On July 13, 2018, in Dutta v. State Farm Mutual Automobile Insurance Company, the Ninth Circuit affirmed the district court’s decision granting summary judgment to State Farm in a putative Fair Credit Reporting Act class action. The decision presents another helpful application of the U.S. Supreme Court’s 2016 Spokeo decision. The Dutta decision highlights the importance of continuing to challenge standing at all stages of a case even in the face of a statutory violation.

Background

In Dutta v. State Farm, the plaintiff Bobby S. Dutta alleged that State Farm violated section 1681b of the FCRA, by failing to provide him with a copy of his consumer report, notice FCRA rights and an opportunity to challenge inaccuracies in the report before State Farm denied his employment application. As background, Dutta applied for employment with State Farm through the company’s Agency Career Track, or ACT, hiring program. State Farm examines the 24-month credit history of every ACT applicant, and if an applicant’s credit report indicates a charged-off account greater than $1,000, the applicant is automatically disqualified.

It was undisputed that Dutta’s credit report included a charged-off debt exceeding $1,000, although Dutta claims there were other inaccuracies on his credit report. Dutta was ultimately denied admission to the ACT program based on his poor credit history. State Farm allegedly initially phoned Dutta and told him that his employment application was rejected, but did not send a pre-adverse action notice until three days later. Upon receipt of the notice, Dutta contacted State Farm to challenge the report’s accuracy.

Dutta filed the instant class action alleging that State Farm violated the FCRA by denying his employment application without providing him sufficient notice as required by the act. State Farm moved for summary judgment, in part, on the basis that Dutta failed to establish an injury-in-fact and thus lacked Article III standing. The district court agreed with State Farm and dismissed Dutta’s lawsuit. Dutta appealed to the Ninth Circuit.

Ninth Circuit Decision

The Ninth Circuit affirmed the district court’s decision on standing grounds. As the court noted, “[t]his appeal is another installment in the development of the jurisprudence evolving from the Supreme Court’s decision in Spokeo[.]” The relevant question on appeal was whether “the procedural violation caused a real harm or a material risk of harm.” In other words, “Dutta’s claim as pleaded — i.e., that State Farm violated his statutory rights to information concerning use of his consumer credit report and an opportunity to discuss the report with State Farm prior to any adverse action being taken against him — must be evaluated to determine whether it presents a concrete harm.”

The court first recognized that the “interest in ensuring that employment determinations are not affected by incorrect credit information is real and not ‘purely procedural.” But Dutta failed to show how the “specific” violation of section 1681b of the FCRA actually harmed him. Indeed, the credit report included accurate reporting — “the charged-off debt fell within State Farm’s established 24-month look back period for eligibility to participate in the ACT program.” This “24-month ACT look back period alone disqualified Dutta from continuing in the ACT program.” Regardless of the alleged other inaccuracies or Dutta’s explanation regarding the same, State Farm would have still denied Dutta employment. Thus, the court held that “[c]onsequently, although Dutta made a plausible showing of State Farm’s procedural violation of the FCRA, he failed to establish facts showing he suffered actual harm or a material risk of harm” and thus failed to establish a concrete injury.

Recent Similar Decisions

This opinion from the normally plaintiff-friendly Ninth Circuit is perhaps the most important in the budding trend of courts requiring more than a statutory violation of the FCRA to confer standing. For example, in Groshek v. Time Warner Cable Inc., the Seventh Circuit affirmed the district court’s dismissal of a putative class action on the basis of Article III standing.[1] The plaintiff alleged Time Warner’s background check and authorization form violated the FCRA because it contained extraneous information. However, the complaint “contained no allegation that any of the additional information caused him not to understand the consent he was given; no allegation that he would not have provided consent but for the extraneous information on the form; no allegation that additional information caused him to be confused; and, no allegation that he was unaware that a consumer report would be procured.” Because he had alleged nothing more than a statutory violation, his claims were dismissed.

Similarly, in Black v. General Information Solutions Inc., the plaintiff alleged an inaccurate background report furnished by the defendant background screening company caused him to miss out on a job opportunity.[2] The evidence showed the background screening company corrected its report after a dispute and the employer continued the application process, requesting references from the plaintiff. However, the plaintiff never provided those references, so he was not considered for the job. The District Court in the Northern District of Ohio raised the issue of standing sua sponte. Because the plaintiff had missed out on a job opportunity based on his own failure to provide the requested references, the court found that it was “apparent” that the plaintiff had not “suffered any such harm as a result of [the credit reporting agency’s] alleged violation of the FCRA.” With no injury resulting from the report, regardless of its accuracy, the plaintiff lacked standing to bring a suit.

Likewise, in Ratliff v. A&R Logistics Inc., the District Court in the Northern District of Illinois confirmed that even if an employer fails to follow the proper pre-adverse action procedure, an applicant may not have standing to bring an adverse action claim if the background check at issue is accurate.[3] The court rejected the plaintiff’s argument that he had suffered an “informational injury,” because the defendant was not relying on any inaccurate information, which is the “risk of harm to the informational interest that Congress sought to protect.”

Finally, in Lee v. Hertz Corporation, the District Court in the Northern District of California dismissed a claim under Section 1681b(b)(3) against an employer on standing grounds.[4] Two plaintiffs both alleged Hertz revoked their conditional offers of employment based on information contained in their background reports before providing them a copy of the reports. Hertz contended the violation was merely technical and the plaintiffs did not suffer any concrete harm sufficient to confer standing. The court agreed, in part, because “neither plaintiff alleges that the information on which Hertz relied was inaccurate or that timely receipt of pre-adverse action packages would have allowed them to successfully contest Hertz’s decision.” Moreover, the plaintiffs had actually communicated with Hertz regarding their reports, undermining their claim that the violation deprived them of the opportunity to correct or explain information therein.

Looking Forward

In Spokeo, the U.S. Supreme Court laid down an important marker that federal lawsuits should be based on claims of real harm. Since then, courts across the nation have attempted to interpret the contours of the Supreme Court’s decision and the case law continues to evolve. The Ninth Circuit’s decision in Dutta provides compelling authority for defendants to challenge FCRA hyper-technical claims premised on hypothetical harms.

Indeed, FCRA class actions typically revolved around certain key technical issues, with Section 1681b dominating the field. Class action plaintiffs often allege that employers failed to provide applicants with copies of their consumer reports or a copy of the required summary of rights. Courts have previously allowed these actions to move forward even when the consumer report is completely accurate, and the plaintiff has suffered no harm. In fact, the plaintiffs in some cases may still even have been hired. Dutta however may help to curb these types of claims. The Ninth Circuit affirmed that despite a technical FCRA violation, where demonstrably accurate data leads to an adverse employment decision, plaintiffs lack standing to prosecute their case.

In addition, the Dutta opinion highlights the importance of developing the record to challenge standing at the summary judgment stage. Dutta could survive a standing challenge at the pleading stage based on his allegations alone. But, the defendant was able to defeat Dutta’s FCRA claim on summary judgment because it had developed undisputed facts with respect to its own criteria for hiring and the application of Dutta’s qualifications to that criteria. Because the evidence clearly demonstrated Dutta was categorically disqualified from obtaining the job he sought, he could not succeed on his claim even if the employer had failed to follow the pre-adverse action requirements of the FCRA.

The FCRA’s uncapped liability will continue to be an attractive target for plaintiffs. The Dutta decision provides a helpful reminder of the need to continuously assess possible defenses throughout the litigation, as challenges to standing remain a viable and potentially “silver bullet” defense.  

First published on Law360