United States District Court, D. Minnesota
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 ...