Kevin Stout v. Freescore, LLC , 743 F.3d 680 ( 2014 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
KEVIN STOUT, on behalf of himself No. 10-56887
and all others similarly situated,
Plaintiff-Appellant, D.C. No.
2:10-cv-04395-
v. R-OP
FREESCORE, LLC, DBA
FreeScore.com, OPINION
Defendant-Appellee.
Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding
Argued and Submitted
August 26, 2013—Pasadena, California
Filed February 21, 2014
Before: Diarmuid F. O’Scannlain and Morgan Christen,
Circuit Judges, and Brian M. Cogan, District Judge.*
Opinion by Judge Cogan
*
The Honorable Brian M. Cogan, U.S. District Judge for the Eastern
District of New York, Brooklyn, sitting by designation.
2 STOUT V. FREESCORE
SUMMARY**
Credit Repair Organizations Act
Reversing the dismissal of a putative class action for
failure to state a claim, the panel held that the defendant was
a “credit repair organization” for purposes of the Credit
Repair Organizations Act because, through the
representations it made on its website and in its television
advertising, it offered a service, in return for the payment of
money, for the implied purpose of providing advice or
assistance to consumers with regard to improving their credit
record, credit history, or credit rating.
COUNSEL
Aaron D. Radbil (argued), Weisberg & Meyers LLC, Cooper
City, Florida; Todd M. Friedman, Law Offices of Todd M.
Friedman, P.C., Beverly Hills, California, for Plaintiff-
Appellant.
Darrel J. Hieber (argued), Jason D. Russell, and Jennifer E.
LaGrange, Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California, for Defendant-Appellee.
**
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
STOUT V. FREESCORE 3
OPINION
COGAN, District Judge:
Kevin Stout appeals the dismissal of his putative class
action against FreeScore, LLC (“FreeScore”), under the
Credit Repair Organizations Act, 15 U.S.C. § 1679, et seq.
(“CROA”). In dismissing Stout’s claim, the district court
concluded that FreeScore is not a “credit repair organization”
as defined in the CROA. We hold that FreeScore is a “credit
repair organization” for purposes of the CROA, because
Freescore, through the representations it made on its website
and in its television advertising, offered a service, in return
for the payment of money, for the implied purpose of
providing advice or assistance to consumers with regard to
improving the consumer’s credit record, credit history, or
credit rating. We therefore reverse the judgment of the
district court and remand for further proceedings.
I
FreeScore is an online “provider of credit scores, reports
and consumer credit information.” Its website,
FreeScore.com, reads, in part:
Are you in a financial hole? Want to keep
from falling into one?
See your Credit Report & FREE Credit
Scores online today and start your climb to
financial freedom.
A bruised Credit Report and battered Credit
Scores can harm you more than you think.
4 STOUT V. FREESCORE
They can wind up costing you a loan,
thousands more in undeserved high interest
rates or even a job!
Now more than ever, you need to ensure your
Credit Report is clean. Lending standards are
extremely strict. Poor Credit Scores and a
damaged Credit Report could put your dreams
of home ownership, a new car or even a new
career on hold today – and haunt you for years
to come.
You can’t afford to bury your head in the dirt
when it comes to your credit any longer.
* * *
During your FreeScore FREE Trial, get
unlimited online access to your 3-in-1 Triple
Bureau Credit Report and Free Credit Scores
to see what lenders see!
Get your complete credit picture with a 3-
in-1 Credit Report:
• See your Free Credit Report featuring
all 3 major credit-reporting bureaus –
TransUnion, Equifax and Experian –
merged into one easy-to-read Credit
Report.
• View your Credit Reports organized
side-by-side for quick comparison.
STOUT V. FREESCORE 5
• Spot damaging inaccuracies on your
Free Credit Report at a glance so you can
quickly address incorrect information
dragging down your Credit Scores.
• Get your Scores to negotiate your best
mortgage, auto and loan interest rates.
• BONUS: Receive newly updated Credit
Scores and Report every 30 days!
Plus, easily manage and secure your credit
with FreeScore’s Triple Bureau Credit
Monitoring.
• We keep an eye on your Credit Reports at
all three bureaus 24/7 so you don’t have
to.
• Instant email alerts notify you when
critical changes appear on your Credit
Report so you can make corrections fast!
A 60-second television commercial for FreeScore.com,
featuring the actor and commentator Ben Stein, announces:
Think about it. If you are buried up to your
neck in debt it can feel like creditors are
trying to whack you on the head . . . Ouch
....
Whether you are in a financial hole or just
want to get a loan, a better interest rate, or a
6 STOUT V. FREESCORE
new job, you’re at the mercy of your credit
scores.
Look, you can’t fix errors on your credit
report if you haven’t seen it, that’s why I went
to FreeScore.com and found out my score for
free.
I’m practically giddy with excitement.
FreeScore.com gives me unlimited access to
the three major credit reports and scores.
FreeScore.com even sends me an alert when
there’s any change to my credit report.
Remember, knowing your credit score could
be the difference between being down there,
and being up here. Get your credit score
today at FreeScore.com.
Life costs more without FreeScore.
FreeScore.com.
Additionally, FreeScore.com, referencing standardized
credit scores calculated using a proprietary formula
administered by the Fair Isaac Credit Organization –
commonly referred to as FICO® scores – states the
following:
The Fair Isaac Credit Organization (FICO®)
score is the industry standard for determining
a consumer’s credit rating. Lenders and
others use the FICO® credit score standard to
judge a person’s credit record, using a
STOUT V. FREESCORE 7
complex algorithm that involves several
factors.
There are five basic factors that a FICO®
credit score calculator takes into account
when measuring your credit history.
• Your past payment practices. FICO®
evaluates how you’ve paid previous
lenders, including those offering payment
plans on an ongoing basis.
• Your outstanding debts. A FICO®
algorithm also considers what you
currently owe against maximum credit
amounts on your current lines of credit, if
any.
• Your history. Another aspect of FICO®
calculations is how long you’ve had
credit. For each credit line, the longer
you’ve had the line of credit, the more a
FICO® algorithm can decipher about your
payment history. A younger person will
have less credit data and credit history to
learn from, as will someone without
ongoing credit accounts.
• Your recent activity. A FICO® credit
score calculator also looks at what you’ve
attempted to do, credit-wise, to determine
how your credit-seeking activity matches
your payments history. This relationship
8 STOUT V. FREESCORE
forms part of the FICO® index of
calculations.
• Credit categories. FICO® also evaluates
what kind of credit a person has dealt with
or holds, including home-related credit
(e.g., mortgages, home equity lines of
credit), auto loans, utilities, or other forms
of credit situations.
These criteria form the basis for a FICO®
score, but all scores are determined on a case-
by-case basis. So how can you deal with or
improve a FICO® score? It’s a long process
that starts with knowing more about all the
details of your overall financial situation.
Many people take years to micromanage their
accounts, attempting to repair a damaged
credit score, and many find that the best
solution is preventative credit maintenance.
Learning to manage your credit starts with
getting informed about your credit. That
means utilizing services like credit monitoring
to find out what may be changing in your
credit history report; those changes can have
an immediate effect in your credit score.
In order to receive any service offered by FreeScore, a
consumer must first authorize a charge or debit from an
approved banking account, and agree to FreeScore’s “Offer
Details,” “Terms and Conditions,” and “Privacy Policy.”
There is an initial upfront fee that is required, after which the
consumer is charged a monthly fee of $29.95 at the beginning
STOUT V. FREESCORE 9
of each membership month. FreeScore may “increase or
decrease the membership fee for each renewal membership
term, or add new fees and changes.”
On April 28, 2010, Stout subscribed to services offered by
FreeScore and initially enrolled at FreeScore.com for a free
7-day trial period. In order to enroll for membership, Stout
was required to authorize FreeScore to debit his account at
the monthly membership rate of $29.95.
The fine print at the bottom of the enrollment page in
effect during Stout’s transaction stated as follows:
FreeScore provides you with the tools you
need to access and monitor your
financial/credit information through the
program’s credit reporting and monitoring
benefits. FreeScore and its benefit providers
are not credit repair service providers and do
not receive fees for such services, nor are they
credit clinics, credit repair or credit services
organizations or businesses, as defined by
federal and state law.
The enrollment page also enumerated the benefits of a
FreeScore membership, which include: “UNLIMITED
Access to your Credit Scores from all 3 Bureaus,”
“Automatic Credit Monitoring and Alerts from All 3
Bureaus,” and “Complete Financial Public Records
Information, as Contained Within Your Credit Reports.” The
webpage also explained that a consumer should know his
credit score because “Knowing All 3 Credit Scores Gives
You the Power to Negotiate the Best Rates Possible.”
10 STOUT V. FREESCORE
On June 15, 2010, Stout filed his four-count putative class
action complaint against FreeScore, alleging violations of the
CROA. Stout alleged that FreeScore utilized its website and
a commercial featuring Ben Stein to advertise its services and
represent that it can or will sell, provide, or perform a service
providing advice or assistance in connection with an
individual’s credit. Moreover, Stout alleged that FreeScore
used social networking websites such as Facebook and
LinkedIn to promote its services; its Facebook profile
featured the motto: “FreeScore.com. Life costs more without
FreeScore . . . ,” and on both Facebook and LinkedIn,
FreeScore described itself as “a leading provider of credit
scores, reports and consumer credit information.”
Furthermore, Stout alleged that FreeScore is a “credit
repair organization” as defined by the CROA because a
person need only represent that it will sell or can sell,
provide, or perform a service providing advice or assistance
in connection with an individual’s credit to fall within that
definition. Moreover, Stout argued that a disclaimer, as a
matter of law, does not automatically exonerate deceptive
activities. Finally, Stout asserted four claims for failure to
comply with the CROA’s requirements and allegedly making
misleading statements. FreeScore moved to dismiss the
complaint on August 27, 2010, while Stout moved for class
certification on October 6, 2010.
The district court heard both motions and orally granted
FreeScore’s motion to dismiss. Several days later, it entered
a written Order granting FreeScore’s motion to dismiss with
prejudice for failure to state a claim, while denying Stout’s
motion for class certification as moot. The district court
reasoned that FreeScore was not a “credit repair organization”
under the statute because “Defendant did not make any
STOUT V. FREESCORE 11
promises of credit improvement. Rather, it merely promises
to provide a consumer with his or her credit score; it is up to
the consumer to improve it.” The court also concluded that
the term “any person” in the statute cannot be used to expand
the statute’s coverage beyond the credit repair context. Stout
timely appealed.
II
This Court reviews de novo a district court’s decision to
grant defendant’s motion to dismiss under Federal Rule of
Civil Procedure 12(b)(6). Fayer v. Vaughn, 649 F.3d 1061,
1063–64 (9th Cir. 2011).
III
A
In interpreting a statute, we begin with its plain language.
Levi Strauss & Co. v. Abercrombie & Fitch Trading Co.,
633 F.3d 1158, 1171 (9th Cir. 2011). We consider “not only
the specific provisions at issue, but also the structure of the
statute as a whole, including its object and policy.” Id.(quoting Children’s Hosp. & Health Ctr. v. Belshe, 188 F.3d
1090, 1096 (9th Cir. 1999)). “When the plain meaning of a
statutory provision is unambiguous, that meaning is
controlling.” Id. (quoting Belshe, 188 F.3d at 1096). In
enacting the Consumer Credit Protection Act, of which the
CROA is a part, Congress intended for courts to broadly
construe its provisions in accordance with its remedial
purpose. See Brothers v. First Leasing, 724 F.2d 789, 793
(9th Cir. 1984).
12 STOUT V. FREESCORE
Section 1679a(3) of the CROA defines a credit repair
organization as:
[A]ny person who uses any instrumentality of
interstate commerce or the mails to sell,
provide, or perform (or represent that such
person can or will sell, provide, or perform)
any service, in return for the payment of
money or other valuable consideration, for the
express or implied purpose of –
(i) improving any consumer’s credit record,
credit history, or credit rating; or
(ii) providing advice or assistance to any
consumer with regard to any activity or
service described in clause (i).
15 U.S.C. § 1679a(3). Congress also made the following
findings:
(1) Consumers have a vital interest in
establishing and maintaining their credit
worthiness and credit standing in order to
obtain and use credit. As a result, consumers
who have experienced credit problems may
seek assistance from credit repair
organizations which offer to improve the
credit standing of such consumers.
(2) Certain advertising and business practices
of some companies engaged in the business of
credit repair services have worked a financial
hardship upon consumers, particularly those
STOUT V. FREESCORE 13
of limited economic means and who are
inexperienced in credit matters.
15 U.S.C. § 1679(a). In addition, the statute explains that the
purposes of this subchapter are:
(1) To ensure that prospective buyers of the
services of credit repair organizations are
provided with the information necessary to
make an informed decision regarding the
purchase of such services; and
(2) To protect the public from unfair or
deceptive advertising and business practices
by credit repair organizations.
15 U.S.C. § 1679(b).
FreeScore falls squarely within the CROA’s definition of
a “credit repair organization.” From the plain language of the
statute, it is clear that under the CROA, a person need not
actually provide credit repair services to fall within the
statutory definition of a credit repair organization. Instead,
the person need only represent that it can or will sell, provide,
or perform a service for the purpose of providing advice or
assistance to a consumer with regard to improving a
consumer’s credit record, credit history, or credit rating.
15 U.S.C. § 1679a(3)(A); see also Rice v. Greenhaven Grp.,
LLC, No. 10-3830 (RHK/JJK), 2011 WL 43481, at *3
(D. Minn. Jan. 6, 2011) (“[W]hether or not Plaintiffs pleaded
that Greenhaven actually did provide such advice or services
is immaterial, despite Defendants’ suggestion to the contrary,
because CROA also applies to ‘represent[ing] that such
person can or will sell, provide, or perform’ the covered
14 STOUT V. FREESCORE
services.”); Greene v. CCDN, LLC, 853 F. Supp. 2d 739, 752
(N.D. Ill. 2011) (“A person need not actually attempt to
improve a consumer’s credit record, history, or rating in order
to meet the statutory definition. Instead, an organization need
only ‘represent’ that it can or will provide these services.”)
(quoting 15 U.S.C. § 1679a(3)(A)).
FreeScore’s website advertisements and TV commercial
represent that it provides a service for the purpose of assisting
a consumer in improving the consumer’s credit record,
history or rating. In interpreting such advertisements, a court
must look to the “overall net impression” of the subject
advertisement to determine what message a viewer may
reasonably ascribe to it. FTC v. Gill, 265 F.3d 944, 956 (9th
Cir. 2001) (internal quotation marks omitted).
FreeScore does more than merely provide credit reports.
It advertises on its website that it provides a “merged” “easy-
to-read Credit Report” which allows consumers to “[s]pot
damaging inaccuracies on [their] Free Credit Report at a
glance so [they] can quickly address incorrect information
dragging down [their] Credit Scores,” that it will “keep an
eye on [consumers’] Credit Reports at all three bureaus 24/7
so [they] don’t have to,” and that “[i]nstant email alerts notify
you when critical changes appear on your Credit Report so
you can make corrections fast!” Ben Stein states in
FreeScore’s television commercial, “FreeScore.com even
sends me an alert when there’s any change to my credit
report.” FreeScore clearly states that the express purpose of
credit monitoring, through services such as email alerts, is so
that steps may be taken to improve credit: “Learning to
manage your credit starts with getting informed about your
credit.”
STOUT V. FREESCORE 15
FreeScore affirmatively represents that its services can or
will improve, or help to improve, a consumer’s credit record,
history, or rating. On its FICO information page, FreeScore
clearly asks, “So how can you deal with or improve a FICO®
score?” (emphasis added). The page continues, “Many
people take years to micromanage their accounts, attempting
to repair a damaged credit score, and many find that the best
solution is preventative credit maintenance.” (emphasis
added). The page concludes, “Learning to manage your
credit starts with getting informed about your credit. That
means utilizing services like credit monitoring to find out
what may be changing in your credit history report; those
changes can have an immediate effect on your credit score.”
(emphasis added). Accordingly, FreeScore represents both
explicitly and implicitly that its services can improve or assist
in improving a consumer’s credit record, history, or rating.1
Furthermore, FreeScore offers services aimed at
improving future creditworthy behavior with prospective
promises of improved credit. It advertises on FreeScore.com
that consumers must “ensure [their] Credit Report is clean,”
“[s]pot damaging inaccuracies” on their credit reports, and
“start [their] climb to financial freedom” by utilizing the
services it offers. Its television commercial advertises that
consumers who use FreeScore will be able to “fix errors on
[their] credit report,” and that credit scores can determine
1
The fact that FreeScore has a self-serving disclaimer that it is not a
credit repair organization does not cure the representations it made that it
offers services that could improve a consumer’s credit. See Zimmerman
v. Puccio, 613 F.3d 60, 72 (1st Cir. 2010) (holding that defendants cannot
advertise that it would help improve clients’ credit ratings, but escape
liability under CROA by inserting a disclaimer in its contract about the
relevance of its services to the credit rating of its clients).
16 STOUT V. FREESCORE
whether consumers can “get a loan, a better interest rate, or
a new job.”
FreeScore views its services differently, maintaining that
it only made representations that it could provide information
regarding a consumer’s credit, and not that it could “improve”
a consumer’s credit. However, FreeScore’s advertisements
clearly go beyond merely providing information about one’s
credit. FreeScore even goes so far to recommend a course of
action to consumers, as its advertisements tell consumers to
use FreeScore.com to “[s]pot damaging inaccuracies,” and
use “[i]nstant email alerts” which notify them when “critical
changes appear on [their] Credit Report so [they] can make
corrections fast!” It is therefore not just the data that
FreeScore is selling; it is advice to the consumer on what the
consumer can or should do with that data. The overall net
impression communicated by FreeScore.com is that in order
to “repair a damaged credit score,” the “best solution” is to
“utilize[e] services like credit monitoring,” which “can have
an immediate effect on your credit score.”
Our conclusion that FreeScore is a “credit repair
organization” under CROA is consistent with decisions in
other courts. In In re National Credit Management Group,
LLC, 21 F. Supp. 2d 424 (D. N.J. 1998), the court concluded
that while the defendant did not actually provide credit repair
services as contemplated by CROA, it was nonetheless a
credit repair organization because it represented that it would
“provide consumers with a personal credit analysis by a
trained credit analyst who ‘will provide [them] with
information with respect to [their] profile so that [they] may
attempt to establish and/or re-establish [their] credit.’” Id.
at 457 (emphasis in original). Similarly, FreeScore, while not
actually providing credit repair services, has represented that
STOUT V. FREESCORE 17
it can or will sell, provide, or perform a service for the
purpose of providing advice or assistance to a consumer with
regard to improving a consumer’s credit record, history, or
rating.
Similarly, in Zimmerman v. Puccio, 613 F.3d 60 (1st Cir.
2010), the First Circuit concluded that services or “credit
counseling aimed at improving future creditworthy behavior
is the quintessential credit repair service.” Id. at 72. The
Court held that, “[t]he language of the Act does not bind the
concept of an improved credit record, credit history, or credit
rating to the literal alteration (‘repair’) of an historical record,
history, or rating.” Id.; see also Polacsek v. Debticated
Consumer Counseling, Inc., 413 F. Supp. 2d 539, 547
(D. Md. 2005) (“While perhaps aimed primarily at pure credit
repair organizations, the scope of [the CROA’s] language
also makes it clearly extendible, under appropriate
circumstances, to [credit counseling agencies]. If the
language of the Act reaches too far, it is for Congress—not
the Court—to take corrective action.”). The defendant in
Zimmerman, which was held to constitute a “credit repair
organization” under CROA, stated that its program would
“restore your credit rating,” “improve your credit,” and it was
“designed to help you get out of debt and improve your credit
rating.” Zimmerman, 613 F.3d at 72. These promises are
strikingly similar to those advertised by FreeScore, e.g.,
FreeScore.com will help consumers “[s]pot damaging
inaccuracies” on their credit reports to “ensure [their] Credit
Report is clean,” and help consumers “start [their] climb to
financial freedom.”
Finally, in Helms v. Consumerinfo.com, Inc., 436 F. Supp.
2d 1220, 1224–26 (N.D. Ala. 2005), the court concluded that
a company offering educational information only such as
18 STOUT V. FREESCORE
credit reports, credit scores, and credit monitoring was a
credit repair organization. While Helms involved explicit
representations by the defendant that its services would
improve consumers’ credit, FreeScore similarly gives the net
overall impression that its services would do just that.
Among the messages that FreeScore communicates is the
representation that in order to “repair a damaged credit
score,” the “best solution” is to “utiliz[e] services like credit
monitoring,” which “can have an immediate effect on your
credit score,” and that doing so would “improv[e]”
consumers’ FICO® scores.
FreeScore points to two other decisions to argue that the
definition of “credit repair organization” does not encompass
entities that provide credit information so consumers can
improve their own credit. See Hillis v. Equifax Consumer
Servs., Inc., 237 F.R.D. 491 (N.D. Ga. 2006); Plattner v.
Edge Solutions, Inc., 422 F. Supp. 2d 969 (N.D. Ill. 2006).
We believe that the plain language of the CROA is at odds
with those decisions. See, e.g., Zimmerman, 613 F.3d at 72
n.14 (“The theory put forward by the district court in Hillis
appears to be an outlier.”); Reynolds v. Credit Solutions, Inc.,
541 F. Supp. 2d 1248, 1255 (N.D. Al. 2008), vacated on
other grounds Picard v. Credit Solutions, Inc., 564 F.3d 1249(11th Cir. 2009) (“This court respectfully declines to follow
whatever relevant guidance is offered by Plattner and Hillis
because they both stray from the plain language of CROA.”).
B
Finally, the parties dispute whether Stout sufficiently
alleged that FreeScore violated provisions of the CROA. The
appropriate forum to consider this issue is the district court.
See Ecological Rights Found. v. Pac. Lumber Co., 230 F.3d
STOUT V. FREESCORE 19
1141, 1154 (9th Cir. 2000) (recognizing this Court may
affirm on any basis supported by the record, but “[w]hen the
efficiency interest no longer obtains because the case will
have to be remanded in any event, there is no reason to forego
the usual preference for prior trial court considerations of all
issues in a case.”).
IV
For the foregoing reasons, we REVERSE the district
court’s Order granting FreeScore’s motion to dismiss Stout’s
class action complaint and REMAND the case to the district
court for further proceedings.
REVERSED AND REMANDED.