In Roberts v. Carter-Young, Inc., 2023 WL 4366059 (N.D. N.C. 2023), Magistrate Auld dismissed an FCRA claim grounded in a legal dispute surrounding the product that was financed.

Critically, “[a] legal dispute on the underlying debt is a collateral attack on the credit report and is insufficient to sustain a FCRA claim.” Wilson v. Chrysler Cap., No. 19-CV-975, 2019 WL 12107374, at *3 (M.D.N.C. Nov. 14, 2019). Put another way, “a plaintiff’s allegations of inaccurate reporting must dispute facts underlying the reporting rather than present legal defenses to paying the debt at issue.” Perry v. Toyota Motor Credit Corp., No. 1:18-CV-34, 2019 WL 332813, at *7 (W.D. Va. Jan. 25, 2019); see also Hunt v. JPMorgan Chase Bank, Nat’l Ass’n, 770 F. App’x 452, 458 (11th Cir. 2019) (holding that “[a] plaintiff must show a factual inaccuracy rather than the existence of disputed legal questions to bring suit against a furnisher under § 1681s-2(b)”); Chiang v. Verizon New England Inc., 595 F.3d 26, 38 (1st Cir. 2010) (same). Legal disputes regarding debts cannot sustain FCRA claims against furnishers of information because furnishers need only conduct reasonable investigations, see Johnson, 357 F.3d at 431, and they “[are] n[ot] qualified … to resolve” legal questions, DeAndrade v. Trans Union LLC, 523 F.3d 61, 68 (1st Cir. 2008). As a result, “the federal courts of appeals and district courts that have addressed this question are in widespread agreement that a plaintiff’s legal challenge to the validity of a debt is alone insufficient to make a report of that debt factually inaccurate.” Holland v. Chase Bank USA, N.A., 475 F. Supp. 3d 272, 276 (S.D.N.Y. 2020) (collecting cases). Two circuit courts have suggested that furnishers must consider legal issues related to a debtor’s alleged liability. See, e.g., Gross v. CitiMortgage, Inc., 33 F.4th 1246, 1253 (9th Cir. 2022) (justifying holding on conclusion that “[f]urnishers[ ] stand in a far better position [than CRAs] to make a thorough investigation of a disputed debt” (internal brackets and quotation marks omitted)); Denan v. Trans Union LLC, 959 F.3d 290, 295 (7th Cir. 2020) (in dicta, positing that “it makes sense that furnishers shoulder this burden: they assumed the risk and bear the loss of unpaid debt, so they are in a better position to determine the legal validity of a debt”). However, the contrary view (that the FCRA does not impose a duty on furnishers to resolve legal questions), “certainly appears to represent the prevailing view.” Mohnkern v. Equifax Info. Servs., LLC, No. 19-CV-6446L, 2021 WL 5239902, at *6 (W.D.N.Y. Nov. 10, 2021). In deference to that prevailing view, the Court should conclude that Plaintiff has failed to state a FCRA claim because her disputes regarding the debt rest on legal contentions rather than factual inaccuracies. As detailed throughout the Complaint, Plaintiff does not contest that she resided at Ansley, that Ansley sent her an invoice for damages after she vacated her apartment, or that she refused to pay said invoice. (See Docket Entry 1 at 2-4.) Rather, the Complaint contends that the charges from Ansley “never occurred,1 were ordinary wear and tear items, or were grossly overstated.” (Id. at 3.) Due to her prior history with Ansley, Plaintiff alleges that the charges “w[ere] completely fraudulent and retaliatory.” (Id.) Specifically, the Complaint challenges a charge of over $500 to repair an oven when “the only damage asserted was that the door handle to the oven had become detached from the oven door” (id.); in Plaintiff’s view, “the lease agreement, as well as the landlord’s obligations under N.C.G.S. § 42-42, [categorize that as] an ordinary maintenance issue” (id.) for which Ansley could not charge Plaintiff, i.e., a legal defense to the debt. In that regard, tasking Defendant with investigating (and adjudicating) the validity of the debt (on the grounds Plaintiff raised) would have required Defendant to interpret Plaintiff’s lease and North Carolina landlord-tenant law. But the FCRA does not impose on Defendant an “obligation to resolve legal disputes between a consumer and a creditor.” Alston v. Branch Banking & Tr. Co., No. 15-CV-3100, 2016 WL 4521651, at *10 (D. Md. Aug. 26, 2016).

The Magistrate judge rejected application of the 9th Circuit’s decision in Gross: 

Plaintiff’s Response goes on to cite the Ninth Circuit’s decision in Gross for the proposition that the “FCRA will sometimes require furnishers to investigate, and even to highlight or resolve, questions of legal significance,” Gross, 33 F.4th at 1253. (See Docket Entry 5 at 11.) But that case involved the defendant reporting an outdated junior mortgage as an active debt, even though Arizona’s Anti-Deficiency Statute had abolished the mortgage as a result of foreclosure proceedings years before the defendant’s report. See Gross, 33 F.4th at 1249. Thus, in Gross, some prior operation of law (akin, as the Ninth Circuit said, to bankruptcy proceedings that result in discharge, see id. at 1252) had rendered the debt invalid. As a result, the defendant in Gross did not need to resolve a legal issue, only ascertain that resolution of a legal issue had previously occurred. Plaintiff cannot make the same argument in this case, because no one had evaluated the legal questions Plaintiff presented in the Complaint, such as (1) whether Ansley could retain Plaintiff’s security deposit for ordinary wear and tear, and (2) whether Ansley could charge Plaintiff the full replacement value of a stove when the alleged damage consisted of a broken door handle.2 Moreover, even if the Court agreed with the Ninth Circuit’s view that “[t]he distinction between ‘legal’ and ‘factual’ issues is [at times] ambiguous,” id. at 1253, this case does not present one of those situations, and, in any event, such a conclusion would run counter to the consensus view of “the federal courts of appeals and district courts that have addressed this question,” Holland, 475 F. Supp. 3d at 276; accord Mohnkern, 2021 WL 5239902, at *6.  The Response concludes by arguing that, even if furnishers bear no obligation to resolve legal questions, the issues Plaintiff raised with regards to the Ansley debt constitute factual issues. (See Docket Entry 5 at 14-20.) In particular, the Response states that Defendant did not have to find that Ansley retaliated against Plaintiff as a matter of law because “Ansley’s retaliatory motive is not a legal defense [but rather] an explanation for why Ansley would falsify the debt.” (Id. at 14-15.) Similarly, the Response contends that Plaintiff “us[ed] the terms ‘fraud’ and ‘fraudulent’ as those terms are defined in common usage.” (Id. at 15-16.) As a result, Plaintiff argues that there “were at least three specific factual contentions [Defendant] could have investigated” (id. at 16), including whether the damages occurred, whether Ansley exaggerated other damages, and whether Ansley replaced the stove in Plaintiff’s apartment, or simply reattached the broken handle (see id.). In Plaintiff’s view, “[t]hese facts were all subject to reasonable investigation and, if found to be true, would have required Defendant to delete, or at least substantially modify, its reporting of the Ansley claim.” (Id.) The Court should reject this argument, because Plaintiff failed to address why Defendant would have had to modify its report, and the “why” would require Defendant’s interpretation and application of a legal instrument (Plaintiff’s lease) or state law. Perhaps, as Plaintiff insists, Defendant could have further investigated the charges from Ansley (even though, to repeat, the reasonableness of an investigation turns on the “information within the furnisher’s possession,” Daugherty, 701 F. App’x at 253 (emphasis added)). But even if Defendant had done so, any conclusion it could have made that certain charges fell within the category of “wear and tear,” or that others “were grossly overstated” (and therefore not collectible), would, in order to have any meaning, necessarily require Defendant to refer to Plaintiff’s lease or state law. Absent reference to applicable legal principle, these phrases represent nothing more than conclusory labels. Put another way, even if Defendant had found fault with some or all of the charges comprising the Ansley debt, the fact of Plaintiff’s debt to Ansley would have remained unchanged; Defendant holds neither the statutory obligation nor authority to extinguish a consumer’s debt. Ergo, Plaintiff did not identify a factual inaccuracy with the report, and instead sought to (impermissibly) leverage the FCRA to collaterally attack her debt with Ansley.

The Magistrate Judge ultimately concluded that the FCRA cannot be used as a collateral attack on an existing legal dispute regarding the debt.

Plaintiff appears to (at least implicitly) recognize that her dispute over the debt entails legal questions, insofar as she goes on to assert that “[n]o court … has ever held that a CRA or a furnisher is entitled to be willfully ignorant of basic legal principles or of the terms of any legal documents” (Docket Entry 5 at 18), and that “[t]here is nothing controversial about the contention that a landlord has an obligation to repair ordinary wear and tear items at its own expense” (id.). To Plaintiff, then, furnishers must answer legal questions so long as they qualify as “basic” or “not[ ] controversial.” The FCRA, however, requires that furnishers scrutinize factual issues, not participate in abstract legal, line-drawing exercises.   In sum, “[d]etermining whether [Plaintiff] was entitled to [refuse] making [ ] payment [on the debt wa]s a question for a court to resolve in a suit against [Ansley] – and [Plaintiff] did file a state suit against [Ansley] – not a job imposed upon [Defendant] by the FCRA.” DeAndrade, 523 F.3d at 68. Unlike some other cases, “[t]he legal status of [Plaintiff’s] debt had [not] already been decided by order of the court[ ]. Thus, per the allegations in Plaintiff’s Complaint, there was [a] legal issue remaining for Defendant to determine.” Campbell v. Equifax Info. Servs., LLC, No. 4:18-CV-53, 2019 WL 1332375, at *7 (S.D. Ga. Mar. 25, 2019) (emphasis added). Moreover, the FCRA only requires that Defendant conduct a reasonable investigation of the facts underlying a disputed debt, see Johnson, 357 F.3d at 431; it does not mandate that Defendant resolve legal questions, a function for which Defendant “is n[ot] qualified,” DeAndrade, 523 F.3d at 68. Accordingly, because the Complaint fails to “show a factual inaccuracy [in Defendant’s reports],” Hunt, 770 F. App’x at 458, her claim constitutes “an impermissible collateral attack on the debt,” and she has thus “failed to state a claim against [Defendant] for violating [the FCRA],” Jones, 2020 WL 2062325, at *6.