Sixth Circuit Upholds Jury Award Of Compensatory Damages Against CRA Under The FCRA For Negligence, But Vacates Punitive Damages Award

Date   Sep 22, 2016

Executive Summary: The Sixth Circuit Court of Appeals in Smith v. LexisNexis Screen Solutions, Inc., __ F. 3d ___, 2016 WL 4761325 (6th Cir. September 13, 2016), recently upheld a jury verdict in favor of a plaintiff in a Fair Credit Reporting Act (FCRA) case, who was initially denied a job due to an error made by LexisNexis Screen Solutions, Inc. (Lexis) in performing a background check. The Sixth Circuit found that the evidence supported the jury’s verdict that Lexis was negligent and upheld the $75,000 compensatory damages award, but found no evidence of willfulness and reversed the punitive damages award.


The plaintiff, David Alan Smith (Smith), applied for employment with Great Lakes Wine and Spirits (Great Lakes) after his employer was sold to Great Lakes. He was given a conditional offer of employment subject to the successful completion of a credit check and criminal history check. Smith consented to the checks and supplied personal information to Great Lakes including his full name and social security number. Great Lakes contracted with Lexis, a third party consumer reporting agency (CRA), to perform background checks. After being provided with Smith’s first and last name, in accordance with their standard procedures, and Smith’s social security number, Lexis obtained a credit report from Equifax, which listed Smith’s name as David A. Smith.

Lexis also searched its data base and located a criminal record in Florida for a David Smith with the same date of birth as Smith. However, the David Smith with the criminal record had the middle name “Oscar,” which Lexis could not exclude because it did not receive Smith’s middle name from Great Lakes. The criminal record also did not have a social security number. Lexis included the criminal record in the report it sent to Great Lakes.

After receiving the report from Lexis, Great Lakes sent Smith a letter rejecting his employment application and indicating, among other things, that the decision was “influenced by information in a consumer report.” A copy of the report was included with the letter. Smith contacted Great Lakes to advise that the report was inaccurate and was directed to contact Lexis directly. Smith contacted Lexis, advised Lexis of the inaccuracy, and provided a copy of his driver’s license. Following an investigation, Lexis corrected the report and notified Smith by letter that the disputed criminal history had been removed. Great Lakes then hired Smith as a delivery driver, which was approximately six weeks after the original employment offer was withdrawn.

FCRA Litigation

Thereafter, Smith sued Lexis alleging violations of the FCRA, specifically that Lexis failed “to follow reasonable procedures that would assure maximum possible accuracy in the information it reported to Great Lakes.” The case was tried to a jury, which returned a verdict against Lexis, finding that Lexis negligently and willfully violated the FCRA. The jury awarded Smith $75,000 in compensatory damages and $300,000 in punitive damages. The trial court denied Lexis’s motion for a new trial, but reduced the punitive damages award to $150,000. Both Lexis and Smith appealed.

The Sixth Circuit found sufficient evidence to sustain the jury’s finding that Lexis negligently violated the FCRA. The Court noted that Section 1681e (b) of the FCRA requires consumer reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report related.” Given that the plaintiff’s name is David Smith, a common name shared by 125,000 people living in the United States, the Court reasoned that the jury could have concluded “that a reasonably prudent CRA, when presented with such a common name, would have required additional identifying information-like a middle name-to heighten the accuracy of its reports.” Additionally, the fact that Lexis already had a field for middle names on the form that Great Lakes filled out tipped the scales against Lexis. Furthermore, the Sixth Circuit noted that the Equifax credit report contained the name “David A. Smith” in contrast with the criminal record that contained the name “David Oscar Smith.” Since Lexis could have cross-referenced the name on the credit report with the name on the criminal record, the Court found this provided additional support for the jury’s finding of negligence.

However, the Court rejected Smith’s argument that Lexis engaged in willful misconduct by failing to require a middle name. To willfully violate the FCRA “a CRA’s action must entail ‘an unjustifiably high risk of harm that is either known or so obvious that it should be known.’” (quoting Safeco Ins. Co. of Am v. Burr, 551 U.S. 47, 68 (2007)). The Court noted Lexis’s efforts to combat inaccuracies by “requiring an individual’s first name, last name, and birthdate, and also-when provided-using a middle name and Social Security number” as well as its low dispute rate of .2 percent. Moreover, the Court stated that under Sixth Circuit precedent “a single inaccuracy, without more, does not constitute a willful violation of the FCRA.” The Court further found there was no evidence that others had made similar complaints against Lexis, that the low dispute rate demonstrated that the procedures used were “generally reliable,” and that Lexis promptly corrected the error when it was brought to its attention. The Sixth Circuit held that the district court should have granted Lexis’s motion for judgment as a matter of law on Smith’s willfulness claim.

The Court then held that there was sufficient evidence to support the jury’s award of $75,000 in compensatory damages, rejecting Lexis’s contention that the testimony in support of damages was “conclusory.” The Sixth Circuit noted that Smith and his wife both testified “that Smith was depressed, angry, stressed, and ‘down in the dumps’ due to their financial woes when he was unemployed.” Smith also testified that he felt ashamed when he had to borrow money from relatives while he was unemployed and that a store owner in his community jokingly referred to Smith as his “favorite felon.” The Court also affirmed the district court’s order denying Lexis’s motion for remittitur on the compensatory damages award. While noting that the award was higher than compensatory damages awards in the cases cited by Lexis based on the number of weeks that it took Lexis to correct the report, the Court stated that “juries are not required to award compensatory damages based only on the temporal extent of suffering.”

Finally, the Court reversed the jury’s award of punitive damages to Smith, since punitive damages can only be awarded under the FCRA for willful violations, and the Court found that there was no evidence of willful conduct in the record.

Employers' Bottom Line

The Sixth Circuit’s decision in Lexis underscores the importance of exercising extra caution in conducting background checks in situations involving applicants with common names. It also stands for the proposition that significant compensatory damages awards in FCRA cases will not be set aside on appeal where there is testimony from the plaintiff and his/her witnesses that emotional harm resulted from the negligence of the defendant. In addition, employers should remain vigilant and strictly follow the requirements of the FCRA when using a third party CRA to conduct background checks.

If you have any questions regarding this decision or other labor or employment issues, please contact the author of this Alert, Greg Grisham Greg is a partner in our Nashville office. You may also contact the FordHarrison attorney with whom you usually work.