Westlaw Journal Class Action

The U.S. Supreme Court’s recent decision in Spokeo Inc. v. Robins, 136 S. Ct. 1540 (2016), represents a critical turning point in class-action litigation.

At issue in Spokeo was whether Congress may confer Article III standing on a plaintiff who has suffered no concrete harm, and who therefore could not otherwise invoke federal jurisdiction, by authorizing a private right of action based on a minor or technical statutory violation.

The Supreme Court reaffirmed that plaintiffs must have Article III standing to bring suit and that standing rules require plaintiffs to show they were concretely injured by defendants’ alleged actions.

It remains to be seen just how much impact the case will have, but the court’s resolution of this case already appears to be making it difficult for plaintiffs to establish Article III standing in privacy and consumer class actions.

The Fair Credit Reporting Act

The Fair Credit Reporting Act, 15 U.S.C.A. § 1681, limits the circumstances in which consumer credit agencies may provide reports in response to employment-related inquiries.

The FCRA also requires agencies to take reasonable steps to ensure the accuracy of consumer reports, to issue certain notices along with the credit information, and to publish toll-free telephone numbers consumers can use to request the reports.

A reporting agency that violates any of those provisions negligently could be liable for actual damages, attorney fees and costs.

A plaintiff who alleges a “willful” violation, on the other hand, may seek either actual damages or statutory damages of up to $1,000. A consumer who alleges a willful violation may also seek punitive damages.

The distinction between allegations of negligent and willful conduct is critical. Under the FCRA’s liability scheme, a plaintiff who alleges a willful violation can circumvent normal standing rules and obtain statutory damages without proving actual harm.

Statutory Damages Abound

The FCRA is hardly the only law that provides for statutory damages irrespective of whether a plaintiff suffered actual harm.

Other consumer protection measures that rely on similar enforcement schemes include the Telephone Consumer Protection Act, 47 U.S.C.A. § 227(b)(3)(B); the Truth in Lending Act, 15 U.S.C.A. § 1640(a); the Fair Debt Collection Practices Act, 15 U.S.C.A. § 1692k(a); the Video Privacy Protection Act, 18 U.S.C.A. § 2710(c)(1); and the Cable Communications Privacy Act, 47 U.S.C.A. § 551(f)(1).

Those laws, along with the FCRA and others like them, have long proven attractive targets for plaintiffs’ attorneys because of the lucrative statutory damages they offer.

The TCPA may reflect the problem most acutely.

One serial plaintiff, for instance, hired staff to log every phone call he received, issued demand letters to callers he accused of violating the statute, filed 165 lawsuits and negotiated quick settlements. Kinder v. Allied Interstate, No. E047086, 2010 WL 2993958 (Cal. Ct. App., 4th Dist. Aug. 2, 2010).

Law firms specializing in the TCPA have even released mobile apps — with titles like “Block Calls Get Cash”1 and “Stop Calls Get Cash”2 — that help users track calls and communicate about potential TCPA actions.

Similar State Statutes

Such abuse has not been limited to the federal level. States, too, have statutory damage schemes for technical violations detached from any real injury.

For example, New Jersey’s Truth-in- Consumer Contract, Warranty and Notice Act, N.J. Stat. Ann. § 56:12-15, prohibits sellers from “offer[ing] to any consumer or prospective consumer or enter[ing] into any written consumer contract or giv[ing] or display[ing] any written consumer warranty, notice or sign” that “violates any clearly established legal right of a consumer.”

A seller that violates the TCCWNA is liable for statutory damages of at least $100 per plaintiff, actual damages or both, at the election of the consumer.

New Jersey plaintiffs have argued successfully that the TCCWNA imposes statutory penalties for mere technical violations of state and federal laws affecting consumer rights.

Consumers there have used the law to challenge contracts containing rights waivers, indemnification provisions, attorney fee-shifting arrangements, and inadequately specific disclaimers stating that not all terms and offers are valid in every jurisdiction.

The New Jersey Supreme Court and federal courts applying New Jersey law have held that the TCCWNA’s applications are far-reaching, including not just traditional consumer contracts but also terms and conditions on gift certificates and even representations made on restaurant menus.

It is difficult to imagine how, for example, a plaintiff may be harmed simply by visiting a website with offending language buried deep within its terms and conditions. But courts have nevertheless held that the TCCWNA “provides a remedy even if a plaintiff has not suffered any actual damages.” Barrows v. Chase Manhattan Mortg., 465 F. Supp. 2d 347 (D.N.J. 2006).

Because of its potentially broad application and the idea that a consumer need only allege a technical violation, the TCCWNA has become a magnet for the plaintiffs’ attorneys in recent years.

In theory, consumer and privacy laws with statutory damage schemes exist to curb malicious practices by scammers and spammers.

But in practice, the laws have become vehicles through which enterprising plaintiffs can extract quick cash from legitimate businesses. Instead of providing relief to people who have suffered actual harm, they have clogged the courts with “gotcha” lawsuits and professional plaintiffs.

9th Circuit’s Standing Analysis

The suit that may soon change all that began after lead plaintiff Thomas Robins discovered his profile on the website Spokeo — a “people search engine” that assembles publicly available information into quasi-biographical reports — contained inaccurate information about him.

The website actually overstated his educational and financial prospects, according to Robins, who responded with a class-action complaint in Los Angeles federal court accusing the company of willfully violating the FCRA.

Spokeo moved to dismiss the complaint for lack of jurisdiction.

The U.S. District Court for the Central District of California denied the motion, finding that Spokeo’s marketing of inaccurate information about Robins could have tangibly harmed him by making him appear overqualified for some jobs or opportunities. Robins v. Spokeo Inc., No. 10-cv-5306, 2011 WL 1793334 (C.D. Cal. May 11, 2011).

But after Spokeo sought to file an interlocutory appeal, the District Court reconsidered its prior ruling and dismissed the case with prejudice, finding that Robins had not “properly pled” the kind of injury-in-fact plaintiffs must normally show to establish standing. Robins v. Spokeo Inc., No. 10-cv-5306, 2011 WL 11562151 (C.D. Cal. Sept. 19, 2011).

The 9th U.S. Circuit Court of Appeals reversed, saying “the violation of a statutory right is usually a sufficient injury-in-fact to confer standing.” Robins v. Spokeo Inc., 742 F.3d 409 (9th Cir. 2014).

Robins “allege[d] that Spokeo violated his statutory rights, not just the statutory rights of other people,” the court added. “Robins’ personal interests in the handling of his credit information are individualized rather than collective.”

Pre-Spokeo Circuit Split

The 9th Circuit’s ruling was only the latest decision to highlight a growing split among federal appeals courts concerning the standing requirements for statutory consumer claims.

The 6th Circuit, for example, in 2009 revived an FCRA plaintiff’s suit after a district court had dismissed it, saying the law gave her standing to claim a willful violation — even absent a showing of concrete harm — as long as the alleged violation concerned her own rights. Beaudry v. TeleCheck Servs., 579 F.3d 702 (6th Cir. 2009).

But the 4th Circuit held a few years later in David et al. v. Alphin et al., 704 F.3d 327 (4th Cir. 2013), that statutory standing is not enough, by itself, for a plaintiff seeking access to federal court. A plaintiff must instead establish both statutory and constitutional standing, the court said in that case.

That ruling brought the 4th Circuit into alignment with the 2nd Circuit, which has held that a plaintiff pursuing a claim under the Employee Retirement Income Security Act, 29 U.S.C.A. § 1001, must also satisfy the standing requirements of Article III. Kendall v. Emp. Ret. Plan of Avon Prods., 561 F.3d 112 (2d Cir. 2009).

In light of the split, Spokeo petitioned the Supreme Court to resolve whether Congress can confer standing on plaintiffs, like Robins, whose claims would otherwise fall short under Article III because they have not suffered any concrete harm.

Supreme Court Pumps the Brakes

In a 6-2 decision authored by Justice Samuel Alito, the Supreme Court found that the 9th Circuit’s analysis was incomplete and remanded the case for further proceedings.

The high court noted that to establish an injury-in-fact, a plaintiff must show he suffered harm that is both concrete and particular. The appellate opinion addressed only the particularization requirement, ignoring the independent concreteness requirement, the court said.

In his majority opinion, Justice Alito pointed out that while “tangible” harms are obviously and intuitively concrete enough to satisfy Article III, “intangible” harms — such as the violation of a procedural right — may or may not be sufficient, depending on the details of a given case.

He said litigants and lower courts should look both to history and to the judgment of Congress in determining whether an intangible harm constitutes an injury-in-fact.

But although Congress is “well-positioned to identify intangible harms that meet minimum Article III requirements,” Justice Alito added, a plaintiff does not necessarily satisfy the injury–in-fact requirement merely by invoking a statute that grants a right and authorizes lawsuits to vindicate it.

To the contrary, Article III standing requires a concrete injury even in the context of a statutory violation, the high court held.

For example, even if a consumer reporting agency fails to make certain disclosures, the information it compiles may be entirely correct or any inaccuracies might be harmless, such as an incorrect zip code, the majority noted.

Under those circumstances, the subject of the report likely could not satisfy the injury-in-fact prong of the standing inquiry, Justice Alito said.

Justice Ruth Bader Ginsburg, dissenting, said she agreed with much of the majority opinion but thought Robins himself had crossed “the “concreteness” threshold by claiming, plausibly, that Spokeo’s misinformation about him had actually harmed his prospects.

Dominos Begin to Fall

In the short time since the Spokeo ruling, FCRA defendants have already begun to have success relying on it.

For instance, two Ohio State University job applicants recently lost a lawsuit accusing the school of asking them to sign background-check authorization documents that included extraneous information such as a liability release. The FCRA requires conspicuous, standalone disclosure forms.

Citing Spokeo for the proposition that an FCRA violation does not create standing if it is harmless, the U.S. District Court for the Southern District of Ohio dismissed the case: Smith v. Ohio State Univ., No. 15-cv-3030, 2016 WL 3182675 (S.D. Ohio June 8, 2016).

Both plaintiffs actually got the jobs they had applied for, the court noted, and they did not allege any concrete adverse consequences resulting from the FCRA breach.

Unsurprisingly, Spokeo is also proving relevant in non-FCRA contexts.

In a recent appellate brief filed with the 2nd Circuit, ride-service giant Uber raised Spokeo as a defense to spamming allegations under a New York law that mirrors the TCPA. Bank v. Uber Techs., No. 15-4020, opposition brief filed (2d Cir. June 9, 2016).

“‘It is difficult to imagine’ how Uber’s failure to provide its address in addition to its name and telephone number ‘could work any concrete harm,’” the company wrote, quoting Justice Alito’s opinion.

Conclusion

The Supreme Court’s decision is a welcome development for businesses. Laws creating statutory rights, and purporting to authorize related causes of action, touch all corners of the economy. They have long encouraged plaintiffs to file baseless lawsuits in search of a payday.

After Spokeo, an intangible harm resulting from a minor statutory breach should not constitute an injury-in-fact except in those narrow circumstances when the violation caused the exact substantive harm contemplated by the statute.

The plaintiffs’ bar, in the meantime, will no doubt continue trying to manufacture just that sort of harm in cases threatened by Spokeo.

Some lower courts will inevitably buy those arguments, as the U.S. District Court for the Northern District of Georgia did in a recent TCPA case, when it found that a spam caller had caused an injury-in-fact by briefly occupying the plaintiff’s cellphone line. Rogers v. Capital One Bank, No. 15-cv-4016, 2016 WL 3162592 (N.D. Ga. June 7, 2016).

Nevertheless, Spokeo represents an important step in shifting attention from professional plaintiffs seeking a windfall to consumers who actually deserve compensation.

NOTES

1 https://play.google.com/store/ apps/details?id=com.blockcallsgetcash    

2 https://itunes.apple.com/us/app/stop-calls-get-cash/id905106068?ls=1&mt=8

“Turning the Tide: Spokeo and the Requirement of Actual Harm for Article III Standing,” by Ana Tagvoryan and Harrison Brown was published in Westlaw Journal Class Action, September 2016, Volume 23, Issue 7. Reprinted with permission.