Monday, April 28, 2014

FYI: 9th Cir Holds Actual Harm Not Necessary for Article III Standing in FCRA Case

Wednesday, February 19, 2014

The U.S. Court of Appeals for the Ninth Circuit reversed a district court’s dismissal based on lack of Article III standing of an action alleging willful violations of the Fair Credit Reporting Act (“FCRA”), 15 U.S.C. § 1681, et seq., holding that alleging actual harm is not necessary to satisfy standing requirements where the individual plaintiff alleges willful statutory violations, so long as the subject statute does not require a showing of actual harm.

In so ruling, the Ninth Circuit held that the Plaintiff had Article III standing to sue a website’s operator (“Operator”) under FCRA for allegedly publishing inaccurate personal information about the Plaintiff.  The Ninth Circuit also held that law of the case did not limit the district court in its final order, and that the district court was free to reconsider its own prior ruling on standing, where the district court had neither been divested of jurisdiction nor submitted the case to the jury.


The Operator ran a website that provides users with information about other individuals, including contact data, marital status, age, and occupation. The Plaintiff sued the Operator for willful violations of the FCRA, alleging that the Operator’s website contained false information about him.  The Operator moved to dismiss the complaint for lack of subject-matter jurisdiction on the ground that the Plaintiff lacked standing sufficient under Article III of the United States Constitution.                          

The district court ruled that the Plaintiff had failed to allege an injury in fact because he had not alleged “any actual or imminent harm.” The district court characterized Plaintiff’s allegations as simply “that he has been unsuccessful in seeking employment, and that he is concerned that the inaccuracies in his report will affect his ability to obtain credit, employment, insurance, and the like.”  The district court noted that “[a]llegations of possible future injury do not satisfy the [standing] requirements of Art. III” and dismissed the complaint without prejudice.

Plaintiff thereafter filed his First Amended Complaint (“FAC”), alleging willful violations of the FCRA, including that the website allegedly described the Plaintiff as holding a graduate degree and as wealthy, both of which are alleged to be untrue.  Plaintiff, who was unemployed, described the misinformation as “caus[ing]  actual harm to [his]  employment prospects.” Remaining unemployed has cost the Plaintiff money as well as caused “anxiety, stress, concern, and/or worry about his diminished employment prospects.”

The Operator again moved to dismiss for lack of standing.  The district court denied the motion, concluding that the Plaintiff had alleged a sufficient injury in fact, namely Operator’s marketing of inaccurate consumer reporting information.  The court also ruled that the injury was traceable to the alleged violations of the FCRA and that the injury was redressable through a favorable court decision.

The district court later reconsidered and reversed its previous ruling on standing.  It held the Plaintiff failed to plead an injury in fact and that any injuries pled were not traceable to the Operator’s alleged violations, dismissing the action.  The Plaintiff appealed.

On appeal, the Plaintiff first argued that the law-of-the-case doctrine prohibited the district court from revisiting its initial ruling on standing.  In United States v. Smith, however, the Ninth Circuit held that the law-of-the-case doctrine does not apply “to circumstances where a district court seeks to reconsider an order over which it has not been divested of jurisdiction.”

The Ninth Circuit recognized that under United States v. Alexander, 106 F.3d 874, 876–77 (9th Cir. 1997) the law-of- the-case doctrine  precluded a district court from reconsidering an evidentiary issue after a mistrial, but found Alexander distinguishable. It noted the rule from Alexander applies only to cases in which a submission to the jury separates the two decisions.

Here, because the district court had neither been divested of jurisdiction nor submitted the case to the jury, it was free to reconsider its own prior ruling.  

The Plaintiff next argued that the FAC sufficiently alleges Article III standing and that the initial district court ruling was correct.  The Ninth Circuit recognized that the FAC indeed alleged violations of various statutory provisions.  The Plaintiff contended that because these provisions are enforceable through a private cause of action, they create statutory rights that he has standing to vindicate in court. See Warth v. Seldin, 422 U.S. 490, 500 (1975).

The Operator responded that the FAC “pleads no facts from which an inference of willfulness might be drawn.”  The Ninth Circuit disagreed, as willful violations within the meaning of 15 U.S.C. § 1681n include violations in “reckless disregard of statutory duty.”  Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007).

According to the Ninth Circuit, the allegations made it plausible that the Operator acted in reckless disregard of duties created by the FCRA. The Plaintiff pled that the Operator knew about inaccuracies in its reports and marketed its reports for purposes covered by the FCRA despite disclaiming any such uses. 

The Ninth Circuit next examined Congressional intent.  It noted Congress’s creation of a private cause of action to enforce a statutory provision implies that Congress intended the enforceable provision to create a statutory right.  See Fulfillment Servs. Inc. v. United Parcel Serv., Inc., 528 F.3d 614, 619 (9th Cir. 2008).  Further, the violation of a statutory right is usually a sufficient injury in fact to confer standing.  See Edwards v. First   Am. Corp., 610 F.3d  514,  517  (9th  Cir.  2010).

The Operator argued the Plaintiff cannot sue under the FCRA without showing actual harm.  But the Ninth Circuit held that a statutory cause of action does not require a showing of actual harm when a plaintiff sues for willful violations.  15  U.S.C. § 1681n(a); see also Beaudry v. TeleCheck Servs., Inc., 579 F.3d 702, 705–07 (6th Cir. 2009).  The Ninth Circuit explained that where the statutory cause of action does not require proof of actual damages, a plaintiff can suffer a violation of the statutory right without suffering actual damages.

Of course, the Constitution limits the power of Congress to confer standing. See Lujan, 504 U.S. at 577.   According to the Ninth Circuit, this constitutional limit, however, does not prohibit Congress from “elevating to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.” Id. at 578.

The Ninth Circuit identified the issue as whether violations of statutory rights created by the FCRA are “concrete, de facto injuries” that Congress can so elevate.  In Beaudry, the Sixth Circuit considered whether an FCRA plaintiff suing under 15 U.S.C. § 1681n had sufficiently alleged an injury in fact by alleging a violation of the FCRA.   579 F.3d at 707.   The Sixth Circuit identified two constitutional limitations on congressional power to confer standing. First, a plaintiff “must be ‘among the injured,’ in the sense that she alleges the defendants violated her statutory rights.” Id. Second, the statutory right at issue must  protect  against  “individual,  rather  than collective, harm.”   Id.   The Beaudry court held that the plaintiff satisfied both of these requirements. Id.

The Ninth Circuit found that the facts in the present case were analogous.  First, the Ninth Circuit held that the Plaintiff alleged that the Operator violated his statutory rights, so he is “among the injured.” Second, according to the Ninth Circuit, the interests protected by the statutory rights at issue are sufficiently concrete and particularized that Congress can elevate them. Lujan, 504 U.S. at 578.  Like “a company’s interest in marketing its product free from competition,” the Ninth Circuit noted, the Plaintiff’s personal interests in the handling of his credit information are   individualized rather than collective.  Id.  Therefore, the Ninth Circuit held that the alleged violations of the Plaintiff’s statutory rights were sufficient to satisfy the injury-in-fact requirement of Article III.

The Ninth Circuit next examined causation and redressability, which are also required to demonstrate standing.    See Laidlaw, 528 U.S. at 180–81.  It noted that where statutory rights are asserted, however, cases have described the standing inquiry as boiling down to “essentially” the injury-in-fact prong. See Edwards, 610 F.3d at 517; Fulfillment Servs., 528 F.3d at 618–19.  According to the Ninth Circuit, when the injury in fact is the violation of a statutory right that we inferred from the existence of a private cause of action, causation and redressability will usually be satisfied.  First, the Ninth Circuit held that there is little doubt that a defendant’s alleged violation of a statutory provision “caused” the violation of a right created by that provision. Second, the Ninth Circuit held that statutes like the FCRA frequently provide for monetary damages, which redress the violation of statutory rights.  See Jewel v. Nat’l Sec. Agency, 673 F.3d 902, 912 (9th Cir. 2011).  Therefore, the Ninth Circuit concluded that Plaintiff adequately pled causation and redressability.

Accordingly, the Ninth Circuit reversed the district court's ruling and remanded for further proceedings.



Eric Tsai
McGinnis Wutscher Beiramee LLP
 
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