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Stonehart v. Rosenthal


August 13, 2001


The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.


Sarah Stonehart has sued Allen Rosenthal, Newman & Newman and Affiliated Credit Adjustors, Inc. ("ACA"),*fn1 alleging violations of the Fair Credit Reporting Act ("FCRA"), 15 U.S.C. § 1681 et seq., the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692 et seq., and New York's Fair Credit Reporting Act ("NYFCRA"), N.Y. Gen. Bus. L. § 380 et seq. Defendants now move to dismiss the Complaint pursuant to Federal Rule of Civil Procedure ("Rule") 12(c) and/or for summary judgment pursuant to Rule 56.*fn2 Plaintiff cross-moves for summary judgment. For the reasons stated below, defendants' motion for summary judgment is granted and plaintiff's cross-motion for summary judgment is denied.


A motion for summary judgment may be granted only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). "[G]enuineness runs to whether disputed factual issues can reasonably be resolved in favor of either party, [while] materiality runs to whether the dispute matters, i.e., whether it concerns facts that can affect the outcome under the applicable substantive law." Mitchell v. Washingtonville Cent. Sch. Dist., 190 F.3d 1, 5 (2d Cir. 1999) (internal quotation marks and citations omitted).

In determining whether a genuine issue of material fact exists, a court must "resolve all ambiguities and draw all reasonable inferences against the moving party." Flanigan v. Gen. Elec. Co., 242 F.3d 78, 83 (2d Cir. 2001). The moving party bears the initial burden of establishing the absence of any genuine issue of material fact. See Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d Cir. 2000). Once such a showing is made, the non-movant must point to specific facts showing that a genuine issue of fact exists, necessitating a trial. See id. However, "[s]tatements that are devoid of any specifics, but replete with conclusions, are insufficient to defeat a properly supported motion for summary judgment." Bickerstaff v. Vassar Coll., 196 F.3d 435, 452 (2d Cir. 1999). "If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (1986). When a court is presented with cross-motions for summary judgment, each movant has the burden of presenting evidence to support its motion. See Barhold v. Rodriguez, 863 F.2d 233, 236 (2d Cir. 1988).


The following facts are taken from the Complaint, the parties' Rule 56.1 statements and relevant declarations and affidavits. Unless otherwise indicated, the facts are undisputed.

In 1999, Dr. John Lhota referred a debt, owed to him by Stonehart for dental services, to the Credit Rating Bureau ("CRB"), a debt collection agency located in Southhampton, New York. See 7/5/01 Declaration of Sarah Stonehart ("Stonehart Decl.") ¶¶ 4, 12; Defendants' Statement of Material Facts Pursuant to Local Rule 56.1(a) ("Def. 56.1") ¶ 1. Prior to Dr. Lhota's turning over the debt to CRB for collection, Stonehart disputed the amount she owed to Lhota by sending him numerous letters over a period of nearly two years. See id. ¶ 11; see also Letters to Dr. Lhota, Ex. 1 to Stonehart Decl. ("Letters to Dr. Lhota"), at 1-25.*fn3

On October 29, 1999, CRB sent Stonehart a collection letter stating that she owed Dr. Lhota $2,338.40. See 10/29/99 CRB Collection Letter, Ex. 2 to Stonehart Decl., at 1. On November 19, 1999, Stonehart sent CRB a letter disputing the $2,338.40 debt, claiming that she owed Dr. Lhota no more than $719.20. See 11/19/99 Stonehart Letter to CRB, Ex. 3 to Stonehart Decl., at 1. On November 30, 1999, CRB apparently agreed to accept $719.20 in full satisfaction of the claim which Stonehart agreed to pay upon receipt of a corrected statement of account. See Stonehart Decl. ¶ 15. Stonehart heard nothing further from CRB and never received a corrected statement. See id. ¶ 17.

According to the defendants, CRB turned over Stonehart's debt in the amount of $2,338.00 to ACA, another debt collection agency. See Def. 56.1 ¶ 2. ACA claims that it then sent a collection letter to Stonehart, to which it received no reply.*fn4 See id. ¶ 3. Stonehart disputes this, claiming that the debt was never turned over to ACA and that she never received any communication from ACA.*fn5 See Stonehart Decl. ¶ 20; Plaintiff's Statement Pursuant to Local Rule 56.1 ("Pl. 56.1") ¶¶ 1, 2. Defendants claim that ACA then turned over Stonehart's account to Rosenthal, who is a lawyer and a debt collector. *fn6 See Rosenthal Aff. ¶¶ 2, 7. Stonehart insists that the claim was referred to Rosenthal by CRB, rather than by ACA.*fn7 See Pl. 56.1 ¶ 1.

On February 8, 2000, Rosenthal sent Stonehart a collection letter for $2,338.40. See Stonehart Decl. ¶ 21; Rosenthal Aff. ¶ 7. Rosenthal also requested that ACA verify Stonehart's current address for service of process in light of her failure to respond to ACA's collection letter. See Rosenthal Aff. ¶ 7. On February 17, 2000, ACA obtained a credit report from Experian, a consumer reporting agency to which it subscribed.*fn8 See id.

On February 22, 2000, Stonehart responded to Rosenthal's collection letter, disputing the debt and advising Rosenthal that she would only pay $719.20. See Stonehart Decl. ¶¶ 22, 23. Stonehart also demanded that Rosenthal stop contacting her until he provided her with a corrected Account Statement. See id. ¶ 23. In response to Stonehart's demand, Rosenthal verified the debt with Dr. Lhota and, on July 12, 2000, sent Stonehart an Account Statement, which he received from Dr. Lhota. See Rosenthal Aff. ¶ 8. This statement reflected the amount of debt as $2,338.40. See Account Statement, Ex. G to Rosenthal Aff., at 1.

Meanwhile, in March of 2000, Stonehart applied to Providian National Bank ("Providian") for a credit card. See Stonehart Decl. ¶ 30. Providian rejected Stonehart's application because its review of Stonehart's file revealed an inquiry for collection purposes. See id. Stonehart requested her consumer credit report from Experian and discovered that on February 17, 2000, ACA (under the name Newman & Newman) made an inquiry and received Stonehart's credit report. See Experian Report, Ex. I to Rosenthal Aff., at 1. At no time had Stonehart authorized Rosenthal or ACA to obtain her credit report. See Stonehart Decl. ¶ 35.

Stonehart claims that defendants' actions interfered with her efforts to obtain a credit card and inflicted emotional distress. See id. ¶¶ 41, 42. Prior to April 2000, Stonehart had never been denied credit and her credit history was "spotless." Id. ¶ 31. As a result of Providian's denial, Stonehart claims that she suffered actual damage because her credit history was tainted and she was unable to obtain low interest credit. See id. ¶ 32.

On January 19, 2001, Stonehart filed a Complaint against Rosenthal and ACA for violations of the FCRA, the FDCPA, and the NYFCRA, seeking actual, statutory and punitive damages, costs, and attorney's fees. See Complaint ¶ 2. Defendants filed their Answer on February 21, 2001. This motion followed.


A. FCRA Causes of Action

The FCRA is a federal consumer protection statute enacted by Congress to ensure that consumer reporting agencies adopt reasonable procedures to protect the accuracy and confidentiality of consumer credit information. See 15 U.S.C. § 1681b. Much of the FCRA regulates the behavior of credit reporting agencies. However, "[e]ven consumer reporting agencies acting in complete good faith cannot prohibit illicit use of consumer information if users are not bound to obtain consumer reports only for permissible purposes." Hansen v. Morgan, 582 F.2d 1214, 1220 (9th Cir. 1978). Accordingly, the FCRA also extends to the conduct of parties who request credit information. See Pappas v. City of Calumet City, 9 F.Supp.2d 943, 946 (N.D. Ill. 1998) (emphasis added).

Two aspects of the FCRA are at issue in this case: (1) using a consumer report for an impermissible purpose pursuant to 15 U.S.C. § 1681b*fn9 ; and (2) obtaining consumer information under false pretenses as proscribed by 15 U.S.C. § 1681q.*fn10

1. Permissible Purposes

Stonehart argues that neither Rosenthal nor ACA had a permissible purpose under the FCRA for obtaining her credit report. See Plaintiff's Memorandum of Law in Opposition to Defendants' Motion to Dismiss the Complaint or for Summary Judgment and in Support of the Plaintiff's Cross-Motion for Summary Judgment ("Pl. Mem.") at 8, 15. Defendants argue that they obtained the report in the process of collecting a debt, which is a permissible purpose under the FCRA. See Defendants' Brief in Support of Motion to Dismiss and/or for Summary Judgment Dismissing Action ("Def. Br.") at 1.

To prove a violation of section 1681b, a plaintiff must show that credit information was obtained for an impermissible purpose. Conversely, a showing of a permissible purpose is a complete defense. See Advanced Conservation Sys. Inc. v. Long Island Lighting Co., 934 F. Supp. 53, 54 (E.D.N.Y. 1996); Korotki v. Attorney Servs. Corp. Inc, 931 F. Supp. 1269, 1275 (D. Md. 1996), aff'd, 131 F.2d 135 (4th Cir. 1997) (unpublished). The question of whether a report has been obtained for a permissible purpose is a legal one, which can be resolved on summary judgment. See Advanced Conservation, 934 F. Supp. at 54; Zeller v. Samia, 758 F. Supp. 775, 781-82 (D. Mass. 1991).

a. Rosenthal's Liability

At the time Rosenthal requested that ACA obtain

Stonehart's current address, it is undisputed that Rosenthal had been referred a debt for collection. See Rosenthal Aff. ¶ 7; Pl. 56.1 ¶ 1. The referral of Stonehart's debt for collection gave Rosenthal a permissible purpose for obtaining her credit report pursuant to section 1681b. See Edge v. Professional Claims Bureau, 64 F.Supp.2d 115, 118 (E.D.N.Y. 1999), aff'd, 234 F.3d 1261 (2d Cir. 2000) (unpublished) ("The referral of that debt gave [the collection agency] a permissible purpose for obtaining the credit information. . . ."). Thus, Rosenthal had a permissible purpose under section 1681b(3)(A).*fn11

b. ACA's Liability

Stonehart argues that ACA did not have a permissible purpose to obtain her credit report because ACA was never referred the debt for collection. See Pl. Mem. at 8-11.

This argument is unavailing. The agency that obtains the credit report need not be referred the debt. Rosenthal has sworn that he enlisted ACA to obtain Stonehart's credit report to verify her address for collection purposes. See Rosenthal Aff. at 7. Stonehart concedes that if Rosenthal had hired ACA to actually collect the debt, rather than verify an address, then ACA would have had a permissible purpose to obtain the credit report. See Pl. Mem. at 9. However, this distinction is not dispositive. In Baker, supra, a private investigative agency obtained a debtor's credit report after agreeing to assist a judgment creditor in locating the debtor. See 850 F. Supp. at 261. Notably, that agency was not hired to collect the debt, but rather to find the debtor. See id. Nonetheless, the Baker court found no material distinction between the "hiring of an investigator to actually collect a judgment, and the hiring of an investigator to locate the debtor so that judgment may thereafter be collected." Id. at 262 n.5. Similarly, there is no distinction here between the hiring of ACA to collect a debt and Rosenthal's requesting ACA to verify Stonehart's address so that the debt may "thereafter be collected." Id. Thus, even if ACA was never actually referred the debt, Rosenthal was permitted to enlist ACA's aid in his collection effort. See Korotki, 931 F. Supp. at 1278 (finding that defendant had a permissible purpose to obtain plaintiff's credit report where an attorney trying to collect a debt requested that defendant obtain an alternate address from recent credit reports).*fn12 Because both defendants had a permissible purpose in obtaining Stonehart's credit report, Stonehart's claims under section 1681b are dismissed.

2. False Pretenses

Stonehart also alleges that defendants obtained the credit report under "false pretenses" in violation of section 1681q of the FCRA by falsely leading Experian to believe that defendants had a permissible purpose for obtaining the report. See Pl. Mem. at 11. Defendants argue that they obtained the report for permissible purposes, which precludes a finding that they obtained it under false pretenses. See Def. Br. at 3-4.

The FCRA provides for civil liability when a credit report user willfully and knowingly obtains a credit report under false pretenses for an impermissible purpose. See 15 U.S.C. §§ 1681b, 1681n, and 1681q. Whether a consumer report has been obtained under false pretenses is ordinarily determined with reference to the permissible purposes for which consumer reports may be obtained under section 1681b. See Hansen, 582 F.2d at 1219-20; Boothe v. TRW Credit Data, 557 F. Supp. 66, 71 (S.D.N.Y. 1982). If a user requests information from a consumer reporting agency for a purpose not permitted by section 1681b, while representing to the agency that the report will be used for a permissible purpose, the user may be subject to civil liability for obtaining information under false pretenses. See Zamora v. Valley Fed. Sav. & Loan Ass'n of Grand Junction, 811 F.2d 1368, 1370 (10th Cir. 1987); Hansen, 582 F.2d at 1219-20. Conversely, where a permissible purpose for obtaining a credit report is demonstrated, then, as a matter of law, the information cannot have been obtained under false pretenses. See Baker, 850 F. Supp. at 264.

Here, Experian is not accused of any wrongdoing. The allegation is that defendants used false pretenses to obtain Stonehart's credit report from Experian. As explained in Part III.A.1., supra, both Rosenthal and ACA had a permissible purpose for obtaining Stonehart's credit report. The existence of this permissible purpose constitutes a complete defense to the claim that the information was obtained under false pretenses. See Edge, 64 F.Supp.2d at 118. Stonehart's claims under section 1681q of the FCRA are therefore dismissed.

B. FDCPA Causes of Action

Stonehart also alleges that defendants violated sections 1692e*fn13 and 1692g(b)*fn14 of the FDCPA. Congress passed the FDCPA because of abusive, deceptive and unfair debt collection practices by debt collectors, and because of the perception that existing laws did not adequately protect consumers. See 15 U.S.C. §§ 1692a and 1692b.

1. False, Deceptive or Misleading Means

Stonehart argues that ACA violated section 1692e of the FDCPA when it falsely represented to Experian that ACA had a valid collection purpose in obtaining Stonehart's credit report. See Pl. Mem. at 22. As discussed earlier, because ACA had a permissible purpose to obtain the credit report it could not have used false or misleading means to obtain that report.

Stonehart also alleges that ACA engaged in deceptive means when it violated its Subscription Agreement with Experian, which allegedly contains language prohibiting the subscriber from transferring credit reports to third parties. See id. at 22-23. Specifically, Stonehart argues that ACA violated this agreement when it obtained her credit report and gave it to Rosenthal. See id. However, Stonehart has failed to produce any evidence to support her allegations. Experian has not been able to locate the Subscription Agreement, which was entered into sometime prior to 1977 by TRW, Experian's predecessor, and ACA's predecessor. See 7/19/01 Reply Affidavit of Allen Rosenthal in Support of Defendants' Motion to Dismiss and in Opposition to Cross-Motion ("Rosenthal Reply Aff.") ¶ 8. Moreover, Experian has been unable to confirm that the agreement prohibits the transfer of reports to third parties. See id. Experian has confirmed, however, that the agreement must contain language indicating that ACA can only obtain credit reports for permissible purposes under the FCRA. See Rosenthal Aff. ¶ 4. Without the actual Subscription Agreement, there is no way to know whether it has been violated or if the transfer to Rosenthal was even prohibited. In any case, both Rosenthal and ACA had a permissible purpose to obtain the report, which precludes a finding that either party used false, deceptive or misleading means to obtain the report from Experian.

Stonehart also argues that Rosenthal violated the FDCPA because he falsely verified a complaint in an action by Dr. Lhota against Stonehart in the Civil Court of the City of New York. See Pl. Mem. at 23. The relevant section of the complaint states: "Plaintiff duly stated an account to defendant(s) in the above amount [$2338.40] and same was retained without objection.

. . By reason thereof an account was taken and stated between the parties hereto." Verified Complaint, Ex. H to Rosenthal Aff., ¶¶ 6, 7. Stonehart asserts that Rosenthal engaged in false, deceptive or misleading means to collect a debt when he verified that Dr. Lhota's account was "retained without objection" after Stonehart told Rosenthal that the debt was disputed. Pl. Mem. at 23-24. However, Rosenthal has sworn that when he verified the complaint, he had no documentation or information from Dr. Lhota informing him that the original Account Statement sent by Dr. Lhota to Stonehart, which was the verified "account stated," was inaccurate and/or in dispute. See Rosenthal Reply Aff. ¶ 14.

Rosenthal's verification of the complaint against Stonehart does not constitute a violation of the FDCPA. The Ninth Circuit has stated that "[t]he [FDCPA] is designed to protect consumers who have been victimized by unscrupulous debt collectors, regardless of whether a valid debt actually exists." Baker v. G.C. Servs. Corp., 677 F.2d 775, 777 (9th Cir. 1982). The only basis for a FDCPA claim against Rosenthal is if he acted unscrupulously in collecting a debt, not that he verified a complaint which inaccurately stated the amount of the debt. See Ducrest v. Alco Collections, Inc., 931 F. Supp. 459, 462 (M.D. La. 1996) (holding that an FDCPA claim should be based on defendant's conduct, not on the validity of the debt). The focus of the inquiry must be on Rosenthal's conduct.

To state a claim under section 1692e(2) of the FDCPA, Stonehart must show that Rosenthal knowingly misrepresented the amount of the debt when he verified the complaint. See 15 U.S.C. § 1692e(2); see also Ducrest, 931 F. Supp. at 462. Stonehart's claim under the FDCPA must fail because she has not cited to any evidence that Rosenthal knowingly and intentionally verified a complaint that was inaccurate. Rosenthal asserts that he relied on the information provided to him by Dr. Lhota when he verified the complaint. See Rosenthal Aff. ¶ 14. A debt collector must be able to rely on representations from his client as to the amount of the debt. The FDCPA does not require debt collectors to conduct independent investigations of the information provided by clients when collecting a debt. See Ducrest, 931 F. Supp. at 462. In sum, as neither defendant used false, deceptive or misleading means in obtaining Stonehart's credit report, Stonehart's section 1692e claims must fail.

2. Verification

Stonehart also argues that Rosenthal violated section 1692g(b) of the FDCPA because Rosenthal did not verify the debt properly when Stonehart informed him that the debt was disputed. Section 1692g(b) requires debt collectors to obtain verification of disputed debts. See U.S.C. § 1692g(b). Verification of a debt requires only that the debt collector obtain a written statement that "the amount being demanded is what the creditor is claiming is owed; the debt collector is not required to keep detailed files of the alleged debt." Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1998). Verification is only intended to "eliminate the . . .problem of debt collectors dunning the wrong person or attempting to collect debts which the consumer has already paid." Id. (citations omitted).

The Account Statement that Dr. Lhota provided to Rosenthal, which in turn was sent to Stonehart, was sufficient to verify the debt. That Account Statement consisted of a computer printout that sufficiently informed Stonehart of the services provided by Dr. Lhota, the dates on which the charges were incurred, and the amount of her debts. See Account Statement at 1-2; see also Graziano v. Harrison, 950 F.2d 107, 113 (3d Cir. 1991). Because nothing more is required, summary judgment in defendants' favor is also appropriate on this issue.

C. NYFCRA Causes of Action

Finally, Stonehart alleges related state law claims against defendants pursuant to N.Y. Gen. Bus. L. § 380 et seq. Parallel to the federal FCRA, the NYFCRA provides for criminal penalties against "any person who knowingly and willfully obtains information concerning a consumer from a consumer reporting agency under false pretenses. . . ." N.Y. Gen. Bus. L. § 380-o. Civil liability for willful noncompliance arises under section 380-l. The permissible purposes for obtaining a credit report are set forth in section 380-b, which permits credit report information to be supplied by a consumer reporting agency "to a person whom it has reason to believe intends to use the information . . . in connection with a credit transaction involving the consumer on whom the information is to be furnished and involving the extension of credit to, or review or collection of an account of, the consumer. . . ." N.Y. Gen. Bus. L. § 380-b(a)(3) (emphasis added).

Generally, courts have interpreted the federal and New York statutes similarly. See Ali v. Vikar Mgmt. Ltd., 994 F. Supp. 492 (S.D.N.Y. 1998); see also Scott v. Real Estate Fin. Group, 956 F. Supp. 375, 384 (E.D.N.Y. 1997), aff'd, 183 F.3d 97, 100 (2d Cir. 1999). Therefore, the Court's conclusions as to the FCRA also apply to the NYFCRA. Accordingly, Stonehart's claims under section 380 of the General Business Law are dismissed.


For these reasons, defendants' motion for summary judgment is granted, and Stonehart's cross-motion for summary judgment is denied. The Clerk of the Court is directed to dismiss the Complaint and close this case.


Shira A. Scheindlin U.S.D.J.

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