Tuesday, December 8, 2009

Schelhaus v. Sears Holding Co. (Maryland U.S.D.C.)

Filed: December 3, 2009
Opinion by Judge J. Frederick Motz

Held: Plaintiff’s complaint against employment agency and former employer claiming that reporting the reason for the plaintiff's prior termination to a new employer violated the Fair Credit Reporting Act was sufficient to survive a motion to dismiss under Fed. R. Civ. P. 12(b)(6).

Facts: Plaintiff was an employee in a Sears department store until he was fired for “award fraud” for giving a discount to a customer, giving away a power cord to an appliance, and taking other actions to improperly garner benefits under a sales program. The plaintiff made a written statement to Sears security personnel admitting to this conduct but contended that his supervisors knew and approved of his conduct.

Following his termination from Sears, the plaintiff was hired by a new employer. The new employer conducted a background check on the plaintiff by contacting the employment agency for information. Sears had previously sent a report to the employment agency indicating the reasons for the plaintiff’s dismissal. The agency told the new employer that the plaintiff was fired for committing award fraud. The new employer then fired the plaintiff.

The plaintiff complained to the employment agency, challenging the veracity of his employment history report. The employment agency asked Sears to provide all information supporting the report of a termination for award fraud. In response, Sears provided the employment agency with the plaintiff's written statement admitting to the conduct. The employment agency then told the plaintiff that it had deleted all information from his employment record that had not been verified. The plaintiff later discovered that his employment record remained unaltered, including the allegations of award fraud, and filed suit against Sears and the employment agency.

Both defendants moved to dismiss for failure to state a claim under Fed. R. Civ. P. 12(b)(6).

Analysis: The Fair Credit Reporting Act (FCRA) imposes investigation obligations on those who learn that information they have furnished to credit reporting agencies is inaccurate. Further, a consumer reporting agency violates the FCRA if (1) the consumer report contains inaccurate information and (2) the reporting agency did not follow reasonable procedures to assure maximum possible accuracy.

The plaintiff alleged that Sears violated the FCRA because it failed to conduct an investigation into the veracity of the conclusion that the plaintiff committed award fraud, failed to provide the employment agency with information supporting its report, and then failed to amend its initial report of award fraud.

The plaintiff alleged that the employment agency violated the FCRA because it failed to follow reasonable procedures to assure the maximum possible accuracy of Sears’ report when it did not conduct an independent evaluation, possessed no supporting documentation at the time of its report to the new employer, ultimately failed to review any foundation for Sears’ report, and failed to conduct a reasonable investigation to determine whether the disputed information was accurate.

The defendants argued that the plaintiff’s written statement admitting to the alleged fraudulent conduct precluded the plaintiff from bringing actions against them under the FCRA.

The Court held that the plaintiff’s written statement to Sears security personnel did not preclude the plaintiff from raising plausible FCRA claims . The Court noted that while the plaintiff admitted to certain conduct in his written statement, he also contended that he acted with managerial knowledge and supervision. Without details of Sears’ policies and procedures and any definition of “award fraud” the Court could not find that the plaintiff’s claims were deficient.

The full opinion is available in PDF.

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