Among the challenges of doing business in the United States stands the phenomenon of the American class action, by which one or more persons with similar interests in a matter is allowed to sue (or be sued) as representatives of a class, without formally joining all members of the class. Its golden age lasted from roughly the late 1960s through the early 1970s, when public-interest lawyers used this unique procedural vehicle to obtain injunctive and declaratory relief that forced institutional compliance with landmark civil rights and other social justice reforms under President Lyndon Johnson's "Great Society" legislative agenda.

"No Harm" Class Actions in a Nutshell

The more modern-day plaintiffs' class action bar has cleverly grafted this stirring chapter in the history of the American class action device onto their own populist messaging, which has these folks acting solely to protect ordinary people from an ever-expanding litany of supposedly predatory business practices. Since its glory days, however, increasing darkness has enveloped the American class action device, with a boundlessly entrepreneurial plaintiffs' bar using it to plunder personal riches from the stream of commerce, and not so much for real social change.

These practitioners conjure the harm, manufacture the claim, publicize it on a multi-media basis, and then enlist individuals to serve them as nominal plaintiffs. And like the companies they chase into the court system, these lawyers are innovative, constantly tinkering with their product line. The latest offering is the so-called "no harm" class action – in which damages are sought for the technical violation of federal or state statutes that authorize private rights of action and statutory damages, but without showing an actual injury of any sort. Statutory class actions have been spreading like weeds in the federal judicial system, threatening business interests under a wide variety of statutes – including those regulating telephone solicitations, credit reporting, debt collection, consumer lending, competition, privacy interests, and consumer protection – as well as the separation of powers between the legislative and judicial branches of government.

Napolean had nothing on those responsible for stocking the courts with "no harm" class actions. Like him, they have learned that one can often "get in quicker by the back door than by the front."

A Waterloo Moment for Standing to Sue in Federal Courts

The US Supreme Court will take up this controversial subject when it hears Spokeo, Inc. v. Robins (No. 13-1339) during its next Term, which begins in October. The question it will decide – which will determine the future of "no harm" class actions in the federal system – is whether a person suing for a bare violation of a federal statute, who suffers no concrete harm, has standing to invoke the jurisdiction of a federal court.

The front door to the federal judicial system in the US is open only to those with "standing" under Article III of the US Constitution. There is no federal jurisdiction without constitutional (as opposed to statutory) standing. To establish Article III standing, a plaintiff must show: (1) an "injury in fact" that is (a) "concrete and particularized" and (b) "actual or imminent, not conjectural or hypothetical," (2) causation – that the injury is "fairly traceable to the challenged action of the defendant," and (3) redressability. The Supreme Court has previously held that the injury-in-fact requirement is the "irreducible constitutional minimum" for standing.

With "no harm" class actions, plaintiffs are using the back door to federal courts, alleging that the mere violation of a statute – without more – amounts to an "injury in law" sufficient to satisfy Article III's "injury in fact" requirement for standing purposes.

A Bellwether Case: Spokeo v. Robins

Spokeo typifies this trend. In that case, an unemployed man sued a company that operates a "people search engine," which aggregates publically available information, for allegedly violating the Fair Credit Reporting Act (FCRA) by associating his name with inaccurate personal information, which harmed his "employment prospects."  (FCRA imposes certain duties on "credit reporting agencies" and authorizes statutory damages for their breach as an alternative measure of damages when it is difficult to precisely value a plaintiff's harm.) Spokeo moved to dismiss the complaint for lack of federal standing, citing plaintiff's failure to allege any actual injury.

Robins responded that Spokeo's alleged violation of FCRA constituted an "injury in law" that automatically conferred standing on him for purposes of Article III's "injury in fact" requirement. The district court ultimately disagreed and dismissed the action for lack of an "injury in fact," ruling that a mere statutory violation and plaintiff's abstract "concern[s] that the inaccuracies in his report will affect his [future] ability to obtain credit, employment, insurance, and the like" were not enough.

Plaintiff then successfully appealed to the Ninth Circuit, which allowed him entry to the federal judicial system at the back door – dispensing altogether with the "actual injury" requirement. It reached this result by construing FCRA's statutory damages provision as a substitute for Article III's "injury in fact" requirement, holding that the "creation of a private cause of action to enforce a statutory provision implies that Congress intended the enforceable provision to create a statutory right," adding that "the violation of a statutory right is usually a sufficient injury in fact to confer standing." Robins v. Spokeo, 742 F.3d 409, 412 (9th Cir. 2014).

The Case's Broader Business Significance

The Ninth Circuit's decision creates a split among the federal courts of appeals that promotes forum shopping and leads to different results, depending on where a case is filed.  It also has the effect of relaxing the various limits the U.S. Supreme Court has been placing on use of the class action device in a line of cases since Wal-Mart Stores, Inc. v. Duke.

The Sixth, Eighth and Ninth Circuits – comprising a sort of Barbary Coast in relation to "no harm" class actions – recognize "injury in law" as a substitute for "injury in fact."  This puts them at odds with the Second, Fourth, and Federal Circuits – each of which has soundly rejected the notion that Congress can use its legislative power to create legal rights (i.e. statutory standing) that by fiat erase Article III's "injury in fact" requirement for purposes of constitutional standing.

The US Supreme Court's decision in Spokeo will have broad relevance given the many federal statutes, like FCRA, that authorize both private rights of action and statutory damages for their violation. The seventeen amicus briefs submitted in support of Spokeo's petition for certiorari dramatically underscore this point. These submissions largely echo the view that the pernicious coupling of the class action device with the "no harm" theory of liability invites only abusive and costly litigation, since class certification gets a lot easier once the need for actual harm has been eliminated.