and also this account should be included in my Chapter 13 bankruptcy.” (See McNeil Aff., Ex. G [Doc. No. 36] (“Response to March 1, 2016 Experian ACDV”).)

         Seterus (through one of its “credit bureau specialists, ” Sequoia Watts) responded to Experian on March 23, 2016.^[5] Watts reviewed Hrebal's “payment history profile, ” along with the discharge status of his bankruptcy, and determined that Hrebl was “60 days past due” as of March 23, 2016, with a “first date of delinquency” of March 3, 2016. (See Watts Dep. at 91-95.) This made it appear as though “Hrebal had brought his account current and then was now falling behind.” (Id. at 98.) For unclear reasons, Watts also noted that Hrebal was “one month late” during September 2015, but not during any of the months between then and March 2015. (See Response to March 1, 2016 Experian ACDV.) At her deposition, Watts admitted that, because Seterus's policy is to suppress payment history during a bankruptcy (and because Hrebal did not receive his bankruptcy discharge until October 2015), this “September 2015 entry” was a “mistake.” (Id. at 100; see also id. at 28-29, 94-105 (describing company policy with respect to bankruptcy reporting).) Notably, in responding to Experian, Watts did not inform the CRAs that Hrebal was disputing his delinquency, or otherwise confirm the legitimacy of Hrebal's dispute, even though there was a code that allowed her to do so. (See Watts Dep. at 75-76, 99, 134-35 (describing the “CCC” and “XB” codes).)^[6]

         Two days later, following a call from Hrebal, Watts issued an AUD removing the mistaken “September 2015 entry, ” and then changed the report to say that Hrebal was “30 days past due, ” as opposed to “60 days past due.” Watts apparently made the latter change because she realized Hrebal had made a double payment at some point in time, and thus his outstanding balance was only “$2, 916 due” (i.e., one monthly payment). (See McNeil Aff., Ex. H [Doc. No. 36] (“March 25, 2016 AUD”); see also Watts Dep. at 138-41 (explaining Hrebal's payment history).)^[7] For unclear reasons, and contrary to Watts's description of company policy, in this March 25, 2016 AUD Watts also changed Hrebal's “first date of delinquency” to “December 1, 2013, ” even though the rest of the AUD showed his mortgage as “30 days past due” as of March 25, 2016. (See Watts Dep. at 110-14 (stating that she does not know why she changed this date).) At this point, Hrebal looked as if he had been one payment behind for over two years. (Id. at 113-14.)

         On March 14, 2016, Seterus received a second ACDV from Experian. This ACDV appeared to contain a few documents that Hrebal sent to Experian alongside his dispute notification, such as a copy of his Chapter 13 discharge notice and a copy of CitiMortgage's transfer of claim to Fannie Mae. (See McNeil Aff., Ex. I [Doc. No. 36] (“Response to March 14, 2016 Experian ACDV”).) Seterus (again, by way of Watts) responded to this ACDV on March 29, 2016. This response essentially re-affirmed Seterus's March 25, 2016 AUD (i.e., stated that Hrebal was 30 days past due as of March 28, 2016), but changed Hrebal's “first date of delinquency” to again say “March 3, 2016.” (Id.) Watts did not mark Hrebal's delinquency as disputed in this ACDV response either. (See Watts Dep. at 119.)

         Finally, on March 25, 2016, Seterus received a third ACDV, this time from Equifax. The request simply stated: “Consumer states that this account was never late.” (See Tsai Dec., Ex. K [Doc. No. 37] (“Response to March 25, 2016 Equifax ACDV”).) This ACDV was handled by a credit bureau specialist named Jermaine Daniels. (Id.)^[8] In Daniels's response, dated April 14, 2016, he stated that Hrebal was 30 days past due as of April 14, and that Hrebal's “first date of delinquency” was March 2016. (Id.) This response was essentially in accord with Watts's March 29, 2016 response to Experian. Yet, for unclear reasons, and contrary to Watts's responses, Daniels failed to suppress Hrebal's payment history for the period of time between the bankruptcy discharge in October 2015 and the current date. (Id.) Thus, based on this Equifax credit report, Hrebal appeared that he had been one payment late for several months, rather than only one payment late as of the current month. According to McNeil, “this was, comparing it to all the other ACDVs, done incorrectly.” (McNeil Dep. II at 82.) Daniels also did not mark Hrebal's delinquency as disputed. (See Watts Dep. at 134.)

         The Court pauses to note that, in responding to Hrebal's CRA disputes, it does not appear that anyone at Seterus, including Watts, understood at the time that the erroneous CitiMortgage Proof of Claim constituted the root of the parties' confusion. Indeed, McNeil admitted that the company did not uncover the connection between that Proof of Claim and Hrebal's consistently-behind-on-his-payments issue until months into this litigation. (See McNeil Dep. I at 40, 45-46; McNeil Dep. II at 116.) Rather, at the time, the Seterus representatives in contact with Hrebal and the CRAs, such as Watts, observed that Hrebal was behind on his mortgage according to Seterus's recent payment history (even after his Chapter 13 discharge), and therefore saw no need to investigate the situation further. (See, e.g., Watts Dep. at 44-45 (stating that, although she has access to a “prior servicer's notes, ” she did not recall reading those notes in this case, and that it is “not common” to review such notes when handling a credit report dispute); see also McNeil Dep. II at 92-94 (explaining that CitiMortgage's servicing notes were made available to Seterus upon the transfer of the loan, but that “nobody is responsible [for] go[ing] through all the loan comments”).) Moreover, although Watts had the means to contact somebody in Seterus's “bankruptcy department” to learn more about these prior servicing notes, she did not do so. (See Watts Dep. at 44.)

         In any event, months later, and following several more phone calls from Hrebal (see Watts Dep. at 135-36; Servicing Notes at ECF pp. 123-34), Hrebal and Seterus entered into a loan modification agreement that allowed Hrebal to add the “missing payments” to his loan balance and pay the arrears back over time. (See McNeil Aff., Exs. J-K (“Jan. 1, 2017 Seterus Loan Modification”); accord Hrebal Dep. at 41-42, 76-77.) As best the Court can tell, Seterus stopped reporting Hrebal as delinquent sometime between February and April 2017. (See McNeil Dep. II at 62.)

         C. The Damages Allegedly Incurred by Hrebal As a Result of the Credit Reports

         Although the parties eventually resolved this matter, Hrebal argues that Seterus's (allegedly erroneous) credit reporting injured him in the following ways:

         First and foremost, Hrebal contends that Seterus's reporting prevented him from receiving a favorable loan modification in April of 2016. Specifically, he points to a declaration from Roger Fisette, a loan officer with Embrace Home Loans (“EHL”). In his declaration, Fisette states that, in March of 2016, “all [the] paperwork was finalized” for Hrebal to receive a government-backed Home Affordable Refinance Program (“HARP”) loan from EHL. (See Lyons Dec., Ex. G [Doc. No. 44-5] ¶¶ 7-10 (“Roger Fisette Declaration”).) Because HARP had “no credit score or bankruptcy waiting period requirement, ” the loan was ideal for Hrebal. (Id. ¶ 6.) Moreover, the loan would have lowered Hrebal's interest rate to 4.375 percent and accordingly saved him around $800 a month in mortgage payments. (Id. ¶ 9.) However, “on April 18, 2016, Mr. Hrebal's March 1, 2016 mortgage payment was referenced as late [by 48 days], ” and therefore “Embrace Home Loans had no alternative but to deny Mr. Hrebal a refinance loan.” (Id. ¶¶ 11-14; see also Tsai Dec. II, Ex. B [Doc. No. 51] (“April 18, 2016 Payoff Statement”) (stating that Hrebal's “next payment” was due “March 1, 2016” and assessing late charges).) Instead, Hrebal had to wait to refinance until March 2017, after he became current on his mortgage with Seterus. “Ultimately, ” Fisette noted, “the March 17, 2017 loan that Mr. Hrebal was able to successfully close on [was] at an interest rate of 4.625 percent, ” and therefore only saved him around $300 a month in monthly payments. (Fisette Dec. ¶¶ 15-20; accord Hrebal Dep. at 83-84.)^[9]

         Second, Hrebal asserts that Seterus's reporting caused him to feel embarrassment and shame when he applied for a new job in December 2016. (See Hrebal Dep. at 24-25.) Because the job application stated that his putative employer would check his credit score, and because Hrebal feared that his credit report would inhibit his odds of securing the job, Hrebal told his boss “up front” about his impaired credit. (Id. at 26.) Although Hrebal received the job (where he works to this day) and none of his colleagues ever referenced his late mortgage payments to him, Hrebal nonetheless felt embarrassed by the whole process. (Id. at 24-26.) Hrebal's wife, Christine, confirmed his feelings, noting that, when Hrebal applied for the new job, he constantly asked, “How [am I] supposed to explain the two late payments ...