Companies and class action defense attorneys jumped for joy in May 2016 when the Supreme Court issued its decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016). That opinion discussed a threshold constitutional requirement for being able to bring a lawsuit in federal court: standing (i.e., a “concrete” injury that actually exists, traceable to the defendant that could be redressed by a favorable judicial decision). The Supreme Court in Spokeo determined that the lower courts had not adequately considered whether the statutory violations at issue – incorrect personal facts included on a credit reporting website – satisfied the “concrete” injury requirement. More significantly, however, and to the delight of companies and defense attorneys, the Supreme Court held that a plaintiff could not satisfy the federal standing requirement by alleging “a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement” of the Constitution. Id. At 1549.
This was an important statement from the Supreme Court. There has been a cottage industry in recent years of class actions alleging technical violations of a federal statute and seeking millions of dollars in aggregated statutory damages. For example, a single text message could cost a company $500 to $1,500 under the Telephone Consumer Protection Act. Printing a credit card expiration date on a receipt could cost $100 to $1,000 under the Fair and Accurate Credit Transactions Act. Multiply these statutory damages by several thousand a hundred thousand or even millions of technical violations and the potential exposure to a defendant could be devastating.
The Supreme Court’s decision in Spokeo was significant because it meant that a plaintiff could no longer merely allege that she received a text message to which she had not consented, or a receipt with her credit card expiration date printed on it, and then sue in federal court, without alleging some sort of real harm to her beyond the fact that the defendant had violated a statue. Defense attorneys loved quoting the Supreme Court’s language in Spokeo to get class actions dismissed at the pleading stage, and met with relative success.
After Spokeo, rather than filing these types of class actions in federal courts, plaintiffs’ attorneys began filing them in state courts, where the same constitutional standing requirements did not exist. A state court defendant could hardly risk the ire of a federal judge by removing the case to federal court pursuant to the statue at issue or the Class Action Fairness Act, telling the district court it had jurisdiction, only to later file a motion to dismiss, essentially saying to the court, “Just kidding; no, you actually don’t.”
Despite the hopes that Spokeo engendered, the Ninth Circuit has slowly but surely been walking back Spokeo's reach. As a result, the effects of recent decisions have once again made it possible for these types of class actions alleging merely technical or procedural violations of a statute to be filed—and stay—in federal court. In a series of decisions issued this year, including most recently on Aug. 15, 2017, in Robins v. Spokeo, Inc., 867 F.3d 1108 (2017) (the very same Supreme Court case, now back on appeal following remand), the Ninth Circuit has determined that a statutory violation alone can be enough to satisfy the constitutional standing requirement if (1) the specific statutory provision at issue was intended by Congress to protect a concrete interest (rather than just a procedural right), and, if so, (2) the specific procedural violation(s) posed harm, or presented a real risk of harm, to that interest. Id. at 113.
This is a time-consuming and therefore expensive test. It requires inquiry into the legislative history of a statute to answer various questions. Why was the statute enacted? What rights was Congress trying to protect? Are these fundamental rights that we hold dear or that have long been protected by the law (e.g., reputational and privacy interests)? Does the statutory prohibition have "social value"? Does the statutory violation, in and of itself, pose a risk of harm that "has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit"?
These are not always easy questions to answer. And the Ninth Circuit has recognized, as did the Supreme Court, that purported violations of different sections of the same statute may result in different outcomes for standing. In other words, not all statutory requirements are created equal. For example, inaccurate reporting by a credit agency of a consumer's ZIP code—a statutory violation of the Fair Credit Reporting Act (FCRA)—might not actually create any conceivable harm, whereas inaccurate reporting of education or marital status—also a violation of FCRA—could. Not every "trivial and meaningless" statutory violation creates a real risk of harm to a concrete right, the Ninth Circuit has observed, but some arguably "trivial and meaningless" violations do. Robins, 867 F.3d at 1116. And in some cases, one can well imagine, meaningfulness—like beauty—is in the eye of the beholder.
So where is the line? That has yet to be determined. The Ninth Circuit's recent decision in Robins observed that it was unnecessary for the court to "conduct a searching review for where that line should be drawn" because the allegations before the court were—at least to the court—clearly on the side of threatening a concrete right sufficient to confer standing.
So what is the takeaway from these decisions? First, companies and defense attorneys have to dial back their excitement over Spokeo and the hope it provided of easily disposing of many types of consumer class actions at the pleading stage. Second, companies facing a putative class action in federal court alleging technical statutory violations need to think long and hard about whether they want to expend the time and money necessary to try to get rid of a case at the pleading stage. This would necessitate going down the rabbit hole of legislative history and historic case law to determine whether the provisions of the statute at issue were intended to protect an important and concrete right, and then whether the specific conduct at issue conceivably threatened that right. Third, if a case gets past the pleading phase, companies should consider how these standing requirements might affect class certification, particularly the commonality and typicality requirements. Finally, this may all be academic at the end of the day. If a company finds itself a defendant in a class action in a state court that does not have standing requirements similar to those of a federal court, look at the bright side—no one has to expend brain cells thinking about any of this.
This article was first published in the Orange County Business Journal