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State law defamation preempted except in the case of malice or willful intent to injure

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Ross v. FDIC, 625 F.3d 808 (4th Cir 2010)

The Plaintiff’s ex-husband originally took out a mortgage loan, though ultimately quit-claimed his interest to his Plaintiff prior to their marriage. At some point after the two were married,the relationship soured and the Plaintiff obtained a protective order against her ex-husband. As part of the divorce, the Plaintiff obtained an order naming her as the property’s owner, though her ex-husband retained sole responsibility for the loan.

Ross contacted Washington Mutual (the original servicer) about this arrangement and confirmed that she still received the mortgage statements and the 1098 tax deduction forms. WaMu mistakenly listed Ross’s name on the mortgage.  Eventually, the loan went into default and WaMu reported negative information to the credit reporting agencies on the mistaken belief that Ross was responsible for the loan.

Ross contacted the reporting agencies and WaMu about the inaccurate reporting, but made the payments necessary to reinstate the mortgage. WaMu initially conducted an investigation and suspended reporting of the loan.

In June 2003, the loan again went into default and Ross notified WaMu that one of the CRA’s was still reporting the loan on her credit report.  The loan has not been on Ross’s credit report since December 31, 2003 but Ross argues that, as a result of the negative trade line, she was denied credit on multiple occasions, including a business loan.

Ross filed a lawsuit against WaMu on August 22, 2006 for state law defamation and violations of the FCRA. The Fourth Circuit began its opinion by noting that “[t]he FCRA is a comprehensive statutory scheme designed to regulate the consumer reporting industry.”

Normally, a furnisher would be liable under Section 1681s-2 for failing to conduct an investigation and correct any errors in reporting.  However, in this case, Ross did not bring the case within the statute of limitations which is not later than the earlier of two years after the date of discovery by the plaintiff of the violation that is the basis for such liability; or five years after the date on which the violation that is the basis for such liability occurs.

Because the case was not filed within two years from the date of discovery of the violation that is the basis for such liability, Ross’s FCRA claims failed.

As to the state law defamation claim, the FCRA provides that “No requirement or prohibition may be imposed under the laws of any State (1) with respect to any subject matter regulated under . .  .(F) section 1681s-2 of this title, relating to the responsibilities of persons who furnish information to consumer reporting agencies…”  BUT, the FCRA also provides, in Section 1681h(e)an exception to this preemption if the false information was furnished with malice or willful intent to injure the consumer.

Court have looked to the state law defamation of malice, which, under North Carolina law, includes the publication of a defamatory statement with knowledge that it was false, with reckless disregard for the truth or with a high degree of awareness of its probably falsity.

The Court ultimately ruled that Ross’s contention that WaMu transmitted the false information is merely an inference from the fact that one CRA possessed the information at later dates and no specific evidence.  From this,the Court refused to fine the malice necessary for the exception to the preemption required by the FCRA to pursue a state law claim and the granting of summary judgment in favor of WaMu was sustained.

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