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Contributor - Background Screening

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Ross specializes in financial services litigation, primarily representing companies facing claims related to consumer credit and criminal reporting. 

One of 2017’s more significant Fair Credit Reporting Act court opinions was the Ninth Circuit’s January 20 decision in Syed v. M-I, LLC, a putative FCRA class action.  In its decision, the Ninth Circuit Court of Appeals held that a prospective employer willfully violated the FCRA by including a liability waiver in its background check disclosure form.  The Court’s pronouncement was significant because it was, in a case of first impression, an appellate ruling that a particular course of conduct was willful violation of the statute as a matter of law.

The underlying case concerned a pre-employment background check disclosure form that included a waiver to discharge and release M-I from any potential liability related to the background check process.  The district court dismissed the claims, finding there were insufficient allegations of willfulness.  The Ninth Circuit reversed, relying on Section 1681b(b)(2)(A)’s “unambiguous” language that a disclosure must consist “solely of the disclosure.”

After the Ninth Circuit denied a request for rehearing, M-I, in papers filed in June, sought review by the Supreme Court, arguing Syed lacked standing and that the Ninth Circuit’s willfulness holding was incorrect.  M-I argued the case raised important issues for the industry.  The case also drew a handful of amicus briefs.

On November 13, in a miscellaneous orders list, the Supreme Court denied M-I’s petition for certiorari, providing no explanation for its reason for doing so.  As such, the Ninth Circuit’s decision stands as the pronouncement of the issue of willfulness in the case.

We will continue monitoring and reporting on the FCRA issue of willfulness and on further developments in this case, which now returns to the district court for further adjudication.

Effective October 7, New York law now authorizes state courts to seal nonviolent criminal convictions that are more than ten years old.  The newly enacted New York Criminal Procedure Law § 160.59 allows criminal defendants to apply to seal one felony and one misdemeanor conviction, or two misdemeanor convictions, for offenses other than violent and Class A felonies and most sex crimes.  The application can be made after the later of ten years from the date of conviction or release from prison.

The law is permissive, allowing—but not requiring—the sealing of records on a defendant’s application.  The law also permits a district attorney to oppose the application within 45 days of its filing.  District attorneys for some of New York’s largest counties and for Manhattan, however, have publicly signaled they do not anticipate challenging such applications “except on rare occasions.”

An application under the new law must be made in the county in which the conviction occurred, and will be presumptively assigned to the sentencing judge.  Assuming the district attorney voices no objection, the court can grant the application without a hearing; if the district attorney opposes it, however, a hearing is mandatory.  The decision to grant or deny an application is within the judge’s discretion and is made based on a multifactor test.  The end result of that discretion, and the variances in rates at which district attorneys oppose such applications, is a likely disparity in successful sealing applications between different jurisdictions.  The law also bars prosecutors from requiring defendants to waive the ability to request sealing as part of a plea deal.

The effect of a successful application to seal under the new law is not to make the records entirely inaccessible.  While they are generally not publicly available (including to background screening companies, employers, or landlords), the statute includes a number of exceptions.  For example, the records remain accessible for gun ownership background checks and to child protective services offices, among others.

The new law represents a significant expansion of the ability to seal a New York state criminal conviction as compared to the old law and is likely to result in increased numbers of older-than-ten-year convictions being sealed from public access (and, as a result, being removed from consideration in hiring or tenancy decisions).

In a September 19 speech at the Federal Communications Bar Association in Washington, FTC Acting Chairman Maureen K. Ohlhausen stated that the Commission should focus on addressing instances of “substantial consumer injury” in deciding which cases to pursue.  Echoing (intentionally or not) the language of the Supreme Court’s foundational decision in Spokeo, Inc. v. Robins, Ohlhausen outlined the types of concrete injury—as opposed to “hypothetical” injury—potentially sufficient to warrant FTC involvement.

Ohlhausen began her speech by laying out, in broad strokes, the FTC’s enforcement powers and its track record of bringing enforcement actions on a case-by-case basis.  She stressed that the FTC is the “primary U.S. enforcer of commercial privacy and data security obligations” and stated the agency takes that charge “very seriously.”

Discussing the types of incidents that warrant FTC action, Ohlhausen focused her discussion on consumer injury, noting it is part of the FTC’s Section 5 unfairness standard.  She also touted a focus on consumer injury “plain good policy,” with the government doing the most good when it can address “substantial consumer injury” instead of expending resources to prevent “hypothetical injuries.”

With that focus in mind, Ohlhausen described in general terms five types of inaccuracies she sees as paradigmatic of warranting FTC focus, though she cautioned that the list was neither exhaustive nor intended to provide legal guidance on what the FTC considers substantial injury.  She noted the FTC had focused on the following types of harms:

(1)     deception injury or subverting consumer choice, relevant in instances where a company has misled consumers through material claims about a product or service’s privacy or security features, inducing consumers to make a choice that they otherwise wouldn’t have made;

(2)     financial injury, relevant across various fact patterns of consumers suffering pecuniary loss;

(3)     health or safety injury, relevant when, for example, personal information is misused by stalkers or abusive former spouses for nefarious purposes;

(4)     unwarranted intrusion injury, relevant in, for example, claims for violation of the Telephone Consumer Protection Act through unsolicited spam phone calls; and

(5)     reputational injury, which she acknowledged overlaps with the other categories, and is sometimes the reason why another type of harm is material to the consumer.

Ohlhausen also noted that, in addition to the type of injury, the FTC also considers its magnitude, both individually and in aggregate.  She also stated, without further elaboration, that the FTC considers “both realized injuries as well as those that are likely.”

Together, Ohlhausen’s comments provide an informative look at the types of issues sufficient to catch the attention of regulators at the FTC, and a framework by which injuries can be assessed to determine whether they might warrant enforcement action.

Troutman Sanders LLP will continue to monitor FTC policy statements and any related enforcement actions.

In January 2013, a teenager in Australia posted a photo online showing that his “footlong” Subway sandwich was in fact only 11 inches, setting off a viral storm of consumers discovering their “footlong” sandwiches were similarly not as large as advertised.  That spawned a number of class action lawsuits in America accusing Subway’s franchisor, Doctor’s Associates, Inc., of claims under various states’ consumer protection laws related to the failure to provide diners with sandwiches that were not the size they were purported to be. 

The cases were consolidated into a single action in the Eastern District of Wisconsin, and the parties presented the court with a class action settlement.  The settlement called for Subway to institute a number of practice changes to help ensure consistent bread size, including measuring all baked bread, and instituting corporate controls and monitoring.  The settlement afforded no monetary relief to class members but provided for $525,000 in attorneys fees and incentive awards of $500 each to class representatives.  

The settlement received at least one objection.  Class member Theodore Frank argued the injunction conferred no meaningful benefit on the class and thus could not support an award of fees or incentive awards.  The district court disagreed and approved the settlement over Frank’s objection.  Frank appealed to the Seventh Circuit. 

The Seventh Circuit reversed and roundly rejected the settlement.  The court began by noting that a class settlement resulting in nothing more than a recovery of fees to class counsel “is no better than a racket.”  The court rejected the suggestion from the parties that the injunctive relief would provide meaningful changes to Subway’s procedures (and consumers’ experiences), relying on a “simple comparison of the state of affairs before and after the settlement.”  Indeed, before the settlement, Subway sandwiches would likely—but not certainly—be 12 inches long; after the settlement, Subway sandwiches would likely—but not certainly—be 12 inches long.  The court took particular note of the explicit admission in the settlement that due to variances in baking, Subway did not and could not guarantee sandwich size. 

The court ultimately concluded that the settlement was nothing more than a mechanism to enrich the class representatives and their counsel, but did not “benefit the class in any meaningful way.”  The court dismissed the notion that a contempt proceeding could be brought to ensure compliance with the injunction, saying, “Contempt as a remedy to enforce a worthless settlement is itself worthless.  Zero plus zero equals zero.”  The court ultimately held that not only should the settlement not be approved, but the case should be dismissed.

On August 24, the United States Court of Appeals for the Eleventh Circuit affirmed the dismissal of a putative class action against TransUnion on the basis that it failed to allege a plausible claim for relief, holding that TransUnion was not objectively unreasonable in its reading of the Fair Credit Reporting Act.

The plaintiff, Kathleen Pedro, was an authorized user on her parents’ credit card but allegedly had no responsibility for the card’s debts.  When Pedro’s parents passed away, the account went into default.  Pedro subsequently learned her credit score had diminished as a result of TransUnion listing her parents’ credit account—with a notation that she was an authorized user—on her credit report.

Pedro filed suit, alleging TransUnion willfully violated the FCRA’s requirement to follow reasonable procedures to assure maximum possible accuracy.  She alleged it was inaccurate to list her parents’ credit card on her credit report because it implied liability for the debt.  TransUnion moved to dismiss, arguing Pedro could not establish it had willfully violated the FCRA because its reading of the statute was objectively reasonable.  The district court granted the motion, and Pedro appealed.

In its opinion, the Eleventh Circuit first addressed the question of whether Pedro sufficiently established standing, concluding she had.  The court analogized the alleged publication of an inaccurate consumer report to defamation, noting it had long been a basis for suit.  The court also noted Pedro’s allegations of wasted time attempting to resolve the credit inaccuracy and concluded those allegations provided a sufficient Article III injury.

On the issue of failure to state a claim, the Eleventh Circuit held that TransUnion’s interpretation of the FCRA was objectively reasonable, stating TransUnion could have reasonably concluded that reporting Pedro’s parents’ account was permissible because the information was “technically accurate.”  The court noted there are two general approaches to “maximum possible accuracy,” with some courts requiring only technical accuracy and others requiring that the reporting also not be misleading.  The court concluded that TransUnion was not unreasonable in relying on technical accuracy in interpreting its obligations as they applied to Pedro.

In light of its reasonable interpretation of its statutory obligations and the lack of authority to the contrary, the court held TransUnion did not willfully violate the statute.

On August 15, the United States District Court for the Northern District of Illinois denied a motion for class certification in Legg v. PTZ Insurance Agency, Ltd., a putative class action under the Telephone Consumer Protection Act.  The plaintiffs in the lawsuit, Christopher Legg and Page Lozano, sued PTZ and affiliated companies alleging violations of the TCPA, including placing unsolicited robocalls to Legg’s and Lozano’s cellular phones.

PTZ offers pet insurance and offered a 30-day free gift of pet insurance to adopters of pets with safety microchips from certain animal shelters.  The adoption process involved filling out paperwork, which asked the adopting consumer to provide a telephone number.  The paperwork included a statement that unless the consumer opted-out, they may be contacted by marketing partners.  One such partner, PTZ, allegedly placed prerecorded robocalls on at least two occasions to Legg and Lozano, which the plaintiffs claimed violated the TCPA.  Legg and Lozano sued on behalf of themselves and a putative nationwide class of persons who received similar calls from PTZ and, following discovery, moved to certify a class of 341,288 members.   

The district court found the class satisfied the requirements of Rule 23(a), noting that each class member received the same call and that the claims arose from a single set of facts.  The court also found Legg and Lozano, as well as their counsel, to be adequate representatives of the class.  However, although the proposed class satisfied the class requirements of Rule 23(a), the court found it did not satisfy sub-part (3) of Rule 23(b).   

The court focused its inquiry on Rule 23(b)(3)’s predominance requirement, noting it is “far more demanding” than mere Rule 23(a) commonality.  With that in mind, the court held it could not certify the class because of questions of class member consent.  Specifically, it found individualized questions of consent by each class member predominated over common questions of law and fact.  The court noted many class members had agreed, during the adoption process, to receive communications by phone.  From that recognition, the court expressed concern that if an adopter agreed and expected to receive calls, they would not have suffered a “concrete injury” sufficient to confer Article III standing, thus enmeshing the standing jurisdictional analysis with class certification.  The court concluded it could only determine whether any class member consented through an individual analysis of evidence about each class member, an inquiry that would easily overwhelm the benefits of the class mechanism. 

Ultimately, the court rejected the plaintiffs argument that consent could somehow be established based on generalized evidence, concluding that do so would instead present an insurmountable individual issue that defeated class certification.

On August 1, the Seventh Circuit Court of Appeals in Groshek v. Time Warner Cable, Inc. affirmed the Eastern District of Wisconsin’s dismissal of a putative Fair Credit Reporting Act class action on the basis of Article III standing.  Specifically, applying the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), the Seventh Circuit held that FCRA disclosure and authorization claims without any allegation of actual or threatened concrete injury were insufficient to permit a claim in federal court. 

The plaintiff, Cory Groshek, submitted 562 job applications over a year-and-a-half period, including one to Time Warner.  After applying, Groshek sued Time Warner (as well as at least one other employer in Wisconsin, in a case that was consolidated on appeal), alleging it had provided him with a background check disclosure and authorization form that failed to meet the requirements of the FCRA because it contained extraneous information and a release of liability.  Groshek brought his claims on behalf of himself and a putative nationwide class of applicants.  Time Warner moved to dismiss, arguing Groshek lacked Article III standing in light of Spokeo.  In response, Groshek claimed he had suffered cognizable informational and privacy injuries, and the District Court granted Time Warner’s motion. 

The Seventh Circuit affirmed, noting Groshek had made no allegations that Time Warner (or the other defendant whose case was considered on appeal) had failed, by way of their disclosures, to in fact inform Groshek that Time Warner would be ordering a report about him as part of the application process.  The Court observed, “His complaint contained no allegation that any of the additional information caused him to not understand the consent he was given; no allegation that he would not have provided consent but for the extraneous information on the form; no allegation that additional information caused him to be confused; and, no allegation that he was unaware that a consumer report would be procured.”  In short, the Court found he had alleged nothing more than a statutory violation “completely removed from any concrete harm or appreciable risk of harm,” exactly what Spokeo disallowed. 

The Court rejected Groshek’s claims of informational injury, finding he was not claiming he was denied any information, but was instead provided extra improper information.  It also held that the purpose of the FCRA’s disclosure requirement is not to prevent someone from merely receiving a non-compliant disclosure, but to decrease the risk that an applicant would unknowingly consent to a background checka harm Groshek did not allege he suffered.  The Court similarly dismissed claims of a privacy injury, noting Groshek admitted to signing the form, thus authorizing the procurement of a consumer report. 

Ultimately, because Groshek had not pled any other actual or threatened concrete injury, the Seventh Circuit held that dismissal of his claims was appropriate.

On July 25, the Missouri Court of Appeals affirmed a state trial court’s dismissal of a putative Fair Credit Reporting Act class action against a large retailer based on standing issues.  Most notably, the court did so in reliance on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (May 16, 2016), and Article III standing rules, holding that Missouri law requires that a plaintiff have suffered a concrete injury-in-fact in the same way Article III does. 

The plaintiffs in the case, Joshua Corozzo and Arthor Ruff, filed a putative class action in the Circuit Court of Cole County, Missouri, accusing the defendant employer of FCRA violations.  Corozzo and Ruff alleged they applied to work for the defendant and were provided a seven-page background check disclosure and authorization form.  They alleged the disclosure form contained extraneous information and did not provide them (or proposed class members) “a clear and conspicuous disclosure in writing in a document that consisted solely of the disclosure” as required by the FCRA. 

The defendant moved to dismiss and the trial court granted the motion, finding Corozzo and Ruff had alleged only a “bare procedural violation” of the FCRA and did not assert any concrete injury sufficient to make their claims justiciable under Missouri law.  Corozzo and Ruff appealed and the Missouri Court of Appeals affirmed. 

The Court of Appeals noted Missouri’s “justiciability” requirement, which itself encompasses the idea of standing.  In evaluating standing, the Court looked to the Supreme Court’s decision in Spokeo v. Robins, which defined the contours of FCRA standing for federal court Article III purposes.  The court expressly rejected Corozzo and Ruff’s argument that Spokeo, being a federal case, was inapplicable to a Missouri state court action, holding that Article III and Missouri’s standing rules are largely coextensive. 

Relying on Spokeo and similar guidance from the Eighth Circuit Court of Appeals, the Missouri appellate court concluded Corozzo and Ruff had not pleaded actually injury.  They noted the claim was simply that the format of the disclosure failed to comply with the FCRA’s requirements, but there was no allegation Corozzo and Ruff either did not receive the disclosure or did not authorize the defendant to procure a consumer report.  Without any further allegations, the court held that the claim could not proceed and did not satisfy the Missouri standing requirement. 

The Missouri Court of Appeals’ decision is important because it short circuits, at least in Missouri, attempts to rely on perceived lenient state court standing rules to avoid the holding of Spokeo.


A nationwide financial investment firm was named on June 30 in a putative class action lawsuit filed in federal district court in Oregon.  The case, filed by plaintiff Dustin Kampert, alleges the firm violated the Fair Credit Reporting Act in its background check process related to employment or, alternatively, procured consumer reports without a permissible purpose.

Kampert alleges that in July 2015 he applied to register to sell financial services products using a license sponsored by the investment firm.  He alleges that as part of his application to do so, he authorized the firm to procure a criminal background check, which the firm did.  The resulting report allegedly incorrectly reported criminal record information that had been expunged in 2008—and thus should not have been reported.  Kampert alleges the firm denied his application based on that erroneous information and that denial, in turn, cost him his job.

Kampert brings two claims.  First, he alleges the firm took adverse action against him without first providing him with a copy of the report on which the decision was based and a summary of his rights under the FCRA.  He seeks to represent a nationwide, five-year class of persons who were denied approval by the firm to sell investment products or services based in whole or in part on a similar report.

Kampert also alleges, as an alternative claim, that if the firm establishes his report was not used for “employment purposes” under the FCRA, it was thus used impermissibly, in violation of 15 U.S.C. § 1681b(f).  He alleges the use of his report must have been for employment, otherwise the firm lacked any delineated permissible purpose under the Act.

Kampert seeks statutory damages, punitive damages, and attorneys’ fees and costs.  The firm has yet to file its response.

On June 6, a federal judge in New Jersey for the second time dismissed a putative class action against clothier J. Crew Group, Inc. on the grounds that the plaintiff, Ahmed Kamal, had not pled a concrete injury sufficient for Article III standing light of Spokeo, Inc. v. Robins.  Kamal alleged that J. Crew violated the Fair and Accurate Credit Transactions Act (“FACTA”) by including on printed customer receipts either four or six digits of credit card numbers, rather than just the last five, as permitted by FACTA.

The case was first filed in January 2015 and J. Crew moved, unsuccessfully, to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure.  In December 2015, J. Crew successfully moved to stay the case pending the outcome of Spokeo.  Following Spokeo, J. Crew moved to dismiss on the basis of subject matter jurisdiction, and the court dismissed the claims against J. Crew without prejudice, finding Kamal had not pled sufficient injury.  Kamal filed an amended pleading and J. Crew again moved to dismiss, arguing that even Kamal’s renewed arguments could not demonstrate a concrete injury within the contours of Spokeo.

In defending his claims against J. Crew’s motions, Kamal argued he suffered two cognizable injuries.  The first, he argued, was disclosure of information legally considered inherently private; the second was increased risk of future identity theft or credit card fraud.  The court held that neither alleged a “concrete harm” that could satisfy the Article III test.

With respect to the disclosure of private information, the court rejected the idea that J. Crew’s conduct had any meaningful relationship to any privacy interest historically recognized at common law.  The court noted that the information at issue had not been disclosed to any third party or used in a fraudulent manner.  Instead, Kamal had given J. Crew his credit card and J. Crew had, in turn, handed the receipt back to Kamal for his own use.

With respect to the risk of future harm, the court was similarly unpersuaded.  The court’s conclusion was grounded in the nature of credit card numbers, with the last ten digits of the card number reflecting a particular account number.  That being true, the court remarked that printing four or six digits (as Kamal alleged J. Crew had done) did not provide any meaningful information to allow a wrongdoer to perpetrate fraud or other harm.  Moreover, the court rejected the idea that thieves diving in dumpsters for receipts posed any definite risk of harm to Kamal and found unconvincing arguments about sophisticated cyber criminals phishing for information.

Finding that Kamal remained unable to plead harms sufficient for Article III, the court dismissed the case but left open the possibility of another round of re-pleading.  On June 8, Kamal filed a motion for reconsideration or, in the alternative, for the court to certify the dismissal order as a final judgment and allow Kamal to take the matter to the Third Circuit Court of Appeals.  Kamal’s motion on that point remains pending.