Tag Archives: Consumer Protection

Fourth Circuit Uses Spokeo to Spike $11.7 Million Class Action Judgment

View John Wester's Complete Bio at robinsonbradshaw.comStanding to sue, a venerable piece of American jurisprudence for sure, continues to draw attention in recent class action cases, including in the Fourth Circuit. In its second decision this year evaluating last term’s Supreme Court decision, Spokeo v. Robins, 136 S. Ct. 1540 (2016), a unanimous panel of the Fourth Circuit found insufficient “an informational injury” the lead plaintiff advanced under the Fair Credit Reporting Act—the same statute under review in Spokeo.  Dreher v. Experian Information Solutions, Inc., 856 F. 3d 337 (4th Cir. May 11, 2017). See also Beck v. McDonald, 848 F. 3d. 262 (4th Cir. 2017) (affirming the dismissal of a class action lawsuit for lack of subject-matter jurisdiction based on the plaintiffs’ failure to establish a non-speculative, imminent injury-in-fact under the federal Privacy Act for purposes of Article III standing).

Dreher presented a high-stakes controversy—the trial court had certified a class of 69,000 members and had awarded $11,700,000 in damages. The lead plaintiff, pursuing a security clearance for government employment, had tried to expunge an inaccurate credit card debt in a credit report an Experian affiliate maintained on him.  The affiliate listing his bad debt in error went into receivership but continued to list Dreher’s debt.  Some 15 months elapsed between Dreher’s starting efforts and the deletion of the inaccurate credit information from his report, but this delay did not affect Dreher’s security clearance.  The government granted his clearance in eight days.

Dreher persuaded the trial court that Experian and its affiliate had willfully violated the FCRA by failing to provide “the sources” of Dreher’s credit report. “When a consumer reporting agency fails to disclose those sources, it violates [the statutory] right, thus creating a sufficient injury-in-fact for constitutional standing.” Dreher, 71 F. Supp. 3d 572, 574 (E. D. Va. 2014). Notably for the Fourth Circuit, the trial court—declining to analyze whether Dreher’s injury was specific and concrete—ruled that “any violation of the statute sufficed to create an Article III injury-in-fact.” 856 F. 3d at 342 (emphasis in original).

Reminding that the burden to establish all of the Spokeo elements of standing falls on the plaintiff, the Fourth Circuit concluded that Dreher “stumbles on the first of the[ ] requirements: injury in fact.” Id. at 343. The court then provided details that will be instructive for future analyses of class action standing:

To establish injury in fact, “a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized.’” Spokeo, 136 S. Ct. at 1548 … The Supreme Court vacated the Ninth Circuit’s decision because that court “failed to fully appreciate the distinction between concreteness and particularization.” Spokeo, 136 S. Ct. at 1550.  The Court found that in analyzing the “particular and concrete” aspect of the standing requirement, the Ninth Circuit “elided” the “independent requirement” of concreteness.  Id. at 1548. … A concrete injury is “de facto,” meaning that “it must actually exist” and is “real, and not abstract.” Id. at 343, 344.

Acknowledging that an intangible injury can be concrete, the Fourth Circuit specified that one cannot “allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement.” 856 F. 3d at 344 (quoting Spokeo, 136 S.Ct. at 1548).

Applying these principles, the Fourth Circuit unpacked Dreher’s claim that he suffered a “cognizable informational injury” because Experian, a consumer reporting agency, denied him clear and accurate disclosure of the source of the entity reporting his credit. Dreher failed to show how his having the right information – accurate identification of the entity with whom he was corresponding—“would have made any difference at all in the ‘fairness or accuracy’ of his credit report, or that it would have made the credit resolution process more efficient.” Id. at 346.  Granted there is “value in knowing who it is you’re dealing with,” id., but a consumer’s speaking to an employee without knowing the employee works for a different affiliate of Experian did not create a “real world harm” Congress was seeking to prevent through the FCRA. Dreher did not show a concrete and adverse effect from the violation of the statute, a clear requirement for standing under Spokeo.

Looking at the national scene, we see a real increase in the spokes on the Spokeo wheel. Dreher joins the Seventh and Eight Circuits which have ruled, three times since Spokeo, that procedural, technical violations of statutory rights will not sustain Article III standing. In contrast, rulings by three other circuits, the Third, Ninth, and Eleventh, all this year, evaluating violations of the FCRA, Telephone Consumer Protection Act, Fair Debt Collection Practices Act, and Video Privacy Protection Act, have upheld Article III standing based on technical violations of the statutes.

With six circuits now reporting, when the Supreme Court will return to this field looms as a more urgent question.

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Named Plaintiffs Can’t Voluntarily Dismiss Individual Claims in Order to Appeal Class Certification Denial

View David Wright's Complete Bio at robinsonbradshaw.comEarlier this year, we hazarded a guess that the Supreme Court was split 4-4 regarding a Ninth Circuit decision holding that a named plaintiff could achieve appellate review of a decision denying class certification by voluntarily dismissing his individual claims. It turns out, based upon the Supreme Court’s decision in Microsoft Corp. v. Baker [], that the internal debate was not so much over whether the Ninth Circuit erred in allowing the appeal, but whether that error had both statutory and constitutional implications. The Supreme Court had accepted certiorari to review “[w]hether a federal court of appeals has jurisdiction under both Article III and 28 U.S.C. Section 1291 to review an order denying class certification after the named plaintiffs voluntarily dismiss their individual claims with prejudice.” With Justice Gorsuch on the sidelines, the Court unanimously held that the named plaintiffs’ gamesmanship did not allow appellate review, but the justices differed in their reasons for that outcome.

Five members of the Court, led by Justice Ginsburg, concluded that such an appeal was inconsistent with F.R. App. P. 23(f). The majority reasoned that “[r]espondents’ voluntary-dismissal tactic . . . invites protracted litigation and piecemeal appeals,” and would – essentially – turn Rule 23(f)’s “discretionary regime” into a license for plaintiffs to force an interlocutory appeal of a ruling denying class certification. This, the Court noted, would upset “Rule 23(f)’s careful calibration” and “Congress[’] final decision rule would end up a pretty puny one.”

In our previous post, we sounded an alarm about the “one way street” that was a feature of the Ninth Circuit’s decision, noting that “This option—if allowed by the Supreme Court—works only for plaintiffs in class action cases, not defendants. If defendants suffer an adverse class certification ruling, and the appellate court does not exercise its discretion to accept the interlocutory appeal, defendants must litigate the case to judgment before obtaining review of the class determination.” Justice Ginsburg agreed with us on this point, observing in her opinion for the majority that “[t]he one-sidedness of respondents’ voluntary-dismissal device ‘reinforce[s] our conclusion [of no jurisdiction],” and that “the ‘class issue’ may be just as important to defendants.”

Although the majority founded its decision on 28 U.S.C. Section 1291, thereby avoiding the Article III issue, Justice Thomas, joined by Justice Alito and the Chief Justice, wrote a concurring opinion that took the constitutional issue head on. The concurrence argued that there was no Article III “case or controversy” following the named plaintiffs’ dismissal of their claims. Justice Thomas noted that “it has long been the rule that a party may not appeal from the voluntary dismissal of a claim,” and that the parties were “no longer adverse to each other on any claims” after that dismissal. A favorable ruling on class certification could not, the concurring opinion explained, “revive [the named plaintiffs’] individual claims.”

With deference to the Ninth Circuit jurists who proceeded to adjudicate the appeal in Baker, this was not a particularly hard case. In Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), the Supreme Court unanimously rejected the so-called “death-knell” doctrine, which had permitted plaintiffs to appeal as of right a district court order denying a motion for class certification. Given that decision, and the fact that Rule 23(f) appellate jurisdiction is discretionary, not mandatory, it is difficult to see how a voluntary dismissal gambit could ultimately succeed. Unfortunately now for Xbox gamers, they will have to litigate their ‘disc gouging’ claims one by one . . . .

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Is a Class Representative Adequate if He Waives Viable Claims in Order to Preserve Commonality?

View David Wright's Complete Bio at robinsonbradshaw.comClass actions don’t work if the class representative has a conflict with the class he or she purportedly represents. As the United States Supreme Court noted over 70 years ago, “a selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires.” Hansberry v. Lee, 311 U.S. 32, 45 (1940). A decision this week from Judge Higginson out of the Fifth Circuit provides an interesting commentary on this subject in the context of a consumer class action.

In Slade v. Progressive Insurance Co., No. 15-30010 (5th Cir. May 9, 2017), plaintiffs claimed that Progressive Insurance shorted its insureds when paying for vehicle losses. Progressive used something called “WorkCenter Total Loss” to calculate the base value of total loss vehicles. Plaintiffs said that “lawful sources” – such as the NADA Guidebook or the Kelly Blue Book – had higher values and therefore resulted in plaintiffs “receiving lower payouts on their insurance claims.”

The Fifth Circuit treated with dispatch a couple of aspects of the district court’s class certification decision. First, the Court held that the damages theory was in fact “class wide,” and therefore consistent with Comcast v. Behrend, 133 S. Ct. 1426 (2013). Second, the district court had inexplicably certified a fraud class. As the Court of Appeals observed, “[t]his court has held consistently that a ‘fraud class action cannot be certified when individual reliance will be an issue.’”

But the bulk of Judge Higginson’s opinion discusses a more complicated issue. The insurance company used two basic factors to determine a vehicle’s value. First, it used a “base value” based on the WorkCenter Total Loss calculation. Second, it used a “condition adjustment,” recognizing that the value of the automobile in question might have either a higher or lower value based on its particular condition. The former sounds like a class-wide issue, but the latter looks to be quite individualistic.

Recognizing this dilemma, the named plaintiffs decided not to challenge the “condition adjustment.” As the Court of Appeals observed, “Plaintiffs’ class certification motion may have run into predominance problems because condition adjustments appear to be highly individualized.” But this waiver, the Fifth Circuit noted, comes with a potential cost. Although the plaintiffs’ waiver solved the predominance problems, it raised questions about the adequacy of the class representatives. “When the class representative proposes waiving some of the class’s claims, the decision risks creating an irreconcilable conflict with the class.” As the Court observed, citing a Seventh Circuit opinion, “A representative can’t throw away what would be a major component of the class’s recovery.”

But simply because a class plaintiff decides, as a strategic matter, to waive a claim does not necessarily mean she is inadequate. The court must inquire into, at least, “(1) the risk that unnamed class members will forfeit their right to pursue the waived claim in future litigation”; (2) the value of the waived claim; and (3) the strategic value of the waiver, which can include the value of proceeding as a class (if the waiver is key to certification).” In its opinion, the Fifth Circuit directed the district court to undertaken this analysis on remand. A central aspect of this inquiry is the res judicata effect of the waiver, which the Fifth Circuit said was “uncertain here.” Indeed, the Court observed that “courts have inconsistently applied claim preclusion to class actions.”

The Court of Appeals provided a bit of a road-map to the district court, identifying – as possible options on remand –

  • declining to certify the class because of preclusion risks
  • certifying the class, but tailoring the notice and opt-out procedure to alert the class to the risk of preclusion
  • concluding that the benefits of proceeding as a class outweigh any preclusion risks or
  • defining the class in a way to exclude individuals who have a quarrel with the condition adjustment.

Stay tuned, and consider carefully how class representatives and courts resolve the tension between waiving the claims of absent class members and strategically limiting the class to claims that can actually be certified.

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Experian Petitions Fourth Circuit to Review Certification of 88,000-Member Class

View Stuart Pratt’s Complete Bio at RBH.comExperian recently petitioned the Fourth Circuit to immediately review a district court’s order certifying an 88,000-member, nationwide class of consumers who requested Experian credit reports that listed accounts with the now-defunct Advanta Bank. In this case, Dreher v. Experian Information Solutions, Inc., No. 14-325 (4th Cir. July 3, 2014), Experian requested an interlocutory appeal under Rule 23(f), contending that, among other things, the district court’s order that certified a class with members that had suffered no injury and found Rule 23’s predominance requirement to be satisfied was “manifestly erroneous.”

In January 2012, the plaintiff filed a class-action complaint in the Eastern District of Virginia, alleging Experian had committed multiple violations of the Fair Credit Reporting Act (“FCRA”) by failing to provide notice and accurate information about accounts with the defunct Advanta Bank listed on his and other consumers’ credit reports. Specifically, the plaintiff claimed that Experian erroneously reported that Advanta had supplied the credit-report information, when, in fact, Cardworks, a newly appointed servicer of the Advanta accounts, had given Experian this information. For these violations, the plaintiff sought statutory damages and attorneys’ fees and costs.

Upon the plaintiff’s motion, the district court, in June 2014, issued an order and opinion finding that the plaintiff had satisfied the class-action requirements of Rule 23 and certifying a class of individuals who had received a credit report from Experian after August 1, 2010, that identified Advanta as the sole source of information for an account entry. The district court rejected Experian’s arguments that issues of individual statutory damages would predominate over common issues of liability, concluding that the damages calculation for each class member would simply be based on the number of discrete statutory violations, and not, as Experian contended, based on each member’s individualized actual harm. The district court did not address Experian’s argument that most of the potential class members lacked Article III standing because they had not suffered an injury-in-fact.

Experian’s petition to the Fourth Circuit for interlocutory review focused on these two issues: Article III standing and predominance. Experian first argued that interlocutory review was appropriate because the district court—despite recognizing that “it is unlikely that anyone suffered actual injury”— ignored Experian’s Article III standing argument. The Fourth Circuit, Experian said, recently held that “deprivation of [a] statutory right” was not “sufficient to constitute injury-in-fact for Article III standing.” David v. Alphin, 704 F.3d 327, 338 (4th Cir. 2013). Thus, Experian contended that the district court’s admission about the lack of actual injury meant the class members did not have Article III standing and the class should not have been certified.

Second, Experian claimed that the certification order erroneously found that common issues predominated over individual members’ issues. Experian said the district court justified this conclusion by improperly adopting a “Trial by Formula” approach—using a mathematical calculation based on the FCRA’s statutory-damages limits to determine the class’s total damages. Again, Experian argued that the district court’s decision conflicted with a previous Fourth Circuit decision, this time Soutter v. Equifax Information Services, LLC, 498 F. App’x 267 (4th Cir. 2010). Instead of using a math formula to determine a class’s statutory damages under FCRA, Experian asserted that Soutter requires a court to typically do an “individualized inquiry” to determine damages. Further, Experian said the district court’s “Trial by Formula” approach was improper under Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), because the Dukes Court had rejected using such formulas to adjudicate class actions.

The plaintiff’s response to Experian’s petition is due in August. Then, it will be up to the Fourth Circuit to decide whether to allow an interlocutory appeal. We’ll continue to monitor and report on this case as it progresses in the courts.

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Can an offer of judgment to the named plaintiff moot a class action lawsuit? District of South Carolina says “No”

View David Wright's Complete Bio at RBH.comIt is often expedient for a defendant to make an offer of judgment in order to avoid the expense of lengthy proceedings, particularly when the plaintiff’s damages claim is small. But what happens when the offer of judgment is made to a class representative? Does that mean that the individual no longer has standing? And does it make any difference if the offer is made before or after the class certification motion is filed? Judge Currie grappled with these issues last week in a Fair Debt Collection Practices Act case, Chatham v. GC Services, LP, No. 3:14-cv-00526 (D.S.C. July 16, 2014), lamenting that “neither party [had] cite[d] to any Fourth Circuit or United States Supreme Court authority on this precise issue,” namely: “Do the presence of class allegations in the Complaint and the pendency of a motion for class certification . . . preclude the offer of judgment from rendering the Plaintiff’s class action moot?”

Although most circuits have rebuffed this defense tactic, there appears to be a bit of light in the Supreme Court’s decision in Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523 (2013). But that was a Fair Labor Standards Act case, and rules for collective actions are different. In the end, Judge Currie aligned herself with the majority rule, finding that “an offer of judgment will not moot a named plaintiff’s claim if the offer is made while a motion to certify the class is pending.”

It remains to be seen whether or not the filing of the class certification motion is dispositive in this line of cases. If it is, you can expect to see in consumer class actions simultaneous filings of class certification motions with the complaint.

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