Spokeo: A (sort of) Victory for the Credit Reporting Industry

May 18, 2016 by

Spokeo: A (sort of) Victory for the Credit Reporting Industry

After much anticipation, the United States Supreme Court issued its decision in Spokeo, Inc. v. Robins, and – to the relief of credit reporting agencies everywhere – ruled that a bare procedural violation of the Fair Credit Reporting Act (“FCRA”) is not sufficient to satisfy the injury-in-fact requirement of Article III.  Spokeo quickly took to the blogosphere to tout its victory, but it was not a total win for the self-described “people search engine.”  The 6-2 opinion authored by Justice Alito has serious potential to become a thorn in the side of the credit reporting industry. While the decision will prevent actions based solely on technical violations of the FCRA, it lays the groundwork for direct claims and class certification where the only concrete damages alleged are intangible injuries. As a result, it is far too hasty to suppose that Spokeo has made class actions arising under the FCRA or other consumer protection statutes a thing of the past.

The Underlying Lawsuit

Lead plaintiff Thomas Robins sued Spokeo in a putative class action alleging willful violations of the FCRA after Spokeo published an online profile that, according to Robins, was riddled with errors relating to his age, marital status, education and income.  Robins alleged the errors in his profile made him “concerned” that his ability to obtain employment would be adversely affected and caused “actual harm” to his employment prospects.

Spokeo moved to dismiss the complaint claiming Robins lacked standing because he failed to allege any concrete injury arising from the errors in his online profile.  The U.S. District Court for the Central District of California initially denied Spokeo’s motion, but later reconsidered and dismissed the case with prejudice.  The Ninth Circuit reversed the decision on appeal, holding the alleged violations of Robins’ statutory rights under the FCRA were injuries in fact regardless of whether they caused any additional harm.  In reaching this decision, the court held that because the statutory violations alone were sufficient to establish standing, the court did not need to determine whether the alleged harm to Robins’ employment prospects, or his related anxiety, could be sufficient injuries in fact.

The Supreme Court’s Decision

In argument before the Supreme Court, Spokeo and Robins staked out hard line positions.  For its part, Spokeo argued Article III requires a palpable, real-world injury arising from an alleged violation of the FCRA.  In contrast, Robins argued consumers have standing whenever their rights under the FCRA are violated regardless of whether the violation results in any adverse consequences.

Ultimately, the Court rejected both arguments, opting instead to thread the needle by giving both sides some, but not all, of what they wanted.  On one hand, the Court tacitly acknowledged the onslaught of litigation that would befall the credit reporting industry, and other industries regulated by similar consumer protection statutes, if private litigants could recover for any statutory violation no matter how trivial.  On the other hand, the Court acknowledged that the FCRA reflects Congressional intent to protect against intangible harms resulting from credit reporting errors.  Accordingly, the Supreme Court ruled that a plaintiff seeking to recover for breach of the FCRA must allege a concrete harm arising from the statutory violation, but the harm alleged need not be tangible or palpable.

The majority refrained from expressing an opinion as to whether the harms alleged by Robins were sufficient to meet this standard, but indicated that such a finding would be consistent with the Court’s opinion by confirming that the “risk of real harm” can meet the requirement of concreteness.  Justices Ginsberg and Sotomayor took the issue a step further in dissent, asserting the majority erred by remanding the case to the Ninth Circuit because the intangible harms alleged by Robins were sufficiently concrete to establish Article III standing.

What Comes Next?

With Spokeo headed back to the Ninth Circuit, and stays lifting on pending FCRA cases across the country, there is likely to be a flurry of new jurisprudence defining what constitutes a sufficiently “concrete” injury for purposes of the FCRA.  While it is impossible to foresee how this process will play out, it is reasonable to anticipate that consumer-friendly circuits will employ the holding of Spokeo to set a relatively low bar for the types of “concrete” injuries required to establish standing.

For example, if the Ninth Circuit rules on remand that Robins’ alleged “concern” regarding potential adverse employment effects is sufficiently concrete to establish Article III standing, it is easy to envision other plaintiffs alleging similar concerns based on inaccurate information in their consumer reports, even where the inaccurate information is not patently adverse.  As Justice Ginsberg noted in her dissent, an applicant can lose a job based on positive misinformation if a consumer report creates the erroneous impression that he or she is overqualified for the position sought.  In short, Spokeo opens the door for standing based on the risk of adverse consequences to the consumer, even where no such consequences have materialized.

The FCRA and Beyond

Practically speaking, companies that were looking to Spokeo to help insulate them from litigation under the FCRA and similar consumer protection statutes would be wise to keep their enthusiasm toward the decision in check.  Spokeo is unlikely to have a major impact on the number of direct action lawsuits arising under the FCRA, where the most common consumer complaints typically involve the reporting of inaccurate or prohibited information. In the class action context, Spokeo will likely temper the scope and speed of class actions by eliminating sweeping claims based on technical noncompliance with the FCRA and requiring some method by which to verify the injuries of class members, but it would be premature to conclude that Spokeo has made class actions arising under the FCRA or other consumer protection statutes a thing of the past.

In the wake of Spokeo, it continues to be important for companies to ensure they have vigorous FCRA compliance programs in place to detect and prevent potential issues and to respond immediately to consumer disputes.  Fortunately, Spokeo provides some breathing room for credit reporting agencies to prioritize and remedy any outstanding FCRA compliance issues.  Where before a single minor compliance issue might lead to bet-the-company litigation, credit reporting agencies now have the opportunity to focus their energies on the most pressing consumer-facing issues while working to bring more technical compliance issues in line over time.  The plaintiff’s bar is unlikely to lose interest in FCRA and other consumer protection class actions any time soon, and Spokeo does not change the fact that the best defense for any consumer reporting agency is a well-honed compliance plan.

Edison, McDowell & Hetherington LLP – Jodi K. Swick (Partner) and Tyson A. Burns (Associate) Jodi K. Swick is a founding partner of Edison McDowell & Hetherington, LLP’s California office.  Jodi specializes in litigating insurance coverage, complex business and class action matters in federal and state courts nationwide, and in international forums. Jodi’s insurance coverage practice focuses on representing and counseling insurance company clients in coverage, bad faith and extra-contractual disputes.  Jodi is also active in the litigation of class actions brought under a wide variety of consumer protection laws.  Jodi is licensed in California and Washington.  You can learn more about Jodi here: http://emhllp.com/Team/JodiKSwick

Tyson Burns is an associate in the firm’s California office. Tyson maintains a practice in civil and commercial litigation. She has experience assisting clients in securities enforcement, antitrust, trade secret litigation, and business torts. Tyson is licensed in California, Virginia, and Washington, D.C.  You can learn more about Tyson here: http://emhllp.com/Team/TysonABurns

(The views expressed by Jodi K. Swick and Tyson Burns in this article are theirs, and do not necessarily reflect the views of Law & Beyond.)

1 Comment

  1. I could not resist commenting. Very well written!