On February 27, 2020, the United States Court of Appeals for the Ninth Circuit issued its decision in Ramirez v. TransUnion LLC, a class-action case watched closely by consumer reporting agencies and other persons regulated by the Fair Credit Reporting Act (“FCRA”). In Ramirez, the Court held for the first time that all class members of a class certified under Rule 23 must possess Article III standing at the time of final judgment in order to recover monetary damages. The Court went on to find that all 8,185 class members satisfied Article III requirements for standing under Spokeo for all three FCRA claims decided in their favor by the jury. While the Court affirmed the $8 million in statutory damages awarded by the jury, it vacated the $52 million punitive damages award as unconstitutionally excessive and reduced it to $32 million.

Background

In 2002, TransUnion launched a product intended to aid businesses with avoiding severe penalties for engaging in business with individuals identified by the government as posing a national security threat—i.e., terrorists, drug traffickers, etc. TransUnion partnered with a third-party company to match consumer names with those appearing on the Treasury’s Office of Foreign Assets Control (“OFAC”) list of Specially Designated Nationals (“SDNs”). The product searched the first and last names of consumers against OFAC’s list of SDNs, and if the name was identical or similar, TransUnion placed an alert on the individual’s credit report indicating the match. TransUnion adopted a policy of not disclosing OFAC matches to affected users.

Following a 2010 Third Circuit decision finding the OFAC product was subject to the FCRA and in response to concerns expressed by government officials of consumer confusion regarding the label appearing on their credit reports, TransUnion adopted a new policy by which to communicate with consumers regarding the OFAC match. Starting in January 2011, when a consumer requested a consumer disclosure, TransUnion sent (1) a copy of their credit report omitting the OFAC alert; and (2) a separate letter notifying the consumer of the OFAC match, sent within one day of the credit report. TransUnion did not include a summary-of-rights form with the OFAC notice letter. By July 2011, TransUnion stopped this approach and sent credit reports displaying the OFAC alert to consumers.

Plaintiff Sergio Ramirez received the two aforementioned communications from TransUnion when he requested a consumer disclosure after he learned of the OFAC alert while attempting to procure an auto loan. In February 2012, Ramirez sued TransUnion on behalf of a putative class of 8,185 individuals. Ramirez asserted FCRA claims against TransUnion for willful violations of sections 1681e(b) and 1681g. The district court later certified the class pursuant to Rule 23. Following a jury trial, the jury found in favor of the class on all claims, awarding $8 million in statutory damages and $52 million in punitive damages. TransUnion appealed to the Ninth Circuit.

Decision

TransUnion argued that the verdict could not stand because all class members, with the exception of Ramirez, lacked Article III standing. For the first time, the Ninth Circuit held that all class members must possess Article III standing in order to recover monetary damages in federal court. Previously, the Court had addressed this issue only at earlier stages in class actions. Thus, the Court determined that the primary question was whether each of the 8,185 class members possessed Article III standing to bring each of the three FCRA claims. The Court concluded that they did.

The Court first analyzed class members’ standing to pursue their claim under section 1681e(b) of the FCRA. The class alleged that TransUnion failed to follow reasonable procedures to assure maximum possible accuracy when it collected the OFAC information using name-only searches and placed the inaccurate information on their reports without additional verification. TransUnion argued that in order to suffer a concrete injury under Article III, each class member must show that TransUnion disclosed their credit report to a third party. In the absence of disclosure to a third party, TransUnion argued that no injury occurred.

The Court acknowledged the U.S. Supreme Court’s finding in Spokeo that a statutory violation in and of itself is insufficient to confer standing and that a concrete injury is necessary in all cases. However, it went on to conclude that class members had nonetheless suffered a concrete injury under section 1681e(b). In support, the Court cited (1) the severity of the nature of the inaccuracy; (2) the compounded risk by sharing the information with its third-party partner; and (3) the ease of availability of class members’ reports to potential creditors and employers. Thus, the nature of the injury in Ramirez played a critical role in the Court’s standing analysis. According to the Court’s holding “a real risk of harm arose when TransUnion prepared the inaccurate reports and made them readily available to third parties, and certainly once TransUnion sent the inaccurate information to the class members and some class members’ reports were disseminated to third parties.” The Court’s language, therefore, acknowledges that third-party disclosure is still required to successfully assert a 1681e(b) claim, barring the unique circumstances presented in Ramirez.

Likewise, the Court found that class members had standing to pursue their two claims under section 1681g. Under those claims, the class members alleged that TransUnion failed to (1) disclose they were OFAC matches upon request of their credit reports (in violation of section 1681g(a)); and (2) provide a summary-of-rights form when it mailed the OFAC notice letter (in violation of section 1681g(c)(2)). According to the Court, by sending a report without the OFAC alert and a separate OFAC notice letter without sufficient instruction for addressing the alert, TransUnion’s “conduct posed a serious risk that consumers not only would be unaware that this damaging label was on their credit reports but also would be left completely in the dark about how they could get the label off their reports.”

In addition to challenging class members’ standing, TransUnion further argued that it was entitled to judgment as a matter of law or to a new trial because Plaintiff failed to prove that its conduct was willful under the FCRA. The Court rejected this argument. The Court further rejected TransUnion’s argument that certification under Rule 23 was improper finding the named plaintiff’s claims were typical of the class.

Finally, TransUnion argued that the jury’s award was unconstitutionally excessive. The jury awarded statutory damages in the amount of $984.22 per class member, totaling $8 million for the class as a whole. Further, it awarded punitive damages in the amount of $6,353.08 per class member, totaling $52 million altogether. The Court determined that an award at the high end of the statutory-damages range under the FCRA was merited. With respect to punitive damages, however, the Court found that a ratio of punitive damages to statutory damages of 6.45 to 1 contravened constitutional limits. Instead, the Court proffered that a ratio of 4 to 1 is the most allowed under the Constitution in this case. Accordingly, the Court vacated the punitive damages award and remanded the issue with instructions that the district court reduce the punitive damages to $3,936.88 per class member. Even after the reduction, the award totaled $40 million.

Post-Spokeo requirements for Article III standing continue to evolve. The Ninth Circuit’s Ramirez decision presents considerable implications for future class-action litigation, especially as it pertains to claims under the FCRA. In light of the Supreme Court’s prior treatment of Article III standing, this decision should be construed narrowly. Indeed, we expect that TransUnion will seek review of this decision by an en banc panel on the Ninth Circuit and potentially the U.S. Supreme Court.