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.

Also By Robert T. Szyba, and Ephraim J. Pierre

Seyfarth Synopsis: In deciding Spokeo v. Robins, the U.S. Supreme Court reaffirmed that plaintiffs seeking to establish that they have standing to sue must show “an invasion of a legally protected interest” that is particularized and concrete — that is, the injury “must actually exist.” Bare procedural violations are not enough.supreme-court

Today, the U.S. Supreme Court issued its long awaited decision in Spokeo, Inc. v. Robins, No. 13-1339 (U.S. 2016), which we have been watching closely for its possible dramatic implications on the future of workplace class action litigation.

In a 6 to 2 opinion authored by Justice Samuel A. Alito, Jr., the Supreme Court held that the Ninth Circuit’s injury-in-fact analysis under Article III was incomplete. According to the Supreme Court, of the two required elements of injury in fact, the Ninth Circuit addressed only “particularization,” but not “concreteness,” which requires a plaintiff to allege a “real” and not “abstract” injury. Nevertheless, the Supreme Court took no position on the correctness of the Ninth Circuit’s ultimate conclusion: whether Robins adequately alleged an injury in fact.

Based on its conclusion, the Supreme Court vacated the Ninth Circuit’s ruling and remanded for further consideration consistent with the Opinion. Justice Thomas concurred, while Justice Ginsburg (joined by Justice Sotomayor) dissented.

Given the stakes and the subject matter, the ruling is a “must read” for corporate counsel and all employers.

The Case’s Background

This ruling is likely to have substantial impact on class action litigation overall, as we have discussed in our prior posts here, here, and here.

In Spokeo, the issues focused on the Fair Credit Reporting Act (“FCRA”), which requires that consumer reporting agencies (“CRAs”) follow reasonable procedures to assure maximum possible accuracy of its consumer reports (15 U.S.C. § 1681e(b)), issue specific notices to providers and users of information (1681e(d)), and post toll-free phone numbers to allow consumers to request their consumer reports (1681b(e)).

The purported CRA in this case was Spokeo, Inc. (“Spokeo”), which operates a “people search engine” — it aggregates publicly available information about individuals from phone books, social networks, marketing surveys, real estate listings, business websites, and other sources, which it organizes into comprehensive, easy-to-read profiles. Notably, Spokeo specifically states that it “does not verify or evaluate each piece of data, and makes no warranties or guarantees about any of the information offered . . .,” and warns that the information is not to be used for any purpose addressed by the FCRA, such as determining eligibility for credit, insurance, employment, etc.

In July 2010, Plaintiff Thomas Robins filed a putative class action alleging that Spokeo violated the FCRA because it presented inaccurate information about him. He alleged that Spokeo reported that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any). But beyond identifying the inaccuracies, he did not allege any actual damages. Instead, he argued that Spokeo’s alleged FCRA violation was “willful” and therefore he sought statutory damages of between $100 and $1,000 for himself, as well as for each member of the purported nationwide class.

The district court dismissed the case, finding that “where no injury in fact is properly pled” a plaintiff does not have standing to sue. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”

In its petition for certiorari, Spokeo posed the following question to the Supreme Court: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.” Spokeo highlighted a circuit split, as the Fifth, Sixth, and Seventh Circuits previously lined up with the Ninth Circuit’s approach, while the Second, Third, and Fourth Circuits generally disagreed and required an actual, concrete injury.

After being granted certiorari, Spokeo argued that the Ninth Circuit’s holding was inconsistent with the Supreme Court’s precedents, the Constitution’s text and history, and principles of separation of powers. More specifically, Spokeo argued that Robin’s bare allegations of FCRA violations, without any accompanying concrete or particularized harm, were insufficient to establish an injury in fact, and thus failed to establish Article III standing.

Robins responded that the Supreme Court’s precedent established that Congressmay create private rights of action to vindicate violations of statutory rights that are redressable through statutory damages.

The U.S. Solicitor General also weighed in, appearing as an amicus in support of Robins, and argued that the Supreme Court should focus on the specific alleged injury — the public dissemination of inaccurate personal information — and, specifically, the FCRA. The Government argued that the FCRA confers a legal right to avoid the dissemination of inaccurate personal information, which is sufficient to confer standing under Article III.

The Supreme Court’s Decision

Writing for the majority on the Supreme Court, Justice Alito held that Ninth Circuit failed to consider both aspects of the injury-in-fact requirement under Article III when analyzing Robin’s alleged injury, therefore its Article III standing analysis was incomplete. Slip. Op. at *8. The Supreme Court determined that to establish injury in fact under Article III, a plaintiff must show that he or she suffered “an invasion of a legally protected interest” that is both “concrete and particularized.” Slip. Op. at *7. For an injury to be “particularized,” it “must affect the plaintiff in a personal and individual way.” Id. “Concreteness,” the Supreme Court found “is quite different from particularization.” Id. at *8. A concrete injury must “actually exist” and must be “real” and not “abstract.” Id.

The Supreme Court further stated that concreteness includes both easy to recognize tangible injuries as well as intangible injuries. Id. at 8-9. The Supreme Court instructed that when considering intangible injuries, “both history and the judgment of Congress play important roles.” Id. In particular, Congress may identify intangible harms which meet Article III’s minimum requirements. Id.Nevertheless, the Supreme Court cautioned that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action. Id. Thus “Robins could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.” Id. The Supreme Court also added that the “risk of real harm” may also satisfy the concreteness requirement, where harms “may be difficult to prove or measure.” Id.

Viewing the FCRA in light of these principles, the Supreme Court recognized that while Congress “plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk . . .[,] Robins cannot satisfy the demands of Article III by alleging a bare procedural violation.” For example, the Supreme Court noted it would be “difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.” Id. at * 11.

Justice Thomas concurred, reviewing the historical development of the law of standing and its application to public and private rights of action, finding the standing requirement a key component to separation of powers.

Justice Ginsberg, joined by Justice Sotomayor, largely agreed with the majority, but nevertheless dissented. She departed from the majority’s reasoning on the issue of concreteness, but based on the injury alleged, not on the fact that concrete harm wasn’t required. Id. at *3 (Ginsberg, J., dissenting). Under her analysis, Justice Ginsberg would have found that the nature of Robin’s injury was sufficiently concrete because of his allegation that the misinformation caused by Spokeo “could affect his fortune in the job market.” Id. at *3-5 (Ginsberg, J., dissenting).

Implications For Employers

Spokeo can be interpreted as a compromise – with some useful language and reasoning for employers to use in future cases. While the Supreme Court avoided a broader question of Congress’s ability to create private rights of action and other weighty separation of powers issues, it announced the proper analytic framework for assessing the injury-in-fact requirement under Article III. The Supreme Court provided some good news for employers, consumer reporting agencies, and other corporate defendants, as well as potential plaintiffs with respect to class action litigation under a variety of federal statutes, including the FCRA. In particular, the Supreme Court was clear that alleged injuries must be both particular and concrete, meaning that injuries must be “real” and not “abstract.” Thus, a mere procedural violation without any connection to concrete harm cannot satisfy the injury-in-fact requirement of Article III.

However, the Supreme Court may not have shut the door on lawsuits alleging intangible injuries based on violations of statutory rights. While the Supreme Court’s opinion today may discourage some consumer, workplace, and other types of class actions seeking millions in statutory damages, potential litigants will likely have to be more creative in how they frame alleged injuries tied to violations of statutory rights.

Spokeo also transcends the employment context, as the constitutional requirement of Article III applies in all civil litigation. Plaintiffs seeking to file lawsuits in other regulated areas, such as under ERISA, the Americans with Disabilities Act, as well as a host of other statutes are likewise affected by today’s decision. Without particularized, concrete injury, federal jurisdiction is beyond the reach of plaintiffs seeking statutory damages for technical violations.

This blog was cross-posted with our Workplace Class Action Blog:

www.workplaceclassaction.com

 

Recently, the United States Court of Appeals for the Seventh Circuit ruled that a plaintiff seeking to remand a putative class action under the Class Action Fairness Act’s (“CAFA”) home-state exception must produce evidence allowing the court to determine the putative class members’ citizenship as of the date the case was removed to federal court.  The court suggested that a plaintiff might meet his or her burden by randomly sampling the citizenship of putative class members and extrapolating those results to the entire putative class.

Case Background

In Myrick v. WellPoint, Inc., the plaintiffs filed a putative class action complaint in Illinois state court, alleging that an Illinois insurer violated state law by withdrawing from the Illinois market in 2002 and cancelling all insurance policies.  The defendants removed the case to federal court pursuant to CAFA.  Thereafter, the plaintiffs sought remand under CAFA’s home-state exception, 28 U.S.C. § 1332(d)(4).  That section provides that a court shall not exercise CAFA jurisdiction if (1) at least two-thirds of the putative class members are citizens of the state in which the case was originally filed; and (2) at least one defendant from whom significant relief is sought, and whose alleged conduct forms a significant basis for the claims asserted, is a citizen of the same state.

The parties disagreed on whether two-thirds of the putative class members were citizens of Illinois.  The plaintiffs argued that the home-state exception was satisfied because:

(1) Defendants’ policy was offered only to persons who represented that they lived in Illinois or, for group policies, to employers who represented that most beneficiaries lived in Illinois; and

(2) assuming that former policyholders left Illinois at the normal rate of 2% per year since 2002, about 87% of the putative class members were Illinois residents when the case was removed.

The district court denied the motion to remand.

The Seventh Circuit’s Decision

On appeal, the Seventh Circuit affirmed.  The court held that the party seeking remand bears the burden of proof under the home-state exception.  Therefore, the plaintiffs “needed to produce some evidence that would allow the [district] court to determine the class members’ citizenships on the date the case was removed.”  Slip Op. at 4. The court concluded that the plaintiffs had failed to produce any evidence of the putative class members’ citizenship.

The court reasoned that the plaintiffs’ arguments rested on suppositions rather than evidence.  The court noted that the plaintiffs expected the court to infer (1) that the policies were only issued to Illinois residents; (2) that all Illinois residents are also Illinois citizens; (3) that the defendants’ policyholders were no more likely to move than the average individual is; and (4) that employers who purchased group policies were all citizens of Illinois.  The court held that “[t]hese propositions may or may not be right, but plaintiffs did not offer any evidence to support them.”  Id.  at 5.

The court rejected the plaintiffs’ argument that they should be excused from proving putative class members’ citizenship because doing so is “simply too expensive.”  Id.  The court stated:  “Lawyers who launch class actions are not in a good position to complain about the expenses they entail; plaintiffs and their counsel must be prepared to meet them or be deemed inadequate representatives.”  Id.  The court further reasoned that Plaintiffs’ burden was not cost prohibitive because they could have relied on random sampling.

The court explained that the plaintiffs could have taken a random sample of perhaps 100 putative class members, determined the citizenship of those in the sample, and extrapolated those results to the putative class as a whole.  Id. at 5-6.  The court noted that, if the sample had yielded a lopsided result, “say, 90% Illinois citizens or only 50% Illinois citizens,” the outcome would have been clear without the need for further evidence.  Id.  If the result was close to the home-state exception’s two-thirds requirement, the court stated that plaintiffs could have done “more sampling and hire[d] a statistician to ensure that the larger sample produces a reliable result.”  Id.

Implications for Businesses

The Seventh Circuit’s decision squarely places the burden to prove citizenship on a plaintiff seeking remand under CAFA’s home-state exception but minimizes that burden by suggesting a plaintiff might randomly sample putative class members to establish jurisdiction.  Unfortunately, the decision leaves many questions unanswered.  For example, the decision does not address whether or to what extent a plaintiff has the right to seek discovery from the defendant on putative class members.  Nor does the decision address whether a plaintiff relying on random sampling must provide expert testimony in support and, if so, whether Daubert applies to that testimony.  Businesses facing a motion to remand under the home-state exception should consider these issues when crafting their defense.

Background

In March, the Supreme Court granted certiorari to determine whether the filing of a putative class action serves, under the American Pipe rule, to satisfy the three-year time limitation in § 13 of the Securities Act with respect to the claims of putative class members.  Now, the Court is beginning to consider the merits.  The Court’s ruling may have implications for any class action claim subject to a statute of repose.

This case involved a class action led by the State Treasurer of Wyoming and that state’s public retirement fund (collectively “Wyoming”), alleging that defendant banks violated the Securities Act when issuing mortgage-backed securities.  The district court dismissed many of the claims due to Wyoming’s lack of standing.  Thereafter, other retirement systems (“proposed intervenors”) moved to intervene.

Procedural History

The district court denied the motion, ruling that their claims were time barred by § 13’s three-year statute of repose, which provides that no action shall be brought more than three years “after the security was bona fide offered to the public, or … more than three years after the sale.”  The district court rejected the proposed intervenors’ argument that the statute of repose was tolled under American Pipe, which holds that the filing of a class action complaint tolls the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.  American Pipe & Construction Co. v. Utah, 414 U.S. 538, 554 (1974).

On appeal, the Second Circuit affirmed.  The court held that the American Pipe tolling rule does not apply to § 13’s statute of repose.  The court reasoned that the Supreme Court’s ruling in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gibertson, 501 U.S. 350, 363 (1991) provides that equitable tolling does not apply to statutes of repose, while the Rules Enabling Act, 28 U.S.C. § 2072(b) precludes legal tolling of statutes of repose.

Before the United States Supreme Court

Thereafter, proposed intervenor the public Employees’ Retirement System of Mississippi (“Mississippi”) petitioned for certiorari, and the Supreme Court granted the petition.  The question certified for review is:  “Does the filing of a putative class action serve, under the American Pipe rule, to satisfy the three-year time limitation in § 13 of the Securities Act with respect to the claims of putative class members?”

On March 21, 2014, Mississippi filed its brief.  Another proposed intervenor filed a supporting brief, and seven other entities filed amici briefs supporting the proposed intervenors.  The amici include, among others, the AARP, Inc., the Public Citizen, Inc., the American Association for Justice, a group of retired judges, and a group of law professors teaching civil procedure and securities law.

The briefs collectively assert that American Pipe holds that the filing of a class action complaint suspends any limitations period for members of the putative class and that neither Lampf nor the Rules Enabling Act preclude applying American Pipe’s tolling rule to § 13’s limitations periods.  The briefs also argue that the Second Circuit’s ruling upsets class action practice by requiring potential class members to file duplicative lawsuits or risk losing their right to recover damages, a practice which would negate the efficiency gains that class actions are supposed to bring to the judiciary.

If the proposed intervenors’ view prevails, the filing of a class action will toll Securities Act claims notwithstanding § 13’s plain language preventing a plaintiff from suing over a security offered or sold more than three years prior to the suit.  If, on the other hand, the Supreme Court adopts the Second Circuit’s view, the decision will limit putative class member’s ability to take a “wait-and-see” approach to litigation.  Instead, to protect their rights, putative class members will need either to intervene in an existing class action or to file an independent action.

Conclusion

Although this case focuses on the Securities Act § 13, any ruling may have broad application to all claims subject to statutes of repose.  We will continue to monitor the developments in the case and update our readers.

On January 14, 2014, the United States Supreme Court rewrote the test for general personal jurisdiction, holding that a defendant is subject to such jurisdiction only in the states where it is incorporated or has its principal place of business.  Daimler AG v. Bauman, No. 11-965, 2014 WL 113486 (U.S. Jan. 14, 2014), effectively abrogating International Shoe Co. v. Washington, 326 U.S. 310, 318 (1945).  Thus, a plaintiff no longer may sue a defendant in a state where it is not incorporated or headquartered by alleging that the defendant’s contacts with that state are sufficiently “continuous and systematic” to make it fair to sue the defendant on any claim there.  The case does not alter the test for specific jurisdiction, which allows defendants to be sued in states with connections to the claims at issue.

In Daimler, plaintiffs sued Daimler AG in California based on the alleged role of its indirect subsidiary, Mercedes-Benz Argentina, in human rights violations allegedly committed in Argentina between 1976 and 1983.  Plaintiffs alleged that Daimler was subject to general personal jurisdiction in California based on the contacts of another subsidiary, Mercedes-Benz USA, LLC.  It was undisputed that none of the underlying facts took place in California, and that no one was harmed in California.  On these facts, the Court found that even if the U.S. subsidiary’s California contacts were imputed to Daimler, it would be contrary to public policy and international comity to allow Daimler to be sued in any jurisdiction where its U.S. subsidiary had “sizable sales.”  Instead, out-of-state defendants should be permitted to “structure their primary conduct with some minimum assurance as to where that conduct will and will not render them liable to suit.”  Daimler, 2014 WL 113486 at *12 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472 (1985)).

Although plaintiffs still may sue defendants in any state where they can establish specific jurisdiction, Daimler will significantly curtail forum-shopping because corporate defendants are now subject to general jurisdiction in only one or two states, not up to 50.  This not only will reduce the chances of defendants having to defend cases in unfavorable venues, but it also should reduce the volume of jurisdictional motion practice, and with it the overall cost of litigation.