Carvalho v. Equifax Information Services, LLC, No. 09-15030, 2010 WL 5127974 (9th Cir. (Cal.) Dec. 16, 2010).

The U.S. Ninth Circuit unanimously denied the petition for rehearing en banc having previously determined that a pre-complaint cocument cannot be a basis for removal.  (Editors’ Note:  See the CAFA Law Blog analysis of the 9th Circuit decision in Carvahlo posted on December 21, 2010).

In Carvalho v. Equifax Information Services, LLC, NO. 09-15030, 2010 WL 3239477 (9th Cir. (Cal.), Aug 18, 2010), the U.S. Ninth Circuit affirmed the district court’s denial of the plaintiff’s motion to remand, finding that the pre-complaint document indicating the amount to be claimed in the suit cannot be a basis for removal.

The plaintiff, Noemia Carvalho, incurred medical bills of $118 at Bayside Medical Group, Inc.  When the plaintiff’s insurance carrier denied coverage for the bills, and the plaintiff failed to pay, Bayside assigned the debt to Credit Consulting Services (“CCS”), a collection agency.  After collection efforts, the plaintiff refused to pay the invoice, and CCS reported the debt to the credit reporting agencies (“CRA”s).  The plaintiff disputed the debt with the CRAs in a series of letters.  The CRAs reinvestigated various times and CCS repeatedly verified the information as accurate.

The plaintiff filed a putative class action complaint against CCS and the CRAs in California state court alleging violations of the California Consumer Credit Reporting Agencies Act (“CCRAA”). The CRAs removed the case to federal court based on CAFA, 28 U.S.C.1332 (d).  The plaintiff moved to remand, which the district court denied. The plaintiff appealed the ruling to the Ninth Circuit Court of Appeals.

The Ninth Circuit affirmed the district court’s denial of the plaintiff’s motion to remand finding that removal was timely.  The Court rejected the plaintiff’s arguments that the defendants should have had notice of removability from pre-litigation settlement negotiations or from the plaintiff’s state court civil case cover sheet.

Specifically, the Ninth Circuit ruled that a document received prior to receipt of the initial pleading–such as pre-litigation demand letter–cannot be treated as ‘other paper’ triggering the basis for removal. Further the defendants could not have ascertained aggregate amount in controversy from the civil cover sheet’s invocation of “unlimited” jurisdiction because it did not affirmatively reveal that the aggregate amount in controversy exceeded $5 million.

The plaintiff then filed a petition for rehearing en banc.  The panel unanimously voted to deny the petition for rehearing. The full court was advised of the petition for rehearing en banc, and no judge requested a vote on whether to rehear the matter en banc.

Next, regarding credit reporting, the plaintiff contended that credit reporting agencies unfairly malign the creditworthiness of innocent consumers by reporting disputed debts without undertaking a searching inquiry into the consumer’s legal defenses to payment. The plaintiff believed that consumers should be deemed innocent until proven guilty by a proper reinvestigation under the FCRA and CCRAA.

The Ninth Circuit stated that a CRA is not required as part of its reinvestigation duties to provide a legal opinion on the merits. The Ninth Circuit acknowledged that determining whether the consumer has a valid defense is a question for a court to resolve in a suit against the creditor, and not a job imposed upon consumer reporting agencies by the FCRA. Nor is a CRA obligated not to report any information about the disputed item simply because the consumer asserts a legal defense, the Ninth Circuit added. Accordingly, the Ninth Circuit concluded that the district court properly granted summary judgment to the CRAs.