Plaintiff claims she was falsely branded as a Colombian drug dealer

Shannon P. Duffy

The Legal Intelligencer

August 20, 2010

In a significant setback for credit reporting agencies, the 3rd U.S. Circuit Court of Appeals has ruled that consumers have the right to sue if a credit report includes inaccurate information drawn from a government watch list.

The ruling in Cortez v. Trans Union comes in the case of a woman who claimed she was falsely branded as a Colombian drug dealer when she was confused with someone on the U.S. Treasury Department’s watch list of known narcotics traffickers and terrorists.

The 91-page opinion marks the first time that a federal appellate court has held that such information is regulated by the federal Fair Credit Reporting Act, and could force Trans Union and other credit reporting agencies to overhaul their policies for handling such information in order to guarantee its accuracy.

But the ruling also includes a setback for plaintiffs because the appellate court refused to consider whether the trial judge was too harsh in slashing a punitive award of $750,000 down to $100,000 on the grounds that the plaintiff had opted to “accept” the trial judge’s remittitur rather than opt for a new trial.

Although the appellate court said it was “troubled” by the severity of the trial judge’s reduction, the unanimous three-judge panel concluded that such remittitur orders cannot be reviewed once the plaintiff accepts the reduced award.

Lawyers for Trans Union had argued that information gleaned from the Treasury Department’s watch list of known terrorists and narcotics traffickers — known as the OFAC List, for the Office of Foreign Assets Control — simply wasn’t covered by the Fair Credit Reporting Act.

But the 3rd Circuit disagreed, saying the statutory language was explicit, broad and clear, and showed that Trans Union’s “OFAC Alert,” which is added to some credit reports when customers pay an added subscriber fee, is subject to the FCRA.

“Trans Union’s argument that the OFAC alert somehow manages to avoid the reach of the FCRA ignores the breadth of the language that Congress used in drafting that statute,” Chief Judge Theodore A. McKee wrote.

“In order to conclude that the OFAC alert is not subject to that remedial statute even though the rest of the report clearly falls within the definition of ‘consumer report,’ we would have to conclude that Congress did not mean what it said when it unequivocally defined ‘consumer report’ to include ‘any … communication of any information by a consumer reporting agency,’” McKee wrote.

Trans Union argued that since the 3rd Circuit was the first court to address the question, it should recognize that the law was not settled and therefore decline to impose liability on the first offender.

McKee was unimpressed, saying: “The credit agency whose conduct is first examined under that section of the act should not receive a pass because the issue has never been decided. The statute is far too clear to support any such license.”

In the suit, plaintiff Sandra Cortez, 64, claimed that Trans Union’s error created humiliating ordeals when she was trying to buy a car and later when she was renting an apartment, but that Trans Union ignored her repeated pleas to have the erroneous information taken off her credit report.

After a three-day trial, a jury found that Trans Union had violated four provisions of the FCRA and awarded Cortez $50,000 in compensatory damages and $750,000 in punitive damages.

The jury also apparently wanted to make sure that its verdict sent a clear message. On the verdict form, below the monetary awards, the jury wrote: “The Trans Union business process needs to be completely revamped with much more focus on customer service and the consumer.”

Senior U.S. District Judge John P. Fullam later slashed the verdict in a remittitur order, saying Cortez must accept a punitive award of $100,000 — double the compensatory award — or take a new trial.

Plaintiffs attorneys James A. Francis and John Soumilas of Francis & Mailman tried to take an immediate appeal of Fullam’s ruling, but the 3rd Circuit dismissed that first appeal on the grounds that Fullam’s remittitur order was not a final order.

Now, in a second appeal, the plaintiffs lawyers tried again to challenge Fullam’s reduction of the punitive award, but the 3rd Circuit refused to consider the arguments on the grounds that the plaintiff had accepted the remittitur and therefore forfeited any right to challenge it.

Francis, in an interview, said the ruling on the scope of the statute is a major victory for consumers and will force the credit reporting agencies to modify their procedures in order to avoid false matches between drug dealers and terrorists on the watch list and innocent consumers whose lives are “turned upside down” by such mistakes.

Significantly, Francis said, companies like Trans Union will now be forced to disclose all such information to a consumer who lodges such a complaint. In Cortez’s case, Francis said, the company repeatedly provided Cortez with copies of her credit report that did not include any OFAC alert, but nonetheless continued to include the alert when potential creditors asked for the report.

Francis said he was disappointed in the ruling on the remittitur issue and was hoping that the appellate court would recognize that such remittitur orders present the plaintiff with a Hobson’s choice and effectively shield a trial judge’s decision from any appellate review.

In the appeal, Francis argued that Fullam’s ruling was premised on his view of a constitutional question, namely the upper limit, under the Due Process clause, for an award of punitive damages, and that Fullam was too stingy when limiting the award to double the compensatory award.

Since the ruling was constitutional, Francis said, the appellate court should have had jurisdiction to reach it.

But McKee found that the U.S. Supreme Court squarely addressed and rejected that argument in its 1977 decision in Donovan v. Penn Shipping Co.

“Cortez may be correct in claiming that she was on the horns of a dilemma and that the practical result of dismissing her challenge to the court’s remittitur will be to place it beyond appellate review,” McKee wrote in an opinion joined by Judges Thomas M. Hardiman and Franklin S. Van Antwerpen.

“Nevertheless, the court held in Donovan that a plaintiff cannot challenge a remittitur s/he has agreed to, even if the plaintiff has only agreed under protest or pursuant to a purported reservation of rights,” McKee wrote.

Trans Union spokesman Steven Katz said the company never comments on pending litigation.

In the appeal, Trans Union was represented by attorneys Bruce S. Luckman, Mark E. Kogan and Timothy P. Creech of Kogan Trichon & Wertheimer in Philadelphia.

Chicago Tribue | Business

By Humberto Cruz, Tribune Media Services

A California woman deep in credit card debt turned to a debt settlement company that immediately began deducting money from her bank account for its promised services.

After three months, the woman started getting calls from her creditors and learned they’d never heard from the company. She asked for her money back but received only $277 of $1,077 she had paid. Thanks to the Los Angeles County Department of Consumer Affairs, she got the rest.

The lesson: Many debt settlement companies collect their fees long before they contact creditors and keep the money even if they never settle the debt. Better to negotiate directly with your creditors or seek advice from a local non-profit credit counseling service (check with the National Foundation for Credit Counseling at nfcc.org or 800-388-2227).

In Ohio, homeowners in danger of losing their homes to foreclosure received automated calls from a company offering to help obtain new loans or loan modifications. After paying $1,800 or more, they got nothing.

Fortunately, the state attorney’s general office obtained a judgment against the firm. To avoid mortgage rescue scams, contact the lender directly or call 800-569-4287 to find a government-certified housing counselor.

Another horror story: An Arizona couple got a call from a telemarketer saying they had “won” a Bahamas cruise and three days at a Fort Lauderdale, Fla., hotel. To hold this vacation “package,” they had to agree to have $538 charged to their credit card and attend a timeshare presentation.

Feeling rushed and pressured, the couple agreed. But when trip materials came in the mail, they learned there were fees for the hotel stay and for a supposedly free rental car. Research on Web sites showed the hotel received poor guest ratings and the couple could book a Bahamas cruise on their own for $100 a person. They contacted the Florida Department of Agriculture and Consumer Services, which got their $538 back.

In another case, a 92-year-old man filed a complaint with the Florida department against 24 telemarketers who promised to resell his unwanted timeshare. He paid them a total of more than $74,000, far in excess of the original cost of the timeshare, but nobody sold it for him. Some telemarketers have agreed to refund his money and the Florida department is seeking refunds from surety bonds some of the others have on file.

During tough economic times, “many people are trying to get rid of timeshares because they cannot afford to pay the monthly fees” for things such as maintenance and property taxes, said Anna Huddleston-Aycock, president of the North American Consumer Protection Investigators (NACPI). If you want to sell a timeshare, avoid resale companies that take upfront fees whether or not the timeshare is ever resold.

All these cases are among dozens detailed in an annual study of consumer complaints conducted by the Consumer Federation of America, the National Association of Consumer Agency Administrators and the NACPI. The 33 state, county and city agencies from 18 states that responded to a survey received more than 300,000 complaints and obtained nearly $110 million in restitution or savings for consumers last year.

They had to do in the face of widespread budget and staff cuts and economic conditions that helped spark a rise in complaints, in particular bogus offers to avoid foreclosure.

Best advice? “When in doubt, check it out,” the study recommends. “If you’re not sure what your rights are or you think something might be fishy, ask your state or local consumer agency for advice.”

David Ingram

The National Law Journal

BP PLC on Monday named two lawyers to serve as trustees of the planned $20 billion fund for oil spill victims, on the same day the company announced an initial payment to the fund.

The two trustees are Kent Syverud, dean of the Washington University School of Law in St. Louis, and John Martin Jr., who served as a judge in the U.S. District Court for the Southern District of New York from 1990 to 2003.

Martin is now a name partner at Martin & Obermaier in New York. While a judge, he oversaw litigation involving insurance coverage and the Sept. 11 terrorist attacks. In 2004, while of counsel with Debevoise & Plimpton, he represented a group of former federal judges who were seeking to have their voices heard at the U.S. Supreme Court on the role of federal sentencing guidelines.

Syverud, formerly the law dean at Vanderbilt University, specialized in studying class actions and other complex civil litigation before he entered academic administration.

In a phone interview, Martin said the trustees’ primary function, at least initially, will be to evaluate the collateral that BP will put up to ensure it is adequate. The collateral will allow Citigroup, which is the fund’s paying agent, to expedite its payments to oil spill victims.

Martin said he’s not sure yet what form that collateral will take but it could be, for example, stakes in existing wells. “That’s one of the things we’re going to have to talk about,” he said.

He said he came to the trustee role after conversations with BP’s outside counsel, including Jamie Gorelick and William Perlstein of Wilmer Cutler Pickering Hale and Dorr and Robert Ott of Arnold & Porter.

In its statement announcing the trustees, BP said that it has made its first payment, of $3 billion, into the fund. The company said an additional $2 billion deposit will be made by the end of 2010. After that, it will deposit $1.25 billion per quarter until the deposits total $20 billion.

Associate Attorney General Thomas Perrelli, who has represented the U.S. Department of Justice in negotiations with BP, said in a statement that the initial payment by the company is “an important step toward honoring its commitment to the president and the residents and business owners in the Gulf region.”