A district judge in the Southern District of Florida recently dismissed a FACTA class action on Spokeo grounds even though he had previously approved a near-$600,000 settlement in the same case.  In 2016, lead plaintiff Eric Kirchein filed suit against Pet Supermarket, Inc, contending that the retailer violated the Fair and Accurate Credit Transactions Act (“FACTA”) when it printed more than five digits of his and other consumers’ credit card numbers on sales receipts.  The parties reached a preliminary settlement agreement later that year, with Pet Supermarket agreeing to pay $580,000 to a class of almost 30,000 consumers.

The deal ran into trouble soon thereafter, as the parties had difficulty finding and locating individual class members.  Further complicating matters, the size of the class increased, as Pet Supermarket discovered the class was approximately ten percent larger than initially thought.  Plaintiffs’ counsel requested additional settlement funds to compensate for the additional class members, leading the parties to try to renegotiate the settlement.  Despite these issues, the court declined requests to vacate the settlement agreement.

Even though the parties had an agreement in principal, Pet Supermarket later challenged the court’s subject matter jurisdiction based on Spokeo grounds.  The court agreed with the retailer that Kirchein could not show he had suffered concrete harm resulting from the alleged FACTA violation.  Judge Robert N. Scola, Jr. chiefly relied on his own previous decisions in similar FACTA cases – specifically Gesten v. Burger King, which found that the plaintiff failed to allege that any disclosure of his private information actually occurred – to reach a similar conclusion regarding Kirchein’s claims.  Without any allegation that his private data had been divulged, the court found that Kirchein could not establish standing.

Though the court acknowledged that there was “substantive work that remains to be done” in the case, the absence of subject matter jurisdiction prevented further activity by the court, including a fairness hearing or issuing an order approving the proposed settlement agreement.

The case is Kirchein v. Pet Supermarket, Inc., Case No. 0:16-cv-60090.

In recent years, defendants have been attempting to curtail class actions in federal court by arguing that the named plaintiff lacked standing under the Supreme Court’s holding in Spokeo, Inc. v. Robins.  Although defendants have had success in asserting Spokeo in “no injury” class actions, this success has not been without a price.  Often, a successful Spokeo challenge results in defendants litigating in state court instead of the federal side of the ledger.  As the upside of Spokeo has waned in certain scenarios, however, a new avenue of dismissal for certain class claims is gaining traction in federal courts, specifically, the theory that a court does not have personal jurisdiction to render a judgment on behalf of a class of non-resident plaintiffs against an out-of-state defendant.

In DeBernardis v. NBTY, Inc., the District Court for the Northern District of Illinois became the most recent district court to dismiss class claims based on the Supreme Court’s ruling in Bristol-Myers Squibb Co. v. Superior Court of California.  In DeBernardis, the plaintiff brought a nationwide class action in Illinois federal court alleging various fraud and warranty claims under state law.  The defendants moved to dismiss the case as to the class of plaintiffs that were not Illinois residents.  The defendants argued, based on Bristol-Myers, that the court did not have personal jurisdiction over the claims of the non-resident plaintiff class against the out-of-state defendants.  The Court agreed.

The opinion stated that when assessing whether a court has personal jurisdiction, the court must look at the burden a defendant faces in having to litigate in a foreign court against a class or mass of non-residents.  The court must also look at the fairness of forcing an out-of-state defendant to submit “to the coercive power of a State that may have little legitimate interest in the claims in question.”  Indeed, the court in Bristol Myers noted that the Constitution’s Due Process Clause may sometimes “divest the state of its power to render a valid judgment” with respect to a mass action of non-resident plaintiffs.  Although the court in DeBernardis found the issue to be a “close question,” it ultimately dismissed the portion of the claims brought on behalf of the “out-of-state plaintiff classes” for lack of personal jurisdiction.

The Bristol-Myers decision could become a powerful tool in dismissing certain classes of plaintiffs in nationwide class actions.  There are risks, however, in deploying this tool.  It may ultimately result in plaintiffs’ counsel bringing multiple state-specific class actions instead of one nationwide class action.  It may also lead to more lawsuits in a defendant’s home state, where it may be subject to general jurisdiction.  We will continue to track developments related to Bristol-Myers as they unfold.

2017 was a transformative year for the consumer financial services world. As we navigate an unprecedented volume of industry regulation and forthcoming changes from the Trump Administration, Troutman Sanders is uniquely positioned to help its clients find successful resolutions and stay ahead of the compliance curve.

In this report, we share developments on consumer class actions, background screening, bankruptcy, credit reporting and consumer reporting, debt collection, payment processing and cards, mortgage, auto finance, the consumer finance regulatory landscape, cybersecurity and privacy, and the Telephone Consumer Protection Act (“TCPA”).

We hope you find this helpful as you navigate the evolving consumer financial services landscape.


On Tuesday, January 23rd, from 3-4 p.m. ET, Troutman Sanders attorneys David Anthony, Cindy Hanson and Tim St. George will present a webinar examining class actions under the Fair Credit Reporting Act. These class actions have surged, and they are a favorite vehicle for plaintiff’s counsel in both federal and state court.  Because of the outsized risk posed by such actions, effective planning and aggressive defense strategies can be the difference between an individual case and a truly bet-the-company class action.  Please join three highly-experienced FCRA class action litigators as they share their tips about how to defend against such class actions, as well as strategies on avoiding class actions in the first place.

One hour of CLE credit is pending.  

To register, click here.


On December 8, the United States Supreme Court agreed to decide whether the tolling rule adopted in American Pipe & Construction Co. v. Utah i.e., that the filing of a class action tolls the limitations period for a purported class member’s individual claims – permits a previously absent class member to bring a subsequent and otherwise untimely class action.

The federal appellate courts have split on that question.  The First, Second, Third, Fifth, Eighth, and Eleventh circuits have held that American Pipe tolling only permits subsequent individual actions.  However, the Sixth, Seventh, and Ninth circuits have held that American Pipe tolling also permits subsequent class actions.

In the case before the Supreme Court, China Agritech Inc. v. Resh, shareholders of China Agritech filed a putative class action alleging that the company committed securities fraud.  China Agritech moved to dismiss, arguing that the putative class action was filed after the applicable two-year limitations period had lapsed and was thus untimely.  In response, the plaintiffs argued that, under American Pipe, the action was timely because the limitations period was tolled during the pendency of two earlier-filed but defective class actions against the same defendants based on the same underlying events.

The district court granted China Agritech’s motion to dismiss, finding that the putative class action was untimely, but the Ninth Circuit reversed the district court’s decision.

The Ninth Circuit noted that the American Pipe tolling rule was adopted to “promote economy in litigation” and that, absent tolling, “[p]otential class members would be induced to file protective motions to intervene or to join in the event that a class was later found unsuitable.”  Relying in large part on that rationale, the Ninth Circuit then held that “once the statute of limitations has been tolled, it remains tolled for all members of the putative class until class certification is denied,” and that, at that point, members of the putative class are entitled to bring individual suits “either separately or jointly.”

In urging the Court to grant certiorari, China Agritech argued that the Ninth Circuit’s decision would lead to forum shopping.  The U.S. Chamber of Commerce agreed, arguing that the Ninth Circuit’s decision “erroneously extends a judicially created tolling doctrine to effectively eliminate Congressionally mandated statutes of limitations.”

The Court is expected to issue a decision in the case before the end of its term in June 2018.

On December 5, a Court of Appeals for the state of Ohio affirmed dismissal of a putative FCRA class claim against Ohio State University on the basis that the plaintiffs lacked standing to assert their no-injury, statutory claim in Ohio state court.  The state appellate court declined to adopt a “statutory standing” doctrine in Ohio that would allow standing for a federal statutory claim without the existence of an alleged injury-in-fact.


In 2012 and 2014, OSU hired the plaintiffs as a facility manager and a housekeeper. In October 2015, the plaintiffs, individually and on behalf of a class of others similarly situated, filed suit against OSU under the FCRA. They alleged that as part of their application and hiring process, OSU provided a background check disclosure and authorization to each of them that improperly included extraneous information and a liability release in violation of 15 U.S.C. § 1681b(b)(2)(A)(ii).

The following month, OSU removed the action to the United States District Court for the Southern District of Ohio, Eastern Division, based on federal question jurisdiction. In June 2016, the federal court found that appellants failed to allege that they sustained any injury-in-fact due to OSU’s alleged violations of the FCRA, and that they therefore lacked standing under Article III of the United States Constitution. Consequently, the federal court remanded the matter to the Ohio trial court pursuant to 28 U.S.C. 1447(c).

In July 2016, OSU moved to dismiss the action in the Ohio trial court based on its contention that the appellants lacked standing to bring their claims in Ohio state court because they alleged no injury-in-fact resulting from violations of the FCRA. In response, the appellants argued that Ohio law recognizes standing even in the absence of an injury-in-fact, when that standing is conferred by statute. In February 2017, the Ohio trial court dismissed the appellants’ claims against OSU based on its conclusion that they failed to plead any particularized injury-in-fact and lacked statutory standing to pursue their claims in the absence of a cognizable injury. The plaintiffs appealed.

Appellate Ruling

Noting the instructive ruling by the United States Supreme Court in Spokeo, the Court of Appeals of Ohio stated that the plaintiffs were relying on a concept of “statutory standing” that, according to the plaintiffs, provided standing to sue for a statutory violation “even in the absence of an alleged injury-in-fact.” The appellate court nevertheless disagreed with that argument, adding:

Ohio and federal law have diverged on the issue of whether a party may have standing to sue in the absence of an injury-in-fact. However, even though Ohio courts have, in some circumstances, found standing despite no allegation of concrete injury, appellants fail to cite, and our independent research does not reveal, any case in which an Ohio court has analyzed and found standing to exist on the basis of a federal statute despite the absence of an alleged injury-in-fact.

Ultimately, “[t]o the extent the ‘statutory standing’ doctrine constitutes an exception to the traditional principles of standing in Ohio,” the Ohio appellate court declined “to extend that exception to this circumstance involving the application of a federal statute.”

To find statutory standing here, the court said that it “would need to find that Congress intended to abrogate the Ohio common-law requirements to establish standing.” Yet, “there [was] no indication that Congress intended the pertinent FCRA statute to supplant the traditional requirements of standing in Ohio state court. Further, such a finding would be improper as it would permit Congress to affect the parameters of standing in Ohio courts, even though it is well-settled that Ohio law determines standing in Ohio courts.”

Troutman Sanders will continue to monitor these developments, especially as they relate to Spokeo and its progeny, and provide any further updates as they are available.

As anticipated, the Consumer Financial Protection Bureau has officially removed from publication a rule that would have prohibited arbitration agreements in certain consumer contracts.  The CFPB published its removal of 12 CFR part 1040, titled “Arbitration Agreements,” from the Code of Federal Regulations.  The CFPB’s removal of part 1040 reflects Congressional disapproval of the underlying Arbitration Agreements rule of July 19, 2017.

The CFPB had promulgated the Arbitration Agreements rule pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which authorized the CFPB to “prohibit or impose conditions or limitations on the use of an agreement between a covered person and a consumer for a consumer financial product or service providing for arbitration of any future dispute between the parties.”

According to the CFPB, the Arbitration Agreements rule would have:

  • “prohibited providers from using a pre-dispute arbitration agreement to block consumer class actions in court” and “required providers to include a provision reflecting this limitation in arbitration agreements they entered into;” and
  • “required providers to redact and submit to the Bureau certain records relating to arbitral proceedings and relating to the use of pre-dispute arbitration agreements in court” and “required the Bureau to publish these records on its Web site.”

The rule went into effect on September 18, 2017.  Under the Congressional Review Act, however, a rule promulgated by an administrative agency “shall not take effect (or continue), if the Congress enacts a joint resolution of disapproval.”  Had Congress not disapproved the rule, it would have applied to agreements entered into after March 19, 2018.

The day after the CFPB promulgated the Arbitration Agreements rule, Congressman Keith J. Rothfus (R-Pa.) introduced H.J. Res. 111, a joint resolution of disapproval.  The measure prevailed in the House of Representatives by a vote of 231-190, and in the Senate by a vote of 51-50.  President Trump signed into law H.J. Res. 111 on November 1, thereby discontinuing the Arbitration Agreements rule.  With the underlying rule discontinued, part 1040 no longer has any force or effect.

Although the Arbitration Agreements rule and part 1040 were ostensibly intended to protect consumers, opponents of the rule cited a critical report by the Treasury Department that noted that the rule “would upend a century of federal policy favoring freedom of contract to provide for low-cost dispute resolution.”  Critics of the rule also maintained that it would harm community banks, credit unions, and other financial institutions, as well as consumers who might prefer to have their disputes arbitrated.

On November 21, the United States District Court for the Northern District of Illinois granted preliminary approval of a proposed $600,000 settlement of a class action lawsuit filed by a consumer against M3 Financial Services, Inc., an Illinois-based health care debt collector. The lawsuit, styled Elaine Mason et al. v. M3 Financial Services Inc., alleged that M3 placed more than one million calls to cellular telephones without prior express consent in violation of the Telephone Consumer Protection Act.

Originally filed on May 12, 2015, the lawsuit alleged that M3, in its attempts to contact debtors, placed autodialed and prerecorded calls that were instead received by individuals who were not debtors. The proposed class is based on 19,385 unique cell phone numbers contacted between May 2011 and May 2016 that did not belong to a debtor or guarantor on the underlying account for which a call was placed. This represents approximately one-fourth of the cell phone numbers called by M3 during the time period at issue.

The proposed settlement, which requires private mediation and considerable subsequent negotiations, provides for a fund of $600,000 from which will be paid class members as well as attorneys’ fees and costs and administration costs.

Troutman Sanders LLP has unique industry-leading expertise with TCPA compliance, with experience gained trying TCPA cases to verdict and advising Fortune 50 companies regarding their compliance strategies. We will continue to monitor regulatory and judicial interpretation of the TCPA to identify and advise on potential risks.

We are pleased to announce that Troutman Sanders attorneys Ashley Taylor and Tim Butler will participate in a webinar panel discussion hosted by the American Bar Association on “State Attorneys General Series: Enforcement Agencies Confront Class Actions .” The event will take place on December 5, 2017 from 1:00 – 2:30 p.m. ET.

The still vibrant debate about the value of class actions has typically polarized the legal community. One side argues that class actions serve no legitimate purpose, as enriching class-action lawyers is not a legitimate purpose. The other side argues that class actions are essential to the preservation of rights, and that there is no other legal mechanism sufficient to accomplish what class actions accomplish.

This program dives into the debate about the value of class actions with state and federal regulators who work in the trenches to promote class action fairness. These regulators receive your CAFA notices, review your proposed settlements, and sometimes try to torpedo them. This webinar is your chance to hear from them them about their process and what they consider in their review.

For additional information or to register, click here.