Rick Marcus on TransUnion LLC v. Ramirez

Photo of Rick MarcusDivided Supreme Court Limits Article III Standing in Class Actions For Violation of Statutory Directives

Beginning in the 1960s, Congress adopted a variety of regulatory laws that included explicit rights for those who claimed to have been harmed by a defendant’s failure to comply with those laws to sue for damages. Sometimes the statutes also authorized “statutory damages” for plaintiffs without proof of actual harm, often along with a right to recover attorney’s fees for pursuing the claim in court. Arguably this sort of arrangement furthered the public good as well as protecting the private interest of the plaintiffs, while enabling private enforcement of the statutory requirements.

Coupling such statutes with the procedural device of a class action could lead to results that could seem excessive, particularly when the failure to comply with the statutory directive seems fairly inconsequential. For example, the Truth in Lending Act (TILA) required that certain information be provided to borrowers in type face of a certain size, and authorized any person who received a lending document that failed to adhere to the statute’s requirements to sue and recover statutory damages and as well as attorney’s fees.

For a bank that had tens of thousands of credit card customers, failure to use the right size type could produce huge liability under the TILA for a minor mistake, if a class action sought the minimal statutory recovery ($100) for every customer. Confronted with that possibility in proposed TILA class actions, some federal judges refused to certify classes for such inconsequential errors, due to the ruinous exposure. Congress soon amended the statute to place aggregate limits on class action recoveries in TILA class actions.

Many other statutes do not have such statutory class action limits, however. The Fair Credit Reporting Act (FCRA), adopted in 1970, created a cause of action for statutory damages (without proof of actual harm) of not less than $100 nor more than $1,000 when a credit agency failed to adhere to the Act’s requirements. That led to the class action that is scrutinized in today’s decision, filed in the Northern District of California against TransUnion LLC, one of the “Big Three” credit reporting agencies, alleging failure to take reasonable precautions to check the accuracy of the information in its files, as well as other violations.

The TransUnion class action was filed by Sergio Ramirez, who had tried to buy a car at a Nissan dealership in Dublin, California in 2011. When the dealership ran a credit check on him, TransUnion reported that his name matched a name on the Treasury Department’s Office of Foreign Assets Control (OFAC) list of persons who are suspected terrorists, drug dealers, and serious criminals. But as the Court today notes, “thousands of law-abiding Americans” share the same “first and last name[s],” so TransUnion’s reports “generated many false positives.” The Nissan dealership refused to sell the car to Ramirez, and his wife had to buy the car in her own name.

Ramirez promptly called TransUnion and requested his credit report. TransUnion sent him two mailings with the requested information, but neither of those mailings had all the information required by the FCRA. The first omitted the OFAC notice; the second failed to include a list of FCRA rights. Ramirez sued, seeking to represent a class of all persons in the U.S. to whom TransUnion had sent mailings like the ones sent to him. That totaled over 8,000 people. However, TransUnion had actually sent out reports with the uninvestigated OFAC notation for only 1,853 of those people.

The district court certified a class of all 8,000 plus people and the case went to trial. Ramirez testified at trial about his anguish, but did not offer evidence from any other class member. The jury returned a plaintiffs’ verdict, awarding each class member $984.22 in statutory damages and $6,343.08 in punitive damages, totaling over $60 million. On appeal, a panel of the Ninth Circuit ruled, 2-1, that all 8,000+ class members had Article III standing (but reduced the punitive damages award to slightly under $4,000 (four times the compensatory award), for an overall total of about $40 million.

Lest this seem like a huge penalty for an error similar to using the wrong font in a message to a credit card customer, it’s worth noting that being labeled a potential terrorist or drug dealer is a harm of a different order. Indeed, Ramirez cancelled a planned trip to Mexico due to such concerns when crossing borders. Moreover, TransUnion had already been sued in 2005 by another person incorrectly identified as being on the OFAC list. That was an individual rather than a class action, and led to an award of $50,000 in actual damages and $750,000 in punitive damages for conduct the Third Circuit called “reprehensible.”

Nevertheless, TransUnion did not significantly change its practices after that 2005 case. Instead, it merely checked whether the OFAC list contained a name that was the same as the consumer, despite a statutory requirement that it follow “reasonable procedures to assure maximum possible accuracy” in consumer reports.

But today, the Supreme Court reversed the Ninth Circuit and remanded the TransUnion case for further proceedings. Speaking through Justice Kavanaugh, the Supreme Court ruled that only the 1,853 class members about whom TransUnion had actually disseminated reports had Article III standing; the others did not. Justice Thomas (joined by Justices Breyer, Sotomayor, and Kagan) dissented.

There may be important more general Article III implications to this decision (see last week’s decision finding no constitutional standing to challenge the Affordable Care Act). But my professional interests in Civil Procedure lead me to focus on the class action features. The Court last addressed such issues in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), and required that, to demonstrate standing, a plaintiff must show a “concrete harm.” Ramirez had surely done that for himself, and the Court today was unanimously satisfied that the 1,853 class members about whom TransUnion had actually disseminated a report had standing.

But the remaining class members did not have standing, says the Court, because although TransUnion violated statutory requirements, these class members did not suffer a harm “traditionally” recognized as providing a basis for suit in American courts. Though Article III does not require “an exact duplicate” of a common law claim, Congress does not have “an open-ended invitation” to declare violations of statutory norms a ground for a private suit in court. As in Spokeo, the Court rejected the idea that “a plaintiff automatically satisfied the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.”

Because there was no dissemination of reports about the remaining 6,000 plus class members, there was no “publication” of their reports, as required by traditional defamation law for injury supporting a suit.

The decision to find “no injury,” despite Congressional legislation apparently saying there could be, is an important clarification, or extension, of existing law. In dissent, Justice Thomas denounced the focus on a “concrete” injury as relying on a “pithy catchphrase,” and pointed out that the Article III “injury in fact” requirement did not appear in the Court’s decisions until the 1970s (around the time Congress began enacting statutes like the FCRA). “Congress’ judgment that such misdeeds deserve redress” should generally be respected, said Thomas.

For class action practitioners, the bottom line is mixed. Perhaps one could construct a “traditional” claim for the remaining class members who received reports from TransUnion about their possible listing on the OFAC list but were not the victims of reporting to third persons — something like negligent infliction of emotional distress, which does not depend on publication to a third party. But the Court clearly rejected the idea that dissemination of the false reports merely within the TransUnion company could suffice.

More generally, the case potentially presented but did not resolve other important class action issues. Thus, although the majority said that “[e]very class member must have Article III standing in order to recover individual damages,” a footnote clarified that the Court was not addressing the “distinct question whether every class member must demonstrate standing before a court certifies a class.”

And though the briefs and oral argument stressed the question whether Ramirez’s rather severe experience at the Dublin Nissan dealership meant that he was not “typical” of the other class members whose information was disseminated, as is required by Rule 23(a)(3), the Court said nothing about that issue.

Over the last two decades, the Court has made a number of decisions that were unfriendly to the plaintiff side in class actions. This might be viewed as another example (although class action standing and damages were affirmed as to 1,800 people). Still, given creative pleading and remaining wriggle room under Federal Rule of Civil Procedure 23, this need not be a major setback for the plaintiff class action bar.