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Supreme Court’s Spokeo Decision Strengthens Standing Defense For Employers In FCRA And Other Statutory Class Actions

In an important victory for employers, the Supreme Court in Spokeo, Inc. v. Robins held that a plaintiff does not have Article III standing to sue in federal court under the Fair Credit Reporting Act (FCRA) and other federal statutes absent a sufficient allegation of the existence of a concrete injury.  The Supreme Court was clear that alleging a bare procedural violation absent any concrete injury to the plaintiff was insufficient to move a case forward.  While it remanded the case to determine whether the plaintiff sufficiently alleged a concrete injury, employers should welcome this decision as a potential end to costly FCRA (and other statutory) class actions based on trivial violations of procedural requirements that don’t harm anyone.

This ruling disturbs assumptions that animate federal minimum damages statutory class actions.  The conventional wisdom has been that if a defendant violates a statute, plaintiff cashes a check.  For years, plaintiffs’ class action lawyers have argued that it’s just that simple. A cottage industry in class action litigation has grown up around a daunting alphabet soup of federal enactments – such as the aforementioned FCRA along with TCPA, FACTA and RESPA – which prescribe minimum money damage awards for statutory violations.  For example, employers that do not strictly adhere to FCRA’s timing and disclosure requirements when conducting background or credit checks may be liable to applicants or employees for damages of $1,000 for each violation, as well attorneys’ fees, costs and punitive damages in certain instances.  Such violations can add up to astronomic exposure when aggregated for a class of applicants or employees.

These statutory schemes, however, fail to address the concept of injury.  Indeed, the entire rationale for statutory damage provisions is because, for many of the prescribed actions, the resulting injury – if any – is negligible.  What injury does an individual sustain when an employer commits a technical FCRA violation in connection with a job candidate’s background or credit check but ultimately offers the candidate the position for which he or she applied?  It is difficult to identify any equitable basis for penalizing the employer in that case.  The regulatory outsourcing agenda behind enactments like FCRA treat the question of injury as unimportant; instead establishing large minimum damages provisions both as a deterrent to targeted conduct and as an incentive to private enforcement of the statute.

Defendants have questioned whether premising minimum recoveries solely on violations of federal statutes is consistent with Article III of the United States Constitution. Article III limits federal jurisdiction to “cases” or “controversies,” which the Supreme Court has held to require that a plaintiff has suffered a concrete and particularized injury.  In Spokeo, the Supreme Court held that courts must address the question of whether there has been a cognizable injury where cases are brought under federal minimum damages statutes.

Spokeo concerns an alleged failure to engage in procedures mandated under the FCRA to ensure the accuracy of information being reported about the plaintiff.  As a result of that purported violation, plaintiff claims that the defendant Spokeo reported false information about him.  In its defense, Spokeo argued (among other things) that plaintiff was not injured by any statutory violation because the information Spokeo reported placed the plaintiff in a more positive light – better educated and more highly paid – than was in fact true. The trial court agreed with Spokeo, and dismissed for lack of standing.  The Ninth Circuit disagreed, holding that “the violation of a statutory right is usually a sufficient injury in fact to confer standing.”  Acknowledging that the Constitution limited the power of Congress to confer standing, the Ninth Circuit nonetheless held that the plaintiff’s FCRA claim satisfied Article III because it concerned his personal claim, and not the claims of other individuals.

The Supreme Court found this rationale insufficient.  Writing for the Court, Justice Alito explained that to confer Article III standing, an injury must be both concrete and particularized. The basis for the Ninth Circuit’s holding – that the injury alleged was personal to the plaintiff – satisfied the particularity requirement. But it did not address whether the injury was concrete. For that purpose, the consequences of the alleged wrongdoing matter. Accordingly, the Court vacated the Ninth Circuit’s decision and remanded for further proceedings to address whether there was a concrete injury.

Spokeo’s explanation of the significance of the concrete injury requirement could prove to be one of the most important passages ever written in the battle against federal minimum damages class actions:

Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Article III standing requires a concrete injury even in the context of a statutory violation. For that reason, [the plaintiff] could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III ...

The Court’s acknowledgement that a statutory violation must have real world consequences to confer standing to sue provides a basis to rein in the private attorney general industrial complex, limiting judicial recourse to individuals who have suffered actual harm. By this common sense pronouncement, the Court has made explicit the constitutional validity of the argument that a claim must be dismissed for lack of standing where the plaintiff does not or cannot allege that a statutory violation resulted in concrete harm.

Spokeo will not be a panacea for employers and other class action defendants, however, as the decision acknowledged that sometimes a violation of a statute’s procedural requirements will, standing alone, establish a concrete injury. As examples, Justice Alito cited statutes concerning required public disclosures in voting rights and advocacy contexts. The court cautioned, however, that concreteness cannot be presumed based merely on the violation of a statute, but must be assessed on a case by case basis in light of the wording and purpose of the statute.

Employers should therefore be aware of the important standing defense the Supreme Court has established in FCRA and other statutory actions by definitively ruling that the concrete injury requirement applies even where there is a mandated statutory recovery. Whether Spokeo wins or loses on remand will help define what it means to sustain a concrete injury, but will not diminish the principle that a concrete injury must be alleged to have standing to sue.

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Kevin M. McGinty

Member / Co-chair, Class Action Practice

Kevin is a member of the firm's Health Care Enforcement Defense Group and has significant experience representing health care–related entities in a variety of litigation matters, including contract, regulatory, False Claims Act and class action lawsuits. Kevin's health care industry clients have included pharmacies, PBMs, hospitals, clinical laboratories, diagnostic imaging providers, pharmaceutical companies and managed care organizations.

George Patterson