On March 29, in Hall v. Phenix Investigations, Inc., No. 15-10533, 2016 U.S. App. LEXIS 5786 (5th Cir. Tex. Mar. 29, 2016), the United States Court of Appeals for the Fifth Circuit affirmed dismissal of an action alleging claims under the Fair Credit Reporting Act (“FCRA”) and Fair Debt Collection Practices Act (“FDCPA”). The complaint alleges that Defendants hired Phenix Investigations, Inc. to gather information about Plaintiffs’ financial assets in connection with a lawsuit alleging that Plaintiffs had fraudulently transferred money in order to avoid paying a judgment owed to Defendants.
The circuit court provided that, among the elements required to state an FCRA claim, Plaintiffs must allege that there was a “consumer report” for which one permissible purpose under the FCRA is the “collection of an account of … the consumer.” In this case, the Court found that Plaintiffs failed to allege facts to indicate that Phenix’s reports were in any way connected to collection of a consumer account. According to the Court, it was not reasonable to infer that the report was made for such a purpose because the report was prepared for use in ongoing commercial litigation, which is not a qualifying purpose. Furthermore, the purpose of the lawsuit here is commercial in nature because it arose out of a commercial lease dispute, and the FCRA does not cover reports used or expected to be used only in connection with commercial business transactions. Therefore, the Court ruled that Plaintiffs’ FCRA claim failed.
To state an FDCPA claim, plaintiffs must allege that they have been the object of collection activity arising from “debt.” In Hall, the Court rejected Plaintiffs’ argument that the judgment debt arose from personal investments on the basis that the disputed debt sought to be collected arose out of a prior lawsuit involving a commercial lease. The commercial nature of the debt negated the possibility that this was a consumer debt subject to the FDCPA, and for this reason the Court concluded that Plaintiffs’ FDCPA claim also failed.