July 01, 2015

Next Supreme Court Term Promises Significant Class Action Ruling

Next term, the U.S. Supreme Court will decide whether Congress has the power to grant jurisdiction to plaintiffs who have suffered no concrete harm by authorizing them to sue based solely on violations of federal statutes. The Court’s decision may have wide-reaching implications for companies facing class action lawsuits. Indeed, if the Court affirms the lower court’s ruling in the case, it will become easier for plaintiffs to maintain many types of class action claims, including some employment claims.

Background

Spokeo operates a website that collects information on individuals from various publicly-available sources. Employers, among others, can purchase information from Spokeo for use in evaluating potential hires.

Thomas Robins sued Spokeo on behalf of a class of consumers claiming violations of the Fair Credit Reporting Act (FCRA), which allows recovery of $100 to $1,000 in statutory damages, as well as punitive damages and attorney’s fees — without proof of any actual harm — for willful violations of various procedural and accuracy requirements. Robins claimed Spokeo published inaccurate information about his age, wealth, marital status and education.

The district court dismissed the case for lack of standing, finding Robins’ alleged injury too speculative and insufficient to meet the constitutional requirement of “concrete and particularized harm.” The district court concluded that the FCRA could not provide standing without a showing of actual injury, expressing concern that otherwise, “federal courts will be inundated by web surfers’ endless complaints.”

The Ninth Circuit reversed, holding that the alleged violation of Robins’ rights under the FCRA was enough to confer standing. The Ninth Circuit determined that the FCRA “does not require a consumer to wait for unreasonable credit reporting procedures to result in the denial of credit or other consequential harm before enforcing her statutory rights.” Rather, Congress could treat violations of statutory rights as “concrete, de facto injuries” such that the statutory violation alone becomes a “legally cognizable injur[y]” sufficient for constitutional standing.

Implications of the Supreme Court’s Decision

The Supreme Court will hear Spokeo, Inc. v. Robins next term. The Court agreed to hear Spokeo just three years after it granted review of the same question in Edwards v. First American Corp., 610 F.3d 514 (9th Cir. 2010). In Edwards, the Court heard oral argument but then dismissed the case without decision, stating only that certiorari had been “improvidently granted.” 132 S. Ct. 2536 (2012). 

The FCRA and statutes like it have become increasingly attractive to the plaintiffs’ class action bar. Laws that allow automatic statutory damages for willful violations lend themselves to common proof and avoid the need for individualized damages analyses. In its certiorari petition, Spokeo emphasized the extraordinary settlement pressure created in these circumstances: “The implication is drastic and absurd: the lesser the injury, the easier the path to class certification, the broader the class, the greater the damages exposure, and — inevitably — the larger the settlement.” Spokeo urged the Court to address the issue both because circuit courts are split in their approaches and because recent courts of appeals decisions had certified classes in cases that could impose billions of dollars in damages without any showing of harm.

The Supreme Court’s decision in Spokeo will impact many laws with statutory damages similar to the FCRA, including the Telephone Consumer Protection Act, the Electronic Communications Privacy Act, the Video Privacy Protection Act, the Truth in Lending Act, the Fair Debt Collection Practices Act, the Electronic Fund Transfer Act, the Latham Act and ERISA. Some of these laws provide statutory damages as high as $2,500 per violation, in addition to punitive damages and attorney’s fees.

If the Supreme Court decides plaintiffs must show actual harm to invoke federal court jurisdiction, classes (and exposure) will be smaller, and class certification will be more difficult, as defendants mount challenges to class certification based on individualized harm and damages issues.

An affirmance in Spokeo, on the other hand, will encourage plaintiffs’ attorneys to bring more class actions under the laws listed above. Standing based solely on technical statutory violations threatens to render traditional class-certification requirements of commonality and predominance meaningless and to pressure defendants into settling claims based solely on unbearable risk and exposure, regardless of the merits of their defenses.

The Supreme Court’s decision in Spokeo is expected by June 2016.

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