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Outside counsel may have slid through the cracks on FCRA ruling

March 3rd, 2014  |  Sheryl Allenson

An outside counsel who performed a background investigation that led to an employee’s termination was able to convince the federal district court for the District of Columbia that he was not a consumer reporting agency under the Fair Credit Reporting Act, even though the court acknowledged that 1996 amendments to the Act imposed certain obligations on “a person” who procured a consumer report or caused such a report to be procured. Although relying on persuasive authority from another jurisdiction in deciding that the outside counsel fell outside the scope of the FCRA, the court seemed to ignore persuasive authority from the Federal Trade Commission on its interpretation of the Act.

Investigation ends in discharge. In Mattiaccio, G, II v DHA Group, Inc, the employee (plaintiff here) learned from HR that there was a “complaint against personnel at the company.” About two weeks later, he was placed on administrative leave until further notice because of “information coming to light that requires additional review and investigation.” On the same day the employee was placed on leave, his employer engaged the employer’s outside counsel (defendant here) to conduct a post-employment background check on the employee. Apparently, it seemed that a day after the employee was placed on leave, a coworker provided the HR manager with information that the employee had been convicted of perjury.

By the employee’s own admission, the outside counsel performed other work in addition to background investigations. In the course of his investigation of the employee, the attorney used a computer database that according to the employee contained many inaccuracies. Despite the employee’s portrayal of the information, he was terminated. The employer issued a termination letter, asserted that he had failed to disclose prior convictions, and claimed he was terminated because he was “far less than candid with [the employer] with respect to important and relevant aspects of his background and experience.” A copy of the outside counsel’s background investigation report was also attached, which the employee said inaccurately portrayed that he was convicted of assault and battery.

FCRA claims filed. The employee filed suit against, among others, his employer and the outside counsel, alleging violation of the FCRA and state law. The employee relied on Secs. Secs. 1681(b)(2)(A) and (b)(3)(A), as well as 1681(a)(1)(A), claiming that outside counsel “improperly and unlawfully obtained [the employee’s] credit report, criminal history, civil history, prior employment information, and attempted to obtain information about drug use by [the employee], all without proper authorization from [the employee].” He also claimed that outside counsel failed to provide him with a summary of rights under the FCRA or the required “pre-adverse action” and “adverse action” notices. Finally, the employee claimed that outside counsel violated the FCRA by failing to respond to requests to correct erroneous information in the report. The employer’s outside counsel filed a motion to dismiss.

Getting around FCRA. Initially, things were not looking good for the attorney. Because there were factual disputes raised relating to outside counsel’s argument that his background check was not a consumer report and that the employee provided authorization for a background check, the court was not in a position to make a ruling on a motion to dismiss. Ironically, the court rejected the outside counsel’s argument that he could not be a consumer reporting agency as a user of consumer information, noting that the defendant’s reliance on case law was misplaced because it was based on the pre-1996 Act. While the court explained that the 1996 FCRA amendments imposed obligations on “a person” who procures a consumer report or causes such report to be procured, the court seemed disinclined to stretch this to require that outside counsel to comport with FCRA requirements when conducting background investigations.

Instead, the court turned to persuasive authority from the Northern District of Illinois, finding that outside counsel was an attorney-agent of the employer. There was “nothing in the FCRA that would require the imposition of independent FCRA obligations on an attorney-agent to the detriment to the attorney-client relationship,” said the court. Analogizing to cases involving an agency relationship, the court noted that in this instance, as in the Illinois decision, the defendant acted at the employer’s behest as its attorney-agent, preparing and evaluating the employee’s background information.

Although the court adopted persuasive authority from the Northern District of Illinois, it seemed to ignore persuasive authority from the FTC interpreting the FCRA’s provisions relating to a whether a third-party, here an attorney, should be considered a consumer reporting agency. While the outcome might have been the same if the court had considered all of the authority, it seems here the outside counsel may have slid by with the court’s decision that he was not a consumer reporting agency.