# 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%3A19

## Record

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

## Text

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gos 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.
¢
GEICO GENERAL INSURANCE COMPANY. ET AL...

Petitioners

We

AJENE EDO
e —

On Writs Of Certiorari To The United States
Court Of Appeals For The Ninth Circuit

@——

BRIEF FOR THE FINANCIAL SERVICES
ROUNDTABLE, CHAMBER OF COMMERCE
OF THE UNITED STATES OF AMERICA,
BUSINESS ROUNDTABLE, MORTGAGE
BANKERS ASSOCIATION, AMERICAN BANKERS
ASSOCIATION, AMERICAN FINANCIAL
SERVICES ASSOCIATION, AMERICA’S
COMMUNITY BANKERS, AND CONSUMER
BANKERS ASSOCIATION, AS AMICI CURIAE
IN SUPPORT OF PETITIONERS

———_____¢

L.. RICHARD FISCHER
BETIS. BRINKMANN

ROBIN S. CONRAD SETH M. GALANTER

SHANE BRENNAN NATHAN D. TAYLOR

NATIONAL CHAMBER MORRISON & FOERSTER LLP
LITIGATION CENTER, INC. 2000 Pennsylvania Ave., NW.

1615 H Street. N.W. Washington, D.C. 20006

Washington, DC 2006 (202) SS7-1544

(P02) 463-5337 Counsel of Record

NOVEMBER 13. 2006

QUESTIONS PRESENTED

Amici Curiae will address the following questions:

1. Whether the Ninth Circuit erred in holding that a
defendant can be found liable for “willfully” violating the
Fair Credit Reporting Act (FCRA), and thus be subject to
punitive and statutory damages under 15 U.S.C. § 1681n,
upon a finding of reckless disregard of the FCRA’s
requirements, which is contrary to the holdings of other
circuits that “willfully” requires actual knowledge on the
part of the defendant that the conduct violated the FCRA.

2. Whether the Ninth Circuit improperly expanded
the FCRA by holding that an “adverse action” occurs
within the meaning of Section 615 of the FCRA, 15 U.S.C.
§ 1681m, thereby triggering the requirement to provide
notice to am insurance consumer, whenever such a
consumer does not get the best insurance coverage at the
lowest rate even when the consumer’s credit information
had no impact (or had a favorable iznpact) on the rates and
terms of the insurance.

TABLE OF CONTENTS
Page
QUESTIONS PRESENTED .........:ccsesscsssesecessssssessssessen i
INTERESTS OF AMICI CURIAE ......cc.csccsssssssssesessseses 1
INTRODUCTION AND SUMMARY OF ARGUMENT... 4
MI ik ici ccsciaiiitinscasiseniniiletbtiaciiiiiaiicsaaiti acc f)

I. THE FCRA DEMANDS A SHOWING THAT A
DEFENDANT SPECIFICALLY INTENDED TO VIOLATE
THE STATUTE IN ORDER TO ESTABLISH THAT IT
“WILLFULLY” Dip So AND IS THEREFORE SUBJECT
To PUNITIVE AND STATUTORY DAMAGES ............-0+- 9

A. The Rule Of Lenity Requires That The-
FCRA’s “Willfully” Requirement Be Met
By A Showing Of Specific Intent Because
It Triggers Imposition Of Punitive And
Statutory Damages, And Supports Criminal
Sanctions Elsewhere In The Statute............. 10

B. A Specific Intent Standard Avoids The
Substantial Constitutional Doubt Raised
pe, ee 16

C. Awards Of Uncapped Punitive Damages
And Statutory Damages Based On Mere
Recklessness Would Result In FCRA Class
Actions For Billions Of Dollars Not Based
EE ID occ niichineiaisiciiiibinimdgininiendaes 19

II. THE NINTH CIRCUIT'S INTERPRETATION OF THE
FCRA’s “ADVERSE ACTION” INSURANCE PROVISION
Is ConrraRy To THE STATUTORY TEXT AND
STRUCTURE AND WOULD HAVE A SUBSTANTIAL
NEGATIVE EFFECT ON THE CONDUCT OF AMERICAN

ili

TABLE OF CONTENTS - Continued

Page

A. The FCRA’s Text And Statutory Structure
Demonstrate That The “Adverse Action”
Insurance Provision Does Not Extend To
Every Insurance Customer Who Does Not
Receive The Best Coverage At The Lowest
PN TDG gcenieviccsisiecensecetnisintsincnascetnsanipseces

B. The Ninth Circuit’s Ruling Would Require
The Issuance Of Millions Of Useless
Notices To American Consumers...............+.

CONCLUSION ....c.cccsesorscccosssosecocctvosrosssonscssossssoseossoeseeoees

iv

TABLE OF AUTHORITIES
Page
CASES:
BMW of N. Am., Inc. v. Gore, 517 U.S. 559 (1996)....5, 17, 18
Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697 (1945).......... 15
Brown v. Kildea, 58 Wash. 184 (1910).............cccsesssesesseees 13
Bryan v. United States, 524 U.S. 184 (1998) ..........ceseeees 11
Cavin v. Home Loan Ctr., Inc., 236 F.R.D. 387 (N.D.
ie SID ins accep toinatin dicing eabipanabegdbaidanniiadaliaiphaiebeanieieat 20
City of Newport v. Fact Concerts, Inc., 453 U.S. 247
TIT cee cinitensiniibicendancislndisds inhdenitipiaibalihucpitieiensienbeniibiaies 12
Clark v. Martinez, 543 U.S. 371 (2005) .....ccssesssessecseseeees 16
Cleveland, C. C. & S. L. Ry. Co. v. Wells, 62 N.E.
NE BE cies sosnrdicantescencachetschutennitidpatenunininnnegeineat 13
Cooper Indus., Inc. v. Leatherman Tool Group, Inc.,
ee es I iceknitntnditntidntacdtepceninigitsabenisniaseniaianein 12
Crandon v. United States, 494 U.S. 152 (1990)................ 14
Crowell v. Benson, 285 U.S. 22 (1932).........ccccscseeseeeeeeseees 16
Dalton v. Capital Associated Indus., Inc., 257 F.3d
ee Ny ee iceiiterriihceshinitinidchitingictintnbastesnitittiensncnantiinds 10
Ford Motor Credit Co. v. Milhollin, 444 U.S. 555
CTTTTa aseosisiidiosibsNcheenachadbeatnioniotaieedatnilicabianindidindndadonbieiccebeinatens 29
Harper v. Lindsay Chevrolet Oldsmobile, LLC, 212
F. Supp. 2d 582 (E.D. Va. 2002) ...........csecccssssccssssoreees 27
Hazen Paper Co. v. Biggins, 507 U.S. 604 (1993)............. 14

Hines & Battle v. Wilmington & W. Ry. Co., 95 N.C.
GE Se tes thcncteecetintnnnencctiiinamectannremectelcctessrains 13, 14

v

TABLE OF AUTHORITIES -— Continued

Page
In re Farmers Ins. Co., Inc., FCRA Litigation, 2006
WL 1042450 (W.D. Okla. Apr. 13, 2006) ..........::ceeeeeeees 20
In re Progressive Ins. Corp. Underwriting and
Rating Practices Litigation, No. 1:03-cv-01519-
MP-AK, slip op. (N.D. Fla. June 23, 2006 ) .........0eseees 20
In the Matter of Rhone-Poulenc Rorer, Inc., 51 F.3d
1293 (7th Cir.), cert. denied, 516 U.S. 867 (1995)......... 21
Marshall v. Wabash Ry. Co., 46 F. 269 (C.C.S.D. Oh.
BAIS ic ccciocinesinshssssacrcneincncntinsivicncsnchingiiatiiihiinds
a wide range of non-finance related business, such as
department stores, landlords, employers, cell phone
companies, and even cities and towns.

1,

The interpretation by the Ninth Circuit of the FCRA’s
“willfully” requirement to trigger uncapped punitive
damages and statutory damages not based on actual
injury to plaintiffs is erroneous and would have a
significant detrimental impact on businesses.

5

A. The FCRA’s punitive and statutory damages are
not imposed according to any actual damages that a
plaintiff may sustain and, accordingly, are penal in
nature. Thus, the “willfully” requirement that triggers
them must be strictly construed. The “willfully”
requirement also is a necessary finding to trigger the
Act’s criminal provisions. The rule of lenity therefore
applies to require a showing of specific intent to violate
a known legal duty on the part of defendants before they
can be held liable for “willfully” violating the FCRA. The
employment case law cited by respondents is not to the
contrary because it involved different statutory schemes
that did not provide uncapped punitive damages or
statutory damages unrelated to proof of actual injury. -

B. Interpretation of “willfully,” for purposes of the
FCRA, to require a showing of specific intent to violate a
known legs. duty also is warranted in order to avoid doubt
about the constitutionality of the federal statute.
Significant doubt about the constitutionality of the FCRA’s
punitive and statutory damages provision arises under the
recklessness standard because of the due process limits on
excessive or arbitrary awards. —

This Court’s earliest cases involving violation of the
Due Process Clause’s substantive limit on private
monetary awards arose where statutes fixed damage
awards that had no relationship to any actual damages
incurred. See, eg., Southwestern Tel. & Tel. Co. v.
Danaher, 238 U.S. 482 (1915). Building on those cases, the
Court has held that the Due Process Clause prohibits
“grossly excessive or arbitrary” punitive damages awards.
See, e.g., State Farm Mut. Auto. Ins. Co. v. Campbell, 538
U.S. 408 (2003); BMW of N. Am., Inc. v. Gore, 517 U.S. 559
(1996).

When dealing with violations of a technical statute
like the FCRA involving reporting of credit, only instances
of deliberate lawbreaking could even colorably result in a
constitutionally permissible punitive damage award.

6

Indeed, a prominent factor relevant to the determination
of whether a particular award is constitutionally
excessive is “the degree of reprehensibility of the
defendant’s conduct.” State Farm, 538 U.S. at 419.
Violations of the FCRA’s requirements occur purely in the
economic realm, pose no risk to the health or safety of
individuals, and do not target any particularly vulnerable
persons. Thus, a finding of an unintended, reckless
violation of the FCRA, in particular, falls far short of the
sort of reprehensible conduct that could support punitive
damages. The need for reading the FCRA to require a
particularly culpable state of mind is even greater in this
situation because statutory and punitive damage awards
under the FCRA will generally fail to comply with
another significant measure of the constitutionality of
such damages: the ratio of those damages to actual
damages. Id. at 425.

C. A significant litigation risk to defendants sued
under the FCRA is caused by the aggregation in class
actions of individual] claims totaling hundreds of millions
(if not billions) of dollars in statutory or punitive damages.
Allegations of “willfully” violating the FCRA based on a
mere recklessness standard may increase even more that
risk because there is a greater likelihood in such cases that a
large class will be brought and certified as a damages class
action under Federal Rule of Civil Procedure 23(b)(3). That is
because courts hold that the FCRA permits plaintiffs in a
class to avoid the need to establish any actual damages if
they allege willful FCRA violations since the class can seek
only statutory damages unrelated to actual individual
harm. A recklessness standard such as that adopted by the
Ninth Circuit makes it easier for plaintiffs’ counsel to
make such an allegation of “willfully” consistent with
Federal Rule of Civil Procedure 11.

At the same time, the Ninth Circuit’s mere
recklessness standard for “wilifully” violating the FCRA

—

adversely affects the ability of a defendant to estimate
accurately the risk of litigation. A business that
determines it can prove that it acted in good faith (i.e.,
non-willfully), and thus would be willing to litigate to
conclusion a case making allegations of willfulness, would
be under increased pressure to settle a case that relies on
some amorphous standard of recklessness to determine
the plaintiffs’ eligibility for potentially significant punitive
and statutory damages unrelated to any actual harm.

The driving force for such class actions is not
compensation for individual harm, but professional
plaintiffs and attorneys intent on extracting monetary
damages from companies (and their shareholders) for
themselves and’ a-class of uninjured consumers. The
defendant companies, however, provide valuable services
and may have engaged in unintended technical violations
of a complex regulatory statute. Such class action lawsuits
could, in the aggregate, cost American businesses billions
of dollars that are not tied to any actual injury to plaintiffs.

Il.

The Ninth Circuit interpreted the term “adverse
action” for purposes of the FCRA insurance provisions in a
manner that is contrary to the plain language of the
statute. The court’s application of that term te the
issuance of any insurance coverage that is not the best
insurance coverage at the lowest possible rate is
unprecedented. It would have unreasonably broad
practical implications not intended by Congress.

A. The FCRA’s adverse action insurance provision is
intended to ensure that an insurer gives notice to a
consumer when it charges a consumer an increased rate
because of credit information in a consumer report. The
plain language of the statute specifies that an adverse
action occurs only if consumer report information is used,

8

in whole or in part, to “increase [the] charge for” insurance
coverage for that consumer. 15 U.S.C. § 1681a(k)(1)(B)(i).

The FCRA is not concerned about comparisons of a
consumer’s rate with that of the hypothetical consumer
who gets the best coverage at the lowest possible rate.
Thus, if a consumer receives the same rate that she would
have received if her consumer report information had not
been considered (or, of course, a better rate), an adverse
action has not occurred within the meaning of the
statutory provision. That is because the consumer report
information did not result in an increase in the charge for
the insurance coverage for that consumer.

The court of appeals disregarded critical aspects of the
FCRA’s text and structure when it attempted to shoehorn
into the “adverse action” insurance definition all rates
other than the best coverage at the lowest rate. First, the
FCRA, as amended in 2003, requires that consumer
reporting agencies provide consumers with a free consumer
report once each year upon request. See 15 U.S.C.
§ 1681j(aX 1A). But under the Ninth Circuit’s view, such a
provision would have been nearly meaningless because all
insurance consumers except those with the very best
coverage with the lowest rates already would be receiving
such reports with annual renewals under 15 U.S.C.
§ 1681)j(c), which provides that each adverse action entitles
the consumer to a free consumer report from the consumer
reporting agency.

Second, the Ninth Circuit ignored Congress’s
amendment of the FCRA in 2003 to require an alternate
risk-based pricing notice in the credit area, but not the
insurance area, in certain instances when a_ business
provides a consumer with credit on “terms that are
materially less favorable.” 15 U.S.C. § 1681m(h\(1), (5).
Congress did not treat that issue as involving an “adverse
action.” The Ninth Circuit’s interpretation below of the term -
“adverse action,” however, would impose on the insurance

9
industry such a risk-based pricing notice as a matter of
judicial fiat.

B. Only a small number of consumers receive the
“best” rate for insurance when the rate is based in part on
information in consumer reports. The Ninth Circuit ruling
thus would result in the issuance of tens of millions of
pointless notices to consumers each year who receive good
rates based on good consumer reports but do not receive
the absolute best coverage at the lowest possible rate.
That deluge of additional notices would not only burden
significantly insurance companies, but it also would
provide consumers with little, if any, appreciable benefit.
Such a volume of notices could, in fact, harm consumers by

overloading them with information and numbing them to
important notices.

ARGUMENT

I. THe FCRA DEMANDS A SHOWING THAT A
DEFENDANT SPECIFICALLY INTENDED TO VIOLATE
THE STATUTE IN ORDER TO ESTABLISH THAT IT
“WILLFULLY” DimD So AND IS THEREFORE SUBJECT
To PUNITIVE AND STATUTORY DAMAGES

In order for a plaintiff to recover punitive damages
(which are not capped) and statutory damages (of at least
$100 and up to $1,000 per consumer) for violating the
FCRA, the plaintiff must establish that the defendant
“willfully” failed to comply with the relevant FCRA
requirement. 15 U.S.C. § 1681n(a). In the context of the
FCRA, “willfully” must be interpreted to require proof that
a defendant specifically intended to violate a known legal
duty under the FCRA in order to recover punitive or
statutory damages. See, e.g., United States v. Pomponio,
429 U.S. 10, 12 (1976) (“willfulness in this context simply
means a voluntary, intentional violation of a known legal
duty”).

10

The Ninth Circuit’s misreading of the term “willfully”
to include mere recklessness (Pet. App. 128a-129a) is
erroneous. Three contextual features of the FCRA are
particularly significant in reaching this result: the penal
nature of the remedies under the FCRA that are triggered
by a “willfully” showing; the need to construe the FCRA’s
damages provision to avoid doubt about its
constitutionality; and the unduly harsh consequences of
the Ninth Circuit’s lesser standard, particularly in class
actions.

A. The Rule Of Lenity Requires That The
FCRA’s “Willfully” Requirement Be Met By
A Showing Of Specific Intent Because It
Triggers Imposition Of Punitive And
Statutory Damages, And Supports Criminal
Sanctions Elsewhere In The Statute

1. The FCRA is a technical statute that, even
decades after its enactment, is still the subject of much
uncertainty on the part of businesses who must comply
with its varied notice requirements. This fact is reflected
in Congress’s three-tiered approach to liability for
damages.

When a defendant violates the FCRA, but does not do
so willfully or even negligently, Congress did not authorize
any private plaintiff enforcement. See Dalton v. Capital
Associated Indus., Inc., 257 F.3d 409, 417 (4th Cir. 2001)
(“FCRA does not impose strict liability”). Congress thereby
recognized that those subject to the FCRA could
reasonably, i.e., non-negligently, engage in conduct that
violates the FCRA and that no damages should be
awarded in such instances, regardless of the injuries
incurred by the plaintiff.

* References to “Pet. App.” are to the Petition Appendix filed by
petitioners in No. 06-84.

11

At the same time, the FCRA ensures that actual
damages are available to an individual who has been
injured as a result of a negligent violation of certain of the
FCRA’s requirements. 15 U.S.C. § 1681o(a)(1).

Congress set the bar much higher for recovery of
money damages in excess of actual damages caused by the
FCRA violation. A finding that a defendant “willfully”
violated the FCRA is required to allow an award of
punitive or statutory damages in suits for all violations of
FCRA that can be privately enforced. 15 U.S.C. § 1681n(a).
It also is a necessary finding to trigger criminal conviction
elsewhere in the statute. Jd. § 1681q (sentence of up to two
years imprisonment for knowingly and willfully obtaining
consumer reporting agency information under false
pretenses); id. §1681r (sentence of up to two years
imprisonment for consumer reporting agency’s employee
knowingly and willfully providing information to
unauthorized recipient). \

2. The term “willfully” is, of course, “a word of many
meanings,” and the correct interpretation of the term “is
often dependent on the context in which it appears.” Bryan
v. United States; 524 U.S. 184, 191 (1998) (quoting in part
Spies v. United States, 317 U.S. 492, 497 (1943)). See Br. in
Opp. 18 (acknowledging relevance of context). The
ambiguity of the term “willfully” in the context of the
FCRA means that it must be read narrowly not to trigger
punishment in order to comply with the rule of lenity. See
‘Ratzlaf v. United States, 510 U.S. 135, 148 (1994) (“were
we to find [the statute’s] ‘willfulness’ requirement
ambiguous * * * , we would resolve any doubt in favor of
the defendant”). When Congress uses the term “willfully”
in “highly technical statutes” like the FCRA that present
“the danger of ensnaring individuals engaged in
apparently innocent conduct,” a plaintiff must show that
the defendant acted with specific intent, knowing “that his
conduct was unlawful” in order to hold it liable. Bryan v.
United States, 524 U.S. at 194-195.

12

The rule of lenity is not limited to criminal sanctions
but applies to statutes in which the civil remedies can be
described as “penal.” See 3 Norman J. Singer, Sutherland
Statutes and Statutory Construction § 59.1, at 114-116 (6th
ed. 2001). In Steam-Engine Co. v. Hubbard, 101 U.S. 188
(1879), for example, a statute required that a corporate
president file an annual report and provided that if he
“intentionally neglects or refuses to comply with that
requirement,” he would be personally liable for any debts
incurred by the corporation contracted during the period of
neglect or refusal. Jd. at 189. This Court held that the
private civil action for damages created by the statute
“should be strictly construed” because the statute “is
penal.” Jd. at 191.

The rule of lenity applies to statutes that authorize
punitive damages because those damages are widely
recognized to be penal. See Sutherland, supra, § 59.2, at
119, 121 (“provisions for exemplary damages” are “penal”
because “their effects are punitive”). Punitive damages
“serve the same purposes as criminal penalties,” State
Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. at 417, and
“have been described as ‘quasi-criminal,’” Cooper Indus.,
Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 432
(2001) (citation omitted). “[B)y definition [they] are not
intended to compensate the injured party, but rather to
punish the tortfeasor whose wrongful action was
intentional or malicious, and deter him and others from
sim?'!ar extreme conduct.” City of Newport v. Fact Concerts,
Inc., 453 U.S. 247, 266-267 (1981).

Statutory damages that allow an award of monetary
damages against a defendant without regard to the
existence or amount of actual injuries sustained by a
plaintiff also call for application of the rule of lenity. Such
statutes are penal because they “compel obedience beyond
mere redress to an individual for injuries -received.”
Sutherland, supra, § 59.1, at 116. Courts traditionally
have held that a civil action providing for such statutory

13

damages is penal, and thus must be strictly construed. See
23 American & English Encyclopaedia of Law 378-379 (1st
ed. 1893) (rule of strict construction “applies not only to
statutes relating to criminal offenses, but also to all
statutes which impose, as punishment, any penalties,
pecuniary or otherwise, * * * or provide for the recovery of
damages beyond just compensation to the party injured,
whether such penalties, forfeitures, or damages are to be
enforced and recovered at the suit of the state or of a
private individual.”); Marshall v. Wabash Ry. Co., 46 F.
269, 270-271 (C.C.S.D. Oh. 1891) (“where the plaintiff is
not required to offer any evidence proving damages, and
the defendant is not permitted to offer any evidence
disproving damages, and the recovery is to be one fixed
sum in every case, I cannot understand how the statute
under which that is dome can be regarded as providing
compensation merely, and not penal”); Wood, Walker & Co.
v. Evans, 461 F.2d 852, 855 (10th Cir. 1972) (statutes
where “the amount of the damages is fixed on a somewhat
liquidated measure without regard to injury suffered” are
“strictly construed”). “By this is meant no more than * * *
when there is reasonable doubt as to {a word’s} true
meaning, the Court will not give them such interpretation
as to impose the penalty.” Hines & Battle v. Wilmington &
W. Ry. Co., 95 N.C. 434, 437 (1886).

In Brown v. Kildea, 58 Wash. 184 (1910), the court
was faced with statutory damages akin to those at issue
here. The court held that a statute authorizing a private
cause of action against a corporate official for a statutory
damage award of not less than $100 nor more than $1,000
should be “strictly construed” because it “subjects one
person to the payment of a sum of money to another,
without reference to any actual injury and without
requiring him either to allege or prove an actual injury.”
Id. at 186-187; see also Cleveland, C. C. & S. L. Ry. Co. v.
Wells, 62 N.E. 332, 334 (Ohio 1901) (“the right to recover
not less than one hundred and fifty dollars, although

14

double the amount of overcharge might not be one dollar,
and the right to recover exemplary damages, are severely
penal privileges” and thus those provisions “are to be
strictly construed”); Hines, 95 N.C. at 438 (same for

~ statute authorizing private suit to recover statutory

damages of $200 for discriminatory rates). Here, of course,
the statutory damages provision of the FCRA allows
damages “of not less than $100 and not more than $1,000”
regardless of any injury sustained by the plaintiffs and
respondents seek such damages for each class action
consumer. 15 U.S.C. § 1681n(a)(1)(A).

The application of the rule of lenity to determine the
meaning of “willfully” in the FCRA is particularly apposite
because the FCRA’s felony provisions require the
government to prove that a person acted “willfully” in
order to establish criminal liability. See 15 U.S.C.
§§ 1681q, 1681r. The fact that the criminal provisions are
not applicable in this particular case is irrelevant. There is
nothing in the FCRA that suggests, much less
demonstrates, that Congress intended the same word to
have different meanings in different portions of the same
statute. See Ratzlaf, 510 U.S. at 143 (“A term appearing in
several places in a statutory text is generally read the
same way each time it appears.”); see also Crandon v.
United States, 494 U.S. 152, 168 (1990) (applying the rule
of lenity in a civil action premised on a criminal statute).

3. Respondents’ attempt to seek refuge in
employment law cases that interpret “willful” to mean
reckless must be rejected. See Br. in Opp. 14 (citing, inter
alia, Trans World Airlines, Inc. v. Thurston, 469 U.S. 111
(1985); McLaughlin v. Richland Shoe Co., 486 U.S. 128
(1988); and Hazen Paper Co. v. Biggins, 507 U.S. 604
(1993)). Under the Age Discrimination in Employment Act
(ADEA) provision at issue in Thurston and Hazen Paper, a
finding of willfulness permitted a court to award an
amount equal to the amount of lost wages as liquidated
damages, but this Court has expressly held that such a

15

double damages remedy is “compensation, not a penalty or
punishment” and serves as remuneration for “damages too
obscure and difficult of proof.” Overnight Motor Transp.
Co. v. Missel, 316 U.S. 572, 583-584 (1942) (interpreting
similar provision in Fair Labor Standards Act). That
remedy also has been viewed as a substitute for
prejudgment interest, which is not otherwise available
under the ADEA. See Powers v. Grinnell Corp., 915 F.2d
34, 39-41 (1st Cir. 1990) (citing Brooklyn Sav. Bank v.
O’Neil, 324 U.S. 697, 715-716 (1945)). Thus, there was no
cause for the Court to apply the rule of lenity in those
cases.

Likewise, the third employment case did not involve
either uncapped punitive damages or statutory damages
without proof of actual injury and thus did not implicate
the rule of lenity. See McLaughlin v. Richland Shoe Co.,
486 U.S. 128 (1988) (willfulness finding based on a
recklessness standard extended the statute of limitations
for bringing suit from two years to three years).

* The Court’s indication in Thurston that the double back-pay
provision was “punitive in nature,” 469 U.S. at 125, relied on the
statement of a Senate sponsor of the ADEA, but that legislative
statement was that the double back-pay provision would “furnish an
effective deterrent to willful violations,” /bid. (quoting 113 Cong. Rec.
2199 (1967) (Sen. Javitts)), and remedial provisions can provide
effective deterrence so that statement does not necessarily support the
Court’s dictum. Additional legislative history concluded that the
provision was not punitive. See H. Conf. Rep. No. 95-950, at 13-14
(1978) (explaining that the “ADEA as amended by this act does not
provide remedies of a punitive nature” and quoting Missel, 316 U.S. at
583-584).

16

B. A Specific Intent Standard Avoids The
Substantial Constitutional Doubt Raised
By A Lesser Standard

A federal statute must be read to avoid doubt about its
constitutionality. See Crowell v. Benson, 285 U.S. 22, 62
(1932). “[W]Jhen deciding which of two plausible statutory
constructions to adopt, a court miust consider the
necessary consequences of its choice. If one of them would
raise a multitude of constitutional problems, the other
should prevail — whether or not those constitutional
problems pertain to the particular litigant before the
Court.” Clark v. Martinez, 543 U.S. 371, 380-381 (2005).*

This constitutional avoidance doctrine supports
interpretation of the term “willfully” to require a showing
by a plaintiff of a specific intent on the part of the
defendant to violate a known FCRA requirement. The
contrary interpretation of the term urged by respondents,
and adopted by the Ninth Circuit, that establishes a mere
recklessness standard raises substantial questions about
the constitutionality of any resultant statutory or punitive
damages awards because of the Constitution’s substantive
limits.

This Court’s earliest cases involving violation of the
Due Process Clause’s substantive limit on private

* The Seventh Circuit’s recent refusal, in deciding whether a class
should be certified, to consider whether subjecting a defendant to
“billions of dollars for purely technical violations of the FCRA” could
violate the Constitution, Murray v. GMAC Mortgage Corp., 434 F.3d
948, 953 (7th Cir. 2006), conflicts with the reality that defendants
confronted with a certified FCRA class seeking billions of dollars in
damages cannot reasonably rely on the possibility that constitutional
limits will be imposed after damages are awarded, as the court there
suggested. Such circumstances likely would unfairly induce settlement
to avoid potential ruinous liability. In any event, Murray does not
suggest that constitutional doubt can be ignored in determining the
scope of the statute.

17

monetary awards arose where, as here, a statute fixed a
damages award that had no relationship to any actual
damages incurred. Thus in Southwestern Tel. & Tel. Co. v.
Danaher, 238 U.S. 482 (1915), this Court held that a
provision authorizing statutory damages of $100 per day
for refusing a customer phone service violated due process
when the company’s action was in good faith, impartially
applied, consistent with longstanding practice, and done in
the absence of any state ruling that the conduct was
unreasonable. Under these circumstances, this Court held
that “inflictling] upon the company penalties aggregating
$6,300 was so plainly arbitrary and oppressive as to be
nothing short of a taking of its property without due
process of law.” Jd. at 491; see also Missouri Pac. Ry. Co. v.
Tucker, 230 U.S. 340, 351 (1913) (statutory damages of
$500 for overcharging a customer $3 violated due process
because the damages were “grossly out of proportion to the
possible actual damages”).

Building on those early cases, the Court has held that
the Due Process Clause prohibits “grossly excessive or
arbitrary” punitive damages awards. See, e.g., State Farm
Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003); BMW
of N. Am., Inc. v. Gore, 517 U.S. 559 (1996). When dealing
with violations of such a technical statute like the FCRA
involving reporting of credit, only instances of deliberate
lawbreaking could even colorably result in a
constitutionally permissible punitive damage award. Cf.
Gore, 517 U.S. at 576; see id. at 580 (“the omission of a
material fact may be less reprehensible than a deliberate
false statement, particularly when there is a good-faith
basis for believing that no duty to disclose exists”);
Southwestern Tel. & Tel. Co., 238 U.S. at 489-490 (relying
on defendant’s good faith to find statutory damages
unconstitutionally excessive).

Indeed, a prominent factor relevant to the determination

of whether a particular award is constitutionally excessive
is “the degree of reprehensibility of the defendant’s

18

conduct.” State Farm, 538 U.S. at 419 (quoting BMW of N.
Am., Inc. v. Gore, 517 U.S. at 575). In assessing
reprehensibility, a court must consider whether “the harm
caused was physical as opposed to economic; the tortious
conduct evinced an indifference to or a reckless disregard
of the health or safety of others; the target of the conduct
had financial vulnerability; the conduct involved repeated
actions or was an isolated incident; and the harm was the
result of intentional malice, trickery, or deceit, or mere
accident.” 538 U.S. at.419.

Violations of the FCRA’s requirements occur purely in
the economic realm, pose no risk to the health or safety of
individuals, and do not target any particularly vulnerable
persons. Such violations will thus rarely be sufficiently
“reprehensible” to permit any award of punitive damages
under the Constitution, under any standard of willfulness.
A finding of an unintended, reckless violation of the FCRA,
in particular, falls far short of the sort of reprehensible
conduct that could support punitive damages. To reduce
the likelihood of unconstitutional damage awards, this
Court must read the statute to require proof of a
particularly culpable state of mind, i.e., at least a specific
intent to violate a known legal duty.

The need for reading the FCRA to require a
particularly culpable state of mind is even greater in this
situation because statutory and punitive damage awards
under the FCRA will generally fail to comply with another _
significant measure of the constitutionality of such
damages: the ratio of those damages to actual damages.
State Farm, 538 U.S. at 425. The ratio is extremely large
in virtually all FCRA cases because the actual damages to
individuals in such cases, especially those involving failure
to provide notice such as here, is almost always quite low.
This is true even when, as in these cases, plaintiffs seek
only statutory damages. In the cases now before the Court,
the actual damages likely would be $0 because receiving
the notice would not have altered the results, yet

19

respondents seek $1,000 damages for each of an
unquantified number of individuals in the putative class.
The only way such damages could survive a constitutional
challenge, if at all, is if the plaintiffs are required to prove
that defendants possessed the specific intent to violate a
known legal duty under the statute. There certainly is no
evidence that Congress intended to authorize such
damages, unrelated to actual harm, based merely on
unintended, reckless violations. In the absence of “firm
evidence” to the contrary, it should not be assumed that
“Congress intended to press ahead into dangerous
constitutional thickets” and the term “willfully” thus
should be read in a manner that avoids, or at least
reduces, such potentially unconstitutional results. Public
Citizen v. Department of Justice, 491 U.S. 440, 466 (1989).

C. Awards Of Uncapped Punitive Damages
And Statutory Damages Based On Mere
Recklessness Would Result In FCRA Class
Actions For Billions Of Dollars Not Based
On Actual Harm

A significant litigation risk to defendants sued under
the FCRA is caused by the aggregation in class actions of
individual claims -totaling hundreds of millions (if not
billions) of dollars in statutory or punitive damages.

Respondents’ complaints in the two actions under
review are typical of FCRA cases that plaintiffs seek to
litigate as class actions. Plaintiffs made no claim that
petitioners’ actions were negligent or that the named
plaintiffs personally suffered any actual damages. Instead,
their complaints, at the time they were dismissed by the
district court, alleged only willful misconduct and sought
statutory and punitive damages on behalf of a class. On
remand from the Ninth Circuit, plaintiffs amended their
complaints to strike their claims for punitive damages,
and now seek $1,000 statutory damages for each member

20

of the putative class. The allegations in the two other
FCRA cases in which certiorari petitions are pending
likewise seek only non-compensatory damages for the
putative classes and do not bother to allege any actual
harm sustained by the named plaintiffs.

Such allegations of willful FCRA violations based on a
mere recklessness standard may increase even more the
risk of enormous damage recoveries. There is a greater
likelihood that such a case will be brought and certified as
a damages class action under Federal Rule of Civil
Procedure 23(b)(3). That is because courts hold that the
FCRA permits plaintiffs in a class to avoid the need to
establish any actual damages if they allege the defendant
willfully violated the FCRA. See, e.g., In re Progressive Ins.
Corp. Underwriting and Rating Practices Litigation, No.
1:03-cv-01519-MP-AK, slip op. (N.D. Fla. June 23, 2006)
(certifying a FCRA class, for settlement purposes, of
“several million” consumers); Jn re Farmers Ins. Co., Inc.,
FCRA Litigation, 2006 WL 1042450 (W.D. Okla. Apr. 13,
2006) (certifying FCRA class of over one million insureds);
Cavin v. Home Loan Ctr., Inc., 236 F.R.D. 387 (N.D. Il.
2006) (FCRA class of approximately 49,000 members). A
recklessness standard for willfulness, such as that adopted
by the Ninth Circuit, makes it easier for plaintiffs’ counsel
to make such an allegation consistent with Federal Rule of
Civil Procedure 11.

At the same time, the Ninth Circuit’s mere
recklessness standard for willful violations adversely
affects the ability of a defendant to estimate accurately the
risk of litigation. A business that determines it can prove
that it acted in good faith (i.e., non-willfully), and thus
would be willing to litigate to conclusion a case making
allegations of willfulness, would be under increased
pressure to settle a case that relies on some amorphous
standard of recklessness to determine the plaintiffs’
eligibility for potentially significant punitive and statutory
damages unrelated to any actual harm.

21

Under a recklessness standard, such a class action
“create|s) a potentially enormous aggregate recovery for
plaintiffs, and thus an in terrorem effect on defendants,
which may induce unfair settlements.” Parker v. Time
Warner Entm’t Co., L.P., 331 F.3d 13, 22 (2d Cir. 2003); see
Fed. R. Civ. P. 23 advisory committee’s note (1998
Amendments) (money class actions may force many
defendants “to settle rather than incur the costs of
defending a class action and run the risk of potentially
ruinous liability”); Jn the Matter of Rhone-Poulenc Rorer,
Inc., 51 F.3d 1293, 1298 (7th Cir.) (Posner, J.) (noting that
“Judge Friendly, who was not given to hyperbole, called
settlements induced by a small probability of an immense
judgment in a class action ‘blackmail settlements’”), cert.
denied, 516 U.S. 867 (1995).

The driving force for such class actions is not
compensation for individual harm, but professional
plaintiffs and attorneys intent on extracting monetary
damages from companies (and their shareholders) for
themselves and a class of uninjured consumers. The
defendant companies, however, provide valuable services
and may have engaged in unintended technical violations
of a complex regulatory statute. One example of this
phenomenon is Mr. and Mrs. Murray, who have sought to
be class representatives in dozens of FCRA class actions
and, as one district court noted, “greet the arrival of what
most people would consider junk mail (i.e., unsolicited
offers of credit) with joy and eagerly show ther mail to
lawyers * * * pursuant to a pre-existing agreement in the
hope of finding an offer that presents a colorable FCRA
claim.” Murray v. Cingular Wireless II, LLC, 2005 U.S.
Dist. LEXIS 39542, at *7-*8 (N.D. Ill. Dec. 22, 2005); sre
also Murray v. Cingular Wireless II, LLC, 2005 U.S. Dist.
LEXIS 39561, at *1-*2 (N.D. Ill. Nov. 2, 2005). The
“willfully” requirement should not be read as respondents ~
would have it, to make it easier for the Murrays and their
lawyers to obtain class certification and obtain a windfall

22

of non-compensatory damages from a broad range of
American businesses.

Counsel who bring such actions are well aware that
such allegations increase substantially the pressure for
settlement regardless of the merits of the case. In a case
described by respondents as involving an “identical” claim
(Br. in Opp. 7 n.2), insurance companies settled a class
action suit for $280 per person in statutory damages for a
class of more than 67,000 members. That settlement
totaled nearly $20 million in damages without any proof of
actual damages sustained by a class member. See Razilov v.
Nationwide Mut. Ins. Co., No. CV 01-1466 BR (D. Or. July
6, 2006) (Stipulation of Settlement). Of that settlement,
plaintiffs’ counsel has requested nearly $6 million in fees.
Razilov v. Nationwide Mut. Ins. Co., No. CV 01-1466 BR
(D. Or. Oct. 20, 2006) (Fee Petition).

Il. THE NINTH CIRCUIT’S INTERPRETATION OF THE
FCRA’s “ADVERSE ACTION” INSURANCE PROVISION
Is CONTRARY TO THE STATUTORY TEXT AND
STRUCTURE AND WOULD HAVE A SUBSTANTIAL
NEGATIVE EFFECT ON THE CONDUCT OF AMERICAN
BUSINESSES

The FCRA defines the term “adverse action” for
purposes of its insurance provisions as “a denial or
cancellation of, an increase in any charge for, or a
reduction or other adverse or unfavorable change in the
_ terms of coverage or amount of, any insurance, existing or
applied for, in connection with the underwriting of
insurance.” 15 U.S.C. § 1681a(k)(1)(B)(i) (emphasis added).
See also page 26, infra (discussing other definitions of
“adverse action” in the FCRA). The FCRA requires that an
insurance company notify a consumer of such an action
taken in connection with an underwriting decision when it
is based in part on a consumer report obtained under 15

. 23

U.S.C. § 1681b(a\(3)(C) in connection with thé underwriting.
See id. § 1681m(a)(1).

The Ninth Circuit held that the phrase “an increase in
any charge” in Section 168la(k\1)(B)(i) includes the
purchase of insurance where the consumer is charged a
rate that is higher than what the consumer would have
been charged if his score had been the “top potential score”
based on information from his consumer report. Pet. App.
118a. That interpretation would mean that an adverse
action occurs whenever a “consumer would have received a
lower rate for his insurance had the information in his
consumer report been more favorable.” Jbid. The ruling
thus applies to issuance of any insurance coverage that is
not the best insurance coverage at the lowest possible rate.

A. The FCRA’s Text And Statutory Structure
Demonstrate That The “Adverse Action”
Insurance Provision Does Not Extend To
Every Insurance Customer Who Does Not
Receive The Best Coverage At The Lowest
Possible Rate

1. The plain language of the FCRA insurance
provision specifies that an adverse action occurs only if the
information from a consumer report is used, in whole or in
part, to “increase [the] charge for” insurance coverage for
that consumer. 15 U.S.C. § 1681a(k)(1)(B)(i). The provision
is intended to ensure that an insurer gives notice to a
consumer when it charges a consumer an increased rate
because of credit information in a consumer report.

The FCRA is not concerned about comparisons of a
consumer’s rate with that of the hypothetical consumer
who gets the best coverage at the lowest possible rate.
Thus, if a consumer receives the same rate that she would
have received if her consumer report information had not
been considered (or, of course, a better rate), an adverse
action has not occurred within the meaning of the

24

statutory provision. That is because the consumer report
information did not result in an increase in the charge for
the insurance coverage for that consumer.

The facts of one of the other FCRA cases currently
pending before the Court demonstrate that the Ninth
Circuit’s contrary interpretation would expand the
meaning of the statutory text. In State Farm Mutual
Automobile Insurance Co. v. Willes, No. 06-101, the
plaintiff was quoted a price for insurance before she
formally applied for automobile insurance. The quote was
based only on background information she provided
including, for example, the fact that she had received a
speeding ticket within the preceding thirty-six months.
See State Farm Pet. 3. After the plaintiff submitted her
formal insurance application, the insurer reviewed her
credit history in the consumer report as part of its
underwriting process but ultimately issued her insurance
policies “at the rates that had been quoted to her without
reference to any credit information or other consumer
report” information. Jd. at 3-4. Despite evidence that
conclusively demonstrated that the plaintiff received the
same rate that she would have received if her consumer
report information had not been considered, the Ninth
Circuit held that the plaintiff had been subjected to an
adverse action because she did not get a lower rate.

2. The Ninth Circuit disregarded critical aspects of
the FCRA’s structure when it attempted to shoehorn into
the “adverse action” definition any consideration by a
company of a consumer report that does not give a
consumer the best possible coverage at the lowest possible
rate, regardless of whether consideration of the report
made the consumer worse off than if no consideration had
been given to the consumer report.

First, each adverse action notice entitles the recipient
to a free consumer report from the consumer reporting
agency. See 15 U.S.C. § 1681j(c). If Congress had intended
the FCRA adverse action insurance provision to generate

25

free consumer reports to nearly all consumers, Congress
would not have amended the FCRA in 2003 to require that
consumer reporting agencies provide consumers with a
free consumer report once each year upon request, see id.
§ 1681j(a)(1)(A), because all insurance consumers except
those with the very best coverage with the lowest rates
already would be receiving such reports with annual
renewals under 15 U.S.C. § 1681j(c), which provides that
each adverse action entitles the consumer to a free
consumer report from the consumer reporting agency.

Second, the Ninth Circuit ignored Congress’s addition
in 2003 of certain provisions to govern risk-based pricing
of credit, but not of insurance, when a business provides a
consumer with credit on “terms that are materially less
favorable.” 15 U.S.C. §168lm(h)(1). Section 1681m(h)
requires that federal agencies issue regulations to require
a business that extends credit to provide an alternate
risk-based pricing notice in certain instances.

Congress added the provisions in response to the
growing use of consumer reports to determine the terms of
the credit extended, and not just whether to extend credit.
The FTC informed Congress in hearings preceding the
2003 amendments that extenders of credit “increasingly
are using consumer reports to undertake risk-based
pricing of products or services. Many creditors *** no
longer merely approve or deny applications, but, rather,
they use credit report data to finely calibrate the terms of
their offer.” The Fair Credit Reporting Act and Issues
Presented by Reauthorization of the Expiring Preemption
Provisions: Hearings Before the Senate Comm. on Banking,
Housing, and Urban Affairs, 108th Cong., 6 (2003)
(statement of J. Howard Beales, III, Director, Bureau of
Consumer Protection, Federal Trade Comm’n).

26

Congress was also told that the existing definition of
“adverse action” for the FCRA’s credit provisions was not
triggered by such risk-based pricing because the FCRA
specifies that, in the credit context, the term “adverse
action” “has the same meaning as in” the Equal Credit
Opportunity Act (ECOA). 15 U.S.C. § 1681a(k)(1)(A).° The

* The FCRA includes different definitions of the term “adverse
action” in the different contexts of insurance, credit, employment,
government license and benefits transactions, and a “miscellaneous”
definition. See 15 U.S.C. § 168la(k). The so-called miscellaneous
definition provides that an adverse action is an action that is “made in
connection with an application * * * made by, or a transaction * * *
initiated by, any consumer” and is “adverse to the interests of the
consumer.” 15 U.S.C. § 168la(k)(1)(BXiv). Congress did not intend the
FCRA's “miscellaneous” definition to apply to transactions governed by
another “adverse action” definition. The transaction-specific structure
of the FCRA adverse action definitions demonstrates that the
“miscellaneous” definition was intended to ensure that if a person has
a permissible purpose to obtain a consumer report for a non-credit,
non-insurance, non-employment, non-license or non-benefit transaction
and the person uses such report as the basis for an action adverse to
the consumer’s interest, the person would be required to provide the
consumer with an adverse action notice. The legislative history
confirms that Congress intended the miscellaneous definition to apply
only when the transaction did not fal) within another definition. See
Senate Hearings, supra, at 53 & n.46 (statement of J. Howard Beales,
Ill, Director, Bureau of Consumer Protection, Federal Trade Comm'n);
S. Rep. No. 104-185, at 31-32 (1995); H.R. Rep. No. 103-486, at 26
(1994) (explaining that earlier proposed version of the “miscellaneous”
definition was intended to cover “a refusal to cash a check, lease real
estate, or open a new transaction account based on a consumer report”).

_ The Seventh Circuit, in a conclusory opinion that finds no basis in
the statute, erroneously held that the “miscellaneous” definition can
apply to credit transactions. Treadway v. Gateway Chevrolet Oldsmobile
Inc., 362 F.3d 971, 982 (7th Cir. 2004). That decision is wrong and, if
followed, could significantly expand the effect of the “adverse action”
holding because the Ninth Circuit’s interpretation here could similarly
expand the “miscellaneous” definition. Moreover, if the “miscellaneous”
definition applied to credit transactions, the “credit” definition would be
rendered superfluous because it would be subsumed by the broader
“miscellaneous” definition — a result that Congress could not have
intended.

27

ECOA defines “adverse action” to mean “a denial or
revocation of credit,” 15 U.S.C. § 1691(d)\(6), and its
implementing regulations make clear that if a consumer
applies for credit at a specific rate but the lender makes a
counteroffer at a different rate, there is no adverse action
if the comsumer accepts the lender’s counteroffer. See
12 C.F.R. § 202.2(c); Senate Hearings, supra, at 53 n.46
(statement of J. Howard Beales, III, Director, Bureau of
Consumer Protection, Federal Trade Comm’n) (consumers
“often receive a counter-offer at a higher price. Under the
law, if the consumer accepts that counter-offer, there is no
adverse action because the FCRA definition [of adverse
action for credit] is coupled to the definition under the
[ECOA].”). Courts have relied on these implementing
regulations to conclude that “a denial of credit coupled
with a counteroffer that is accepted by the applicant does
not trigger the FCRA’s [adverse action] notice requirement
because the applicant has suffered no ‘adverse action.’”
Harper v. Lindsay Chevrolet Oldsmobile, LLC, 212
F. Supp. 2d 582, 591 (E.D. Va. 2002).

The Ninth Circuit, through its interpretation of the
term “adverse action,” has imposed on the insurance
industry its own risk-based pricing disclosure requirement.
The details of what terms are material will, apparently, be
determined through case-by-case adjudication. It is clear
that Congress did not intend such a requirement for
insurance, however, because it could have easily extended
the amendment to apply the risk-based pricing provision
that it created in the credit context to such insurance
transactions as well, but did not do so.

28

B. The Ninth Circuit’s Ruling Would Require
The Issuance Of Millions Of Useless Notices
To American Consumers

The Ninth Circuit’s interpretation of “adverse action”
in this case would force insurance companies, and possibly
other persons subject to the FCRA, to issue tens of
millions of pointless notices to consumers each year.”

Only a small number of consumers receive the best
insurance coverage at the lowest possible rate when the
rates are based in part on credit information from
consumer reports. At many insurance companies that rely
in part on such information to set rates, fewer than 15% of
insureds receive the best rate available. See Michigan
Office of Financial and Insurance Services, The Use of
Insurance Credit Scoring in Automobile and Homeowners
Insurance, Apps. C & D (2002). But the Ninth Circuit’s
holding would require insurance companies to provide
adverse action notices to. nearly all consumers who
purchase insurance, i.e., all but the small group who have
the best scores and receive the best coverage and rates.
Because the majority of consumers nationwide must

* The Ninth Circuit appears to have found that when a consumer is
charged an increased rate for insurance and no adverse action notice is
provided, the party that makes “the decision as to which of the”
affiliated insurance companies will issue the policy will be subject to
liability along with the company that issues the policy. Pet. App. 125a.
That holding, which finds no statutory basis in the FCRA, could
possibly make a bank liable under 15 U.S.C. § 1681s(b), along with a
mortgage insurance company, if it selects which mortgage insurance
company to underwrité a policy and the rate charged for the mortgage
insurance is not the “best” rate and the bank fails to provide an adverse
action notice. Similarly, if a consumer wishes to obtain credit-life or
credit-disability insurance to protect against default on a credit product
obtained from a bank and the bank, based in part on consumer report
information, selects the insurance company that will receive the
eonsumer’s insurance application, the bank might face liability under
15 U.S.C. § 1681s(b) in the Ninth Circuit if the rate charged for the
insurance is not the “best” rate and no adverse action notice is provided.

29

obtain automobile and/or homeowner’s insurance, the

\ Ninth Circuit’s holding will require insurance companies
to produce and send tens or hundreds of millions of
additional adverse action notices each year.

Congress could not have intended such an absurd
result. To the contrary, the Federal Trade Commission
cautioned Congress to this effect when Congress was
addressing revisions to the FCRA. It explained that it was
important “to avoid a situation where in essence everyone
is getting an adverse action notice because no one ever
gets the absolute best rate.” Senate Hearings, supra, at
529 (testimony of Joel Winston, Associate Director,
Financial Practices Division, Bureau of Consumer
Protection, Federal Trade Comm'n).

The deluge of additional notices would provide
consumers with little, if any, appreciable benefit and
might, in fact, harm consumers by overloading them with
information and numbing them to important notices. For
example, the notices may confuse or mislead consumers
who receive insurance at favorable rates because of their
good credit histories, but not at the “best” rates. In
addition, as more adverse action notices are provided,
there is a real risk that the effectiveness of the notices
intended by Congress will be diluted substantially.
Consumers may begin to treat the notices as boilerplate
disclosures that should be ignored. See Senate Hearings,
supra, at 95-96 (testimony of J. Howard Beales, III,
Director, Bureau of Consumer Protection, Federal Trade
Comm’n) (“[I]f you give notices too widely and in too many
circumstances, then it * * * becomes something that people
ignore.”); cf. Ford Motor Credit Co. v. Milhollin, 444 U.S.
555, 568 (1980) (discussing problem of “informational
overload”). The flood of additional notices will undercut
their statutorily intended function to focus consumers on
potential material inaccuracies in their consumer reports.

30

Typical consumers with good credit histories who obtain
insurance at a favorable rate but receive adverse action
notices, would spend unnecessary time examining
consumer reports for material inaccuracies that do not
exist.

CONCLUSION

For the reasons set forth above, the judgments of the
Ninth Circujt should be reversed.

Respectfully submitted,

L. RICHARD FISCHER

BETH S. BRINKMANN*

SETH M. GALANTER

wane BREN NATHAN D. TAYLOR

- went nen MORRISON & FOERSTER LLP
2000 Pennsylvania Ave., N.W.

LITIGATION CENTER, INC. ‘
Washington, D.C. 20006
1615 H Street, N.W. (202) 887-1544

Washington, DC 20062
(202) 463-5337 *Counsel of Record

NOVEMBER 13, 2006

RoBIN S. CONRAD

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0282%3A19. Public record. Not legal advice.