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Supreme Court Decision (MAG Quarterly- Volume Four, Issue Two)

By Barrie VanBrackle, Partner, Manatt, Phelps & Phillips, LLP & Merchant Advisory Group Legal Council

June 2, 2016

On May 16, 2016, the Supreme Court of the United States ruled in Spokeo, Inc. v. Robins that a plaintiff must show an injury in fact before pursuing a claim for violation of the federal Fair Credit Reporting Act (FCRA), a holding that may have repercussions for consumer plaintiffs pursuing claims under a wide variety of consumer protection statutes, including the Telephone Consumer Protection Act and future data breach claims.

There are literally hundreds of putative class action lawsuits in which plaintiffs allege a mere technical violation of a federal consumer protection statute without pleading facts showing any actual injury. For example, plaintiffs pursuing claims under the TCPA have repeatedly pursued and obtained large class settlements based on mere technical violations, such as the receipt of electronic versions of a blast fax (for example, there is a New Jersey state law which provides that a plaintiff may pursue a class action if he was asked to waive a constitutional right, such as a trial by jury). It may likewise be particularly relevant in the privacy and data security area, where such statutory damages cases predominate. In addition, the decision may constrict plaintiffs' ability to certify a class under the requirements of Federal Rule 23 in that, as just one example, plaintiffs may have a more difficult time demonstrating common types of actual injury.

The Spokeo case pits a consumer against a "people search engine" firm that performs a computerized search of various databases for public data. When a search for plaintiff produced a variety of inaccurate data, that plaintiff brought suit, alleging FCRA violations despite pleading no facts showing any resulting harm. Among other things, FCRA seeks to ensure "fair and accurate credit reporting." 15 U.S.C. § 1681(a)(1). The statute therefore regulates the creation and use of "consumer report[s]" by "consumer reporting agenc[ies]" for certain specified purposes, including credit transactions, insurance, licensing, consumer-initiated business transactions and employment. The suit alleges that Spokeo is a "consumer reporting agency" and therefore is liable as a defendant under the act. Nowhere in the complaint, however, does plaintiff explain what injuries were caused by the inaccurate data or how he even became aware of the inaccuracies.

Under Article III of the Constitution, in order to show standing to sue, a plaintiff must show: (1) an injury in fact, (2) that is fairly traceable to the challenged conduct of defendant, and (3) that is likely to be redressed by a favorable judicial decision. Judge Alito, writing for the majority, said that the foregoing factors include the requirement that plaintiff show "an invasion of a legally protected interest" that is "concrete and particularized" and "actual or imminent, not conjectural or hypothetical", in other words, the injury must actually exist, so that technical statutory violations (as in the New Jersey law cited above), would not satisfy the first prong of the standing test (no actual harm).

This decision has significant implications for TCPA cases and compliance. Plaintiffs that are unable to demonstrate concrete harm arising from a violation of the TCPA may be foreclosed from bringing claims under the statute.

It will also be interesting to see how the Spokeo decision impacts data breach cases. Last summer, the Seventh Circuit citing its own 2015 decision a data-breach case against Neiman Marcus Group Ltd. LLC, found that the named plaintiffs had asserted plausible injuries (note not the “concrete” injuries required by Spokeo) in order to establish standing to sue P.F. Chang’s.  It will be interesting to follow whether the plausible injuries (the increased risk or fraudulent charges or data breach) will constitute the “concrete injury” required to establish standing to sue (under Federal law).  And, many other data breach cases have been dismissed on standing grounds (Michael’s, Barnes and Noble).

The MAG will continue to bring you updates, and of course, please feel free to contact us with any questions.