Case: 15-10533      Document: 00513443431         Page: 1    Date Filed: 03/29/2016




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                           United States Court of Appeals
                                                                                    Fifth Circuit

                                      No. 15-10533                                FILED
                                                                            March 29, 2016
                                                                             Lyle W. Cayce
KELLY HALL; JOHN CROWDER, JR.,                                                    Clerk

              Plaintiffs - Appellants

v.

PHENIX INVESTIGATIONS, INCORPORATED; WOOD, THACKER;
WEATHERLY, P.C.; R. WILLIAM WOOD; C. JANE THACKER; SAMUEL B.
BURKE,

              Defendants - Appellees




                   Appeal from the United States District Court
                        for the Northern District of Texas
                              USDC No. 3:14-CV-665


Before STEWART, Chief Judge, and OWEN and COSTA, Circuit Judges.
PER CURIAM:*
       Kelly Hall and John Crowder, Jr. sued Phenix Investigations, Inc. and
the Law Firm Defendants 1 for violations of the Fair Credit Reporting Act
(FCRA) and the Fair Debt Collection Practices Act (FDCPA). The complaint



       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
       1The Law Firm Defendants are Wood, Thacker & Weatherly, P.C., and Samuel B.
Burke, R. William Wood, C. Jane Thacker, who are all attorneys at the firm.
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alleges that the Law Firm Defendants hired Phenix to gather information
about the Plaintiffs’ financial assets. As part of that process, Phenix allegedly
contacted two banks and impersonated Plaintiffs in order to obtain information
about their accounts. The district court dismissed the lawsuit at the pleading
stage, finding that Plaintiffs had not sufficiently alleged that Phenix’s reports
were consumer reports under the FCRA and that the FDCPA did not apply
because any debt the Defendants were trying to collect was commercial rather
than consumer in nature. For the reasons that follow, we AFFIRM.
                                          I.
       This federal suit was a response to two state lawsuits. In the first,
Carroll Family Investments, Ltd, obtained a state court judgment against
Texas Wing 2 corporate entities for $869,950. That case involved a commercial
lease dispute that arose from the asset sale of multiple Hooter’s restaurants.
       While the first lawsuit was making its way through the appellate process
(it is now final), Carroll filed a second lawsuit against Hall and Crowder, both
of whom were Texas Wing investors. Carroll alleged that Hall and Crowder
fraudulently transferred money from Texas Wing to their own personal
accounts in order to avoid paying the judgment owed from the prior suit. It
was in connection with this second lawsuit that the Law Firm Defendants
allegedly hired Phenix Investigations to obtain Hall and Crowder’s financial
information. The Law Firm Defendants then used this information to obtain
a temporary restraining order and temporary injunction that prevented Hall
and Crowder from disposing of any funds held at certain banks and also
required them to each maintain a minimum balance in their accounts. The




       For simplicity, this Opinion uses Texas Wing to refer jointly to Texas Wing, Inc. and
       2

TWI XVIII, Inc., which are related corporate entities. The judgment was issued against both
companies.
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                                  No. 15-10533
parties ultimately settled the transfer lawsuit.
      That brings us to the lawsuit before this court that raises the FCRA and
FDCPA claims. The Law Firm Defendants and Phenix each filed Rule 12(b)(6)
motions to dismiss.     Before the district court ruled on the motions, the
Plaintiffs repleaded on their own initiative.       The Defendants again filed
motions to dismiss.    The district court dismissed the claims, but granted
Plaintiffs leave to amend.     Another round of motions to dismiss followed
Plaintiffs’ third complaint. The district court found that the pleading defects
had still not been cured and dismissed the case.
                                      II.
      We review the Rule 12(b)(6) dismissal de novo, viewing well-pleaded
factual allegations as true and “in the light most favorable to the plaintiff[s],”
making all reasonable inferences in their favor. R2 Invs. LDC v. Phillips, 

, 642 (5th Cir. 2005). But that standard does not allow a court to
accept “conclusory allegations, unwarranted deductions, or legal conclusions.”
Id.; see also Ashcroft v. Iqbal, 

, 678 (2009).
      Among other elements required to state an FCRA claim, Plaintiffs must
allege that there was a “consumer report.” 15 U.S.C. § 1681b. The statute
defines “consumer report” in a way you might expect; it includes information
by a consumer reporting agency bearing on a consumer’s credit worthiness,
credit standing, and so forth, for the purpose of determining the consumer’s
eligibility for credit or insurance. But consumer reports may serve additional
purposes under the Act, including the purpose Plaintiffs invoke: “collection of
an account of[] the consumer.” See 15 U.S.C. §§ 1681a, 1681b.
      The live pleading alleges that Phenix’s reports qualify as consumer
reports because they are related to debt collection. In support, Plaintiffs point
to Phenix’s website, which states that it provides “litigation support” services,
including “debt collection.” Their theory is that because Phenix prepared a
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                                     No. 15-10533
report for litigation support, which according to its own advertising might
include debt collection activities, the report qualifies as a consumer report. 3
The problem with this argument is that it assumes that because Phenix’s
litigation support activities sometimes include potentially qualifying purposes
under the Act, that it therefore included a qualifying purpose in Plaintiffs’ case.
Without any factual connection to collection of a consumer account in their
actual case, the Plaintiffs have only made a conclusory allegation. As the
district court explained, it is not reasonable to infer that the report was made
for such a purpose because the Plaintiffs conceded in their complaint that the
report was commissioned for use in ongoing commercial litigation, which is not
a qualifying purpose. See Ippolito v. WNS, Inc., 

445, 450–54 (7th
Cir. 1988), abrogated on other grounds by Safeco Ins. Co. of Amer. v. Burr, 

(2007) (recognizing that use of reports in trademark litigation is a
commercial purpose and therefore cannot constitute “consumer reports” under
the Act); see also Cavaliere v. Burke, 

, at *3–4 (5th Cir. 1995) (per
curiam) (citing Ippolito favorably and noting that “not every credit report is a
consumer report” under the FCRA).
      Ippolito held that reports containing an individual’s credit information
were not consumer reports when used in a trademark litigation dispute, even
though the preparer thought the reports would be used to evaluate prospective
franchisees, because both such uses involved commercial, rather than
consumer 

–45, 451–54. Although the underlying
lawsuit did not involve a debt, the court’s reasoning focused on the commercial
purpose of the lawsuit in which the reports were used. 

As in
Ippolito, the purpose of the lawsuit here is commercial in nature because it



      3 The second amended complaint concedes that other activities listed under litigation
support are not qualifying purposes under the Act.
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arose out of a commercial lease dispute. See 

(stating that “reports
collected for business, commercial, and professional purposes do not fall under
the FCRA” (internal quotations and citations omitted)); see also Bacharach v.
Suntrust Mortg., Inc., 

, at *3–4 (E.D. La. Oct. 23, 2015)
(“[T]he FCRA does     not   apply      where    a consumer report is      used    for
business purposes.”) (citing cases).
      Even assuming that filing a lawsuit to collect on a judgment could
constitute the collection of a consumer account within the meaning of the
FCRA, there is no collection of a consumer account here because the judgment
arose from a commercial transaction. Numerous courts have concluded that
the FCRA does not cover reports used or expected to be used only in connection
with commercial business transactions. Bacharach, 

, at *3–
4 (surveying cases and concluding that the FCRA does not cover reports
created for “business purposes”); Grigoryan v. Experian Info. Sols., Inc., 84 F.
Supp. 3d 1044, 1081–82 (C.D. Cal. 2014) (the same); see also 

(holding that reports used or expected to be used for commercial
purposes do not qualify under the FCRA); Matthews v. Worthen Bank & Trust
Co., 

, 219 (8th Cir. 1984) (holding that report’s “use[] solely for a
commercial transaction” was not a qualifying purpose); Johnson v. Wells Fargo
Home Mortg., Inc., 

, 1121–27 (D. Nev. 2008) (explaining
that information in report collected solely for commercial purposes in
connection with plaintiff’s business did not qualify as a consumer report);
Lucchesi v. Experian Info. Sols., Inc., 

, 173–74 (S.D.N.Y. 2005)
(holding that FCRA does not apply to report, even one containing consumer
information, where the report was created for use in connection with the
plaintiff’s business transaction).
      Aside from its commercial nature, there is an additional reason why the
debt arising out of the first lawsuit was not “an account of[] the consumer,” 15
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U.S.C. § 1681b (emphasis added): it was imposed against corporate entities.
As the nature of the state court litigation rejects any conclusory allegation that
Phenix was creating a “credit report” for the purpose of collecting on a
consumer account, the FCRA claim fails.
       The commercial nature of the underlying dispute also dooms Plaintiffs’
FDCPA claims even though the two federal statutes have different frameworks
and terms. To state an FDCPA claim, Plaintiffs must first allege that they
have been the object of collection activity arising from “debt.” See, e.g., Douglas
v. Select Portfolio Servicing, Inc., 

, at *4 (S.D. Tex. Mar. 11,
2015) (setting forth the elements of a FDCPA claim); Sibley v. Firstcollect, Inc.,

, 471 (M.D. La. 1995) (the same). The FDCPA defines “debt”
as:
       “[A]ny obligation or alleged obligation of a consumer to pay money
       arising out of a transaction in which the money, property, insurance, or
       services which are the subject of the transaction are primarily for
       personal, family, or household purposes, whether or not such obligation
       has been reduced to judgment.”

15 U.S.C. § 1692a(5) (emphasis added).
       Plaintiffs argue that the judgment debt arose from “personal
investments made for personal purposes” in Texas Wing, so it qualifies as a
“debt” under the Act. Yet any disputed debt that the second state lawsuit
sought to collect arose out of the first suit involving the Hooter’s lease, which
Plaintiffs rightly admit was “commercial in nature.” See First Gibraltar Bank,
FSB v. Smith, 

, 134–36 (5th Cir. 1995) (collection efforts related to
personal guaranty of business debt are not “debts” within the meaning of the
FDCPA because they are not for personal purposes); Scarola Malone &
Zubatov LLP v. McCarthy, Burgess & Wolff, 

, at *1–2 (2d Cir.
Feb. 11, 2016) (holding that debt, even if not actually owed, “stem[ming] from
telecommunication services provided by Verizon to [law firm] . . . ar[ose] out of
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a commercial transaction and [was] not covered by the FDCPA”); Goldman v.
Cohen, 

, 154 n.1 (2d Cir. 2006) (“[A]ctions arising out of
commercial debts are not covered by the protective provisions of the FDCPA.”);
Garza v. Bancorp Grp., Inc., 

, 71–72 (S.D. Tex. 1996) (holding
that debt from equipment installed at two commercial establishments, even
though used to provide security to family members working at the stores, “d[id]
not transform the purpose into a noncommercial one” and was therefore not
qualifying “debt” under the FDCPA). Once again the commercial nature of the
debt rebuts any conclusory allegation that there was a consumer debt subject
to the FDCPA. And additional support for this conclusion is again found in the
fact that the judgment in the first lawsuit was entered against Texas Wing
corporate entities. That means there was no “obligation of a consumer” (15
U.S.C. § 1692a(5)) being collected in the second lawsuit. The second lawsuit
essentially sought to hold the individuals liable for that corporate obligation;
it was not seeking to collect a preexisting personal debt.
      AFFIRMED.




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