Financial Services Law

By Donna L. Wilson | Richard E. Gottlieb

Supreme Court Requires Actual Harm to Pursue FCRA Claims

In a carefully drawn 6-2 decision authored by Justice Samuel Alito, the Supreme Court of the United States has today ruled in Spokeo, Inc. v. Robins that a plaintiff must show an injury in fact before pursuing a claim for violation of the federal Fair Credit Reporting Act (FCRA), a holding that could have major repercussions for consumer plaintiffs pursuing claims under a wide variety of consumer protection statutes. The decision may be found here. Justice Clarence Thomas wrote a concurring opinion, while Justice Ginsberg dissented, with Justice Sotomayor joining that dissent.

Far beyond its FCRA aspects, the decision may have broad and long-lasting repercussions for the entire consumer class action bar. There are literally hundreds of putative class action lawsuits in which plaintiffs allege a mere technical violation of a federal consumer protection statute without pleading facts showing any actual injury. For example, plaintiffs pursuing claims under the federal Telephone Consumer Protection Act have repeatedly pursued and obtained large class settlements based on mere technical violations, such as the receipt of electronic versions of a blast fax. It may likewise be particularly relevant in the privacy and data security area, where such statutory damages cases predominate. In addition, the decision may constrict plaintiffs' ability to certify a class under the requirements of Federal Rule 23 in that, as just one example, plaintiffs may have a more difficult time demonstrating common types of actual injury.

The Spokeo case pits a consumer against a "people search engine" firm that performs a computerized search of various databases for public data. When a search for plaintiff produced a variety of inaccurate data, that plaintiff brought suit, alleging FCRA violations despite pleading no facts showing any resulting harm. Among other things, FCRA seeks to ensure "fair and accurate credit reporting." 15 U.S.C. § 1681(a)(1). The statute therefore regulates the creation and use of "consumer report[s]" by "consumer reporting agenc[ies]" for certain specified purposes, including credit transactions, insurance, licensing, consumer-initiated business transactions and employment. The suit alleges that Spokeo is a "consumer reporting agency" and therefore is liable as a defendant under the act. Nowhere in the complaint, however, does plaintiff explain what injuries were caused by the inaccurate data or how he even became aware of the inaccuracies.

Under Article III, a plaintiff invoking federal jurisdiction must first establish standing by demonstrating (1) an injury in fact that is (2) fairly traceable to the challenged conduct of defendant and that is (3) likely to be redressed by a favorable judicial decision. This includes the requirement that plaintiff show "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical." Lujan v. Defenders of Wildlife, 504 U. S. 555, 560 (1992). As the Court puts it, a "concrete" injury must be "de facto"; that is, it must actually exist. In Spokeo, the Court concludes that the U.S. Court of Appeals for the Ninth Circuit, in reversing a dismissal at the trial court level, failed to consider the "concreteness" portion of the analysis, and likewise failed to consider whether the alleged FCRA procedural violations entail a degree of risk sufficient to meet such requirement.

As applied to Robins, the Court notes with concern that plaintiffs must do more than establish a technical or procedural violation of FCRA. "On the one hand, Congress plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk. On the other hand, Robins cannot satisfy the demands of Article III by alleging a bare procedural violation. A violation of one of the FCRA's procedural requirements may result in no harm. For example, even if a consumer reporting agency fails to provide the required notice to a user of the agency's consumer information, that information regardless may be entirely accurate. In addition, not all inaccuracies cause harm or present any material risk of harm. An example that comes readily to mind is an incorrect zip code. It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm."

In a dissent, Justice Ginsberg argues that the Court ignores multiple high court rulings where the terms "concrete" and "particularized" have been joined, and that plaintiff Robins' pleadings "allegations carry him across the threshold" of pleading such injury. On the facts, the dissent argues that the allegations go far beyond the incorrect zip code hypothetical. Ginsberg asserts that Robins established more than just a bare procedural violation because the misrepresentations of his status arguably created the erroneous impression that he was overqualified, that he might be unwilling to relocate or that his salary demands would exceed what prospective employers were prepared to offer him. Justice Sonia Sotomayor joined in the dissent.

For further information on this decision, please contact the authors or any member of the firm's Financial Services and Banking teams.



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