# Amicus Curiae Brief — GEICO GENERAL INSURANCE CO. v. Edo

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URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0282%3A18

## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2006
- **Citation:** 548 U.S. 942

## Text

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Nos. 06-84, 06-100

IN THE

Supreme Court of the United States

~ SAFECO INSURANCE COMPANY OF AMERICA, ET AL.,

Petitioners,
v.

CHARLES BURR, ET AL.,
Respondents.

GEICO GENERAL INSURANCE COMPANY, ET AL.,

Petitioners,
V.
AJENE EDO,
Respondent.
On Writs Of Certiorari
To The United States Court Of Appeals
For The Ninth Circuit

BRIEF FOR FARMERS INSURANCE COMPANY OF
OREGON, ET AL. AS AMICI CURIAE
IN SUPPORT OF PETITIONERS

THEODORE J. BOUTROUS, JR.

Counsel of Record
BARNES H. ELLIS GAIL E. LEES
JAMES N. ‘“ESTWOOD MARK A. PERRY
TIMOTHY W. SNIDER ; WILLIAM E. THOMSON
STOEL RIVES LLP CHRISTOPHER CHORBA
900 SW Fifth Avenue GIBSON, DUNN & CRUTCHER LLP
Suite 2600 333 South Grand Avenue
Portland, OR 97204 Los Angeles, CA 90071-3197
(503) 224-3380 (213) 229-7000

Counsel for Amici Curiae

QUESTION ADDRESSED BY AMICI

Like other insurance companies, amici face a wave of na-
tionwide class action litigation by private plaintiffs alleging
“willful” violations of the Fair Credit Reporting Act, 15
‘U.S.C. § 1681 et seg. (FCRA) and seeking to obtain aggre-
gated “statutory” damages. In this brief, amici will address
the following question:

Whether the Court should adopt objective guideposts that
should serve as indicia that an insurance company has made a
good-faith effort to comply with the FCRA’s notice provi-
sions, thus precluding a finding of willfulness. Specifically,
amici propose that an insurance company may not be held
liable for a “willful” violation of the FCRA if it: (1) acts in
compliance with the requirements expressly set forth in the
statute and in the sample notice formally adopted by the re-
sponsible federal agency, even if it does not strictly comply
with subsequently adopted, judicially-created requirements;
or (2) relies in good faith on the advice of counsel on statu-
tory issues of first impression.

ii

TABLE OF CONTENTS
INTEREST OF AMICI CURIAE ...........csceccscseesserseenteeeees 1
SUMMARY OF ARGUMENT ...........:cscsssesssssssesesesseeeenes 2
FETE, Veitrtatincinssntsinesiiatiiipinasisiianineniiehinnnisiminn 3
I. An Insurer Cannot Willfully Violate The
FCRA By Acting In Compliance With The
Requirements Expressly Set Forth In The
Statute And Formal FTC Guidance ................+++: 4
Il. Good Faith Reliance On The Advice Of
Counsel Is A Defense To A Charge Of
Willfully Violating The FCRA. ...........:.scesesee+ 16
INUIT eccinasansinssnniientiinedgsttncnsicitasiiinuioiantteniimaienina 19

iii

TABLE OF AUTHORITIES
CASES
A.J. McNulty & Co. v. Sec'y of Labor, 283 F.3d 328

Si iiees Ses SI di ceesicsncicisenvicisccnsiapiciamabininatinbeiciipeniemenee 10
Am. Wrecking Corp. v. Sec’y of Labor, 351 F.3d 1254

es eh Be cpessicsicsniinesninndrencennsanbesiiiiitdiatesaviinedimicieie 10
Ashby v. Farmers Ins. Co. of Or., No. 01-1446, 2004

U.S. Dist. LEXIS 21060 (D. Or. Oct. 7, 2004) .......... 1,5, 6
Ashby v. Farmers Ins. Co. of Or., No. CV-01-1446,

slip op. (D. Or. Feb. 28, 2006) ...........sccsscsesesseeesersens 16, 17
Ashby v. Farmers Ins. Co. of Or., No. CV-01-1446,

Re eee 2
Ashby v. Farmers Ins. Co. of Or., No. CV-01-1446,

GED Gm. OD. Gr. Oat, 30; BIBS) ....ccceccrncesesessscsocossorcossncsccese 16
Ashby v. Farmers Ins. Co. of Or., No. CV-01-1446,

i GA Ge, GI Ty Be crvccentihitcesentnetitintnieanscctnnsenene 2
Bouie v. City of Columbia, 378 U.S. 347 (1964) .........000000 15
Chevron U.S.A. Inc. v. Natural Res. Def. Council,

es ee es Gee Le titres itetcsenstctniiencinibimavnnennenitennn 6
Cook v. United States, 855 F.2d 848 (Fed. Cir. 1988).......... 10
Duncan v. Walker, 533 U.S. 167 (2001) ......:.ccccccesseseseeeseeees 8
Fitzgerald Publ'g Co. v. Baylor Publ’g Co., 807 F.2d

Sa IES GA UNI ceeniannsinincnsceiesisstcainindeitinennsnanenionnenieniidion 13
Flores v. Carnival Cruise Lines, 47 F.3d 1120 (11th

Hants Sep earhcechvciasisdchiiearphsipsiadlndaiaialesipitiagsian diatitit 12
Giaccio v. Pennsylvania, 382 U.S. 399 (1966) .........c:.ss00e 14

Grayned v. City of Rockford, 408 U.S. 104 (1972).........0 14

iv
Hearst Corp. v. Stark, 639 F. Supp. 970 (N.D. Cal.

In re Farmers Ins. Co. FCRA Litig., No. 03-158, 2006
U.S. Dist. LEXIS 27290 (W.D. Okla. Apr. 13,

SD iicaiaiiiincisiincintinnspeiniesovnactinenivisianannmeniminatnerentanette 1,4
Landgraf v. USI Film Prods., Inc., 511 U.S. 244

RP ciiciicncintpiicihidielbienicaniannsepineiinneioéstatesmuneunnitcieteniion inoue a
Legal Servs. Corp. v. Velazquez, 531 U.S. 533 (2001)........ 15
Matthiesen v. Banc One Mortg. Corp., 173 F.3d 1242

GG SU cicivckistcisasenstndgrennncveunientesncneiinaanntipienaneiednie 9
McLaughlin v. Richland Shoe Co., 486 U.S. 128

aN T slid sistaiehahahicicsaticebcnaeieshiscniieniatiobensinernciesincmntiilaienitintaia 18
McLaughlin v. Union Oil Co. of Cel., 869 F.2d 1039

Ee es Pe hikidetncticcnciceeengniiinecpanetiniapinsinnanntepsmiwenasion 11
Menton v. Experian Corp., No. 02-4687, 2003 WL

21692820 (S.D.N.Y. July 21, 2003).........ccsccserseserscereerees 12
Murray v. New Cingular Wireless Servs., Inc., 432 F.

Supp. 2d 788 (N.D. Ill. 2006)...............:cseceseeseeeseseeeseeeenes 12
Reich v. Gateway Press, Inc., 13 F.3d 685 (3d Cir.

ra enicveslcalelisitiniacieninbeschalbicsiecibatcanicisagisoesiabanneiviataetieaeaicin 12
Reynolds v. Hartford Fin. Servs. Group, 435 F.3d

Se EG TE sicinnitiescnicsanenteiinieneiscnininnpapninmnni passim
Richards v. Michelin Tire Corp., 21 F.3d 1048 (11th

ie SN A shicieheennirechnnicidenspinssieeaintnsintianiiinavcacigntnoiiteipiipereeis 11
Satcher v. Honda Motor Co., 52 F.3d 1311 (Sth Cir.

Fee ateivesishdienninniniandiaseteiitniiaapseintninegensiotuivia incvnesnnoiedie 11
Southwestern Tel. & Tel. Co. v. Danaher, 238 U.S.

NE eitiestiespadiactcherseinestidireuiatevedinieiadadtenibanesitelgiditabiinapaeioeniie 13

State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S.
TTT Siri cicdininneneencnsesisiainpcentésnilaionteniiptitaniindiasinieiion 13

Stevenson v. TRW, Inc., 987 F.2d 288 (Sth Cir. 1993)... 11, 12
Trans World Airlines v. Thurston, 469 U.S. 111

CTDUTTD asinasestsiseniipinipitepiecniniinelniaandicasiniaahaadianialial sienmitieatiin 16, 18
United States v. Halper, 490 U.S. 435 (1989)......sscesssseseess 13
United States v. Mead Corp., 533 U.S. 218 (2001)...........+..+ 6
Whitfield v. City of Knoxville, 756 F.2d 455 (6th Cir.

SP nEED sincinisccnecicietcidpctsnnasienieitabaatinsdeieesetsemnidaummameteliaiias 12
STATUTES
BF Wraics OF IE vincnicxcnsesispsinuiteiinicilaeissaiipitndiasetaiiaaiaiadaabaiiiaaal i, 1,9
5 Creede UF TID snsesncatcsiibtuiicdinesidennsinspeieiatuahducabimaiinindl 2,4
EG DAMES, © SUI ciccsstssicdainnsivnsiicvsdaminadanaieilaial 5, 6
tat: i i ee 8
BO CEE 0 Oia iicicicesince tide ates passim
Se Span At Cie ccccuvesicievisicundhiesistennsitasittniduiiidieadatabaieaaiaas anit 3
SUGK 6 Ole. i ee 3
OTHER AUTHORITIES
Ra Ae a IO ctiicciictsltatesacitiiestiaaciciiistatiinaendiantidsiimiieaieaieal 9
8S CGE oh GUN, Wil ais sintssisitsaiseincinevscesccai 6, 15
OE WIS i ccecsscicasindileabiesiisiaiaiaiaiadatennaa 6
CPR ot OG Ae Koc 9
W. Page Keeton et al., PROSSER AND KEETON ON THE LAW OF

DOBBS FOCI OE. BGO vvsciccesesececssicesscsctocsntectnisoneseasis 11

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BRIEF OF FARMERS INSURANCE CoO.
OF OREGON, ET AL. AS AMICI CURIAE
IN SUPPORT OF PETITIONERS

INTEREST OF AMICI CURIAE!

Amici Curiae Farmers Insurance Company of Oregon,
Inc., Farmers Group, Inc., and several of their affiliates
(Farmers) are defendants in many nationwide class actions
pending in federal courts throughout the country alleging vio-
lations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et
seq. (FCRA). See, e.g., In re Farmers Ins. Co. FCRA Litig.,
No. 03-158, 2006 U.S. Dist. LEXIS 27290 (W.D. Okla.
Apr. 13, 2006) (consolidated MDL proceeding); Ashby v.
Farmers Ins. Co. of Or., No. 01-1446, 2004 U.S. Dist.
LEXIS 21060 (D. Or. Oct. 7, 2004) (Brown, J.). In each of
these actions plaintiffs do not claim any actual injury or com-
pensable loss.

Like petitioners and the other insurance company amici,
Farmers is directly affected by the pernicious effects of the
Ninth Circuit’s expansive ruling in Reynolds v. Hartford Fin.
Servs. Group, 435 F.3d 1081 (9th Cir. 2006). Farmers pro-
vided to its insureds FCRA notices that tracked exactly the
content requirements of the statute and the sample notice
promulgated by the Federal Trade Commission. See Ashby,
2004 U.S. Dist. LEXIS 21060, at *7-8. In light of the issues
of first impression arising from application of the FCRA no-
tice requirements to the insurance industry’s use of credit in-
formation for risk-based pricing, Farmers obtained legal ad-

! Pursuant to this Court’s Rule 37.3(a), letters of consent from
all parties to the filing of this brief have been filed with the Clerk.
Pursuant to Rule 37.6, amici state that this brief was not authored
in whole or in part by counsel for any party, and that no person or
entity other than amici or their counsel made a monetary contribu-
tion to the preparation or submission of this brief.

vice from knowledgeable counsel with expertise on FCRA
issues. See Ashby v. Farmers Ins. Co. of Or., No. CV-01-
1446, slip op. at 3-4 (D. Or. Sept. 9, 2005); id., slip op. at 2-3
(D. Or. Jan. 17, 2006). Yet despite these good faith efforts to
comply, Farmers faces claims for several billions of dollars
in aggregated statutory damages for alleged “willful” viola-
tions of the FCRA.

SUMMARY OF ARGUMENT

The Court has granted certiorari to determine whether the
Ninth Circuit erred in holding that petitioners may be liable
for “willfully” violating the FCRA. In this case, the Ninth
Circuit interpreted the phrase “increase in any charge for. .
insurance” in the definition of “adverse action” (15 U.S. C.
§ 1681a(k)(1)(B)(i)) — the trigger requiring insurers to pro-
vide notices under the FCRA — to require insurers to send
notices to consumers who received discounts on their insur-
ance policies. The panel then imposed additional content re-
quirements for these notices above and beyond those enu-
merated by the legislative and executive branches. It further
compounded these errors by holding that the failure to abide
by these new, judicially-created requirements may be a “will-
ful” violation of the FCRA deserving of a potentially annihi-
lating monetary sanction. There is no basis in the text of the
statute, legislative history, or judicial precedent for these ex-
pansive interpretations.

In this brief, Farmers will propose two objective guide-
posts that should serve as indicia that an insurance company
has made a good-faith effort to comply with the FCRA’s no-
tice provisions, thus precluding a finding of willfulness.

First, where an insurance company complies with the re-
quirements expressly set forth in the statute and the sample
notice formally adopted by the responsible federal agency, a
court’s post hoc decision to add extra-statutory notice re-
quirements cannot be the basis for a finding of willfulness.

Second, an insurer’s reliance on the advice of counsel in
formulating its FCRA policies also precludes a finding of
willfulness.

Either one of these factors alone negates the requisite
State of mind to hold the defendant liable for statutory or pu-
nitive damages. Taken together, the factors demonstrate
conclusively that a company acted in good faith and cannot
be held liable for “willful” noncompliance with the FCRA.

ARGUMENT

As petitioners’ briefs establish, “willfulness” requires a
“knowing” disregard of the law, and not the lesser standard
approximating gross negligence adopted by the Ninth Cir-
cuit. GEICO Pet. 22-24; Safeco Br. 17-37. Congress en-
acted a two-tiered standard for civil liability in the FCRA: A
plaintiff may obtain actual damages on a showing of a “neg-
ligent” violation of the FCRA, see 15 U.S.C. § 1681lo(a){1),
while punitive and statutory damages are available only on
the higher showing of “willful” noncompliance. /d.
§ 1681n(a). It is axiomatic that a defendant must know what
the law requires before being held liable for “willfully” vio-
lating that law. In its decision, however, the Ninth Circuit
imposed a broad definition of “increase in any charge for .
insurance” in the definition of “adverse action,” and it also
imposed new content requirements for FCRA notices that are
nowhere to be found in the statute itself. Reynolds, 435 F.3d
at 1094-95. Indeed, the court did not even purport to provide
an “exhaustive” list of the content requirements, thereby
leaving insurers in peril of a subsequent expansion of the list.
Id. at 1085 n.2, 1095 n.14.

In light of the tremendous uncertainty posed by the Ninth
Circuit’s decision, under which an insurer’s failure to comply
with requirements that are announced post hoc by a federal
court may lead to liability in private litigation, Farmers re-
spectfully submits that the Court should articulate objective
guideposts to which insurers can conform their FCRA poli-
cies and avoid a finding of willfulness. Farmers focuses on

two such criteria: compliance with the specific content re-
quirements of the statute and formally promulgated FTC
guidance; and reliance on the advice of counsel.

I. An Insurer Cannot Willfully Violate The
FCRA By Acting In Compliance With The
Requirements Expressly Set Forth In The .
Statute And Formal FTC Guidance

When an insurance company takes an “adverse action,”
which action is defined to include an “increase in any charge
for ... insurance,” the FCRA requires that the insurer send
the consumer a notice. 15 U.S.C. § 168la(k)\(1)(B)(i),
§ 1681m(a). The Ninth Circuit’s decision interpreted these
terms in an expansive manner that is not supported by the
text of the statute or the legislative history. The court further
erred by engrafting additional content requirements for “ad-
verse action” notices beyond the discrete list set forth in Sec-
tion 1681m(a)(1)-(3).

Farmers agrees with petitioners and other amici that
charging anything less than the best possible rate is not an
“increase in any charge for... insurance” constituting an
“adverse action” that requires a notice under the FCRA, as
the Ninth Circuit held. See Reynolds, 435 F.3d at 1093.
Nonetheless, Farmers conservatively opted to issue “adverse
action” notices to all insureds that informed them of the “ac-
tion” (their premium, based in part on consumer information)
and who did not receive the most favorable premium dis-
count based in whole or in part on information contained in a
consumer report. Jn re Farmers Ins. Co., 2006 U.S. Dist.
LEXIS 27290, at *9 n.4, 26 n.10.

The notices that Farmers sent, to a very broad group of
insureds, included all of the content specified in the FCRA
and in the sample notices formally promulgated by the FTC.
But because the notices stopped short of affirmatively char-
acterizing Farmers’ pricing as “unfavorable” or “adverse,”
private plaintiffs have sued Farmers in federal courts across
the country. Compliance with the express statutory and ad-

ministrative notice requirements, however, should preclude a
finding of willfulness notwithstanding any additional re-
quirements that might later be imposed by a federal court,
including those that the Ninth Circuit erroneously adopted.

1. The FCRA provision at issue in these cases includes a
discrete list of the required content for “adverse action” no-
tices: (1) the adverse action (i.e., the premium, based in part
on consumer information); (2) the name and contact informa-
tion for the consumer reporting agency that furnished the re-
port; (3) a statement that the reporting agency did not take
the action and cannot explain the specific reasons for it; and
(4) a notice of the consumer’s rights to obtain a free copy of
the report and to dispute the accuracy or completeness of this
information. 15 U.S.C. § 1681m(a)(1)-(3). Farmers’ notice
contained all of this content. See Ashby, 2004 U.S. Dist.
LEXIS 21060, at *7-8.

In its 1996 amendments to the FCRA, Congress directed
the FTC to prescribe the required content of notices setting
forth users’ responsibilities and to promulgate a sample no-
tice. See 15 U.S.C. § 1681e(d)(2) (“The Federal Trade Com-
mission shall prescribe the content of notices... .”). Pursu-
ant to this express statutory delegation, and after notice and
an opportunity for comment, the FTC promulgated the fol-
lowing “Notice of Rights and Duties Under the Fair Credit
Reporting Act”:

Adverse Actions Based on Information Obtained
From a [Consumer Reporting Agency (“CRA”))}

If a user takes any type of adverse action that is
based at least in part on information contained in a
consumer report, the user is required by Sec-
tion 615(a) of the FCRA [15 U.S.C. § 1681m(a)] to
notify the consumer. The notification may be done
in writing, orally, or by electronic means. It must
include the following:

© The name, address, and telephone number of the

CRA (including a toll-free telephone number, if
it is a nationwide CRA) that provided the report.

6

o A statement that the CRA did not make the ad-
verse decision and is not able to explain why the
decision was made.

o A statement setting forth the consumer’s right to
obtain a free disclosure of the consumer’s file
from the CRA if the consumer requests the re-
port within 60 days.

o A statement setting forth the consumer’s right to
dispute directly with the CRA the accuracy or
completeness of any information provided by
the CRA.

15 C.F.R. pt. 601, App. C (62 Fed. Reg. 35,595, 35,596-97
(July 1, 1997); 69 Fed. Reg. 69,776, 69,798 (Nov. 30, 2004)).
Once again, Farmers’ notice contained all of this required
information. See Ashby, 2004 U.S. Dist. LEXIS 21060,
at *7-8.

Congress specifically directed that “a consumer reporting
agency shall be in compliance with this subsection if it pro-
vides a notice under paragraph (1) that is substantially similar
to the Federal Trade Commission prescription under this
paragraph.” 15 U.S.C. § 1681e(d)(2) (emphasis added). See
also 16 C.F.R. § 601.2 (providing that a consumer reporting
agency that sends Appendix C is in compliance with its du-
ties under 15 U.S.C. § 1681e(d) and § 1681g(c)).2

2 The FTC’s sample notice is entitled to judicial deference be-
cause “Congress delegated authority to the agency generally to
make rules carrying the force of law, and that . . . interpretation . . .
was promulgated in the exercise of that authority.” United States
v. Mead Corp., 533 U.S. 218, 226-27 (2001). See also Chevron
U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 843-
44 (1984). Yet, remarkably, the Ninth Circuit considered the text
sufficiently “clear” and “unambiguous” to support a ruling “inde-
pendent[] of” and without the need to “defer to” the FTC’s inter-
pretation. Reynolds, 435 F.3d at 1092 & n.9 (“As the statute’s text

[Footnote continued on next page}

7

2. Without citing or considering the FTC’s sample no-
tice, the Ninth Circuit extended insurers’ obligations well
beyond these specific statutory and regulatory provisions and
read several new content requirements into the statute. Un-
der Reynolds, insurance companies now must also:
(1) “describe the [adverse] action”; (2) “specify the effect of
the action upon the consumer”; (3) “identify the party or par-
ties to the action”; (4) “inform[] [the consumer] that his rate
for insurance was increased because of information in his
credit report” even if his rate is lower than it had been prior
to consideration of credit report information; and (5) if a
“family” of “affiliated companies [are] responsible for taking
an adverse action,” the insurer must “identif[v] those compa-
nies and their respective roles.” Reynolds, 435 F.3d at 1084-
85, 1094-95, 1096. Further, the Ninth Circuit made clear that
it might add still additional — but presently unspecified — re-
quirements in the future.+

The Ninth Circuit thus effectively rewrote the statutory
language from “notice of the adverse action” (15 U.S.C.
§ 1681m(a)(1)) to “notice that the action taken was adverse”
or “notice why the action taken was adverse.” After ac-
knowledging that “notice of the adverse action” was an unde-
fined term in the FCRA, the Ninth Circuit panel engrafted
new requirements that such a notice must contain. “[A]t a
minimum,” the court held, these notices must include more

[Footnote continued from previous page]
is clear, we need not resort to either the agency’s interpretations or
the statute’s legislative history.”).

3 The panel stated, “[wJe do not decide whether a fuller descrip-
tion of what specific information was adverse is required as this
question is not before us.” /d. at 1094 n.14. See also id. at 1085
n.2 (“We do not intend this list to be exhaustive.”). Thus, the
panel’s decision is an invitation to private plaintiffs and the lower
courts to hold insurance companies liable for “willful” noncompli-
ance because they are unable to predict additional content require-
ments that may later be divined by the federal courts.

than the content requirements specified in Sec-
tion 1681m(a)(2), and the insurer must, inter alia, “describe
[and]... specify the effect of the action upon the con-
sumer....” Reynolds, 435 F.3d at 1094-95 (emphasis
added).

The mere fact that Congress did not separately define
“notice of the adverse action” is not a license for the courts to
rewrite that phrase to impose additional obligations upon in-
surers. In fact, Congressional silence in this particular situa-
tion means just the opposite. Section 1681m/(a), the notice
provision at issue in these cases, stands in stark contrast to
other provisions in the FCRA and related consumer protec-
tion statutes in which Congress expressly requires a charac-
terization of the actions taken. For example, Sec-
tion 1681)j(b) states that a consumer is entitled to a free credit
report “after receipt by such consumer of a notification pur-
suant to section 1681m of this title, or of a notification from a
debt collection agency affiliated with that consumer reporting
agency stating that the consumer’s credit rating may be or
has been adversely affected.” 15 U.S.C. § 1681j(b) (empha-
sis added).

Here, Congress drew a distinction between a Sec-
tion 1681m notification and a Section 1681j debt collection
agency notification— and only the latter must contain a
statement characterizing the action taken. This Court has ex-
plained the rule as “well settled” that the inclusion of particu-
lar language in one section of a statute, and the omission of
that same language in another section, creates a general pre-
sumption “that Congress acts intentionally and purposely in
the disparate inclusion or exclusion.” Duncan v. Walker, 533
U.S. 167, 173 (2001) (internal citations omitted). The Ninth
Circuit’s decision flies in the face of that rule and is inconsis-
tent with the structure of the statute.

The Ninth Circuit’s reading also contravenes formal
guidance from the FTC, the agency responsible for enforcing
the FCRA against insurers. The FTC has published Com-
mentary that is a “guideline intended to clarify how the

[FTC] will construe the FCRA in light of Congressional in-
tent as reflected in the statute and its legislative history.” 16
C.F.R. pt. 600 App. (Introduction 91). This Commentary
clarifies that a user is not required to characterize or other-
wise describe the action taken on the basis of consumer in-
formation: “Creditors should not confuse compliance with
section [1681m/(a)],-which only requires disclosure of the
name and address of the consumer reporting agency, and
compliance with the Equal Credit Opportunity Act [ECOA],
... Which require[s] disclosure of the reasons for adverse
action.” Id. See 12 C.F.R. § 202.9(b)(2) (requiring “state-
ment of reasons for adverse action” for ECOA notices).4

Thus, neither Congress nor the responsible executive-
branch agency has required insurers to characterize their pric-
ing decisions as “unfavorable” — and for good reason: Char-
acterizing FCRA notices as the Ninth Circuit has required
would mislead a large number of consumers who received a
benefit from the consultation of consumer information. Be-
cause many of these consumers received discounts, describ-
ing that favorable result as somehow “unfavorable” would
confuse consumers and defeat the goal of the FCRA to pro-
vide accurate information. See generally 15 U.S.C. § 1681
(congressional findings); Matthiesen v. Banc One Mortg.
Corp., 173 F.3d 1242, 1245 (10th Cir. 1999) (“The purpose
of FCRA is to ensure accuracy and fairness in credit report-
ing and to require that such reporting is confidential, accu-
rate, relevant, and proper.”).

4 See also Official Staff Commentary to Regulation B, 12
C.F.R. pt. 202, cmt. 202.9(b)(2)-9 (“The ECOA requires disclosure
of the principal reasons for denying or taking other adverse action
on an application for an extension of credit. The Fair Credit Re-
porting Act (FCRA) requires a creditor to disclose when it has
based its decision in whole or in part on information from a source
other than the applicant or from its own files.”).

-

10

Farmers and other insurers should not be penalized for
complying with the specific content requirements of the stat-
ute itself. But most certainly these insurers cannot “will-
fully” violate the statute based on the Ninth Circuit’s freshly-
minted content addenda.

3. As a matter of law, providing an “adverse action” no-
tice that contains the requisite content specified by Congress
and the FTC cannot constitute “willful” noncompliance.
Amici are aware of no case in which compliance with an
agency standard has been ruled a willful violation of the stat-
ute addressed by the standard. Instead, federal appellate de-
cisions in analogous circumstances hold that the opposite is
true, that compliance with agency interpretations disproves
“willfulness.”

As one court has explained, a defendant’s good faith
compliance with agency standards negates a finding of will-
fulness: “A company cannot be found to have willfully vio-
lated a standard if it exhibited a good faith, reasonable belief
that its conduct conformed to law, ... or if it made a good
faith effort to comply with a standard... .” Am. Wrecking
Corp. v. Sec’y of Labor, 351 F.3d 1254, 1263 (D.C. Cir.
2003) (citations omitted). See also Cook v. United States,
855 F.2d 848, 850 (Fed. Cir. 1988) (declaring per se rule that
the federal agency’s reliance in good faith on the Secretary of
Labor’s advice disproved a “willful” violation of the Fair La-
bor Standards Act).5 :

> Other decisions confirm that good faith efforts to comply with
regulatory standards cannot support a finding of a “willful” viola-
tion of regulations. Accord A.J. McNulty & Co. v. Sec'y of Labor,
283 F.3d 328, 338 (D.C. Cir. 2002) (“A good faith, reasonable be-
lief by an employer that its conduct conformed to the law negates a
finding of willfulness.”) (quoting Sec 'y of Labor v. Keco Indus.,
No. 81-263, 1987 WL 89096, at *11 (O.S.H.R.C. Mar. 27, 1987);
McLaughlin v. Union Oil Co. of Cal., 869 F.2d 1039, 1047 (7th

[Footnote continued on next page]

11

Indeed, numerous courts have held that compliance with
government standards is so plainly inconsistent with a find-
ing of malice or conscious wrongdoing that it bars the impo-
sition of punitive damages altogether. See, e.g., Satcher v.
Honda Motor Co., 52 F.3d 1311, 1317 (Sth Cir. 1995) (puni-
tive damage award barred in part because no government
agency had ever required certain design feature); Richards v.
Michelin Tire Corp., 21 F.3d 1048, 1059 (11th Cir. 1994)
(punitive damages prohibited where defendant complied with
federal safety standards); W. Page Keeton et al., PROSSER
AND KEETON ON THE LAW OF TORTS § 36, at 233 n.41 (5th ed.
1984) (“In most contexts... compliance with a statutory
standard should bar liability for punitive damages.”).

An insurer’s ability to rely on the plain language of the
Statute is particularly important where, as here, it has not
been subject to extensive prior construction. For example, in
Stevenson v. TRW, Inc., 987 F.2d 288 (5th Cir. 1993), the
Fifth Circuit considered whether the defendant willfully vio-
lated the provision of the FCRA now contained in 15 U.S.C.
§ 1681m(d)(1), which requires that written solicitations con-
tain a “clear and conspicuous” disclosure of certain informa-
tion. The court held that the defendants’ conduct was not
“willful” because there was no legal authority, either in the
Statute or from the FTC, articulating just how conspicuous
the required FCRA notice must be. /d. at 294-96 (“There
was no prior guidance to suggest that TRW’s notice was in-
sufficient, and we cannot conclude that TRW knowingly and
intentionally obscured the notice in conscious disregard of
consumers’ rights.”). The court reversed the award of puni-

[Footnote continued from previous page]
Cir. 1989) (“A violation is not willful when it is based on a non-
frivolous interpretation of [an agency’s} regulations.”).

12

tive damages on the ground that the defendants’ conduct was
not willful. Jd. at 296.6

4. Permitting a court to find a willful violation based on
an interpretation of the FCRA requiring content beyond that
expressly set forth in the applicable statute and FTC’s for-
mally promulgated sample notice — especially in the absence
of any prior, settled judicial, administrative, or industry con-
struction to the contrary —- would raise serious due process
issues.

A finding of willfulness subjects the defendant to poten-
tially massive statutory and punitive damages.’ This Court

6 Accord Flores v. Carnival Cruise Lines, 47 F.3d 1120, 1127
(11th Cir. 1995) (affirming dismissal of claim alleging willful vio-
lation of law “[b]ecause this is a case of first impression”); Reich v.
Gateway Press, Inc., 13 F.3d 685, 702-03 (3d Cir. 1994) (refusing
to find defendants liable for a “willful” violation of the FLSA in a
“case of first impression” because the defendants “did not in any
way thwart settled FLSA doctrine”); Whitfield v. City of Knoxville,
756 F.2d 455, 463-64 (6th Cir. 1985) (findingno willful violation
because “case law was split at that time”); Murray v. New Cingu-
lar Wireless Servs., Inc., 432 F. Supp. 2d 788, 794 (N.D. Ill. 2006)
(holding that defendant’s notice violated the “clear and conspicu-
ous” requirement of the FCRA, but that this violation was not
“willful” because there was insufficient guidance for defendant);
Menton v. Experian Corp., No. 02-4687, 2003 WL 21692820,
at *4 (S.D.N.Y. July 21, 2003) (refusing to hold defendant liable
for “willful” violation of the FCRA based on the fact that it “nar-
rowly construed” an “undefined” statutory term and defendant
acted without “the benefit of prior court decisions addressing this
issue”); Hearst Corp. v. Stark, 639 F. Supp. 970, 980 (N.D. Cal.
1986) (no finding of willful copyright infringement as a matter of
law when wrongfulness of defendant’s action depended on unset-
tled question of law).

7 Whether denominated “statutory” or “punitive,” damages
awarded that go beyond compensation for actual injury are puni-
tive-in-fact. See, e.g., United States v. Halper, 490 U.S. 435, 448
(1989), overruled on other grounds by Hudson v. United States,

[Footnote continued on next page]

13

has repeatedly “admonished” that such civil punishment
“pose[s] an acute danger of arbitrary deprivation of prop-
erty,” State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S.
408, 417 (2003) (quoting Honda Motor Co. v. Oberg, 512
U.S. 415, 432 (1994)), and it has emphasized that “‘elemen-
tary notions of fairness enshrined in our constitutional juris-
prudence dictate that a person receive fair notice... of the
conduct that will subject him to punishment.’” Jd. (quoting
BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574 (1996)).
The Ninth Circuit’s approach, however, contravenes these
fundamental principles.

By subjecting a defendant to potentially enormous pun-
ishment even if the defendant reasonably and in good faith
adheres to the statute’s express terms, complies with the
FTC’s formally promulgated notice, and seeks the advice of
counsel, the Ninth Circuit’s interpretation deprives defen-
dants of all objective referents to guide their conduct, creat-
ing enormous vagueness problems and inviting arbitrary and
discriminatory enforcement. See, e.g., Southwestern Tel. &
Tel. Co. v. Danaher, 238 U.S. 482, 490 (1915) ($6,300 civil
penalty violated due process where defendant was “well jus-
tified in regarding [its conduct] as reasonable and in acting
on that belief” even assuming that defendant “should have

[Footnote continued from previous page]

522 U.S. 93, 101 (1997) (“[A] civil sanction that cannot fairly be
said solely to serve a remedial purpose, but rather can only be ex-
plained as also serving either retributive or deterrent purposes, is
punishment, as we have come to understand the term.”); Fitzgerald
Publ’g Co. v. Baylor Publ’g Co., 807 F.2d 1110, 1117 (2d Cir.
1986) (“[S]tatutory damages serve two purposes — compensatory
and punitive.”). Accordingly, these damages implicate the same
due process concerns, See Halper, 490 U.S. at 448 (“‘[T]he labels
affixed either to the proceeding or to the relief imposed . . . are not
controlling and will not be allowed to defeat the applicable protec-
tions of federal constitutional law.’”) (quoting Hicks v. Feiock, 485
U.S. 624, 631 (1988)).

14

known that the Supreme Court of the State . . . might hold the
[conduct] unreasonable”); Grayned v. City of Rockford, 408
U.S. 104, 108-09 (1972) (“{I]f arbitrary and discriminatory
enforcement is to be prevented, laws must provide explicit
standards for those who apply them. A vague law impermis-
sibly delegates basic policy matters to policemen, judges, and
juries for resolution on an ad hoc and subjective basis, with
the attendant dangers of arbitrary and discriminatory applica-
tion.”). See also Amicus Br. of Ford Motor Co. 4-10.

The Ninth Circuit’s interpretation would permit massive
punishment based merely upon the after-the fact determina-
tion that the defendant had acted pursuant to legal interpreta-
tions that are “creative but unlikely,” not “tenable,” “implau-
sible,” the product of “creative lawyering,” “indefensible,” or
“unreasonab[ly] . . . erroneous.” Reynolds, 435 F.3d at 1099.
But such amorphous characterizations are not standards at
all, and “a law fails to meet the requirements of the Due
Process Clause if it is so vague and standardless that it leaves
the public uncertain as to the conduct it prohibits or leaves
judges and jurors free to decide, without any legally fixed
standards, what is prohibited and what is not in each particu-
lar case.” Giaccio v. Pennsylvania, 382 U.S. 399, 402-03
(1966). The Ninth Circuit’s interpretation would render the
FCRA just as unconstitutionally vague as the Pennsylvania
statute at issue in Giaccio, which this Court struck down be-
cause it had been judicially interpreted to authorize juries to
impose, and courts to set, costs of prosecutions on an acquit-
ted defendant “if they [found] that his conduct, though not
unlawful, [was] ‘reprehensible in some respect,’ ‘improper,’
outrageous to ‘morality and justice,’ or that his conduct was
‘not reprehensible enough for a criminal conviction but suffi-
ciently reprehensible to deserve an equal distribution of
costs’ or that though acquitted ‘his innocence may have been
doubtful.’” Jd. at 403-04 (citations omitted).

Indeed, because the FCRA is apparently clear on its face,
allowing the imposition of statutory or punitive damages
based on the Ninth Circuit’s retroactive application of its new
interpretation to pending cases would represent a particularly

15

egregious deprivation of due process. See Bouie v. City of
Columbia, 378 U.S. 347, 352 (1964) (there is an even “po-
tentially greater deprivation of the right to fair notice in this
sort of case, where the claim is that a statute precise on its
face has been unforeseeably and retroactively expanded by
judicial construction, than in the typical ‘void for vagueness’
situation”); Landgraf v. USI Film Prods., Inc., 511 U.S. 244,
281 (1994) (“The very labels given ‘punitive’ or ‘exemplary’
damages, as well as the rationales that support them, demon-
strate that they share key characteristics of criminal sanc-
tions. Retroactive imposition of punitive damages would
raise a serious constitutional question.”).

Consequently, this Court should reject the Ninth Circuit’s
interpretation of the FCRA in order to avoid, rather than cre-
ate, constitutional conflicts. See Legal Servs. Corp. v. Ve-
lazquez, 531 U.S. 533, 545 (2001) (“It is well understood that
when there are two reasonable constructions for a statute, yet
one raises a constitutional question, the Court should prefer
the interpretation which avoids the constitutional issue.”).

5. An application of these principles compels a reversal
of the Ninth Circuit’s decision. The court’s expanded defini-
tion of “adverse action” to include charging anything less
than the best possible rate is found nowhere in the text of the
statute or its legislative history. S2e GEICO Pet. 26-28. But
even if the federal courts are to infer such a requirement, cer-
tainly the petitioners are not “willfully” liable for failing to
anticipate that ruling.

Moreover, when an insurer (such as Farmers) sends a no-
tice to a broader group of customers, that insurer may not be
held “willfully” liable for failing to predict judicially-created
content requirements above and beyond the discrete list ex-
plicitly set forth in the statute (15 U.S.C. § 1681m(a)(1)-(3))
and in the FTC’s sample notice (15 C.F.R. pt. 601, App. C).

16

II. Good Faith Reliance On The Advice Of
Counsel Is A Defense To A Charge Of Will-
fully Violating The FCRA

Farmers has cited its reliance on counsel in formulating
its FCRA notice as a defense to plaintiffs’ claims that Farm-
ers willfully violated the statute. The district courts, how-
ever, have struggled with the continued viability of this de-
fense in light of the Ninth Circuit’s ruling in Reynolds. In
Farmers’ case, the first two decisions the district court ren-
dered after the initial Reynolds opinions rejected this defense
outright. Although the district court subsequently permitted
Farmers to assert this defense (following the Ninth Circuit’s
third and final decision now under review), it warned that
“{t]he new opinion in Reynolds . . . leaves open the possibil-
ity, albeit by a small margin, that an insurer might be able to
establish it did not act willfully in formulating an unlawful
adverse action notice, if the formulation of the notice was
based on advice of counsel.” Ashby v. Farmers Ins. Co. of
Or., No. CV-01-1446, slip op. at 8 (D. Or. Feb. 28, 2006)
(emphasis added).®

Good faith reliance on the advice of counsel should de-
feat a finding of willfulness. Past precedents of this Court
hold that civil defendants may not be held liable for “willful”
or “reckless” noncompliance if the defendant sought and fol-
lowed counsel’s advice. See Trans World Airlines v.
Thurston, 469 U.S. 111, 129-30 (1985). The Ninth Circuit’s
decision in Reynolds improperly negates this presumption
and holds that advice of counsel is no longer sufficient to re-
but willfulness. The court further clouded the continuing vi-
ability of an advice of counsel defense by explaining that

8 Given the impact of Reynolds and the similarity of the legal
issues presented in the cases now under review, the court stayed
the Ashby action pending this Court’s disposition of this appeal.
Ashby v. Farmers Ins. Co. of Or., No. CV-01-1446, slip op. at 3-4
(D. Or. Oct. 30, 2006).

17

evidence of counsel’s advice may be used to rebut “willful-
ness” only in “some” — but presumably not all — cases. Rey-
nolds, 435 F.3d at 1099.

The court’s proffered basis for refusing to hold that reli-
ance on counsel negated “willfulness” was its concern that
such a rule would “create perverse incentives for companies
covered by FCRA to avoid learning the law’s dictates by em-
ploying counsel with the deliberate purpose of obtaining
opinions that provide creative but unlikely answers to ‘issues
of first impression.”” Jd. In so ruling, the Ninth Circuit im-
properly shifted the focus from the defendant's actions to the
reasonableness of counsel’s advice. See id. (“Whether or not
there is willful disregard in a particular case may depend in
part on the obviousness or unreasonableness of the erroneous
interpretation.”). The panel expressed its concern that allow-
ing this defense to rebut “willfulness” would promote “crea
tive lawyering.” Jd. It held that petitioners’ interpretation of
an issue of “first impression” — that an initial insurance
charge to a new customer does not constitute an “increase in
any charge for” insurance and thus does not represent an
“adverse action” — was “implausible” and that reliance on
counsel “[was] not dispositive” in such a circumstance. /d.
at 1090, 1099. The panel then suggested that in “some”
cases in which this defense is appropriate, “the testimony of
the company’s executives and counsel” is necessary to estab-
lish it. Id. at 1099.

The lower courts have been constrained by these sweep-
ing statements from even allowing defendants (such as Farm-
ers) to assert an advice of counsel defense. In fact, the same
district court that decided the cases under review here warned
that this defense survives Reynolds only “by a small mar-
gin....” Ashby v. Farmers Ins. Co. of Or., No. CV-01-
1446, slip op. at8 (D. Or. Feb. 28, 2006). This defense
should not only be permissible in all cases, it should continue
to serve as presumptive evidence of non-willfulness.

As a preliminary matter, this Court has already rejected a
“more expansive” definition of willfulness that would hinge

18

on the “reasonableness” of the legal advice rendered, because
this would “permit a finding of willfulness to be based on
nothing more than negligence, or, perhaps, on a completely
good-faith but incorrect [legal] assumption... .”. McLaugh-
lin v. Richland Shoe Co., 486 U.S. 128, 134-35 (1988).?

Further, this Court’s prior decision in Thurston demon-
strates that, as a matter of law, good faith reliance on the ad-
vice of counsel negates a finding of “willfulness.” In that
case, the Court adopted the “reckless disregard” standard of
willfulness based on the legislative history of the ADEA.
Thurston, 469 U.S. at 126. The Court held that the defen-
dants’ conduct was not “willful” under even a “reckless dis-
regard” standard:

TWA certainly did not “know” that its conduct vio-
lated the Act. Nor can it fairly be said that TWA
adopted its transfer policy in “reckless disregard” of
the Act’s requirements. The record makes clear that
TWA officials acted reasonably and in good faith in
attempting to determine whether their plan would
violate the ADEA.

Id. at 129. The Court explained that after the amendments to
the ADEA, “TWA officials met with their lawyers to deter-
mine whether the mandatory retirement policy violated the
Act.” Jd. Although the defendants’ statutory defense was
“meritless” and they had “overlooked” a central legal issue,
“[t]here simply [was] no evidence that TWA acted in ‘reck-
less disregard’ of the requirements of the ADEA.” /d. at 124,
130.

9 Notably, the stakes here are raised considerably from the com-
paratively minor effect of a “willful” violation of the provision at
issue in McLaughlin (an increase in the statute of limitations from
two years to three years, id. at 129) to the large aggregated statu-
tory and punitive damages that are available, even in the absence
of actual injury, upon proof of a “willful” violation of the FCRA
notice provisions at issue here.

19

In the complex regulatory environment governing Ameri-
can business, there will always be open questions as to the
precise reach of a particular statute. Companies must be able
to rely on qualified counsel to guide their actions — and not
be put in peril of extraordinary damages because of post hoc
determinations by federal courts in litigation. If the company
and its counsel misconstrue the statute, the company may be
liable under a negligence standard; but in no way can it be
said to have “willfully” transgressed the statutory require-
ments. To the contrary, good faith reliance on the advice of
counsel is powerful, if not dispositive, evidence that the
company recognized that it is subject to regulatory require-
ments and has made a good faith effort to conform its con-
duct and policies to these requirements. As a result, a “will-
fulness” finding is inappropriate.

CONCLUSION
The judgment of the court of appeals should be reversed.
Respectfully submitted.

THEODORE J. BOUTROUS, JR.

Counsel of Record

BARNES H. ELLIS GAIL E. LEES
JAMES N. WESTWOOD MARK A. PERRY
TIMOTHY W. SNIDER WILLIAM E. THOMSON
STOEL RIVES LLP CHRISTOPHER CHORBA
900 SW Fifth Avenue GIBSON, DUNN & CRUTCHER LLP
Suite 2600 333 South Grand Avenue
Portland, OR 97204 Los Angeles, CA 90071-3197
(503) 224-3380 (213) 229-7000

Counsel for Amici Curiae

November 13, 2006

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0282%3A18. Public record. Not legal advice.