Amicus Curiae Brief — Safeco Ins. Co. of America v. Burr

AUG 21 2006

Nos. @ ww WQ and @ OFFICE OF THE CLERK |

IN THE

Supreme Court of the Gnited States

HARTFORD FIRE INS. CO.,

Petitioner,

Vv.

JASON RAY REYNOLDS,

Respondent.

[Captions continued on inside cover]

On Petitions for Writs of Certiorari to the

United States Court of Appeals for the Ninth Circuit

BRIEF OF THE MORTGAGE INSURANCE

COMPANIES OF AMERICA AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

. THOMAS M. HEFFERON

Counsel of Record

RICHARD M. WYNER

JOSEPH F. YENOUSKAS

GoopwiIn | PROCTER LLP

901 New York Avenue, N.W.

Washington, D.C. 20001

Tel: 202-346-400

Counsel for Amicus Curiae

August 21, 2006

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[Captions continued from outside cover]

GEICO GENERAL INSURANCE Co., ET AL.,

Petitioners,

Respondent.

STATE FARM MuT. AUTO. INS. Co., ET AL.,

Petitioners,

JULIE WILLES,

Respondent.

SAFECO INS. CO. OF AMERICA, ET AL..

Petitioners,

v.

CHARLES BURR, ET AL.,

Respondents.

TABLE OF CONTENTS

TARE Ge A Tere CD oescicssseccsoncovsivncesceccesenserstees iil

INTEREST OF THE AMICUS CURIAE........................ l

TD brtecitnctncievniereenininvitiaiisnnninnsinnitiatisnnanuuianin 3

I. THE DECISION BELOW WILL HAVE

Il.

IMPACTS FAR BEYOND THE PARTICULAR

CIRCUMSTANCES OF THESE CASES,

[INCLUDING ON THE MORTGAGE

SEOPUUTO EE DUEPUMB REED seictccosssscrcscsssseceonecssoressons a

A. FCRA Affects Much of the Economy ................. 5

B. The Ninth Circuit's Willfulness Ruling Is

Likely To Have an Impact on all of the

Act’s Substantive Provisions.............sssccccsssseseneees 6

THE NINTH CIRCUIT'S DIVERGENT AND

ERRONEOUS DECISION WILL CAUSE

PROBLEMS ACROSS THE BROAD SWEEP

ee Ct I xrcpaisieedinnsinpeapensinnaccniaginsesinnitecnianties 8

A. The Circuit Split Created by the Ninth

Circuit Will Result in Forum Shopping

and More Litigation, Skew Compliance, and

Undermine the Attorney-Client Privilege............ 8

B. These Adverse Effects Will Be Particularly

Pronounced Because FCRA Is a Complex

Statute that Raises many Unresolved Issues....... 11

ii

C. These Pronounced Adverse Effects Are

Especially Problematic Because the

Efficient Flow of Consumer Information

Is Vital to the Economy, Including the

III, CIID siti evtasisnitiicinindenevivniivcncianwviniittiel

Ill. THE NINTH CIRCUIT’S ERRONEOUS

“ADVERSE ACTION” RULINGS FURTHER

WARRANT REVIEW

CONCLUSION

iii

TABLE OF AUTHORITIES

CASES:

Ladner v. Equifax Credit Info. Servs., Inc.,

828 F. Supp. 427 (S.D. Miss. 1993) ..........cccccsesseeeeeeees 9

Mark v. Valley Ins. Co., 275 F. Supp.

i A ssi sbi ait cegicharnianiaciathaninantes 12_

Murray v. GMAC Mortgage Corp.,

GOO FS BE Cie Ci, FOOD tice ccincscensiistnsintnspiveresuigins 7

Pearson v. Novastar Home Mortgage, Inc.,

No. 05-1377-A, 2006 U.S. Dist. LEXIS 36282

A I alias 7

Putkowski v. Irwin Home Equity Corp.,

423 F. Supp. 2d 1053 (N.D. Cal. 2006)............ccccceseseeee 7

Reynolds v. Hartford Fin. Servs. Group, Inc.,

435 F.3d 1081 (9th Cir. 2006) ..................cceceeeees passim

Skwira v. United States, 344 F.3d 64

(ist Cir. 2003), cert. denied, 542 U.S. 903

i iacdcisininsaiscicciindsanialcidechsicliasaccias ao Ae eR 11

Stergiopoulos v. First Midwest Bancorp, Inc.,

GF Fe Fs CF OR BO cctecncnacsensnensicctinnntocensancee 9

7TRW Inc. v. Andrews, 534 U.S. 19 (2001) «0.0.0... 14

Upjohn Co. v. United States, 449 U.S. 383

Pa ath atebclniinindusthhcetiniubinidisiaigehibdcappiighaiuhbibihnidantdlaseimiseiniias 10

iv

Verex Assurance, Inc. v. Palma,

519 U.S. 1048 (1996) .......... bedodtehmcednnbedintiasadesiabninns |

Whitfield v. Radian Guar., Inc.,

395 F. Supp. 2d 234 (E.D. Pa. 2005),

appeal pending, No. 05-5017 (3d Cir.) ..........:::22:e000 13

Yang v. GEICO, 146 F.3d 1320

CE IMU ctnsctideralionninninadmiatntiniabesdoidindiieinbaien 7

STATUTES:

Fair and Accurate Credit Transactions Act of 2003,

BUI, Be DUNN, ROR esdssintutinitccipnncteseiohcinsmaciiedltncsionsamalegiiialad 12

Fais Credit Reporte Act .........0s0secscososssseossesessoscese passim

> 0S TRE. 3 FEE B Piccctvtcncccbsontnsidsicinnichesimetds 14

BS Ua. Ee Te itctcccicimnnintchttntscnstesntmadets 14

BS CUAL. © BE i cscncccintestnicivtgnscsctncminiin 6-7

+E | oe 2; Rene nen ae 11, 12-13

BS UE © SE TED wvsccsesccstcdisenteieicticies 13

15 U.S.C. § 168 1a(k)(1)(B)(i)........... eee 13, 17

TS Uh BE ee wihctichebnivichacscpiasticinibeits 5, 6, 7, 15

BS REAR. © Di cicctccicrdbsisnnactonninniactinmammpiadiaia’ 6

DS UBC. © WBE coccecsescccessscssccsiecasnstvoncepineamenees 6

~ AS A. © BEI, ccectictetircocncnsenccsinsvtnsennsnmmemntinel 6

OF TEE, © Bee cectiicscctcsepeinees ecencisaenill 5, 6, 16

PRE) oh FO | | SS Re eR ASE 17

BRR foe Fo ee 3,7, 11

BS OBC. © BERRI ccccesccccacdcsvscescenssenipnsonecdnseess 7

1S UBL. © SEB RaAIE E) cnccccccescorccssccvescseqostticcsens 12

BS CBE. 8 BGI O cornscssecscsccsesevcecsesesediensans 5, 15

15 U.S.C. § 168 1s-2(D) ................cccccccessneeneeeees 6

15 U.S.C. § 1GB1S-2(C) .............cccccccseccceeesersrenseees 7

15 U.S.C. § 16GB IUD) 20... eeceeesectetentennnnnnenes 15

15 U.S.C. § 1GBAY ..........ccccccccccccsserereessenereseenesses 5

RULES AND REGULATIONS:

Be OE, GG, GI TR, 6 BA ccccceensecccccnzstnenssccotctnacense 13

65 Fed. Reg. 80,802 (Dec. 22, 2000) ..........ccccccccceeseeeenes 12

LEGISLATIVE HISTORY:

H.R. Rep. No. 108-263 (2003)............cccccceresscssssssrererees 15

Be i Rk CE i crnscressnniniccscntnscsinsenensiennens 5,9

I DE. DID TED CI a ccc ccese cers cccnesenenccncrnsssoneneenece 14

oe RI, RD Ba Oe Gr cscccsnccencensccnczessesevnescecensnsneqene 5

OTHER AUTHORITIES:

Robert B. Avery et al., An Overview of Consumer

Data and Credit Reporting, Federal Reserve

Bulletin (Feb. 2003), available at

http://www. federalreserve.

gov/pubs/bulletin/2003/0203 lead. pdf.................cceee 14

Federal Trade Comm'n, Report to Congress

Under Sections 318 and 319 of the Fair and

Accurate Credit Transactions Act of 2003

(Dec. 2004), available at

http://www. ftc.gow/reports/facta/04 | 209 factrpt.pdf .... 15

vi

FTC Staff Letter from Clarke W. Brinckerhoff

~ to Paul H. Schieber (Mar. 3, 1998), available at

http://www. ftc.gov/os/statutes/fcra/schieber.htm

FTC Staff Letter from William Haynes to

Matthew B. Halpern (June 11, 1998),

available at

http://www. fic.gov/os/statutes/fcra/halpern.him...........

U.S. Gen. Accounting Office, GAO Report No.

06-435, Mortgage Financing: HUD Could

Realize Additional Benefits from its

Mortgage Scorecard (Apr. 2006) ...............cccccceeeeeeeees

INTEREST OF THE AMICUS CURIAE |

The Mortgage Insurance Companies of America

(“MICA”) is a non-profit trade association that represents the

private mortgage insurance industry in the United States. Its

members are United Guaranty Corporation, Genworth

Mortgage Insurance Corporation, Mortgage Guaranty

Insurance Corporation, PMI Mortgage Insurance Co., Repub-

lic Mortgage Insurance Co., and Triad Guaranty Insurance

Corporation.

MICA’s members provide private mortgage insurance

to mortgage lenders. Mortgage insurance protects a lender if

the homeowner defaults on the loan. It allows those lenders

to make low-downpayment loans, thereby expanding home-

ownership opportunities and enabling millions of Americans

to become homeowners. Taken together, the private mort-

gage industry’s seven companies insure over five million

mortgages nationwide.”

MICA works to enhance understanding of the vital

role that private mortgage insurance plays in housing Amer-

icans and of the issues faced by the mortgage insurance

industry. Among MICA’s missions is providing information

to decisionmakers on issues concerning the obligations of

companies that provide mortgage insurance. As such, MICA

participates as amicus curiae in cascs that may substantially

affect such companies. See, ¢.g., Verex Assurance, Inc. v.

Palma, 519 U.S. 1048 (1996) (granting MICA’s motion for

leave to file an amicus curiae brief).

' Written consents of all parties have been filed with the Clerk.

This brief was authored solely by counsel for; MICA, and no

person or entity other than MICA, its members, or its counsel

made amy monetary contribution to the preparation or submission

of the brief.

* The seventh company, Radian Guaranty Co., is not currently a

member of MICA.

2

Mortgage insurers write policies with premium terms

that may vary based on, among other things, information

about the potential homeowner’s creditworthiness. As a

result, MICA’s members have a strong interest in having this

Court immediately review and correct the Ninth Circuit’s

decision for three reasons.

First, each of MICA’s members has recently been

sued in putative class actions arising under the Fair Credit

Reporting Act (“FCRA”) in which the plaintiffs allege. inter

alia, that the mortgage insurers willfully violated FCRA by

not providing notices of adverse action when the mortgage

insurance policy premiums were affected by the borrowers’

credit scores.’ The Ninth Circuit's decision addresses issues

that are also raised by those lawsuits, including the proper

standard for determining whether any FCRA violation was

willful, thus subjecting the defendant to punitive sanctions.

Indeed, shortly after the Ninth Circuit’s initial opmion was

issued, it was cited by the plaintiffs | in two of the cases pend-

ing against private mortgage insurers.‘

> See Glatt v. PMI Group, Inc., No. 2:03-CV-00326-JES (M.D.

Fla.):; Broessel v. Triad Guar. Ins. Corp., ‘No. 1:04-C'V-00004-

JHM (W.D. Ky.); Preston v. Mortgage Guar. Ins. Corp. of

Milwaukee, No. 5:03-CV-11!-Oc-10GRJ (M.D. Fla.); Price v.

United Guar. Residential Ins. Co., No. 3:03-CV-2643-R (N.D.

Tex.); Portis v. Gen. Elec. Mortgage Ins. Corp., No. 04-CV-300

(N.D. lL); Karwo v. Gen. Elec. Mortgage Ins. Corp., No. 04-CV-

1944 (N.D. Ill.); Brantley v. Republic Mortgage Ins. Corp., No.

04-CV-805 (D.S.C.). In addition, a simular case is pending against

Radian. Whitfield v. Radian Guar. Co., No. 05-5017 (3d Cir.).

* See Plaintiff's Notice of Supplememal Authority. filed in

Whitfield v. Radian Guar., Inc., No. 04-111 (E.D. Pa. Aug. 1).

2005); Plaintiff's Notice of Supplemental Authority en Opposition

to Triad’s Motion for Summary Judgment, filed in Broessel v.

Triad Guar. Ins. Corp.. No. 1:04-CV-00004-JHM\(W.D. Ky. Aug.

19, 2005).

3

Second, because the decision below conflicts with

prior decisions from other Circuits, review is necessary to

prevent forum shopping in future cases involving MICA’s

members. Mortgage insurers write policies covering proper-

lies located across the country, thereby raising a grave risk of

forum shopping if the circuit split demonstrated in the peti-

tions is allowed to persist.

Finally, beyond its effects on litigation, the Ninth Cir-

cuit’s ruling would cause substantial harm to the private

mortgage insurance industry and American homeownership.

As explained below, the decision affects all aspects of

FCRA, not just issues relating to adverse action notices, and

will pressure mortgage imsurers to consider adopting overly

cautious practices in order to avoid the risk of punitive dam-

ages. The inevitable result of umnecessarily conservative

approaches will be a restricted flow of consumer information,

higher costs, and a decreased availability of risk-based priced

mortgage insurance.”

ARGUMENT

The petitions in these cases correctly demonstrate that

the Ninth Circwit’s ruling both directly conflicts with deci-

sions of numerous other courts of appeal and is patently

wrong as a matter of statutory construction. The Ninth Cir-

cuit incorrectly construed the word “willfully” in 15 U.S.C.

$ 1681n as permitting an award of statutory and punitive

damages whenever an appellate court concludes in hindsight

that the defendant's position on an issue of first impression

was “implausible,” even if i was informed by legal advice.

about this complex statute.

As we now show, immediate correction of that idio-

syncratic and] erroncous ruling is vitally important. First, as

* MICA respectfully reserves its members’ rights to argue, at an

appropriate time and in an appropriate context or forum, the appli-

cation of the Ninth Circuit's opinion to a particular set of facts.

4

we show in Part I, the Ninth Circuit's decision will impact a

wide swath of the economy, extending far beyond the

circumstances of the individual cases before the Court. Al-

though these cases primarily involve the adverse action no-

tice requirements in the context of automobile insurance, the

decision below will affect compliance with all of FCRA’s

substantive provisions by a broad array of industries. Sec-

ond, as we show in Part II, the Ninth Circuit’s ruling will im-

mediately cause serious problems across the wide sweep of

its impact. It will increase litigation and promote forum

shopping in class actions against companies with multistate

operations, like MICA’s members; it will unduly pressure

companies using consumer information in all of those

nationwide operations, thus raising costs and effectively

nullifying the contrary decisions of the other Circuit courts

that have correctly interpreted the law; and it will

inappropriately undermine the attorney-client privilege.

These effects will be particularly pronounced because FCRA

is a complex statute with numerous. unresolved issues, each

of which will be directly affected by the Ninth Circuit's

ruling that “implausible” answers to unresolved issues can

merit an award of punitive damages. Finally, these many

adverse effects will be particularly problematic because, as

Congress determined in enacting FCRA, the efficient flow of

consumer information and the balancing of consumer and

industry interests is of vital importance to the American

economy.

I. |THE DECISION BELOW WILL HAVE IM-

PACTS FAR BEYOND THE PARTICULAR

CIRCUMSTANCES OF THESE CASES, IN-

CLUDING ON THE MORTGAGE INSURANCE

INDUSTRY

The cases before the Court primarily involve an al-

leged failure to comply with FCRA’s adverse action notice

requirement in the context of automobile insurance sales.

But the Ninth Circuit's eccentric and wrongheaded articu-

5

lation of the standard for what constitutes a “willful” viola-

tion of FCRA will, absent correction, both affect numerous

other industries, including mortgage insurance, and impact

compliance with all of the Act’s requirements, not only the

giving of adverse action notices in the context of the use

under certain circumstances of credit scores.

A. FCRA Affects Much of the Economy

FCRA affects a wide array of businesses. It imposes

obligations not only on consumer reporting agencies (15

U.S.C. §§ 1681b, 1681v), but also on companies that furnish

information to comsumer reporting agencies (id. § 1681s-2)

and. in certain circumstances, on users of information con-

tained in consumer reports (id. § 1681m). Thus, although

petitioners in these.cascs primarily are personal lines automo-

bile insurers, the Ninth Circuit's interpretation of FCRA will

impact many other segments of the economy. Indeed, as a

general matter, retaile’s, employers, and government agen-

cies each use consumer information for various purposes.

The same is true throughout the housing industry.

First, insurance companies that write homeowner’s insurance

policies frequently use the homeowner’s credit scores in de-

termining the premiums for such insurance.’ Second, most

companies that make mortgage loans use the homeowners’

credit information in underwriting the risks of mortgage

loans and determining the inierest rates and other terms for

those loans.” Finally, credit information may also be used in

connection with the private mortgage insurance issued by

MICA’s members. Mortgage insurance policies are issued to

® §. Rep. No. 103-209, at 1-2 (1993).

” See, e.g., S. Rep. No. 108-166, at 7 (2003).

* Jd. see also U.S. Gen. Accounting Office, GAO Report No. 06-

435, Mortgage Financing: HUD Could Realize Additional Bencfits

from its Mortgage Scorecard 5 (Apr. 2006) (discussing use of

automated underwriting of loans using borrower credit scores).

6

mortgage lenders to protect them against the risk of payment

defaults by the homeowners. The premium charged to the

lender by the mortgage insurer is based on a variety of fac-

tors, including, in certain types of mortgage insurance

policies, information contained in the homeowners’

consumer reports. Indeed, as cited above, MICA’s members

are defendants in putative class actions alleging that they use

consumer information and have disclosure duties under 15

U.S.C. § 1681m.

B. The Ninth Circuit’s Willfulness Ruling Is

Likely To Have an Impact on all of the

Act’s Substantive Provisions

FCRA imposes a variety of substantive duties beyond

the adverse action notice provisions that the Ninth Circuit

considered. For example, section 1681b sets forth permis-

sible purposes for which consumer reporting agencies may

furnish, and third parties may receive, consumer report infor-

mation. 15 U.S.C. § 168lb. Sections 168lc, 1681g, and

16811 impose requirements with respect to the types of

information that a consumer reporting agency may include in

a consumer report, how consumer reporting agencies must

disclose such information to consumers, and how disputes

Over accuracy are resolved by such agencies and by

information furnishers. /d. §§ 168lc, 168lg & 16811.

Section 168m imposes duties on users of information in

consumer reports in certain circumstances. Jd. § 1681m.

And section 1681s-2(b) provides procedures - for in-

vestigations by entities that furnish consumer information

into certain disputes over the accuracy of consumer informa-

tion. /d. § 1681s-2(b).

Moreover, the Act's provisions are not limited to the

use of credit information, which was at issue in these cases.

The duties under FCRA arise from use of information in con-

sumer report|s], a term that Congress defined to include not

only credit information, but also “any information * * * bear-

7

ing on a consumer’s * * * character, general reputation, per-

sonal characteristics, or mode of living.” Jd. § 1681a(d)(1).

That definition has been construed to include such data as

driving record information,’ social security numbers, and

even nicknames.”

With some exceptions where private suits are barred

(e.g., id. § 1681s-2(c)), FCRA authorizes an award of statu-

tory and punitive damages against “[a]ny person who will-

fully fails to comply with any requirement imposed under

this subchapter.” /d. § 1681n(a) (emphasis added). Thus, the

Ninth Circuit's interpretation of the word “willfully” may af-

fect compliance with, and lawsuits involving, a large number

of FCRA’s requirements. There are, for example, dozens of

lawsuits now pending in which plaintiffs are seeking punitive

damages on the ground that creditors and insurers did not

make firm offers of credit or insurance when they sent out

so-called “prescreened” solicitations to consumers, and thus

allegedly violated FCRA restrictions on obtaining consumer

information for such purposes under section 168 1b."

In short, the Ninth Circuit’s redefinition of the term

“willfully” in section 168{n will affect a vast array of entities

and a!! of FCRA’s numerous requirements, and hence amply

justifies review by the Court.

” See FTC Staff Letter from William Haynes to Matthew B.

Halpern (June 11, 1998), available at hitp://www.ftc.gov/os/

statutes/fera/halpern.htm.

See Yang v. GEICO, 146 F.3d 1320 (11th Cir. 1998).

'' See, e.g., Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th

Cir. 2006); Putkowski v. Irwin Home Equity Corp., 423 F. Supp.

2d 1053 (N.D. Cal. 2006); Pearson v. Novastar Home Mortgage,

Inc., No. OS-1377-A, 2006 U.S. Dist. LEXIS 36282 (M.D. La.

Mar. 28, 2006).

8

II. THE NINTH CIRCUIT’S DIVERGENT AND

ERRONEOUS DECISION WILL CAUSE PROB-

LEMS ACROSS THE BROAD SWEEP OF ITS

IMPACT

The Ninth Circuit’s decision will not just sweep

broadly; it will cut deep. It will, with respect to the Act’s un-

resolved issues, promote forum shopping, skew and compli-

cate compliance, and undermine the attorney-client privilege.

Those impacts will be particularly pronounced because

FCRA is, in fact, a complicated statute that presents many

unresolved issues. And this pronounced effect is especially

problematic because, as Congress found, the flow of con-

sumer information is critical to the American economy, in-

cluding the housing market—which is why the Act strikes a

balance between business and consumer interests that the

Ninth Circuit’s ruling threatens to upset.

A. The Circuit Split Created by the Ninth

Circuit Will Result in Forum Shopping and

More Litigation, Skew Compliance, and

Undermine the Attorney-Client Privilege

As noted above, mortgage insurers provide insurance

on millions of mortgages nationwide. Absent prompt correc-

tion, the Ninth Circuit’s acknowledged refusal to adopt the

interpretation of FCRA reached by other Circuits will lead to

extensive forum shopping and increased class action filings

and will adversely affect efforts to comply with the statute.

The decision below threatens to make district courts

in the Ninth Circuit the forums of choice for FCRA nation-

wide class actions. The ability to pursue claims for statutory

and punitive damages dramatically increases the potential

damages under FCRA; indeed, unlike other federal statutes

such as the Truth in Lending Act and the Fair Debt Collec-

tion Practices Act, FCRA does not cap a defendant’s liability

in class actions. As such, the ruling below, by creating a

lessened standard of proof for “willful” violations, will di-

9

rectly drive the calculus as to where plaintiffs will file suit.

Because mortgage insurers carry out their activities on a na-

tionwide basis, plaintiffs will have the opportunity to try to

file their FCRA class action cases in the Ninth Circuit, thus

avoiding the other circuit court decisions that apply a sensi-

ble reading of the key statutory term. Indeed, starting imme-

diately after the Ninth Circuit’s initial opinion, numerous

FCRA class actions have been filed in the Ninth Circuit—in-

cluding by residents of far-off jurisdictions such as Georgia

and Tennessee.'” Allowing the conflict created by the deci-

sion below to persist thus would give a green light to massive

forum shopping. Moreover, by lowering the standard for

statutory and punitive damages, the decision below likely

will lead to a sharp increase in filing of new FCRA class ac-

tions, thereby raising costs and increasing artificial settlement

pressures.

The ruling below will also skew the efforts of mort-

gage insurers to comply with FCRA, raising costs and dis-

couraging the beneficial use of consumer information. As

Congress has emphasized, FCRA “seeks to balance the needs

of consumers and businesses” with respect to the use of

consumer information. S. Rep. No. 103-209, at 2 (1993).'*

'* See Luther v. 1-800-BAR-NONE, No. 05 c 4026 (N.D. Cal. Oct.

5, 2005); Hogan v. PMI Mortgage Ins. Corp., No. COS-3851 PJH

(N.D. Cal. Sept. 23, 2005); Holloway v. Homefield Fin. Inc., No.

SACV 05-0861 (C.D. Cal. Sept. 6, 2005); Phillips v. Accredited

Home Lenders Holding Co., No. SACV 05-851 (C.D. Cal. Sept. 1,

2005); Yeagley v. Wells Fargo & Co., No. CO5-3403 CRB (N.D.

Cal. Aug. 22, 2005); Putkowski v. Irwin Home Equity Corp., No.

C05-3289 PJH (N.D. Cal. Aug. 12, 2005).

'’ See also Stergiopoulos v. First Midwest Bancorp, Inc., 427 F.3d

1043, 1045-46 (7th Cir. 2005) (FCRA is an “attempt to achieve

this balance between consumer privacy and the needs of a modern,

credit-driven economy”); Ladner v. Equifax Credit Info. Servs.,

Inc., 828 F. Supp. 427, 429 (S.D. Miss. 1993) (FCRA “‘legislat{es]

a balance between the interest of the consumer public and that of

financial institutions”). ,

10

Given the severity of a potential class-action award of

Statutory and punitive damages if a company’s position on an

unresolved issue is determined in hindsight to have been “im-

plausible,” mortgage insurers, like other companies, will be

pressured by the ruling to consider adopting an unnecessarily

conservative reading of each of the Act’s various require-

ments. Indeed, the Ninth Circuit’s ruling will impose

particular burdens on companies with nationwide or -

multistate operations, like MICA’s members, because of the

risk from nationwide class actions filed in the Ninth Circuit.

It will be cold comfort to such businesses that other Circuits

have held that statutory and punitive damages can be

awarded only for knowing noncompliance with the Act’s

requirements. The fact that the Ninth Circuit’s decision not

only conflicts with, but as a practical matter will nullify, the

rulings of other appellate courts underscores the urgent need

for review by this Court.

Finally, the ruling below will undermine the attorney-

client privilege and, in doing so, will weaken rather than

enhance compliance with the Act’s substantive requirements.

As the Ninth Circuit unabashedly acknowledged, its “reck-

less disregard” standard will routinely put at issue “specific

evidence as to how the company’s decision was reached,

including the testimony of the company’s executives and

counsel.” 435 F.3d at 1099. Indeed, given the risk of cat-

astrophic statutory and punitive damages in nationwide class

action Cases, mortgage insurers and other defendants may, as

a practical matter, feel it necessary to disclose the privileged

advice they received in an effort to defend themselves. As

such, the Ninth Circuit’s approach contravenes the strong

public interest in protecting attorney-client communications.

See, ¢.g., Upjohn Co. v. United States, 449 U.S. 383 (1981).

Moreover, by putting such advice routinely at issue, the rul-

ing below will discourage clients from seeking, and lawyers

from providing, frank and thoughtful advice with respect to

FCRA compliance—lest such advice later be used against the

1]

client as proof of the kind of “creative lawyering” that, under

the Ninth Circuit’s approach, justifies the imposition -of

exemplary damages on a defendant. Thus, rather than moti-

vating Companies to “seek objective answers from their coun-

sel as to the true meaning of the statute” (435 F.3d at 1099),

the decision below will undermine forthright legal advice and

true compliance with the Act. Last, still further problems

will arise from the Ninth Circuit’s assertion (id.) that consul-

tation with attorneys and reliance on their advice may not be

sufficient to avoid a finding of willfulness if a court con-

cludes in hindsight that the lawyers provided “indefensible

answers.” That holding places clients in the impossible situ-

ation of having to second-guess their attorneys—still further

undermining both the privilege and compliance. It can safely

be said that Congress never intended such an approach when

it enacted section 1681 n.

B. These Adverse Effects Will Be Particularly

Pronounced Because FCRA Is a Complex

Statute that Raises many Unresolved Issues

The Ninth Circuit’s holding that a defendant can be

held to have acted “willfully” if an appellate court finds its

position on an unresolved FCRA issue be “implausible” will

have a particularly powerful impact because FCRA is a com-

plicated statute as to which industry has been given little

regulatory guidance and which raises many still-unresolved

issues.

FCRA is a “complex statutory scheme.” Skwira v.

United States, 344 F.3d 64, 74 (ist Cir. 2003). For example,

as directly applicable to these cases, the term “adverse ac-

tion” is given five separate meanings by the Act. 15 U.S.C.

§ 168la(k). There is, moreover, relatively littke guidance as

to the proper interpretation or application of the Act’s

complicated provisions. The FTC, which has jurisdiction

over certain of the Act’s provisions, has no general authority

to issue substantive rules under the Act (see IS U.S.C.

12

§ 1681s(a)(1); 65 Fed. Reg. 80,802, 80,803 (Dec. 22, 2000))

and, since 2001, has not even issued informal interpretive

letters (see http://www. ftc.gov/os/statutes/fcrajump.htm).

Indeed, three years ago, Congress enacted the Fair and

Accurate Credit Transactions Act of 2003, Pub. L. No. 108-

159, a lengthy statute that revised many of FCRA’s existing

provisions and added numerous new statutory terms, but

many of the regulations that Congress required for

implementing these new provisions have yet to be issued.

Not surprisingly, given the Act’s complexity and lim-

ited guidance, numerous issues concerning the Act's interpre-

tation and application remain unresolved. In the instant

cases, for example, the Ninth Circuit considered, admittedly

as a “matter of first impression,” whether an initial insurance

premium charge is properly considered an “increase in any

charge” and hence can constitute an “adverse action.” 435

F.3d at 1090. In ruling that it is, moreover, the court rejected

multiple prior district court rulings, including in the case on

appeal. '* The Ninth Circuit also considered, again for the

first time, whether an “adverse action” can have occurred

when the use of credit information resulted in the consumer

receiving a better rate than if credit information has not been

considered at all. On this new issue, too, the appeals court

rejected the district court’s ruling. 435 F.3d at 1092-93.

Similarly, issues relating specifically to the Act’s

application to mortgage insurance remain unresolved under

FCRA. For example, the duties that apply in the event of an

“adverse action” depend in part on which of the five prongs

of the Act’s “adverse action” definition applies. 15 U.S.C.

§ 16% 1ia(k). Mortgage insurance arises as part of a credit

transaction: when a prospective homeowner seeks credit in

the form of a mortgage, the lender as part of that credit trans-

action obtains mortgage insurance in order to insure against

"See, ¢.g., Mark v. Valley Ins, Co., 275 F. Supp. 2d 1307, 1317

(D. Or. 2003).

13

the risk it would face if the borrower defaults on a loan and

the value of the collateral is insufficient to pay the amount of

the outstanding indebtedness. Because mortgage insurance,

thus, is an integral part of a transaction in which a consumer

is obtaining credit, MICA believes that the so-called “credit”

prong applies. /d. § 168la(k)(1)(A). Advocates in cases

against MICA’s members have argued, however, that the

definition of adverse action applicable to the “underwriting

of insurance” instead applies. /d. § 1681a(k)(1)(B)(i). This

unresolved question is crucial; if the credit transaction def-

inition applies, a mortgage insurer is not required to send

adverse action notices in circumstances where the consumer

obtains the product (a loan) that he or she sought. See 16

C.F.R. pt. 698, app. H, § I.C (“No adverse action occurs in a

credit transaction where the creditor makes a counteroffer

that is accepted by the consumer.”).

Another area of uncertainty concerns whether adverse

action notice requirements even apply to mortgage insurers.

A federal district court has ruled that mortgage insurers have

no duty to send adverse action notices to consumers because

mortgage insurers contract with lenders, not consumers, and

because they insure lenders’ risks, not consumers’ risks.

Whitfield v. Radian Guar., Inc., 395 F. Supp. 2d 234 (E.D.

Pa. 2005), appeal pending, No. 05-5017 (3d Cir.). An older,

non-binding FIC staff letter disagrees. FTC Staff Letter

from Clarke W. Brinckerhoff to Paul H. Schieber at n.1 (Mar.

3, 1998), available at http://www.ftc.gov/os/statutes/fcra/

schieber.htm.

In short, the Ninth Circuit’s adoption of a standard

that invites an award of massive statutory and punitive dam-

ages for wrong answers to open FCRA issues is particularly

pernicious because there are so many open issues under the

Act. Immediate correction of that standard is therefore all

the more important.

14

’ & These Pronounced Adverse Effects Are

Especially Problematic Because the Effi-

cient Flow of Consumer Information Is

Vital to the Economy, Including the Hous-

ing Industry

The recent widespread advances in technology have

dramatically affected the consumer reporting industry.'” Be-

cause of the computerization of records, development of the

internet, and ability to transmit data electronically, entities

that maintain information about consumer accounts now are

able to quickly provide reporting agencies with considerable

amounts of information, and entities whose operations are

enhanced through the use of consumer information now are

able to access it on a timely basis.'°

This flow of consumer information is vital to the

United States economy. In passing FCRA, Congress found

that our “banking system is dependent upon fair and accurate

credit reporting.” 15 U.S.C. § 1681(a)(1). It further found

that consumer reporting agencies “have assumed a vital role

in assembling and evaluating consumer credit and other in-

formation on consumers.” /d. § 1681(a)(3). Indeed, this

Court has found that “Congress enacted the FCRA in 1970

to,” inter alia, “promote efficiency in the Nation's banking

system * * *.” TRW Inc. v. Andrews, 534 U.S. 19, 23 (2001).

FCRA facilitates and encourages the efficient flow of

consumer information in multiple ways. Congress author-

ized disclosure by consumer reporting agencies of consumer

' §. Rep. No. 104-185, at 18 (1995) (“the credit reporting

industry has grown in the wake of information technology advan-

ces that have occurred over the last twenty years”).

'© Robert B. Avery et al., An Overview of Consumer Data and

Credit Reporting, Federal Reserve Bulletin, at 49 (Feb. 2003),

available at http://www.federalreserve.gov/pubs/bulletin/2003/

0203lcad.pdf (estimating that each consumer reporting agency

receives more than two billion items of information each month).

15

information to various public and private entities in numer-

ous circumstances. 15 U.S.C. § 1681b. It directed compan-

ies that maintain information about consumer accounts to

furnish such information to consumer reporting agencies in

an accurate manner. /d. § 1681s-2. Congress also preempted

state laws that interfere with FCRA’s key provisions. /d.

§ 1681t(b).

The nationwide system created by Congress provides

considerable benefits to business and consumers alike. The

FTC has noted that “[t]his flow of information [permitted

under FCRA] enables credit grantors and others to make

more expeditious and accurate decisions, to the benefit of

consumers.”'’ Among the benefits conferred by the efficient

sharing of consumer information are rapid qualification for

mortgage, automobile, and retail credit; higher levels of

home ownership; more accurate pricing of credit based on

risk; and increased availability of non-mortgage credit for

low-income households.'* According to Congress, these

benefits have saved consumers as much as $100 billion

annually.”

In sum, by establishing a standard for punitive dam-

ages that will adversely effect the efficient flow of consumer

information on a nationwide basis, the Ninth Circuit’s ruling

undermines Congress's goal of promoting the efficient flow

of such information in order to enhance the economy, includ-

ing the promotion of homeownership. As shown above,

FCRA seeks to balance consumer and business interests in

the use of consumer information, and the Ninth Circuit’s

Federal Trade Comm'n, Report to Congress Under Sections 318

and 319 of the Fair and Accurate Credit Transactions Act of 2003,

at | (Dec. 2004), available at http://www.ftc.gov/reports/facta/

04 1 209factrpt.pdf.

'S H.R. Rep. No. 108-263, at 23 (2003).

" Id.

16

opinion threatens to upend that careful balance. The petitions

for review should therefore be granted.

Ill. THE NINTH CIRCUIT’S ERRONEOUS “AD-

~ VERSE ACTION” RULINGS FURTHER WAR-

RANT REVIEW

The need for review is even greater in light of the

Ninth Circuit’s erroneous reading of the Act’s critical ad-

verse action provisions, which will exacerbate the problems

described above. First, the Ninth Circuit’s conjured require-

ment that an adverse action notice must “describe the action”

taken, “specify the effect of the action upon the consumer,”

and “identify the party or parties taking the action” (435 F.3d

at 1095) is not just unsupported by the statutory text, it will

also cause serious practical problems. In the mortgage

insurance context, the lender decides whether mortgage

insurance is needed, the amount of the insurance, whether

and to what extent the borrower will be asked to pay the

premium, and, in some instances, the rate at which the policy

will be issued. Describing the action taken, and the effect on

the consumer, in these circumstances could require a com-

plex recitation about the nature of mortgage insurance, the

relationship between the lender and the mortgage insurer, and

the various mortgage insurance plans that MICA’s members

offer to mortgage lenders, in order to comply with the Ninth

Circuit’s new, vague directive. Separately, confusion will

likely result if a consumer who has successfully obtained a

mortgage loan is simultaneously told that he or she experi-

enced “adverse” action and receives that notice from an

entity (the mortgage insurer) with whom he or she has had no

dealings of any kind.

Likewise, the Ninth Circuit's holding that adverse ac-

tion occurs under section 1681m when “because of his credit

information a company charges a consumer a higher initial

rate than it would otherwise have charged” (435 F.3d at

1092) misconstrues the Act's plain language. If there was no

ss 17

earlier charge, there simply cannot be said to have been “an

increase in any charge” (15 U.S.C. § 168 1a(k)(1)(B)(i)), and

hence there is no adverse action. Likewise, where no credit

information has been found, the subsequent pricing decision

simply cannot be said to have been “based in whole or in part

on any information contained in a consumer report” (id. §

1681 m(a)), and hence no duties are triggered.

CONCLUSION

The petitions for writs of certiorari should be granted.

Respectfully submitted,

THOMAS M. HEFFERON

Counsel of Record

RICHARD M. WYNER

JOSEPH F. YENOUSKAS

GOODWIN | PROCTER LLP

901 New York Ave., N.W.

Washington, DC 20001

Tel: 202-346-4000

August 21, 2006