Supreme Court Extends Spokeo’s Article III Standing Requirements – Litigation, Mediation & Arbitration

Highlights

• The U.S. Supreme Court has upended a class damages award of $40
  million under the Fair Credit Reporting Act (FCRA) against
  TransUnion, one of the “Big Three” credit reporting
  agencies.




• Reversing an earlier ruling by the U.S. Court of Appeals for
  the Ninth Circuit, the Supreme Court held in a 5-4 decision that
  6,332 of the 8,185 certified class members lack Article III
  standing because TransUnion did not disseminate their credit
  reports to third-party businesses during the relevant time
  period.




• The Supreme Court’s decision has broad implications going
  forward both for FCRA litigation, in particular, and for class
  action litigation, more generally, with the potential to resolve a
  split among Courts of Appeal in data breach and ransomware class
  actions.

In TransUnion LLC v. Ramirez, the U.S.
Supreme Court upended a class damages award of $40 million under
the Fair Credit Reporting Act (FCRA) against TransUnion, one of the
“Big Three” credit reporting agencies. The 5-4 decision,
issued on June 25, 2021, has broad potential implications on class
certification and FCRA litigation going forward. While not arising
from a data breach or ransomware event, the Court’s decision
seems likely to reverberate in cyberattack class actions brought
without an actual harm (such as identity theft or financial
loss).

Background

The lead plaintiff, Sergio Ramirez, represented a certified
class of 8,185 consumers who appeared on TransUnion’s
“OFAC Name Screen Alert” List (OFAC List). This database
identifies a consumer’s name as a “potential match”
to a name on a list of terrorists, drug traffickers, and other
serious criminals maintained by the U.S. Department of the
Treasury’s Office of Foreign Assets Control (OFAC). Ramirez
learned of the OFAC List when a salesman at a car dealership
informed him he could not purchase a vehicle because his name was
on a “terrorist list.”

A jury returned a verdict in favor of Ramirez and a class of
consumers whose names were included on the OFAC List and who had
also received two letters from TransUnion, one of which failed to
include information about the OFAC List and another that included
the OFAC information but omitted a summary-of-rights required by
the FCRA. The U.S. Court of Appeals for the Ninth Circuit upheld
the award, in relevant part.

Supreme Court Decision

Reversing the Ninth Circuit, the Supreme Court held that 6,332
of the 8,185 certified class members lack Article III standing
despite their inclusion on TransUnion’s OFAC List, because
TransUnion did not disseminate their credit reports to third-party
businesses during the relevant time period. In reaching this
result, the Court relied on Spokeo, Inc. v. Robins, 578 U.
S. 330, 340, and concluded that these class members did not suffer
harm that was sufficiently “concrete” to confer Article
III standing. Under this analysis of Article III standing, a
plaintiff must identify a close historical or common-law analogue
for their asserted injury. Physical, monetary and reputation harms
readily qualify as concrete injuries under Article III. Analogizing
to the tort of defamation, which requires “publication”
of the defamatory statement, the Court held that because TransUnion
did not disseminate the credit reports of 6,332 class members to
third-party businesses during the relevant time period, these class
members did not demonstrate the concrete harm required for Article
III standing.

As to the FCRA claims based on TransUnion’s letters to class
members, the Court held that all 8,185 class members lacked Article
III standing, because the plaintiffs presented no evidence that a
single class member, other than Ramirez, opened the mailings or
were confused, distressed or relied on the information in any way.
The Court held that even if the letters constituted technical
violations of the FCRA, these bare procedural violations could not
proceed absent a showing of concrete harm.

Potential Implications

The Supreme Court’s decision will have broad implications
going forward both for FCRA litigation, in particular, and for
class action litigation, more generally.

As a possible boon to businesses facing class action litigation
in the future, federal courts could more closely scrutinize whether
class members have identified a historical or common-law
an­alogue for the injury that they assert. While this inquiry
does not require “an exact duplicate in American history and
tradition,” it is not an “open-ended invitation for
federal courts to loosen Article III based on contemporary,
evolving beliefs about what kinds of suits should be heard in
federal courts.” If class members fail to demonstrate the sort
of physical, monetary or reputational harm traditionally associated
with common-law torts, businesses should consider a standing
challenge under Article III. Application of TransUnion
seems especially likely in cases arising from data breaches and
ransomware events. These class actions are frequently brought
simply because the company attacked sends a notice required under
state data breach notification laws. Courts have been split over
what counts as cognizable injury in that circumstance.
TransUnion gives support to those courts that have said
simply getting a data breach notification letter is not enough to
open the doors to a federal courtroom, absent identity theft or
economic harm.

On the other hand, as Justice Clarence Thomas suggests in his
dissent, successful challenges to Article III standing could simply
relocate class actions to state courts that have no standing
requirements comparable to Article III, such as California and
Michigan. In this regard, Justice Thomas notes that the
majority’s opinion could be a hollow victory for TransUnion,
because it ensures that state courts will exercise exclusive
jurisdiction over these types of class actions. Although Justice
Thomas expresses a valid concern, such a result raises the question
as to whether Congress can create a cause of action that
must be litigated outside of Article III courts because
the cause of action protects plaintiffs who lack Article III
standing. Class action defendants faced with federal claims in
state court should consider whether this argument offers a helpful
defense.

As to FCRA litigation, in particular, the Court’s decision
is an open invitation for defendants to assert a standing challenge
in cases where the plaintiff’s credit report was not
disseminated to potential creditors. Indeed, the Court even
rejected the plaintiffs’ argument that the inaccurate OFAC
information was “published” internally at TransUnion and
to the vendors that printed and sent the mailings that the class
members received sufficient to confer standing.

However, the Court also offered plaintiffs a fig leaf by raising
the possibility (without deciding the issue) that a consumer might
suffer concrete injury in the form of emotional or psychological
harm by simply viewing inaccuracies on his/her own credit report.
This sort of psychological harm, as the argument goes, is analogous
to that suffered by victims of intentional infliction of emotional
distress.

Because the defendant in this case was a credit reporting
agency, the implications of the Court’s ruling for furnishers
of credit information, such as creditors, is less clear. For
example, the Court did not have reason to address whether
furnishing credit information about consumers to credit reporting
agencies constitutes publication of the information in a manner
that is sufficient to confer standing. Even so, the Court suggests
that furnishing information to credit reporting agencies might not
be enough, noting that defamation has historically required
evidence the defendant “actually brought an idea to the
perception of another” and thus “that the document was
actually read and not merely processed.” It’s not clear
that information furnished to credit reporting agencies is actually
read by anyone unless and until it is published as a credit report
and disseminated at the consumer’s or a potential
creditor’s request.

In sum, the Supreme Court’s decision in TransUnion LLC
v. Ramirez provides additional fodder to challenge standing
and defeat class certification. But it remains to be seen whether
this will simply shift class action litigation to state courts with
lower standing requirements.

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