Since its enactment a decade ago, the Illinois Biometric Information Privacy Act (BIPA) has seen a recent spike in attention from employees and consumers alike. This is due, in large part, to the technological advancements that businesses use to service consumers and keep track of employee time.

What Is The BIPA?

Intending to protect consumers, Illinois was the first state to enact a statute to regulate use of biometric information. The BIPA regulates the collection, use, safeguarding, handling, storage, retention, and destruction of biometric identifiers and information. The statute defines biometric identifiers to include a retina or iris scan, fingerprint, or scan of hand or face geometry. Furthermore, the statute defines biometric information as any information, regardless of how it is captured, converted, stored, or shared, based on an individual’s biometric identifier used to identify an individual. Any person aggrieved by a violation of the act may sue to recover actual or statutory damages or other appropriate relief. A prevailing party may also recover attorneys’ fees and costs.

Since September of 2017, there have been more than thirty-five class action BIPA lawsuits with no particular industry being targeted. More commonly sued industries include healthcare facilities, manufacturing and hospitality.

The drastic increase in litigation is largely contributable to employers’ attempt to prevent “buddy punching,” a term that references situations where employees punch in for a co-worker where biometric data is not required to clock in or out. For example, in Howe v. Speedway LLC, the class alleges that defendants violated the BIPA by implementing a finger-operated clock system without informing employees about the company’s policy of use, storage and ultimate destruction of the fingerprint data. Businesses engaging in technological innovation have also come under attack from consumers. In Morris v. Wow Bao LLC, the class alleges that Wow Bao unlawfully used customers’ facial biometrics to verify purchases at self-order kiosks.

Recent Precedent

In Rivera v. Google Inc.,the District Court for the Northern District of Illinois explained that a “biometric identifier” is a “set of biometric measurements” while “biometric information” is the “conversion of those measurements into a different, useable form.” The court reasoned that “[t]he affirmative definition of “biometric information” does important work for the Privacy Act; without it, private entities could evade (or at least arguably could evade) the Act’s restrictions by converting a person’s biometric identifier into some other piece of information, like mathematical representation or, even simpler, a unique number assigned to a person’s biometric identifier.” Thus, a company could be liable for the storage of biometric information, in any form, including an unreadable algorithm.

More recently, in Rosenbach v. Six Flagsthe Illinois Appellate Court, Second District, confirmed that the BIPA is not a strict liability statute that permits recovery for mere violation. Instead, consumers must prove actual harm to sue for a BIPA violation. The court reasoned that the BIPA provides a right of action to persons “aggrieved” by a statutory violation, and an aggrieved person is one who has suffered an actual injury, adverse action, or harm. Vague allegations of harm to privacy are insufficient. The court opined that, if the Illinois legislature intended to allow for a private cause of action for every technical violation of the BIPA, the legislature could have omitted the word “aggrieved” and stated that every violation was actionable. The court’s holding that actual harm is required is consistent with the holdings of federal district courts on this issue.

Damages and Uncertainty

Plaintiffs and their counsel are attracted to the BIPA because it provides for significant statutory damages as well as attorneys’ fees and costs. The BIPA allows plaintiffs to seek $1,000 for each negligent violation, and $5,000 for each intentional or reckless violation, plus attorneys’ fees and costs.

To date, all claims have been filed as negligence claims, and, thus, it is unclear what a plaintiff must show to establish an intentional violation. Similarly, the law is unsettled on whether the statutory damages are awarded per claim or per violation. A per violation rule would exponentially increase a defendant’s potential liability. For example, some plaintiffs are currently seeking $1,000 or $5,000 for each swipe of a fingerprint to clock in or out.

How To Protect Your Business

To avoid a costly mistake when retaining biometric data, businesses should:

  1. provide employees or consumers with a detailed written policy that includes why and how the data will be collected, stored, retained, used, and destroyed;
  2. require a signed consent before collecting the data;
  3. implement a security protocol to protect the data; and
  4. place an appropriate provision in vendor contracts (e.g., for data storage) to require vendors to adhere to the law and report any data breaches.

Consent can be obtained in different ways. For example, employers may condition employment upon an individual’s consent to a data retention policy, and companies can require consumers to accept a click-through consent before accessing a company’s website or application.

For questions or additional information, please contact Esther Slater McDonald at emcdonald@seyfarth.com or Paul Yovanic Jr. at pyovanic@seyfarth.com.

Seyfarth Synopsis: One court upholds protection of Dodd-Frank limiting the President’s removal authority, while another court stifles a challenge against Mulvaney serving as acting Director of CFPB.

Last week, the Trump Administration experienced mixed results in the ongoing litigation over the Consumer Financial Protection Bureau (“CFPB”). As we’ve mentioned in our prior publications, there are several actions pending that involve the President’s authority to control the CFPB. The first action discussed below, which had been languishing in the court for some time, raised the issue of whether the CFPB’s structure as an independent agency is constitutional. The Trump Administration lost on this issue for the moment. In the second action, the Trump Administration dodged, at least temporarily, a challenge to President Trump’s appointment of current CFPB Director Mick Mulvaney because the court determined that the plaintiff, a non-profit credit union, had no standing to bring its case. Continue Reading Win Some, Lose Some: Trump Gets a Loss and a Win in the Fight to Control the CFPB

On January 23, 2018, the Consumer Financial Protection Bureau’s (“CFPB”) Acting Director, Mick Mulvaney, issued a mission statement to the CFPB redirecting the agency’s mission and focus. Mulvaney emphasized that the law mandates the enforcement of consumer protection laws and that, although things would be different under new leadership, the CFPB will continue to fulfill its mandate.

Mulvaney made clear that he did not see the CFPB as the “good guys” out to fight the “bad guys,” but instead he noted that the agency would treat both consumers and financial services companies fairly and equally. To that end, the CFPB will focus its enforcement efforts on quantifiable and unavoidable harm to the consumer. Where no such harm exists, the agency will not go looking for excuses to bring lawsuits. Continue Reading Under New Leadership, CFPB No Longer Interested in Pushing the Envelope on Consumer Protection Laws

Seyfarth Synopsis:  The fourth and final key trend from our 14th Annual Workplace Class Action Litigation Report involves rulings by the U.S. Supreme Court.  Over the past few years, the country’s highest court has issued a number of rulings that impacted the prosecution and defense of class actions in significant ways.  Today, we provide readers with an outline of the most important workplace rulings issued by the Supreme Court in 2017, as well as which upcoming decisions employers should watch for in 2018.  Read the full breakdown below!

Over the past decade, the U.S. Supreme Court led by Chief Justice John Roberts increasingly has shaped the contours of complex litigation exposures through its rulings on class action and governmental enforcement litigation issues. Many of these decisions have elucidated the requirements for pursuing employment-related class actions.

The 2011 decision in Wal-Mart Stores, Inc. v. Dukes and the 2013 decision in Comcast Corp. v. Behrend are the two most significant examples. Those rulings are at the core of class certification issues under Rule 23. To that end, federal and state courts cited Wal-Mart in 586 rulings in 2017; they cited Comcast in 238 cases in 2017.

The past year also saw a change in the composition of the Supreme Court in April of 2017, with Justice Neil Gorsuch assuming the seat of Antonin Scalia after his passing in 2016. Given the age of some of the other sitting Justices, President Trump may have the opportunity to fill additional seats on the Supreme Court in 2018 and beyond, and thereby influence a shift in the ideology of the Supreme Court toward a more conservative and strict constructionist jurisprudence. In turn, this is apt to change legal precedents that shape and define the playing field for workplace class action litigation.

Rulings In 2017

In terms of direct decisions by the Supreme Court impacting workplace class actions, this past year was no exception. In 2017, the Supreme Court decided seven cases – three employment-related cases and four class action cases – that will influence complex employment-related litigation in the coming years. The three “game-changers” in 2017 can be seen in the following graphic:

The employment-related rulings included one case brought under the Worker Adjustment and Retraining Notification Act, one ERISA case, and one EEOC case. A rough scorecard of the decisions reflects two distinct plaintiff/worker-side victories, and defense-oriented rulings in five cases.

  • EEOC v. McLane Co., 137 S. Ct. 1159 (2017) – Decided on February 21, 2017, the case involved the applicable standard of appellate review of district court decisions to quash or enforce EEOC subpoenas. The Supreme Court held that the standard must be based on an abuse of discretion, and contrary lower court decisions – which called for de novo review – were rejected. The EEOC has broad statutory authority to issue subpoenas in the course of investigating charges of employment discrimination, and it may seek enforcement of its subpoenas in federal court when employers refuse to comply with them. In that event, the applicable test favors enforcement of the subpoena. The Supreme Court determined that if the charge is proper and the material requested is relevant, the subpoena should be enforced unless the employer can establish that the subpoena is too indefinite, has been issued for an illegitimate purpose, or is unduly burdensome. In sum, the Supreme Court underscored the breadth of the agency’s authority to subpoena information from employers in the course of investigating discrimination charges.
  • Expressions Hair Design, et al. v. Schneiderman, 137 S. Ct. 1144 (2017) – Decided on March 29, 2017, this case involved a class action by a group of New York merchants, arguing that a New York statute that prohibits merchants from charging a surcharge to customers who use credit cards violated the First Amendment because it regulates what they say about their prices. The lower courts had dismissed the suit out of hand, concluding that price regulations regulated conduct alone and thus are immune from scrutiny under the First Amendment. The Supreme Court held that because the statute goes beyond the pure regulation of price sufficiently into the realm of regulating speech, it is subject to scrutiny under the First Amendment. As a result, the case was remanded for further consideration of the validity of the statute under the First Amendment. The ruling is a narrow one, but ensures the continuation of class action litigation over the New York statute.
  • Advocate Health Care Network, et al. v. Stapleton, 137 S. Ct. 1652 (2017) – Decided on June 5, 2017, this ruling determined that pension plans that otherwise meet the definition of a church plan definition under the ERISA can qualify for the exemption without being established by a church. The decision is the culmination of a wave of ERISA class actions brought by employees of religiously affiliated non-profit hospitals who asserted that the employers improperly claimed that their pension plans were ERISA-exempt “church plans.”
  • Microsoft Corp. v. Baker, et al., 137 S. Ct. 1702 (2017) – Decided on June 12, 2017, this ruling determined that the voluntary dismissal of individual claims by class representatives after denial of class certification deprives appellate courts of jurisdiction over review of the underlying class certification decision. The case involved consideration of a strategy for appealing denials of class certification whereby plaintiffs responded to a denial of class certification with a voluntary agreement to dismiss their claims. With that dismissal in hand, they would claim they have a final order that they can appeal, planning to revive their claims if the appeal reversed the certification order. The Supreme Court unanimously rejected this practice. It held that plaintiffs in putative class actions cannot transform a tentative interlocutory order into a final judgment simply by dismissing their claims with prejudice – subject, no less, to the right to revive those claims if the denial of class certification was reversed on appeal. The ruling should help corporate defendants in defeating piece-meal attacks on favorable class certification orders.
  • Bristol-Myers Squibb Co., et al. v. Superior Court Of California, 137 S. Ct. 1773 (2017) – Decided on June 19, 2017, this opinion established limitations on personal jurisdiction over non-resident plaintiffs in “mass actions,” a litigation strategy often utilized by plaintiffs’ class action lawyers to sue corporations in plaintiff-friendly jurisdictions that have little to no connection with the dispute. The Supreme Court determined that the requisite connection between the corporate defendant and the litigation forum must be based on more than a combination of the company’s connections with the state and the similarity of the claims of the resident plaintiffs and the non-resident claimants. The ruling reversed a lower court decision that hundreds of plaintiffs who sued a corporation in California state court over alleged injuries associated with a corporation’s product could not sue in that state because they were not residents. In effect, it reversed a decision of the California Supreme Court and directed the dismissal of 592 non-California claims from 33 other states. The ruling has significant implications for the location and scope of class action litigation. As a result, the ruling supports the view that plaintiffs cannot simply “forum shop” in large class actions, and instead must sue where the corporate defendant has significant contacts for purposes of general jurisdiction or limit the class definition to residents of the state where the lawsuit is filed. It should provide some measure of protection to corporations that often are hauled into plaintiff-friendly jurisdictions across the country to which they have nor the plaintiffs suing them had any connection.
  • CalPERS, et al. v. ANZ Securities, Inc., 137 S. Ct. 2042 (2017) – Decided on June 26, 2017, this decision involved a relatively technical question regarding the right to opt-out of a class action – when plaintiffs file a class action, are members of the class entitled to opt-out and represent themselves, and how statutes of limitations work in that situation. Federal securities laws include two different kinds of filing deadlines for claims about misrepresentations in connection with the issuance of securities, including a one-year deadline running from the discovery of the untrue statement and an outside three-year deadline running from the date on which the statement was made. The Supreme Court held that tolling under American Pipe applies only to the one-year deadline, not the three-year deadline. Applying that rule, it barred the action brought in this case by CalPERS, which had opted-out of a large class action brought against Lehman Brothers; the original action was brought in a timely manner, but CalPERS did not opt-out of that action until more than three years after the challenged statements. The ruling closes off a tactic of successive class claims by barring the traditional power of lower federal courts to modify statutory time limits in the name of equity despite any practical obstacles this creates in class actions.
  • Czyzewski, et al. v. Jevic Holding Co., 137 S. Ct. 973 (2017) – Decided on March 22, 2017, this case involved the Worker Adjustment and Retraining Notification (“WARN”) Act and the interplay between worker rights under that statute and the rights of creditors in bankruptcy proceedings after a company allegedly violates the WARN Act. In considering whether priority in distributing assets in bankruptcy may proceed in a manner that allegedly violates the priority scheme in the Bankruptcy Code, the Supreme Court held that such a distribution is improper and priority rules may not be evaded in Chapter 11 structured dismissals. The Supreme Court’s ruling protects workers with WARN claims and bars priority deviations in bankruptcies implemented through non-consensual structured dismissals.

The decisions in Advocate Health Care Network, Baker, Bristol-Myers, CalPERS, Expressions Hair Designs, Jevic, and McLane Co. are sure to shape and influence workplace class action litigation and government enforcement litigation in a profound manner. Theses rulings will impact standing concepts and jurisdictional challenges, liability under the WARN and the ERISA, appeals of class certification decisions, challenges to EEOC administrative subpoenas, and rules on American Pipe tolling and application of statute of limitations in class actions. To the extent that extrinsic restrictions on class actions – i.e., limits on the ability of representative plaintiffs to appeal certification orders (as in Baker), and jurisdictional restrictions on bringing cases in “plaintiff-friendly” jurisdictions (as in Bristol-Myers) – were tightened, class actions will become harder to maintain and litigate. On the other hand, McLane Co. is certainly a setback for employers and strengthens the EEOC’s ability to conduct wide-ranging administrative investigations through its subpoena power.

Rulings Expected In 2018

Equally important for the coming year, the Supreme Court accepted five additional cases for review in 2017 – that will be decided in 2018 – that also will impact and shape class action litigation and government enforcement lawsuits faced by employers.

Those cases include three employment lawsuits and two class action cases. The Supreme Court undertook oral arguments on two of these cases in 2017; the other three will have oral arguments in 2018.

The corporate defendants in each case have sought rulings seeking to limit the use of class actions or raise substantive defenses to class actions or employment-related claims. Further complicating several of these cases, government agencies have either taken opposing stances with each other or reversed positions they held in pervious Supreme Court terms or in the lower court proceedings in these cases.

  • Epic Systems Corp. v. Lewis, NLRB v. Murphy Oil USA & Ernst & Young LLP v. Morris, 16-285, 16-300 & 16-307 – Argued on October 2, 2017, these three consolidated appeals in employment cases deal with the interpretation of workplace arbitration agreements between employers and employees and whether class action waivers within such agreements – which require workers to arbitrate any claims on an individual basis (and waive the ability to bring or participate in a class action or collective action) – violate employees’ rights under the National Labor Relations Act to engage in “concerted activities” in pursuit. The Supreme Court’s ultimate decision is likely to have far-reaching implications for litigation of class actions and collective actions. The issue started when the NLRB under the Obama Administration began challenging employers’ use of arbitration agreements with class action waivers. During briefing of the issue before the Supreme Court, The Department of Justice under President Trump opposed the NLRB’s position, and has sided with employers and argued that the Federal Arbitration Act favors the validity and enforcement of arbitration agreements that include class waivers.
  • Cyan, Inc., et al. v. Beaver County Employees Retirement Fund, 15-1439 – Argued on November 28, 2017, this class action case poses the issue of whether federal law bars state courts from hearing certain securities class actions. The case turns on interpretation of the Private Securities Litigation Reform Act of 1995 – which imposes tougher standards on securities class actions brought in federal courts – and if it mandates that state courts can no longer hear class actions based on the Securities Act of 1933. The ultimate ruling by the Supreme Court will impact what many view as a “cottage industry” of state court-based class action filings in states such as California where class action lawyers target public companies with securities claims over drops in stock process.
  • Encino Motors, LLC v. Navarro, et al., 16-1362 – In this case, the Supreme Court will examine whether service advisors at car dealerships are exempt under 29 U.S.C. § 213(b)(10)(A) from the overtime pay provisions of the Fair Labor Standards Act. The future ruling in the case may have far-reaching implications on the legal tests for interpretation of statutory exemptions under the FLSA. A broader reading of the exemption potentially could reduce the number of workers allowed to assert wage & hour claims against their employers. The case is set for argument on January 17, 2018.
  • Janus, et al. v. AFSCME, 16-1466 – In this employment case, the Supreme Court will consider whether Abood v. Detroit Board of Education, 431 U.S. 209 (1977), should be overruled and public-sector “agency shop” arrangements invalidated under the First Amendment so as to prevent public-sector unions from collecting mandatory fees from non-members. In deciding the constitutionality of “fair share fees” being imposed on public-sector employees as a condition of employment, the Supreme Court’s future ruling likely will impact millions of workers in 22 states that do not have right-to-work laws. Since many workers are apt to cease paying union dues if the fair share fee payments requirement is abolished, the future ruling will have a significant impact on the ability of public-sector unions to conduct their business. The case is set for oral argument on February 26, 2018.
  • Resh, et al. v. China Agritech, Inc., 17-432 – In this class action case, the Supreme Court will examine whether the tolling rule for class actions established in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974), tolls the statute of limitations to permit a previously absent class member to bring a subsequent class action outside the applicable limitations period. In American Pipe, the Supreme Court held that the filing of a class action tolls the running of the statute of limitations for all putative members of the class who make timely motions to intervene after the lawsuit is deemed inappropriate for class action status. In essence, a future ruling in this case will limit or expand the tolling rule in American Pipe to apply only to subsequent individual claims or if it is expanded broadly to successive class actions where plaintiffs were unnamed class members in failed class actions. The case has yet to be set for oral argument.

The Supreme Court is expected to issue decisions in these five cases in 2018.

Implications For Employers

Each decision outlined above may have significant implications for employers and for the defense of high-stakes class action litigation. Further, the decision in Epic Systems / E & Y / Murphy Oil may well end up being one of the most significant rulings for employers since Wal-Mart Stores, Inc. v. Dukes in 2011. Employers have to keep a close eye on this case, since the decision may shift the class action landscape in terms of the ability of employees to bring suit against a company. As always, we will closely monitor all Supreme Court case developments and report them to our readers. Stay tuned!

Seyfarth Synopsis:  In our recent blog on the second workplace class action litigation trend of 2017, we provided our readers with a comprehensive analysis of class certification statistics.   As this year’s Report profiled, court decisions throughout the country resulted in a favorable landscape for employers in terms of defeating certification motions in the decertification process.  In today’s blog, author Jerry Maatman breaks down all aspects of the Report’s class certification findings, and tells employers what to watch for in 2018.  Check out Jerry’s analysis in the link below!

Seyfarth Synopsis: A federal judge on Wednesday denied a request to remove Mick Mulvaney as the CFPB’s acting director, finding that the President has authority to appoint the acting director despite former CFPB Director Cordray’s attempt to handpick his successor.

On January 10, 2018, Judge Timothy Kelly of the U.S. District Court for the District of Columbia and a Trump Administration appointee denied Consumer Financial Protection Division (“CFPB”) Deputy Director Leandra English’s request for preliminary injunctive relief that would displace current CFPB Acting Director Mick Mulvaney. Former CFPB Director Richard Cordray resigned effective at midnight on November 24, 2017, triggering a political showdown. That day, Cordray designated English as the CFPB’s Deputy Director and purported to name her as his successor. At the same time, the President announced that he had appointed Mulvaney, the Director of Management and Budget, as Cordray’s replacement.

On November 26, 2017, English filed a lawsuit against the President and Mulvaney, requesting declaratory and injunctive relief that would restrain the President from appointing an acting director other than her, direct the President to withdraw Mulvaney’s appointment, and prohibit Mulvaney from serving as acting director. After a hearing, the Court denied English’s request for emergency relief, finding that English had not shown a likelihood of success on the merits and had otherwise failed to meet the prerequisites for emergency relief.

On December 6, English filed an amended complaint and moved for a preliminary injunction seeking substantially the same relief. The Court held a hearing on the motion on December 22. In its decision, issued on Wednesday, the Court found that once again English was not likely to succeed on the merits of her claim nor was she likely to suffer irreparable harm absent the injunctive relief sought. The Court also noted that the “balance the equities and the public interest also weigh against granting the relief.”

In reaching its second decision, the Court relied largely on the Federal Vacancies Reform Act of 1998 (“FVRA”), which permits the President to appoint a temporary officer to a vacant position without Senate confirmation if the President and Senate cannot promptly agree on a replacement. The Court rejected English’s argument that the CFPB Director position was excluded from the FVRA and that Dodd-Frank instructs that the Deputy Director shall serve as acting Director in the absence of the Director. Instead, the Court found that reading the two statutes together, Dodd-Frank requires that the Deputy Director “shall” serve as acting Director, but that under the FVRA the President “may” override that default rule.

On January 12, English filed her notice of appeal in the U.S. Court of Appeals for the D.C. Circuit, challenging the district court’s decision. In her notice, she requested expedited review of the appeal because a new director could be nominated and confirmed before she can become the acting director.

Meanwhile, the Lower East Side People’s Federal Credit Union, an entity regulated by the CFPB, filed a similar lawsuit in the U.S. District Court for Manhattan. The credit union has filed a motion for a preliminary injunction removing Mulvaney as acting director and instating English as the acting director. The Trump Administration opposes that motion and has filed a competing motion to dismiss the credit union’s complaint for lack of subject matter jurisdiction. The court held a hearing Friday on the dueling motions, and we expect the court to rule on the motions promptly, perhaps as early as this week.

Seyfarth Shaw continues to monitor the developments in “the battle of the directors” and will keep its readers apprised of updates.

Seyfarth Synopsis: A somewhat bizarre event – even by this year’s standard of unusual current events – hit the news stream earlier this week, as two “Acting Directors” showed up to work on Monday morning at the U.S. Government’s Consumer Financial Protection Bureau, also known as the CFPB. In today’s vlog, Partner Jerry Maatman of Seyfarth Shaw, LLP gives our readers an explanation of the situation at the CFPB, discusses the agency’s significance for employers, and forecasts potential class action implications based on these developments.

Summary

The Consumer Financial Protection Bureau (“CFPB”) has been a controversial government agency since its authorization under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2011. Formed out of a post-2008 recession by then-Harvard Law Professor and current U.S. Senator Elizabeth Warren, the CFPB is designed – per its legislative history – to “protect consumers from unfair, deceptive, or abusive practices and take action against companies that break the law.” As of January 2017, this consumer-friendly agency had secured nearly $12 billion to 29 million consumers.

On Monday, November 27th, both Leandra English and Mick Mulvaney sent out emails to CFPB staff members claiming to be the Acting Director of the agency. This conflict stemmed from Richard Cordray, longtime Director of the CFPB, relinquishing his duties effective November 24 at midnight. Upon his departure, Cordray named English as the Deputy Director, on the assumption that she would assume leadership as Acting Director (and Cordray would block the White House from interfering). However, at the same time, President Trump used his federal appointment power under the Federal Vacancies Reform Act (FVRA) to name Mick Mulvaney as Acting Director. English subsequently filed a lawsuit seeking an injunction against President Trump and Acting Director Mulvaney in the U.S. District Court for the District of Columbia, but Judge Timothy Kelly ruled in favor of Trump and Mulvaney.

This week’s leadership debacle was not the only time the CFPB has been in the news recently. Last month, the U.S. Senate voted to repeal the CFPB’s Arbitration Rule by a narrow 51-50 vote. The existence of this broad rule effectively barred financial institutions from including a class action ban in their arbitration agreements with consumers. Similar to the agency itself, the Arbitration Rule was a strictly partisan issue. The Republican Party claimed that the rule allowed trial lawyers to “line their pockets” off unnecessary customer class actions and hurt American business. On the other side, Democrats argued that the repeal of this rule and ensuing limitations to the CFPB placed too much power in the hands of big business and hurt consumers.

As the vlog outlines, potential class action implications of this controversial agency are yet to be seen. Assuming that Acting Director Mulvaney remains in control at the CFPB, it is safe to say the agency he once called a joke “in a sick, sad way” is headed for a limitation in institutional reach and power. More importantly, though, the upcoming U.S. Supreme Court decisions regarding class action waivers in NLRB v. Murphy Oil USA, Inc. (No. 16-307), Epic Systems Corp. v. Lewis (No. 16-285), and Ernst & Young LLP v. Morris (No. 16-300) will have a profound impact on future class action litigation. One takeaway from this situation that cannot be debated, though, is Jerry’s final thought of the vlog. “We are living in interesting times these days.”

Today the Senate struck down a new Consumer Financial Protection Bureau (“CFPB”) rule which would have prohibited providers of financial products and services from including class action waivers in their arbitration agreements with consumers. The action is a win for the financial services industry.

Background

Way back in March 2015 we blogged about the CFPB’s study of pre-dispute arbitration contracts in connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”). The CFPB’s study culminated in a Report to Congress which found that arbitration clauses were ubiquitous in consumer financial products and services agreements, that consumers were not aware and did not understand them and that such clauses were generally detrimental to consumers. Specifically, the CFPB found that the availability of class actions served to deter companies from engaging in potentially illegal activities, consumers tended to get more relief more often in class actions rather than in individual arbitration proceedings, and there was no evidence that arbitration and class action waiver provisions lowered costs for consumers.

In May 2016, the CFPB proposed a rule that would (1) “prohibit covered providers of certain consumer financial products and services from using an agreement with a consumer that provides for arbitration of any future dispute between the parties to bar the consumer from filing or participating in a class action;” and (2) require such providers to submit arbitral records to the CFPB. See Arbitration Agreements, 81 Fed. Reg. 100, 32830 (May 24, 2016) (to be codified at 12 C.F.R pt. 1040). The proposed rule would have covered financial products or services offered or provided for use by consumers primarily for personal, family or household purposes, or they are delivered, offered, or provided in connection with such products or services, such as debt collection. 81 Fed. Reg. 100, 32927.

Congressional Action

In July 2017, the House of Representatives voted 231-190 on a resolution to prevent the CFPB rule from taking effect. On October 24, 2017, the resolution came before the Senate for a vote and passed 51-50. Vice President Pence cast the tie breaking vote. The resolution now goes to President Trump for signature and, based on comments by the White House, he is expected to sign.

Implications

The death of the CFPB’s rule returns providers of financial services and products to the status quo. Providers are free to continue to include and enforce arbitration agreements and class action waivers in agreements with consumers. For more information, please reach out to a Seyfarth attorney or see our One Minute Memo.

Seyfarth Synopsis: In Spokeo, Inc. v. Robins, the U.S. Supreme Court held that a plaintiff must have a concrete injury to sue for FCRA violations. Following Spokeo’s remand, courts have held that consumers have standing to sue if their reports are inaccurate even if an inaccuracy did not adversely affect them.

In Spokeo, the U.S. Supreme Court reaffirmed that plaintiffs seeking to sue in federal court must have a concrete, actual injury; a mere statutory violation is not enough. The U.S. Supreme Court remanded the case for the Ninth Circuit to determine whether the plaintiff had alleged a concrete injury. (See our prior posts here, here, here, and here for a summary of the case background and a more detailed explanation of the U.S. Supreme Court’s ruling.)

The Ninth Circuit’s Ruling on Remand

On remand, in Robins v. Spokeo, Inc., the Ninth Circuit concluded that the plaintiff had sufficiently pled a concrete injury in fact and thus had standing to proceed with his FCRA claims. The court stated that, although a plaintiff may not show an injury-in-fact merely by pointing to a statutory violation, “some statutory violations, alone, do establish concrete harm.” To determine whether a statutory violation is itself a concrete injury, the court created a two-part test that asks (1) whether the statutory provision at issue was established to protect the consumer’s concrete interests (as opposed to purely procedural rights), and, if yes, (2) whether the specific procedural violation alleged actually harmed or presented a material risk of harm to those interests.

On the first question, the Ninth Circuit noted that the plaintiff had alleged a violation of the FCRA’s requirement that a consumer reporting agency have reasonable procedures in place to ensure the maximum possible accuracy in reporting. The court concluded that this provision “protect[s] consumers’ concrete interests” in accurate reporting and consumer privacy and that these interests are “‘real’ rather than purely legal creations.” The court reasoned that “given the ubiquity and importance of consumer reports in modern life—in employment decisions, in loan applications, in home purchases, and much more—the real-world implications of material inaccuracies in those reports seem patent on their face.” The court also noted that “the interests that FCRA protects also resemble other reputational and privacy interests that have long been protected in the law.”

As to the second question, the Ninth Circuit stated that it required an “examination of the nature of the specific alleged reporting inaccuracies to ensure that they raise a real risk of harm to the concrete interests that the FCRA protects.” The court concluded that, while a benign inaccuracy may not be harmful, the plaintiff had raised a real risk of harm by alleging that the defendant had inaccurately reported that he was married, had children, was in his 50’s, was employed, had a graduate degree, and was financially stable. The court reasoned that this information “is the type that may be important to employers or others making use of a consumer report.”

The Ninth Circuit held that whether an employer or other end user considered the inaccurate information was irrelevant. Although the defendant argued that the plaintiff must show that the information actually harmed his employment prospects or presented a material or impending risk of doing so, the court disagreed. In the court’s view, “[t]he threat to a consumer’s livelihood is caused by the very existence of inaccurate information in his credit report and the likelihood that such information will be important to one of the many entities who make use of such reports.” Thus, a materially inaccurate report is itself a concrete injury.

Although the Ninth Circuit spoke of harm and materiality, the crux of the opinion appears to be that any inaccuracy will provide standing if it involves information that a user of a report may consider even if no one ever does consider it. And that is how one court recently interpreted the ruling.

In Alame v. Mergers Marketing, a judge in the Western District of Missouri held that a plaintiff had standing to sue because he alleged that the defendant’s reporting made it appear that he moved around a lot. The plaintiff’s background report included 22 address entries for him. Some of the address entries were for the same location but varied as to the formatting of the address. The plaintiff claimed that reporting formatting variations inaccurately conveyed that he had lived at 22 different locations. The plaintiff did not allege that anyone had interpreted the report that way or that he had not lived at those locations. Nonetheless, quoting Robins, the court held that a plaintiff is injured by “‘the very existence of inaccurate information in his credit report.’”

Potential Conflict with Spokeo and Dreher

The Ninth Circuit’s opinion is difficult to reconcile with Spokeo. In Spokeo, the U.S. Supreme Court held that, to be sufficient, an injury must “actually exist” and clarified that “not all inaccuracies cause harm or present any material risk of harm” to a plaintiff. Yet, the Ninth Circuit held that an inaccurate report is itself a concrete injury even if the only people who received the report were the plaintiff and his lawyer. (The plaintiff did not allege that the defendant had furnished his report to anyone other than the plaintiff and his lawyer.)

The Ninth Circuit’s position also seems to conflict with the Fourth Circuit’s ruling in Dreher v. Experian Information Solutions. In that case, the plaintiff sued a consumer reporting agency for inaccurately identifying the source of credit information in his report. The Fourth Circuit rejected the plaintiff’s argument that the inaccuracy itself was an injury. Instead, the court held that a plaintiff must show that he “was adversely affected by the alleged error on his report.” The court reasoned that an inaccuracy “work[s] no real world harm” unless it has a negative impact on the consumer.

Implications for Businesses

Robins and Dreher indicate that the federal courts are still grappling with Spokeo’s meaning. We expect the issue will continue to percolate in the federal courts. If the divide on Spokeo’s application deepens among the federal courts of appeal, the U.S. Supreme Court may revisit the standing issue to provide more clarity.

For now, under Robins, consumers may be able to bring FCRA claims in federal court whenever their reports contain inaccurate information unless that information is truly benign, such as when an address contains a mistyped zip code. Even if a plaintiff lacks Article III standing under Dreher, he or she may be able to proceed in state court in jurisdictions that recognize broad standing to sue for any statutory violation.

For this reason, companies preparing or obtaining credit checks, employment checks, or other background checks should be careful to comply with each of the FCRA’s highly technical requirements. Similarly, companies, such as financial institutions, that furnish information about customers to consumer reporting agencies should ensure that they have measures in place to ensure accurate reporting and to handle consumer disputes properly. Failing to comply with a FCRA requirement could expose a company to class action liability even if the violation did not affect the plaintiff or any class member.

If you have questions about these or other issues, please reach out to the author or your Seyfarth attorney.

shutterstock_547852024Seyfarth Synopsis: In a first-of-its kind ruling, an employer recently secured the dismissal with prejudice of what is believed to be one of the first Telephone Consumer Protection Act class actions ever brought against a company while acting as an employer – specifically in this instance, the use of robo-calls to contact applicants about employment opportunities. The ruling ought to be required reading for corporate counsel in order to understand this emerging risk and to craft strategies to protect companies against such claims.

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When most people think of class actions brought under the Telephone Consumer Protection Act (“TCPA”), they envision lawsuits against companies using automated voices to tell them they won a free cruise or are eligible to receive a discount on a product. But in Dolemba v. Kelly Services, Inc., No. 16-CV-4971, 2017 U.S. Dist. LEXIS 13508 (N.D. Ill. Feb. 1, 2017), the Plaintiff, who had previously given her contact information to temporary staffing company Kelly Services, Inc. (“Kelly”) to be contacted regarding employment opportunities, brought a class action against Kelly under the TCPA and Illinois Consumer Fraud Act (“ICFA”) alleging that Kelly made an unauthorized robo-call to her cell phone. Kelly resisted the claim, filed a motion to dismiss, and Judge Sara Ellis of the U.S. District Court for the Northern District of Illinois granted Kelly’s motion to dismiss both claims with prejudice, finding that the Plaintiff never revoked her consent to be contacted about employment opportunities.

The ruling in Dolemba is believed to be one of the first TCPA class actions ever brought against a company while acting as an employer, thus making this ruling a landmark victory for employers nationwide. The potential for employers to face similar novel TCPA class actions in the near future is now imminent – and employers can and should add this decision to their arsenal as a powerful tool to help defeat such actions.

Case Background

In March 2007, Plaintiff applied for employment with Kelly, indicating interest in positions using office skills such as accounts payable and accounts receivable. Id. at *1. Plaintiff’s employment application included her cellular phone number. In signing the application, Plaintiff “authorize[d] Kelly to collect, use, store, transfer, and purge the personal information that [she] provided for employment-related purposes.” Id. Kelly never offered Plaintiff a job, nor did Plaintiff ever accept employment through Kelly. She also did not receive any communications from Kelly between the end of 2007 and February 2016. Id. at *1-2.

On February 27, 2016, Plaintiff received an automated call on her cellular phone from Kelly. Id. at *1. Kelly contacted Plaintiff about potential job opportunities. Because Plaintiff did not answer the call, Kelly left a voicemail message regarding opportunities for employment as a machine operator in the Chicagoland area. Plaintiff alleged that she had no reason to believe that Kelly still treated her application as active in 2016. Responding inconsistent with the notion that no good deed goes unrewarded, Plaintiff brought a class action lawsuit alleging that Kelly violated the TCPA and ICFA by calling her cellular telephone using an automatic telephone dialing system. As part of its defense strategy, Kelly moved to dismiss Plaintiff’s claims and strike her class allegations.

The Court’s Decision

The Court dismissed Plaintiff’s TCPA and ICFA claims with prejudice. First, the Court accepted Kelly’s argument that Plaintiff had essentially “pleaded herself out of court” and further found that Kelly met its burden of consent as an affirmative defense. Id. at *3-4. Specifically, the Court held that although Plaintiff need not have anticipated or pleaded revocation of consent, she only maintained that she had no reason to believe her employment application was active and she had no further communications with Kelly after consenting to receive employment-related communications. Id. at *5-6. Therefore, the Court found that Plaintiff’s consent remained valid at the time Plaintiff filed the case. Id. at *6.

The Court also rejected Plaintiff’s attempt to “recast her consent” as only agreeing to accept calls relating to specific employment opportunities, holding that “the call [Plaintiff] received clearly related to an employment opportunity. Although not specifically tailored to the exact job interests [Plaintiff] indicated in her application, it still fell within the broad consent she gave to use her cellular phone number to contact her generally for employment-related purposes regardless of whether that job matched her job interests.” Id. at *7. Accordingly, the Court found that because Plaintiff pleaded herself out of court by attaching her employment application, which indicated she consented to receiving calls from Kelly for employment-related purposes, her TCPA claim must be dismissed.

Plaintiff also brought a claim under the ICFA alleging that Kelly engaged in unfair acts and practices by making the allegedly unauthorized robo-call to her cellular phone in violation of §§ 2 and 2Z of ICFA, 815 Ill. Comp. Stat. 505/2, 2Z. Id. at *8. The Court explained that to state an ICFA claim, Plaintiff must allege: (1) a deceptive or unfair act or practice by Kelly, (2) Kelly’s intent that Plaintiff rely on the deceptive or unfair practice, (3) the unfair or deceptive practice occurred in the course of conduct involving trade or commerce, and (4) Kelly’s unfair or deceptive practice caused Plaintiff actual damage. Id. at *8-9. In dismissing Plaintiff’s ICFA claim, the Court found that “receiving one pre-recorded message does not rise to the level of an oppressive practice” and that damages such as “loss of time and loss of battery life” are “so negligible from an economic standpoint as to render any damages unquantifiable.” Id. at *10. The Court further rejected Plaintiff’s argument that Kelly violated the Illinois Telephone Act because the message did not solicit the sale of goods and or services and therefore, did not fall under the definition of “recorded message” in the Illinois Telephone Act. Id. at *10-11. Accordingly, the Court dismissed Plaintiff’s ICFA claims with prejudice.

Implications For Employers

This is a landmark victory for employers, especially companies who utilize automated calls and text messages to contact prospective and/or current employees about job-related opportunities or employment matters. Employers can almost certainly expect similar lawsuits brought against them under the TCPA. Fortunately for employers, Kelly’s victory provides a roadmap for how to defeat such cutting edge class actions.