A District Court judge in New Jersey has denied a defendant’s motion to strike the class allegations in a consumer’s Fair Credit Reporting Act lawsuit, ruling that a class action waiver buried inside an arbitration agreement the plaintiff signed after the alleged inaccuracy appeared on her credit report cannot be used to keep her from pursuing claims on behalf of others.
The background: The plaintiff paid off her mortgage in 2021, and the defendant reported it that way for nearly two years. Then, while she was trying to get qualified for a new mortgage through a broker, she was denied.
- When she pulled her reports, both the defendant and another credit reporting agency showed the mortgage as paid off, but the defendant’s report also carried an “FS” code, which its own glossary defines as “foreclosure proceedings started.”
- About a month later, the plaintiff signed up for the defendant’s credit monitoring product by completing a single webform and accepting a Terms of Use agreement containing an arbitration clause with a class action waiver embedded in it.
- She sued under the FCRA, alleging a failure to assure maximum possible accuracy, and sought to represent a class of consumers whose reports showed a foreclosure status on a mortgage previously reported as paid off, going back two years before the complaint.
- The defendant moved to compel arbitration. The judge initially ordered limited discovery, the Court of Appeals for the Third Circuit sent the question to an arbitrator, and the arbitrator found the claims fell outside the agreement because the reporting occurred before the plaintiff ever signed it.
- Back in court, the defendant moved to strike the class allegations or, alternatively, for partial summary judgment, arguing the plaintiff had waived her right to bring class claims.
The ruling: Judge Michael A. Shipp of the District Court for the District of New Jersey held that the motion to strike was premature, since class certification has not been sought and no discovery has taken place, and it was “not clear from the face of the Complaint that the requirements of Rule 23 cannot be satisfied as a matter of law.”
- On the summary judgment request, Judge Shipp acknowledged that nobody disputes the arbitration agreement is valid and that class waivers can be enforced in New Jersey. The problem was timing: the plaintiff “did not enter into this agreement until after the events that form the basis of Plaintiff’s Complaint took place,” and her proposed class period reaches back nearly two years before she signed.
- The judge also noted that “all references to waiving the right to participate in a class action are contained within the arbitration agreement itself,” and that “there appears to be no separate and distinct class action waiver.” Because the arbitrator already found the claims outside that agreement, the waiver inside it does not govern the dispute.
- The judge cited a comparable ruling from the Eleventh Circuit, where a class waiver was held not to apply once the underlying claims were found not subject to arbitration.
