On March 25, 2019, the United States Court of Appeals for the Ninth Circuit dealt another setback to plaintiffs trying to establish Article III standing to assert a claim under the Fair Credit Reporting Act, 15 U.S.C. § 1681, et seq. (“FCRA”). In five related FCRA appeals combined in Jaras v. Equifax, Inc., 2019 WL 1373198 (9th Cir. Mar. 25, 2019) (“Jaras”), the Ninth Circuit held in an unpublished opinion that the plaintiffs’ claims of inaccurate credit reporting alone, without additional allegations of actual harm, "fail to allege a concrete injury for standing." The Court also went a step further and held that allegations of a lower credit score, without allegations about how that lower score “impact[ed] lending decisions,” were equally insufficient to establish the accompanying injury necessary to meet the concreteness standard set forth in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (“Spokeo II”) (see Client Alert here). Although the Ninth Circuit’s decision is unpublished, it nonetheless raises the bar for FCRA plaintiffs to plead their way into federal court by confirming that alleged statutory violations—even allegations of inaccurate credit reporting—must be accompanied by a real world injury.
Article III Standing
Article III standing requires (1) an injury-in-fact, (2) fairly traceable to the challenged conduct, (3) that is likely to be redressed by a favorable judgment. Spokeo II, 136 S. Ct. at 1547. To establish an injury-in-fact, a plaintiff must establish that he or she suffered “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Id. at 1548. Spokeo II is the seminal case addressing the concreteness standard for an injury-in-fact.
The Spokeo dispute arose when a secondary credit reporting agency published a report on its website that contained inaccurate (but positive) information about the plaintiff’s age, marital status, wealth, education level, and profession. The plaintiff contended that this inaccurate reporting injured his prospects to find employment because it made him appear overqualified. The defendant credit reporting agency moved to dismiss, arguing that the plaintiff had not pled an injury required for Article III standing. The district court granted the motion to dismiss and the Ninth Circuit reversed, setting the table for the Supreme Court to weigh in.
In Spokeo II (decided on May 24, 2016), the Supreme Court instructed that the concrete and particularized requirements for an injury-in-fact are to be evaluated separately. The Supreme Court further clarified that concrete injuries can be tangible or intangible, but that, when the injury is intangible, the mere fact that Congress codified a cause of action does not confer standing. In other words, “Article III standing requires a concrete injury even in the context of a statutory violation” (emphasis added). To be concrete, the intangible injury must be real and have a close relationship to traditional, common law harms. The Supreme Court went on to explain that “not all [credit report] inaccuracies cause harm or present any material risk of harm,” and that, by way of example, “[i]t is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.”
The Supreme Court then remanded the case back to the Ninth Circuit to consider whether the plaintiff’s allegations of inaccurate credit reporting and the impact on his employment prospects were sufficiently concrete. In Robins v. Spokeo, Inc., 867 F.3d 1108 (9th Cir. 2017) (“Spokeo III”) (see Client Alert here), the Ninth Circuit answered that question in the affirmative, holding that the plaintiff had established a concrete injury for purposes of Article III standing because the alleged inaccurate credit reporting created “real harm” to the plaintiff’s employment prospects at a time when he was unemployed. The Ninth Circuit cautioned that its analysis was highly factual and not every allegation of inaccurate credit reporting would establish a concrete injury, particularly if the inaccurate reporting was not accessed by a third party.
The defendant appealed the Ninth Circuit’s ruling back to the Supreme Court, which denied the petition for writ of certiorari (see Client Alert here).
Jaras – The District Court Cases
Each of the five cases on appeal in Jaras originated as a FCRA lawsuit in the United States District Court for the Northern District of California. In all five cases, the plaintiff alleged that he or she had filed for Chapter 13 bankruptcy and the bankruptcy court confirmed his or her proposed bankruptcy plan. The plaintiffs contended that the confirmation of the Chapter 13 plans changed the legal status of their debts, and that it was inaccurate for the defendant credit reporting agencies to report their debts without referencing that the debts were subject to bankruptcy plans and may not be subject to repayment. The plaintiffs contended that the defendants’ reporting violated Section 1681i of the FCRA, which obligates credit reporting agencies to investigate consumer disputes, and California’s Consumer Credit Reporting Agencies Act, Cal. Civ. Code § 1785.25(a).
The defendant credit reporting agencies moved to dismiss or for judgment on the pleadings in each case, arguing that, as a matter of law, it was not inaccurate or misleading to report debts as delinquent while a bankruptcy proceeding is pending and before the debts are discharged. The courts granted the motions and dismissed the claims, relying on a litany of Northern District of California cases holding that it is not inaccurate to report the status of a debt during the pendency of a bankruptcy. The plaintiffs appealed.
Jaras – The Appeal
The Ninth Circuit combined the five appeals into a single decision, but did not reach the merits of whether the defendants’ credit reporting was inaccurate. The Court instead affirmed the district courts’ dismissal of the claims on grounds that, under Spokeo II and III, the plaintiffs lacked Article III standing because their allegations of inaccurate credit reporting were simply statutory violations and the plaintiffs failed to make any accompanying allegations sufficient to establish a concrete harm. In reaching that conclusion, the Ninth Circuit found that:
Statutory violations, such as the plaintiffs’ allegations of inaccurate credit reporting, are not alone a concrete harm. To establish a concrete harm, the plaintiffs needed to make accompanying allegations of real world harm, such as an “allegation of the credit reporting harming Plaintiffs’ ability to enter a transaction with a third party.”
In this way, the plaintiffs’ claims were distinguishable from the claims of the plaintiff in Spokeo II and III. Whereas the Spokeo plaintiff alleged that the inaccurate credit reporting impacted his employment prospects, the Jaras plaintiffs “did not say anything about what kind of harm they were concerned about.” This failed to meet the standard for a concrete injury.
The plaintiffs’ “[b]road generalizations” about how lower credit scores can impact lending decisions—which were the only damages allegations in the various complaints—did not establish a concrete injury because the plaintiffs did not specifically allege how a lower score actually impacted them. Nor was it “obvious” that a lower credit score would have any impact on plaintiffs, “given that [their] bankruptcies themselves cause[d] them to have lower credit scores with or without the alleged misstatements.”
Circuit Judge Marsha S. Berzon dissented, asserting that allegations of inaccurate credit reporting should always be deemed sufficient to establish a concrete injury.
As of the date of this Client Alert, the plaintiffs have not sought a rehearing or en banc determination of the Ninth Circuit’s decision. Their deadline to do so is next week.
Jaras ups the ante for FCRA plaintiffs. In the wake of Spokeo II, federal appellate and district courts have generally agreed that a mere statutory violation alone does not confer Article III standing if there is not an accompanying concrete injury. However, certain courts have wavered on that stance in the context of the FCRA and, specifically, allegations of inaccurate credit reporting and credit reports. Indeed, courts have been split as to whether statutory violations of Sections 1681b, 1681e, 1681i, and 1681s-2(b) alone confer standing. Jaras is now persuasive (albeit unpublished) authority from a traditionally plaintiff-friendly appellate jurisdiction that inaccurate credit reporting—one of the most popular allegations in support of FCRA claims—does not alone meet the concreteness standard.
This is noteworthy and likely to have widespread impact in the coming weeks and months because, as the Ninth Circuit explained in Jaras, many FCRA plaintiffs do not suffer a real injury from the statutory violation. Establishing such harm often requires evidence of credit or employment applications by the plaintiff that resulted in an adverse action. This holding is in line with the weight of recent authority finding that a reduction in credit score does not establish a concrete injury absent an accompanying harm. See, e.g., Olsen v. Experian Info. Sols., Inc., No. 16-CV-5707-PJH, 2017 WL 1046962, at *9 (N.D. Cal. Mar. 20, 2017) (“[T]here is persuasive authority suggesting that a diminished credit score, standing alone, does not represent actual damages. This is logical because, absent an allegation that plaintiff was denied credit, lost credit, had [his] credit limits lowered, or was required to pay a higher interest rate for credit, the negative effects of a lowered credit score did not cause ‘actual’ harm.”). Even if the plaintiff can point to an allegedly adverse credit or employment decision, there may not be a clear cut concrete injury if the plaintiff has other items on his credit report that could have influenced the adverse decision, such as the plaintiffs’ bankruptcies in Jaras. As a result, requiring a plaintiff to point to actual, real world harm is likely to keep many plaintiffs out of federal court.
Jaras is also significant because it represents a possible shift in the Ninth Circuit. In the immediate aftermath of Spokeo II, the Ninth Circuit found that plaintiffs had alleged a concrete injury in a number of shaky circumstances. These decisions included Spokeo III, Syed v. M-I, LLC, 853 F.3d 492 (9th Cir. 2017), and Eichenberger v. ESPN, Inc., 876 F.3d 979 (9th Cir. 2017). However, more recently, the Ninth Circuit appears to be holding plaintiffs to a higher standard, consistent with the other federal appellate circuits, to establish a concrete injury along with a statutory violation. For instance, on July 13, 2018, the Ninth Circuit held in Dutta v. State Farm, 895 F.3d 1166 (9th Cir. 2018), that a plaintiff failed to establish a concrete injury when he alleged that defendant failed to provide FCRA-required disclosures of a credit reporting that allegedly contained inaccurate information (see Client Alert here). Though Jaras did not cite Dutta, the decision continues the trend of requiring that FCRA plaintiffs establish a real world injury when they allege a statutory violation of the FCRA.
Finally, it is notable that the ultimate result in Jaras was that the claims were dismissed without prejudice, as is always the case when a court determines that a plaintiff lacks standing. From a cost and time perspective, the various defendants in Jaras may have preferred that the Ninth Circuit instead weigh in on the substantive merits of the plaintiffs’ claims (i.e., whether it is inaccurate to report the status of a debt during the pendency of a Chapter 13 bankruptcy) because resolution of that issue in their favor would have resulted in a dismissal with prejudice. As a result of the dismissal without prejudice, the plaintiffs could re-file their claims with new allegations of damages, in which case the defendants are likely to again file a motion to dismiss and the parties will likely be back to the Ninth Circuit in short order.