The Second Circuit Court of Appeals recently upheld a ruling that reporting a judgment as “satisfied” was accurate under the Fair Credit Reporting Act (FCRA) when the underlying lawsuit was dismissed by stipulation as “settled” without the prior judgment being vacated. The Second Circuit further held that entities alleged to have willfully violated the FCRA are not required to have acted in conformity with a proposed interpretation of the FCRA in order to avail themselves of a “reasonable interpretation” defense to defeat claims for punitive damages.

In 2012, a debt buyer sought to collect on a credit card debt incurred by Jacob Shimon. A default judgment was entered against Shimon in March 2013, and Shimon’s wages were garnished. Shimon then appeared in the action, asserting a counterclaim and moving to have the judgement vacated. However, before the state court was able to consider Shimon’s motion to vacate, the parties filed a joint stipulation that “resolved” the lawsuit, and all claims were dismissed “with prejudice,” resulting in the clerk of the court entering a notation that the lawsuit was “settled.”

Thereafter, in 2014, Shimon’s credit report prepared by a national consumer reporting agency (NCRA) showed that a judgment had been entered against him. Shimon disputed this reporting, alleging that the judgment had been “dismissed after trial” and requesting the removal of this notation. Shimon’s credit report was then updated by the NCRA to report that it was a “judgment satisfied” as opposed to just a “judgment,” however, the reference to a judgment was ultimately not removed. Shimon continued to dispute the accuracy of the reporting until he eventually brought suit in 2018.

In his lawsuit, Shimon alleged the NCRA violated Sections 1681e(b), 1681g(a), and 1681i of the FCRA. Shimon’s allegations were premised on the theory that by entering the joint stipulation in the case, the state court had implicitly vacated the judgment. He further alleged that by reporting a judgment as “satisfied,” it is implied that the judgment remains. The Second Circuit found both of these arguments unavailing, noting that the state court docket does not reflect the judgment was vacated and that a “judgment satisfied” implies the opposite of a “judgment remaining.” Thus, the court affirmed the district court’s judgment dismissing the claims brought under Section 1681e.

The Second Circuit further affirmed granting of summary judgment as to the claims for a negligent violation brought under Sections 1681g and 1681i contending the NCRA failed to disclose the “source” (or furnisher) of the information about the prior judgment, finding that Shimon had suffered no actual damages. Additionally, the court found that it is not objectively unreasonable to interpret a contractor-intermediary accessing public files (like court records) as not being a “furnisher” under the FCRA because it is reasonable to construe who qualifies as a “furnisher” under the FCRA as only the original source of the information reported (as opposed to a contractor that gathered the information for the NCRA). The court went on to explain that a defendant in an FCRA lawsuit is not required to “actually and contemporaneously adopt[] a particular statutory interpretation to avail itself of the Safeco [willful violation] defense.” In other words, an entity defending a claim for a willful violation of the FCRA does not need to prove it actually interpreted the FCRA in line with its reasonable interpretation asserted in defending litigation. Thus, the court affirmed summary judgment against Shimon on his claims for willful violations of Sections 1681g and 1681i of the FCRA.

Although this case does not alter the robust reporting and dispute resolution procedures that consumer reporting agencies must maintain, this case serves as important guidance from a Court of Appeals regarding the acceptable reporting of a case dismissed by stipulation after a judgment has been entered against a party and strategies for defending claims for willful violations of the FCRA under Safeco.