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In August 2018, a sports concession company successfully moved to dismiss a class action complaint arising under the Fair and Accurate Credit Transactions Act, finding the named plaintiff lacked Article III standing because she suffered no harm. The victory was short-lived, however, as the U.S. Court of Appeals for the District of Columbia Circuit reversed the decision on July 2, finding that the plaintiff satisfied standing requirements to maintain her lawsuit.

In Jeffries v. Volume Services America, Inc. d/b/a Centerplate, plaintiff Doris Jeffries claimed that Centerplate violated FACTA’s truncation requirement because it included her 16-digit credit card number and the expiration date on a receipt. See 15 U.S.C. § 1681c(g) (prohibiting printing more than the last five digits and the expiration date on a receipt). According to the complaint, Jeffries immediately noticed the error and stored the receipt in a safe place.

The district court dismissed the lawsuit, finding that Jeffries did not suffer any actual harm or an increased risk of harm because only she saw the receipt. The Court further held that the burden of safeguarding the violative receipt is insufficiently concrete to support Article III standing.

Applying Rule 12’s plausibility standard, the Court of Appeals reversed the dismissal, finding that Jeffries adequately pled harm at the point of sale because the receipt contained information prohibited by statute that could enable identity theft.

The Court emphasized that under the standard articulated by the U.S. Supreme Court in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016), invasion of a statutory right can be sufficient – in some cases – to constitute an injury-in-fact. While the concreteness requirement “sharply limits” when a plaintiff can establish harm based solely on the violation of a procedural right, Jeffries’ right to the decreased risk of identity theft was allegedly violated when Centerplate printed her receipt containing information prohibited by FACTA.

The United States Court of Appeals for the Seventh Circuit recently reiterated that the Fair Debt Collection Practices Act was not intended to penalize a company that made an honest mistake that resulted in no harm to the borrower. 

In Casillas v. Madison Avenue Associates, Inc., No. 17-3162, Slip Op. (7th Cir. June 4, 2019), Madison Avenue Associates, Inc. (“Madison”) sent Paula Casillas a debt collection letter that described the process the FDCPA provides for verifying a debt. However, the letter inadvertently omitted listing the statutory requirement that Casillas had to communicate in writing to trigger the statutory protections of the FDCPA. Casillas noticed the error and, instead of contacting Madison to dispute her debt, filed a class action lawsuit. 

The Seventh Circuit looked to the United States Supreme Court’s decision in Spokeo, Inc. v. Robins for the rule of law that “a bare procedural violation, divorced from any concrete harm” does not satisfy the injury‐in‐fact requirement of Article III. 136 S. Ct. 1540, 1549 (2016). The Court noted that, while “Article III grants federal courts the power to redress harms that defendants cause plaintiffs,” it is “not a freewheeling power to hold defendants accountable for legal infractions.” Casillas, Slip Op. at 2. Further, because Congress itself is limited by the confines of Article III, Casillas could not demonstrate standing merely by alleging a procedural violation of a statute. Id. at 5. 

The Court noted that Madison ran no risk of harm – she never alleged she even considered contacting Madison and never alleged that she tried to dispute or verify her debt orally. Id. at 6. Therefore, notice that the FDCPA required written verification instead of a phone call was irrelevant – “[s]he complained only that her notice was missing some information that she did not suggest that she would ever have used.” Id. After evaluating the specific facts of the case (i.e., receipt of an incomplete letter), the Seventh Circuit concluded that “[b]ecause Madison’s violation of the statute did not harm Casillas, there is no injury for a federal court to redress.” Id. at 2. In reaching this conclusion, the Seventh Circuit split with the Sixth Circuit, which evaluated a similar situation in Macy v. GC Services Limited Partnership, but reached the opposite conclusion. Id. at 9. 

While this continues to be a developing area of the law, this case joins numerous others in which courts have relied on the Supreme Court’s Spokeo decision to reiterate the need to show an injury-in-fact – a concrete harm – in order for a federal court to adjudicate a matter. A bare procedural violation is not enough – quite simply, “no harm, no foul.”

Last week, a Ninth Circuit panel held that plaintiffs in five related cases lacked standing to pursue their FCRA claims. Specifically, the Ninth Circuit held that the allegation that a credit report contained misleading information, absent any indication that a consumer tried to engage in or was imminently planning to engage in any transactions for which the alleged misstatements in the credit reports made or would make any material difference, does not constitute a concrete injury. A copy of the opinion can be found here. 

The decision concerned five separate cases filed against the National Credit Reporting Agencies. In each of these cases, the plaintiffs had filed for Chapter 13 bankruptcy. After the bankruptcies were confirmed, the plaintiffs requested copies of their credit reports and claimed that certain information was being reported in a manner that was inconsistent with the treatment of the claims in the confirmed bankruptcy plans. The plaintiffs allege that those inaccuracies remained on their reports, even after the National Credit Reporting Agencies reinvestigated their disputes. Based on these facts, the plaintiffs asserted claims based on the Federal and California credit reporting acts.  

The trial courts dismissed each of the cases based on findings that the notations on the credit reports were accurate and not misleading. The Ninth Circuit panel, however, did not reach the merits of the cases. Instead, the majority held, pursuant to the United States Supreme Court’s precedent in Spokeo v. Robins, that the plaintiffs lacked standing to bring suit. 

The Ninth Circuit’s analysis focused on the fact that the plaintiffs had not alleged that they tried to enter into any financial transaction for which their credit reports or scores were viewed at all or that they imminently planned to do so. The Court further explained that it was not obvious that the alleged misstatements would have affected any potential credit transaction because other explanations might exist for the lower credit scores alleged by the plaintiffs, namely that the bankruptcies themselves caused the plaintiffs’ lower credit scores, with or without the alleged misstatements. The Court explained that the plaintiffs did not even specify what kind of harm they were concerned about, other than making broad generalizations about how lower FICO scores can impact lending decisions generally. The Ninth Circuit concluded that “[w]ithout any allegation of the credit report harming Plaintiffs’ ability to enter a transaction with a third party in the past or imminent future, Plaintiffs have failed to allege a concrete injury for standing.” The Court noted that the plaintiffs’ claims should be dismissed without prejudice. 

Judge Berzon dissented, noting that the plaintiffs are not required to allege that inaccuracies in their credit reports affected a specific previous or imminent transaction. Instead, he stated that the allegation that the conduct at issue lowered a plaintiff’s credit score is sufficient to satisfy the concrete harm requirement. Judge Berzon further explained that it can be difficult for individuals to predict when and how their credit reports may be used or accessed and that credit reports are inherently important to a consumer’s life and livelihood. He concluded that “adverse information on a credit report, often resulting in a lower credit rating, constitutes a reputational injury creating a material risk of harm, whether or not an individual contemplates a specific, imminent transaction.” 

Troutman Sanders will continue to monitor developments in consumer credit reporting law, including how courts interpret the standing requirements set forth in Spokeo v. Robins.

On March 11, the U.S. District Court for the Central District of California approved a settlement stipulation between the parties in the long-running Fair Credit Reporting Act litigation involving Spokeo, Inc.  See Thomas Robins v. Spokeo, Inc., Case No. 2:10-cv-05306 (C.D. Cal.).  The settlement brings an end to the dispute that led to the U.S. Supreme Court’s landmark 2016 ruling on the contours of Article III jurisdiction and the ability of courts to hear cases alleging statutory, technical, or procedural damage without actual injury-in-fact.  Ultimately, the settlement means that the ongoing dispute – which has generated a wealth of related litigation and motions practice in consumer class actions and similar statute-heavy arenas – has concluded with a whimper.

Troutman Sanders has reported on Spokeo on numerous occasions over the past four years, including here, here, here, here, here, and here.

Background

On May 16, 2016, the Supreme Court of the United States issued its much-anticipated decision in Spokeo, Inc. v. Robins.  Spokeo considered whether Congress may confer Article III standing by authorizing a private right of action based on the violation of a federal statute alone, despite a plaintiff having suffered no “real world” harm.  The Supreme Court, in a 6-2 decision, vacated and remanded the decision of the Ninth Circuit, the latter of which found the existence of Article III standing in a claim under the FCRA.  The Court found that while the Ninth Circuit had considered whether the harm was particularized, the lower court had failed to consider whether the “invasion of a legally protected interest” was “concrete.”  After holding that a “violation of one of the FCRA’s procedural requirements may result in no harm,” the Supreme Court instructed the Ninth Circuit to decide “whether the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement.”

On August 15, 2017, the Ninth Circuit issued its decision on remand, reversing and remanding the case to the California district court after finding that Robins had standing to pursue his claims.  Spokeo appealed that ruling to the Supreme Court again, arguing that the Court’s prior opinion created massive uncertainty among lower courts as to the contours of Article III standing – particularly in cases alleging statutory claims based on purely technical or procedural violations.

On January 22, 2018, the Supreme Court denied the second petition for a writ of certiorari filed by Spokeo.

Settlement

Left pending in the California federal district court, the parties engaged in mediation after the Supreme Court’s January 2018 denial and ultimately came to a settlement.

On March 8, 2019, Robins filed a stipulation for relief that was entered by the district court three days later.  Per the stipulation:

  • For a period of three years, “Spokeo will not publish any numerical estimates or predictions of consumer credit scores” unless its terms and conditions “specify that Spokeo’s profiles may only be used for [non-FCRA] purposes.”
  • Spokeo will provide “a clear and appropriately-titled hyperlink” to an opt-out form on its privacy page, which will be available from all pages on its website via its “general navigation menu.”
  • A disclaimer on Spokeo’s terms and conditions page is required to state that its site users may not use any information for any FCRA purposes.
  • Spokeo must include additional disclaimers indicating that it is not a consumer reporting agency as defined by the FCRA.
  • Spokeo customers will be required to certify and agree that they will not use the company’s website and its information for any FCRA purpose.

A copy of the stipulation can be found here.  The case was dismissed with prejudice by the Court on March 12.

Since the Spokeo, Inc. v. Robins decision in 2016, many defendants have worried that a valid standing argument could have the actual impact of leading to more cases being litigated in state court rather than outright dismissals on the merits.  

This month’s ruling in Ratliff v. LTI Trucking Services, Inc. proved to be exactly the kind of holding defendants worried about after Spokeo.  Plaintiff Jerome Ratliff, Jr. brought a Fair Credit Reporting Act (15 U.S.C. § 1681) suit in an Illinois federal court.  The suit involved a putative class action alleging that LTI Trucking Services violated procedural requirements of the FCRA by failing to provide notices required under § 1681(b)(3)(B) considering negative information disclosed on Ratliff’s background check.  That court cited Spokeo’s concrete injury requirements for standing and dismissed the matter outright for lack of subject matter jurisdiction.   

Ratliff refiled in state court, and LTI removed the case to federal court.  Upon removal, LTI moved to dismiss the case for lack of subject matter jurisdiction, and Ratliff argued for the federal court to dismiss the case and remand to state court.   

The federal court agreed with Ratliff and elected to remand the matter for state court.  The net result was a defendant facing a class claim in state court rather than federal court, and likely a situation where the defendant is no better off, and perhaps in a worse position, than if Spokeo did not exist.

Joining an “overwhelming majority of the courts in this district,” the United States District Court for the District of New Jersey recently held that a plaintiff alleging misleading representations in a debt collection letter under 15 U.S.C. § 1692e of the Fair Debt Collection Practices Act (“FDCPA”) demonstrated concrete injury sufficient to confer Article III standing.  The Court also certified a statewide class of consumers who received the same form letter. 

In Hovermale v. Immediate Credit Recovery, Inc., a debtor sued the a debt collector for violations of the FDCPA based on alleged misrepresentations made in a collection letter sent to the debtor to collect on her defaulted Perkins student loan.  Specifically, the letter stated that interest and late charges may accrue after default on Perkins loans.  While Hovermale acknowledged that interest may accrue, she argued (correctly) that late charges may not accrue after default on such loans.  Thus, she claimed that she mistakenly believed that late charges could increase from the date of the letter to the date of payment, creating a false sense of urgency to make payment. 

IRC filed a motion to dismiss on the grounds that Hovermale lacked Article III standing under the standard articulated by the U.S. Supreme Court in Spokeo, Inc. v. Robins.  Specifically, IRC argued that Hovermale did not suffer any injury–in–fact because her loan amount increased anyway (i.e. due to accruing interest).  Thus, the late fees could not have created a “false sense of urgency [to pay]” – that already existed vis-à-vis accruing interest. 

The Court rejected IRC’s argument, finding that the FDCPA – and particularly, Section 1692e – provides debtors a substantive right to receive truthful information.  An allegation that this substantive right has been violated is enough to show “concrete injury” for purposes of satisfying the Spokeo standard.  The Court characterized this injury as “informational harm” and emphasized that a claim that a letter is misleading is exactly the type of harm the FDCPA aims to prevent. 

In addition to denying IRC’s motion to dismiss, the Court certified Hovermale’s putative class of New Jersey consumers who received debt collection letters with the same language.  The Court found that the same legal issue – whether the language of the letters violates the FDCPA – must be resolved for all putative class members.

On September 10, the Court of Appeals for the Third Circuit in Long v. Southeastern Pennsylvania Transportation Authority ruled that a group of plaintiffs lacked standing to assert claims brought under the Fair Credit Reporting Act relating to the defendant’s failure to provide statutorily-required information about their basic FCRA rights. The plaintiffs in Long alleged that SEPTA violated the FCRA’s pre-adverse action notice provision by terminating their employment without first providing them with (i) a copy of their background reports, and (ii) information about their rights under the FCRA.

Relying on the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, the Third Circuit held that the plaintiffs had standing for the first alleged violation because they had a right to see the background reports before any adverse action was taken against them, despite not alleging any actual inaccuracies in their reports.

However, the court ruled that the plaintiffs lacked standing for the second alleged violation –their failure to receive information about their basic FCRA rights – which the court deemed a “bare procedural violation, divorced from any concrete harm.”  In so ruling, the Third Circuit noted that the plaintiffs were able to learn about their rights under the FCRA and were able to file their lawsuit within the FCRA’s two-year statute of limitations regardless of any disclosure failure on SEPTA’s part.

Troutman Sanders will continue to monitor these developments and provide any further updates as they are available.

On July 13, 2018, in Dutta v. State Farm Mutual Automobile Insurance Company, the Ninth Circuit affirmed the district court’s decision granting summary judgment to State Farm in a putative Fair Credit Reporting Act class action. The decision presents another helpful application of the U.S. Supreme Court’s 2016 Spokeo decision. The Dutta decision highlights the importance of continuing to challenge standing at all stages of a case even in the face of a statutory violation.

Background

In Dutta v. State Farm, the plaintiff Bobby S. Dutta alleged that State Farm violated section 1681b of the FCRA, by failing to provide him with a copy of his consumer report, notice FCRA rights and an opportunity to challenge inaccuracies in the report before State Farm denied his employment application. As background, Dutta applied for employment with State Farm through the company’s Agency Career Track, or ACT, hiring program. State Farm examines the 24-month credit history of every ACT applicant, and if an applicant’s credit report indicates a charged-off account greater than $1,000, the applicant is automatically disqualified.

View full article published on Law360.

On March 9, the Ninth Circuit affirmed dismissal of a putative FACTA class action on Article III standing grounds, citing the requirement of a “concrete injury” reinforced by the U.S. Supreme Court’s 2016 decision in Spokeo v. Robins. In Noble et al. v. Nevada Checker Cab Corp. et al., No. 16-16573, the court held that the plaintiffs had not alleged a concrete injury simply because the defendant taxi companies had included the first and last four digits of their credit card numbers on receipts. FACTA prohibits printing more than the last five digits of a card on receipts.

The panel noted that the plaintiffs failed to allege a breach of privacy or any tangible harms resulting from the first-digit disclosure. Further, the court relied on its February 2018 decision in Bassett v. ABM Parking Services Inc., in which it rejected standing for a plaintiff who claimed a FACTA violation for including his card expiration date on a receipt.

“As in Bassett, appellants here did not allege that anyone else had received or would receive a copy of their credit card receipts. As in Bassett, appellants’ alleged injury depended entirely on a FACTA violation,” the Ninth Circuit stated. “Bassett’s reasoning controls the issue in this case, and we are bound by it.”

Finally, the Ninth Circuit found that the alleged violation did not result in the disclosure of information envisioned by Congress in protecting against identity theft. Like the disclosed expiration date, the first digit of the card number (which simply identifies the brand of the card) by itself posed a minimal risk.

A copy of the decision can be found here.

Troutman Sanders will continue to monitor these developments and provide any further updates as they are available.

On February 21, the Ninth Circuit affirmed a district court’s dismissal of an action brought under the Fair and Accurate Credit Transactions Act (“FACTA”), finding that the plaintiff had not demonstrated Article III standing.  Plaintiff Steven Bassett alleged that ABM Parking Services and its affiliated businesses repeatedly printed the expiration date of his credit card on sales receipts.  Bassett argued that the failure to withhold this information from the credit card receipt could lead to identity theft, but the Western District of Washington dismissed his case for failure to plead injury.

In an opinion that included a step-by-step analysis of the Supreme Court’s reasoning in the landmark Spokeo decision, the Ninth Circuit affirmed the district court’s finding that Bassett had not alleged a concrete injury-in-fact to confer standing.  “We need not answer whether a tree falling in the forest makes a sound when no one is there to hear it,” wrote Judge M. Margaret McKeown for the panel.  “But when this receipt fell into Bassett’s hands in a parking garage and no identity thief was there to snatch it, it did not make an injury.”  Bassett’s credit card information was not disclosed to anyone but Bassett himself, the panel concluded, and his complaint failed to allege a risk of harm, “given that he could shred the offending receipt along with any remaining risk of disclosure.”

The court contrasted Bassett’s claims to those recently before the court in a Telephone Consumer Protection Act (“TCPA”) case.  In Van Patten v. Vertical Fitness Group, LLC, the Ninth Circuit held that a consumer who received unsolicited text messages in violation of the TCPA alleged an injury because “unrestricted telemarketing can be an intrusive invasion of privacy and is a nuisance.”  While a credit card receipt that has not been divulged to anyone but the credit card’s holder may not cause harm or present the material risk of harm, “unconsented text messages and consumer reports divulged to one’s employer necessarily infringe privacy interests and present harm.”

The decision unites the Ninth Circuit with the Second and Seventh circuits, which both affirmed dismissals of similar FACTA cases in Crupar-Weinmann v. Paris Baguette America, Inc. and Meyers v. Nicolet Restaurant of De Pere, LLC, which we covered here.