On January 8, 2019, Judge Grasz, writing for an Eighth Circuit panel, reiterated the need for district courts to determine Article III standing before approving class settlements. The appeal stemmed from a putative class action wherein U.S. District Court Judge Nanette Laughrey decided to enforce the parties’ tentative settlement agreement without first deciding the standing issue.

Plaintiff filed the class action suit in Missouri state court in February 2016 alleging that SC Data Center (SC Data) had committed violations of the Fair Credit Reporting Act (FCRA). SC Data later removed the case to federal court. The parties reached a tentative settlement agreement in May 2016, just days prior to the Supreme Court’s decision in Spokeo v. Robins, which held that the Ninth Circuit failed to determine Article III standing prior to deciding a FCRA claim. In July 2016, SC Data unsuccessfully moved to dismiss the class action citing plaintiff’s lack of standing. Judge Laughrey held that the named plaintiff’s standing to bring the FCRA claim had no bearing on her standing to enforce the parties’ class-action settlement encompassing unnamed plaintiffs. Thereafter, the parties submitted their class-action settlement agreement, and Judge Laughrey later approved it.

On appeal, SC Data argued that Judge Laughrey erred by not evaluating the standing issue before enforcing the settlement. The Eighth Circuit agreed and noted that Article III standing is a prerequisite that must be determined not only from the outset but also throughout the life of the case. The Court held that a district court’s decision to approve or reject a settlement is a form of court judgment, and a court must possess subject matter jurisdiction to enter a judgment. Absent jurisdiction, “the court cannot act.”[1]

The Eighth Circuit rejected plaintiff’s argument that Judge Laughrey need not have assessed the standing issue because SC Data cannot avoid a settlement agreement based on a change in law that might have affected its settlement calculus. Instead, the Court reasoned that Spokeo was not a substantive change in law that affected the parties’ settlement strategy but was merely a reiteration of the law of standing. The Court vacated Judge Laughrey’s approval of the settlement agreement and remanded the case for determination of the standing issue.

This decision highlights the need for clients to examine whether standing exists before agreeing to a class action settlement. Furthermore, the Eighth Circuit opinion may make it more difficult for parties to reach class action settlements when there is a standing issue, particularly if a court determines that standing is required for each putative class member. Here, however, the Eighth Circuit did not address the issue of whether standing is required for each, individual putative class member.

Seyfarth Shaw continues to monitor the developments involving class actions and will keep its readers apprised of updates.

[1] Robertson v. Allied Sols., LLC, 902 F.3d 690, 698 (7th Cir. 2018).

In a matter of first impression, the Fifth Circuit upheld a dismissal by the Northern District of Texas holding that a lender cannot be held vicariously liable for a loan servicer’s purported violation of the Real Estate Settlement Procedures Act (“RESPA”). In upholding the decision, the Court held that the borrower failed to plead an agency relationship, and that, even if an agency relationship existed, the lender could not be held vicariously liable as a matter of law for the servicer’s alleged failure to comply with RESPA. In reaching its decision, the Fifth Circuit relied upon a plain reading of RESPA, which imposes duties only on loan servicers and restricts liability to those who fail “to comply with any provision” of RESPA.
There is presently a split of authority nationally at the district court level as to the viability of the vicarious liability theory under RESPA. As always, we will continue to monitor and report on key developments in this area.

Seyfarth Synopsis: On November 6, 2018, the United States Supreme Court signalled that the Article III standing preconditions to federal court litigation, as described in Spokeo, Inc. v. Robins, 136 S .Ct. 1540 (2016), are not likely to be diminished any time soon. The Court did so by requesting supplemental briefing on the application of Spokeo after oral argument had occurred.

In Frank v. Gaos, No. 17-961, awaiting decision by the Court, the plaintiffs alleged that Google violated the Stored Communications Act (SCA), 18 U.S.C. § 2710 et seq., by disclosing their search terms, thereby allowing third parties to “reidentify” them and connect them to particular searches. The plaintiffs reached a class action settlement with the defendant in which it agreed to pay $8.5 million into a settlement fund. After accounting for attorneys’ fees and named plaintiff awards, the parties agreed that the money would be distributed to charities (also known as cy pres payments). Two individuals objected that the settlement fund should be distributed to class members rather than to charities. The objections were overruled. The objectors then successfully petitioned for certiorari. The United States filed an amicus brief before oral argument.

Following oral argument, the Court asked the parties and the United States to file supplemental briefing addressing “whether any named plaintiff has standing such that the federal courts have Article III jurisdiction over this dispute.” On November 30, 2018, the United States filed its supplemental brief. The United States took the position that the plaintiffs lack Article III standing, and for that reason, have no federal forum in which to raise their claim.

Spokeo is the backdrop to the unusual request for supplemental briefing and the position of the United States. Spokeo held that a plaintiff seeking to invoke federal jurisdiction must show: (1) an injury in fact (2) caused by the defendant’s conduct that is (3) redressable by a favorable federal court decision. While an injury in fact may exist solely by virtue of statutes creating legal rights, Article III jurisdictional requirements still require a concrete injury.

The United States now argues that plaintiffs in Frank v. Gaos do not allege Article III standing because Congress has not conveyed any express judgment that their alleged injury should provide a basis to sue. The government says that the “search term injury” does not have a foundation in tort law, such as libel or slander law. The government also argues that the allegations about potential reidentification are too speculative to create standing.

There are important lessons to be gleaned from the Frank v. Gaos supplemental briefing and the position of the United States:

1. The Supreme Court remains very interested in whether a federal court plaintiff has a sufficiently concrete injury to earn a federal forum, even if she can show a technical statutory violation.

2. Second, while Congress may impose laws on tech companies using web site data, a consequent inquiry will be — Can a plaintiff show a concrete injury that would allow a lawsuit in federal court? Without a private right of action that allows suit, the data protection law may lack teeth.

3. Third, Frank v. Gaos says nothing about state court jurisdiction. Expect more technical statutory violation cases to be brought in state court, provided standing exists under the state constitution. See, for example, our discussion here. This in turn may make it harder to develop uniform law throughout the Unites States on important social issues.

4. Fourth, the Supreme Court’s focus on Article III standing may be part of a broader push by the Court to limit the role of the federal courts in resolving conflict in the hyper-partisan political times in which we now live. In other words, the Supreme Court may be saying that we live in an federal judicial era where less is more when it comes to federal judicial intervention.

 

Seyfarth Synopsis: As part of an evolving trend of narrowly interpreting the FCRA’s “standalone” disclosure and “clear and conspicuous” disclosure requirements, the Ninth Circuit has held that users of consumer reports may violate the FCRA and ICRAA by including “extraneous” state law notices and potentially “confusing” language in background disclosure forms.

Both the Fair Credit Reporting Act (FCRA) and California’s Investigative Consumer Reporting Agencies Act (ICRAA) regulate background screening and the process employers must follow when procuring background reports on applicants. Under both statutes, before procuring a consumer report (i.e., a criminal or other background report) on an applicant, employers and other users of consumer reports must provide the applicant a “clear and conspicuous disclosure” that “a consumer report may be obtained for employment purposes” and further require that the disclosure must be “in a document that consists solely of the disclosure.”

Yesterday, the Ninth Circuit Court of Appeals held that this statutory language, whether derived from the FCRA or ICRAA, prohibits employers from including any superfluous information in the disclosure document. Thus, at least within the Ninth Circuit, employers cannot include disclosures required by other state laws in the same document that contains the disclosure required by the FCRA. The court also indicated that any language in the disclosure document that could confuse a reasonable person about his or her rights under the FCRA or ICRAA likely will violate the laws’ “clear and conspicuous” requirement.

Discussion of the Facts & Opinion

The case, Gilberg v. California Check Cashing Stores LLC, involves a putative class action filed by Desiree Gilberg, a former employee of CheckSmart Financial, LLC. Before starting work, Gilberg signed a form entitled “Disclosure Regarding Background Investigation,” which stated that CheckSmart may obtain the applicant’s background report, and that the applicant had the right to request a copy of his or her report. The form also included information regarding the applicant’s right to obtain a copy of the report under various state laws. Gilberg alleged that this disclosure violated the FCRA and ICRAA. The Ninth Circuit agreed and reversed the district court’s grant of summary judgment to CheckSmart.

First, the court held that by including other state-mandated disclosure information, CheckSmart’s disclosure form violated the FCRA’s standalone document requirement. Citing its earlier decision in Syed v. M-I, LLC, 853 F.3d 492 (9th Cir. 2017), the court reiterated that “the statute [means] what it [says]: the required disclosure must be in a document that consists ‘solely’ of the disclosure.” Id. at 496 (internal alterations omitted). Although Syed involved an employer who included a liability waiver in the same document as the disclosure, the court held that the FCRA’s use of the word “solely” prohibits “any surplusage” in the disclosure document, including any state-mandated disclosure information. The court rejected CheckSmart’s argument that the inclusion of such additional information furthers the FCRA’s disclosure purposes, noting that CheckSmart’s form included information on state laws that were inapplicable to Gilberg and referenced documents that were not part of the FCRA-mandated disclosure. The court held that such “extraneous information is as likely to confuse as it is inform . . . [and] does not further FCRA’s purpose.” In any event, the court held that the statute’s purported purpose could not overcome its plain language.

Second, the court held that the disclosure, though “conspicuous,” was not “clear.” Analyzing the clarity requirement, the court explained that a reasonable person would not understand the following language in the disclosure:

The scope of this notice and authorization is all-encompassing; however, allowing CheckSmart Financial, LLC to obtain from any outside organization all manner of consumer reports and investigative consumer reports now and, if you are hired, throughout the course of your employment to the extent permitted by law.

The court took particular issue with the use of the term “all-encompassing,” noting that CheckSmart failed to explain the meaning of that language or how it could impact an applicant’s rights. The court further noted that the second half of the sentence, after the semicolon, lacked a subject and was incomplete. Although it appears that CheckSmart intended to use a comma instead of a semicolon, the court held that the sentence, as drafted, “suggests that there may be some limits on the all-encompassing nature of the authorization, but it does not identify what those limits might be.”

The court further noted that the following language would likely confuse a reasonable reader:

New York and Maine applicants or employees only: You have the right to inspect and receive a copy of any investigative consumer report requested by CheckSmart Financial, LLC by contacting the consumer reporting agency identified above directly.

In the court’s view, this language could be construed to mean that only New York and Maine applicants have the right to inspect and receive a copy of the report rather than to mean that only New York and Maine require consumers to be notified of their rights at this stage of the application process.

The court’s reasoning appears inconsistent with the statutory text. The FCRA and ICRAA require that the disclosure that a background check will be obtained to be “clear and conspicuous,” and the first two sentences of the CheckSmart disclosure plainly disclose that a report may be obtained for employment purposes:

CheckSmart Financial, LLC may obtain information about you from a consumer reporting agency for employment purposes. Thus, you may be the subject of a ‘consumer report’ and/or an ‘investigative consumer report’ ….

Rather than considering the disclosure form as a whole, the court focused on discrete sentences without considering them in the context of the entire form. The court also did not explain how a state-law notice that a consumer has a right to obtain a copy of the report made it unclear that a report would be obtained.

Interestingly, it appears that neither the Court nor the parties addressed whether the plaintiff even had standing to sue. Unlike in Syed, Gilberg did not allege that the disclosure confused her or that she did not understand that she would be subject to a background report. Thus, the more appropriate route for the Ninth Circuit would have been to dismiss the claim under Syed, which held that a consumer has standing to sue if she was confused or did not understand that she was authorizing a background check. Instead, the court took the opportunity to hold that the disclosure form could have confused a consumer even though no one, not even the plaintiff, had made such an allegation.

Employer Outlook

This case serves as yet another reminder to employers to carefully review their background check disclosure and authorization forms and processes. Both the FCRA- and ICRAA-mandated disclosures should be set out in separate, standalone documents, entirely distinct from any other application paperwork, including even applicable disclosures mandated by other state laws. Further, although courts apply a “reasonable person” standard to assess a disclosure’s clarity, Gilberg may portend a movement toward an even more exacting standard. In light of this evolving trend, employers should make sure to use language that is impeccably clear, concise, and free from any typographical errors or wording that could confuse the least sophisticated consumer about his or her rights under the FCRA or any comparable state laws.

Seyfarth Synopsis: The Illinois Supreme Court has held that a plaintiff may sue for mere violation of BIPA, regardless of injury. The ruling will likely greatly increase the potential exposure of companies in actions alleging violations of the Act and makes strict compliance with the Act significantly important.  Accordingly, businesses using or licensing biometric technology in Illinois or collecting or receiving biometric data on individuals in Illinois must take immediate compliance measures or else face the potential of significant liability and damages in class action litigation.

The Illinois Biometric Information Privacy Act

Continue Reading Illinois Supreme Court Opens Floodgates For Damages In Class Actions Alleging Violations of the Illinois Biometric Information Privacy Act (“BIPA”)

On September 20, 2018, California Governor Jerry Brown signed into law AB 1884 and SB 1192, which prohibit certain restaurants from offering plastic straws and restrict the default beverage in kid’s meals to water or milk. These restrictions go into effect on January 1, 2019. Restaurants that fall within the scope of these laws are subject to statutory penalties including fines and potential class action exposure under California Business and Professions Code section 17200.

AB 1884 prohibits a “full-service restaurant” from providing single-use plastic straws to consumers unless requested by the consumer. A “full-service restaurant,” is defined as an establishment with the primary business purpose of serving food, where food may be consumed on the premises, and where employees of the establishment take the following actions: (1) escorting the consumer to an assigned eating area; (2) taking the consumer’s food and beverage order once seated; (3) delivering the consumer’s food and beverage order directly to the consumer; (4) delivering additional requested items to the consumer; and (5) delivering the check to the consumer at the assigned eating area. Accordingly, the ban does not apply to fast food restaurants, take out restaurants, and similar eateries where employees do not take the actions outlined above. The ban also does not apply to businesses that provide non-plastic straws made from materials such as paper, pasta, sugar cane, wood, or bamboo.

The provisions set forth in AB 1884 will be incorporated into California’s existing Retail Food Code, which establishes uniform health and sanitation standards for “retail food facilities,” as defined. The Retail Food Code also provides for the regulation of relevant facilities by California’s State Department of Public Health. First and second violations of these provisions will result in a Notice of Violation, and any subsequent violation will be punishable by a fine of $25 for each day the restaurant is in violation, not to exceed an annual total of $300.

AB 1884’s legislative history builds on California’s long-standing policy of regulating environmental impacts and developing concerns relating to plastics and microplastics. The Assembly noted in its Analysis several recent studies discussing the amount of plastic in the ocean, which currently stands at an estimated 1.8 trillion pieces of plastic and (rapidly) counting. The Assembly further considered the effects of plastics in the ocean, which degrade and eventually turn into microplastic due to ultraviolet radiation and other photo-degradation. According to the Assembly, the dangers of microplastics are not limited to aquatic life; through various processes, microplastics can make their way into the human food chain and water supply.

SB 1192 requires restaurants that sell a “children’s meal” with a beverage included to provide as the default beverage one of the following: water, sparkling water, unflavored milk, or a nondairy milk alternative. Similar to AB 1884, this law allows restaurants to sell alternative beverages upon request by the customer. However, unlike AB 1884, the provisions in SB 1192 apply to a much broader set of restaurants defined in the statute as “a retail food establishment that prepares, serves, and vends food directly to the consumer.” Thus, restaurants exempt from the single-use plastic straw ban, are still subject to this restriction if they offer a “children’s meal.” A “children’s meal” is defined as a combination of food items and a beverage, or a single food item and a beverage, sold together at a single price, primarily intended for consumption by a child.

A first violation of these provisions will result in a Notice of Violation. Subsequent violations will be punishable by fines; $250 for a second violation and $500 for a third violation.

The legislature wrote its findings into the text of the statute, which clearly outline its intent to curb child obesity. In fact, the legislature expressly stated, “it is the intent of the Legislature to support parents’ efforts to feed their children nutritiously by ensuring healthy beverages are the default options in children’s meals in restaurants.” This statement is based on the legislature’s findings that American children eat 25% of their calories at fast food and other restaurants outside of the home, and that children consume nearly twice as many calories when they eat out (compared to what they would eat at home).

SB 1192 was proposed as a result of the legislative findings on steadily increasing obesity rates. In particular, the California legislature found that from 1990 to 2016, the obesity rate in California increased by 250%, and that recent trends suggest a parallel increase in obesity among children. The text of the law states that, in 2009, 10.9% of children ages 0-5 and 12.2% of children ages 6-11 were overweight, and these numbers rose in 2015 to 13.7% of children ages 0-5 and 16% of children ages 6-11. The legislature further explained that obese children are at least twice as likely as nonobese children to become obese adults and are at a greater risk for adverse health conditions including, but not limited to the following: type 2 diabetes, heart disease, stroke, high blood pressure, high cholesterol, certain cancers, asthma, low self-esteem, depression, and more.

The law was also proposed as a solution to the “serious economic costs” associated with obesity-related health conditions. The legislature found that these costs amount to a medical burden of about $147 billion annually in the United States, accounting for almost 10% of all federal medical spending and borne primarily by taxpayers through government-sponsored vehicles like Medicare and Medicaid.

Takeaways

Given the nearing effective date for both AB 1884 and SB 1192, restaurants should review their existing practices to make sure they are in compliance with both laws prior to January 1st. Business owners should be mindful of these new laws to avoid fines, and more importantly, potential class action lawsuits. Fortunately, for many restaurants, implementation of compliant policies is likely to be quick and painless. At a minimum, restaurants should ensure that the default option for any kids’ meal is a permissible choice of either milk or water and that employees do not offer consumers plastic straws. Restaurants may also consider switching to plastic straw alternatives, e.g., paper, pasta, sugar cane, wood, or bamboo. And of course, as with any change in policy, restaurants subject to these provisions should seek counsel regarding compliance.

After recently hearing oral argument in Lamps Plus Inc. v. Varela, the United States Supreme Court is set to decide whether the Federal Arbitration Act forecloses a state-law interpretation of an arbitration agreement that would result in permitting class arbitration. Arbitration is a function of contract, and therefore parties may agree to aggregated arbitrations in theory, though many questioned their practicality given the principal aims of arbitration – efficiency, speed, and finality. The question before the Court, however, is whether state-law contract interpretative principles should control when arbitration agreements are silent on the issue of class arbitration.

In the underlying decision, the Ninth Circuit held that, under California law, when an arbitration agreement is silent on the issue of class arbitration, it may be ambiguous, and therefore subject to interpretation against the drafter, i.e., interpreted to permit class arbitration. Lamps Plus, however, argues that federal law demands clearer language before a party can be required to arbitrate on an aggregated basis.

This case follows the heels of Stolt-Nielsen, where the United States Supreme Court held that a party may not be compelled to submit to class arbitration under the Federal Arbitration Act, unless there is a contractual basis for concluding that the party agreed to do so. As a practical matter, the Court’s ruling in Lamps Plus Inc. v. Varela may have limited practical impact because of the ever-growing prevalence of class action waiver clauses in arbitration agreements, the use of which the Court has repeatedly affirmed as legally enforceable.

On Thursday, December 6, 2018 from 8:00 a.m. – 10:30 a.m. Central, the Chicago office of Seyfarth Shaw LLP will present “Seyfarth Legal Forum and CLE: 2018 Highlights And a Look to 2019″.

About the Program

Why should you be interested in joining us?  Because we will be providing our clients with a multidisciplinary overview of Legal Hot Button issues and Best Practices — featuring a panel of Seyfarth Chicago subject matter experts — with an eye toward preparing for the developments in the coming year.

The program will consist of an engaging 90 minute presentation with speakers from each of Seyfarth Chicago’s practice groups: Benefits, Corporate, Labor & Employment, Litigation and Real Estate, as well as an exciting presentation on the use of technology in law. This outstanding panel will address:

  • Biometric Information Privacy Act: What a long, strange year it’s been (and there’s more on the way!)
  • Legalize it: will Illinois go from medical to recreational marijuana and what would that mean to the real estate industry?
  • Affordable Care Act Update & Enforcement Activities, 401(k) Student Loan Repayment Arrangements, Socially Responsible Investments, and HIPAA Privacy & Security Audits
  • Mergers and Acquisitions: Current State of the Market and Post-Merger Integration Strategies
  • The “Cloud”…is in a building?: Data Centers are the newest, and maybe most important, type of real estate
  • Latest Developments in Pregnancy Accommodation (Illinois’ New Lactation Law and Nationwide Trends)
  • Litigation Hot Topics for 2019, including: Developments in trade secret and non-compete law; New laws affecting threshold issues such as forum selection and choice of law; Frontloaded discovery in federal court: Mandatory Initial Discovery Pilot Programs; Best practices for protecting the attorney-client privilege for in-house counsel
  • Welcome to the Future: It arrived yesterday – The intersection of Technology and Legal Services
  • Bots, bits and bytes… Artificial Intelligence and its leading role in recent legal projects

But that’s not all! We will then offer 30 minute break-out sessions on hot topics warranting a deeper dive that Companies are facing when looking at their legal compliance needs. The break-out sessions will address Privacy/Data Security, Managing in the #metoo Environment and Blockchain/Cryptocurrency in business. You will be able to attend the session most relevant to your business needs.

To register for both the panel presentation and the break-out session of your choice, please click here.

Speakers
Tracy Billows, Partner, Labor and Employment
Benjamin Conley,  Partner, Employee Benefits
Erin Dougherty Foley, Partner, Labor and Employment
Sara Eber Fowler, Associate, Labor and Employment
Jason Priebe, Partner, eDiscovery and Information Governance
Michael Rechtin, Partner, Real Estate
Suzanne Saxman, Partner, Corporate
Ryan Tilot, Associate, eDiscovery and Information Governance
Jordan Vick, Partner, Litigation
Kevin Woolf, Director, Seyfarth Lean Consulting

If you have any questions, please contact Fiona Carlon at fcarlon@seyfarth.com and reference this event.

Seyfarth Shaw LLP is an approved provider of Illinois Continuing Legal Education (CLE) credit. This seminar is approved for 2.0 hours of CLE credit CA, IL, NY, NJ and TX. CLE Credit is pending for GA and VA. HR professionals: please note that the HR Certification Institute accepts CLE credit toward recertification.

On September 19, 2017, Governor Jerry Brown signed into law AB 2632, which amends California’s slack fill law, and provides manufacturers, retailers, and consumers with greater clarity regarding the requirements for packaging.

Slack fill is the empty space between the actual container capacity and the volume of the product in the container (i.e., the air in a bag of potato chips). Manufacturers and retailers may include slack fill in their products, but the question of whether slack fill is permissible turns on whether the empty space is deemed “non-functional.” “Non-functional” slack fill is impermissible because it can mislead consumers into believing they are getting more product than the package actually contains.  Continue Reading CHIP CHIP HOORAY! California Adds Exemptions to Slack Fill Law

One of the latest efforts by a municipality to address public health concerns by requiring warnings on certain products may be revived depending on the outcome of a recent rehearing before an 11-judge en banc panel of the Ninth Circuit. The en banc panel is reconsidering its 2017 decision blocking on First Amendment grounds a San Francisco ordinance that would require soda and other sugary drink sellers to provide a prominent health warning on billboard and other outdoor advertising. Continue Reading Ninth Circuit Reconsidering San Francisco Soda Health Warning