How Spokeo May Limit Consumer Financial Services Litigation

This article was originally published on the Maurice Wutscher blog and is republished here with permission.

Don Maurice

This week’s decision from the U.S. Supreme Court in Spokeo v. Robins should bolster the defense of companies subject to several federal consumer protection statutes. The ruling addresses lawsuits that claim an injury created solely by the violation of a federal statute and require the plaintiff to demonstrate not only that the statute was violated, but that the plaintiff herself suffered harm.

The opinion does not go as far as many in the consumer financial services industry would have liked (not all injuries must be “tangible”), but it does close the door on civil lawsuits many have faced. The opinion was authored by Justice Alito, with a separate concurring opinion by Justice Thomas. Justice Ginsburg authored a dissent and was joined in the dissent by Justice Sotomayor.

A copy of the opinion is available here: Link to Opinion.

Standing and ‘Injury in Fact’

The decision concerns “standing” – whether a person can bring a lawsuit in a federal court. Standing, as the Court wrote, requires three elements: first, an injury in fact; second that the injury is “fairly traceable” to the conduct of the defendant at issue; and last, that the conduct can be likely redressed by the court.

Robins claimed Spokeo compiled a report about him that contained false information in violation of the Fair Credit Reporting Act (FCRA). The trial court dismissed his case finding Robins lacked standing because he had no tangible harm — he did not allege the information compiled by Spokeo lead to, for example, the denial of a job or credit. The Ninth Circuit Court of Appeals reversed and held that the statutory violation was enough to allow Robins his day in court; first, because his claims were associated with a violation of protections afforded to him by the FCRA and, second, because his lawsuit addressed the handling of his own credit information, and these concerns are “individualized.”

Yesterday’s decision addressed whether Robins met the first element of standing – whether he had alleged an injury in fact under the FCRA. This requires pleading harm to a “legally protected interest” that is “concrete and particularized.” The harm cannot be hypothetical or conjectural; it must be “actual or imminent.” The Court held that while Robins may have pleaded a violation of a legally protected interest under FCRA that was particular harm to him, he did not plead any actual or imminent harm stemming from the alleged FCRA violation. Simply stated, all Robins alleged was a technical violation of the FCRA, which he did not allege caused him any harm beyond a hypothetical or speculative harm.

Requires a “Concrete” Injury to Assert a Claim

In the context of a statutory violation of the FCRA, one could assert like Robins did, that a credit reporting agency’s compilation of false information certainly does demonstrate a violation of a legally protected interest. That, after all, is a purpose of the FCRA: to promote and protect the accuracy of information reported. The harm was also “particularized.” Robins’ claim concerned the handling of his information and he filed a lawsuit seeking relief to redress the wrong done in the compilation and dissemination of that information.

The problem for Robins, and now for many who seek to assert similar lawsuits, is that all of this did not lead to any “concrete” injury. The Ninth Circuit’s decision focused only on whether the harm was particularized to Robins. It did not evaluate, the Court wrote, whether the harm was “‘real’ and not ‘abstract.’ ”

Concrete Harms Not Always Tangible

The opinion points out that there are some statutory violations whose transgression can itself cause a particularized and concrete harm. An example provided is a decision where the Federal Election Commission denied a group of voters information “that Congress had decided to make public.” The violation was of a certain statutory right (mandatory access to specific information) that, in and of itself, constituted a sufficient injury in fact (denial of access to the information). In such cases, a person need not identify any “additional harm” other than the harm Congress identified in the statute.

Robins’ case is different. While the FCRA imposes procedures that must be followed in order to curb the reporting of inaccurate information, not all inaccuracies result in a real harm. The mere fact there is an inaccuracy is not itself a sufficient, concrete harm. Although the information concerning Robins was alleged to be false and in violation of the FCRA, Robins did not point to any actual or imminent harm to him stemming from Spokeo’s conduct. “A violation of one of the FCRA’s procedural requirements may result in no harm,” wrote Justice Alito in the Court’s opinion. “An example that comes readily to mind,” the opinion continues, “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.”

The decision does not close the door on Robins’ case. “We take no position as to whether the Ninth Circuit’s ultimate conclusion—that Robins adequately alleged an injury in fact—was correct,” the Court concluded. The Ninth Circuit’s analysis supporting its decision was flawed, the Court held, and because it did not examine whether the injury was “concrete,” the Court directed the Ninth Circuit to reexamine the case once more using its Spokeo analysis.

Curbs on FCRA, FDCPA, EFTA and TILA Lawsuits

The decision has immediate impact on FCRA claims alleging the reporting and furnishing of information. A failure to simply follow FCRA procedures will likely not withstand a Spokeo analysis absent pleading an actual harm.

The impact on Fair Debt Collection Practices Act (FDCPA) claims may be extraordinary. In determining whether a communication is false or misleading in violation of the FDCPA, courts have looked to whether the communication would violate a hypothetical “least sophisticated” or “unsophisticated” consumer. Several courts of appeals have defined the standard as an evaluation of how an imaginary consumer, who is gullible and naïve, would view the letter. As the Third Circuit Court of Appeals recently put it, “[t]he standard is an objective one, meaning that the specific plaintiff need not prove that she was actually confused or misled, only that the objective least sophisticated debtor would be.” While the standard may have some life left in it, the belief that the plaintiff herself need not demonstrate she has been harmed would be contrary to Spokeo. FDCPA lawsuits alleging false and deceptive communications may well be required to plead the plaintiff herself suffered some “particularized and concrete” injury that is “actual” or “imminent.”

Businesses facing claims under the federal Electronic Fund Transfers Act (EFTA) and Truth in Lending Act (TILA) could also benefit from Spokeo. The EFTA and TILA, like the FCRA, impose procedures on companies providing financial services to consumers. However a failure to follow these procedures does not always result in an actual or imminent harm, especially if courts find the statutes do not themselves define the harm.

TCPA Impact Less Clear

Many cases involving the Telephone Consumer Protection Act (TCPA) have been put on hold pending the Court’s decision. Spokeo’s impact is certainly positive in that the demonstration of some actual or imminent harm will be necessary to allow standing to sue. But expect plaintiffs to focus on the opinion’s language concerning Congress’ ability to pass a law that both provides a statutory protection and, in doing so, identifies the harm, which is protected by the right.

Impact on Class Actions

Spokeo has benefits to those defending class claims under these statutes. Even if the plaintiff can demonstrate a particularized and concrete injury that is actual or imminent, that same harm injury may not easily carry over to the class. The injury may be so unique to the class representative’s individual circumstances that even if the defendant’s conduct violated the statute, persons who do not share similar or specialized circumstances are not harmed.

State Court Litigation Option

The Court’s decision is limited to standing in federal courts. Many of the federal laws impacted, such as the FDCPA, TCPA, FCRA and EFTA, can also be brought in state courts. It will be up to each state to decide whether their courts can hear claims where there is no actual or imminent harm (tangible or statutorily identified) to the plaintiff. Comments from Justice Breyer during the Spokeo oral argument touched on states having “public action” statutes that allow persons to bring claims for statutory violations even where they have suffered no injury.

Moving Ahead with Spokeo

While Spokeo does not require only real, tangible harms in all cases, it does limit a wide array of claims and makes clear that not all alleged statutory violations are accompanied by a cognizable, statutory harm. Expect Spokeo to quickly make its way into consumer financial services litigation. The next few months should see several trial court decisions that will flesh out whether certain statutory protections themselves identify harms sufficient alone for standing or whether those violations require additional, real world harms. Also, because a lack of standing can be raised at any time during the life of a case, several appeals courts may right now be looking at Spokeo’s application to matters before them.

[Editor’s note: Read Don Maurice’s commentary on this case following oral arguments in November 2015.]