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).