By Gerald L. Maatman, Jr., Pamela Q. Devata, & Robert T. Szyba

Seyfarth Synopsis: Following remand from the U.S. Supreme Court, the Ninth Circuit found that the plaintiff suing Spokeo, Inc. under the Fair Credit Reporting Act alleged sufficient injury to establish standing to proceed in federal court and to proceed with his class action.

On August 15, 2017, the U.S. Court of Appeals for the Ninth Circuit issued the latest opinion in the Robins v. Spokeo, Inc. litigation that gave us last year’s U.S. Supreme Court opinion on Article III standing (which we discussed here).  After the Supreme Court found that the Ninth Circuit, in its prior February 2014 opinion (found here), had analyzed only whether the alleged injury was particular to Plaintiff, it remanded the case back for the second part of the analysis to determine whether Plaintiff alleged a concrete injury-in-fact, as required by Article III.

This new ruling is a “must read” for employers, as it has the potential to allow plaintiffs to launch more workplace class actions.

Case Background

The case was originally filed in the U.S. District Court for the Central District of California in 2010 against Spokeo, Inc., which operates an online search engine by the same name that compiles publicly available information on individuals into a searchable database on the internet.  The plaintiff alleged that Spokeo’s database showed inaccurate information about him, such as that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any).  Instead of any actual damages, the plaintiff alleged that Spokeo, as a consumer reporting agency, failed to “follow reasonable procedures to assure maximum possible accuracy of the information concerning” Plaintiff, and that its violation of section 1681e(b) of the Fair Credit Reporting Act (FCRA) was “willful” in order to seek statutory damages of between $100 and $1,000 for himself, as well as for each member of a putative nationwide class.

U.S. Supreme Court Decision

The issue of whether the plaintiff had standing to sue for the alleged statutory violation made its way to the U.S. Supreme Court, which in 2016 (in a 6 to 2 opinion by Justice Samuel A. Alito, Jr.) explained that “an invasion of a legally protected interest” that is both “concrete and particularized” is required to establish standing to proceed in federal court.  To be concrete, the alleged injury must “actually exist” and must be “real” and not “abstract.”  The Court further discussed that plaintiffs do not “automatically” meet the injury-in-fact requirement where the violation of a statutory right provides a private right of action.   The plaintiff here, therefore, “could not, for example, allege a bare procedural violation divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III.”  Because the Ninth Circuit had not completed both parts of the standing analysis, however, the case was remanded for further review.

Ninth Circuit’s Standing Analysis

In light of the Supreme Court’s directive, the Ninth Circuit opened by affirming the threshold principle that “even when a statute has allegedly been violated, Article III requires such violation to have caused some real—as opposed to purely legal—harm to Plaintiff.”  The Court explained that intangible harms, such as restrictions on First Amendment freedoms and harm to one’s reputation, can be concrete enough for standing, though the Court noted this is a “murky area.” Either way, Plaintiff cannot simply point to a statutory cause of action to establish an injury-in-fact.

Turning to its standing analysis of the plaintiff’s particular allegations, the Ninth Circuit conducted a two-step inquiry:

  1. “whether the statutory provisions at issue were established to protect [the plaintiff’s] concrete interests (as opposed to purely procedural rights)”; and, if so
  2. “whether the specific procedural violations alleged in [the] case actually harm, or present a material risk of harm to, such interests.”

First, the Ninth Circuit cited a long history of protections against dissemination of false information about individuals that underlies the FCRA, including common law protections against defamation and libel, to find that the interests protected by the FCRA are real and concrete.  The harm alleged in the case, the Ninth Circuit concluded, “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit,” even if it is not the exact historical harm itself.

In the second step, the Ninth Circuit reasoned that in many cases, “a plaintiff will not be able to show a concrete injury simply by alleging that a consumer-reporting agency failed to comply with one of the FCRA’s procedures.”  The statute may be violated, but the violation alone is not enough.  Here, however, the plaintiff pointed to multiple examples of information (e.g., his education level, etc.) that might be relevant to a prospective employer.  A court also has to look at the nature of the inaccuracy as part of its analysis.  Even if the inaccuracy has a debatable negative impact (e.g., a greater level of education could make a plaintiff deemed to be overqualified and passed over for a job), the information is nevertheless relevant, and the Court held, its dissemination is not simply a technical statutory violation.  The Ninth Circuit also pointed out that the injury alleged in this case was not speculative because the dissemination of information already occurred, and the dissemination itself was the harm.  The Court commented that further alleged harm, such as being able to point to an actual missed job, was not required.

Outlook

Overall, the Ninth Circuit’s decision adopted an expansive interpretation of the type of harm that will suffice for Article III standing, though indicating that this interpretation will not extend so far as to find standing to sue for bare statutory or procedural violations.  In the present case, however, the Ninth Circuit focused on the specific allegedly inaccurate information to find harm, in line with Justice Ginsburg’s dissent (found here) to the Supreme Court’s majority, which was concerned more with the reporting of allegedly false information that “could affect [the plaintiff’s] fortune in the job market.”  Further allegations of actual injury, according to the Ninth Circuit, were not required to establish standing.  However, the Ninth Circuit stopped from opining on other specific circumstances and noted that the specific facts will need to be considered to determine if the threshold of “concrete harm” is satisfied.

Thus, the Ninth Circuit provides further guidance on standing, affirming that bare statutory violations continue to be insufficient.  The specific factual allegations of such cases, however, may present courts with greater latitude to find standing in civil litigation alleging violations of the FCRA, as well as cases under ERISA, the Americans With Disabilities Act, and a host of other workplace statutes.  As courts address similar inquiries, we are likely to see increased guidance regarding standing.   Additionally, with this decision, there seems to be more evidence of a potential split among the federal Courts of Appeals, which could result in another petition to the U.S. Supreme Court.

 

supreme courtSeyfarth Synopsis: As profiled in our recent publication of the 13th Annual Workplace Class Action Litigation Report, the U.S. Supreme Court’s rulings have a profound impact on employers and the tools they may utilize to defend high-stakes litigation. Rulings by the Supreme Court in 2016 were no exception.

Is The Supreme Court Pro-Worker Or Pro-Employer?

Over the past decade, the U.S. Supreme Court led by Chief Justice John Roberts increasingly has shaped the contours of complex litigation exposures through its rulings on class action and governmental enforcement litigation issues. Many of these decisions have elucidated the requirements for pursuing employment-related class actions. The decision in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), and the decision in Comcast Corp. v. Behrend, 133 S. Ct. 1426 (2013), are the two most significant examples. Those rulings are at the core of class certification issues under Rule 23. To that end, in 2016, federal and state courts cited Wal-Mart in 536 rulings in 2016; they cited Comcast in 216 cases.

Over the past several years, the Supreme Court has accepted more cases for review – and issued more rulings than ever before that have impacted the prosecution and defense of class actions and government enforcement litigation. The past year continued that trend, with several key decisions on complex employment litigation and class action issues, and more cases accepted for review that are posed for rulings in 2017. The key class action decisions this past year in the Tyson Foods and Spokeo cases were arguably more pro-plaintiff and pro-class action than business-oriented or anti-class action.  While the Supreme Court led by Chief Justice John Roberts is often thought to be pro-business, the array of its key rulings impacting class action workplace issues is anything but one-dimensional. Some decisions may be viewed as hostile to the expansive use of Rule 23, while others are hospitable and strengthen the availability of class actions and/or make proof requirements easier for plaintiffs.  Further, the Supreme Court declined several opportunities to impose more restraints on class actions, and by often deciding cases on narrow grounds, it has left many gaps to be filled in by and thereby has fueled disagreements arising amongst lower federal courts. Suffice it to say, the range of rulings form a complex tapestry that precludes an overarching generalization that the Supreme Court is either pro-business or pro-worker on class actions.

Rulings In 2016

In terms of direct decisions by the Supreme Court impacting workplace class actions, this past year was no exception. In 2016, the Supreme Court decided seven cases five employment-related cases and two class action cases that will influence complex employment-related litigation in the coming years.

These rulings included two wage & hour cases, two statutory violation cases (under the Fair Credit Reporting Act (“FCRA”) and the Telephone Consumer Protection Act (“TCPA”)), two ERISA cases, and one EEOC case.  A rough scorecard of the decisions reflects three distinct plaintiff-side victories, defense-oriented rulings in three cases, and one toss-up.

Tyson Foods, Inc. v. Bouaphakeo, et al., 136 S. Ct. 1036 (2016)Tyson Foods involved review of a ruling where workers pursued class claims u14-1146_0pm1nder the FLSA and Iowa state law for unpaid work and overtime for time spent putting on and taking off hard hats, work boots, hair nets, aprons, gloves, and earplugs. The employer objected to class certification on a host of grounds, including that the variations in protective gear, the differences in the time to don and doff the gear, and the varying hours worked gave rise to individualized issues precluding class certification.  The workers proved their donning and doffing time and their hours over 40 hours per week based on expert testimony via a time and motion study that calculated average times donning and doffing. At trial the jury awarded $2.89 million to 3,344 class members, which the district court increased to $5.8 million with liquidated damages, and the Eight Circuit affirmed.  In a 6 to 2 decision, the Supreme Court answered the vexing “trial by formula” problem it touched upon in Wal-Mart, and determined that the representative evidence offered via statistics and expert testimony was appropriate in this case, and supported both class certification and the jury verdict for the class. The Supreme Court declined to craft a general rule governing the use of statistical evidence, or so-called representative evidence, in all types of class actions, although in general it elucidated when such evidence would be allowed in a class action and when class members can rely on statistical samples to establish their claims. For these reasons, more so than the other Supreme Court case in 2016, Tyson Foods was the Rule 23 workplace class action decision of the year.  The ruling opens a door that many thought the Supreme Court closed in Wal-Mart and Comcast, and provides plaintiffs’ counsel with a new theoretical approach for class certification. Most notably, the dissenters in Tyson Foods claimed that the Supreme Court had turned its back on Comcast by redefining and diluting the predominance standard for class certification under Rule 23(b)(3).

Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) – Widely considered the 13-1339dif_3m92other key class action ruling of the past Supreme Court term, Spokeo concerned whether people without an injury can still file class actions. The case involved whether a job applicant had the ability to bring a complaint against credit reporting firms under the FCRA, where the plaintiff alleged that a people search engine violated the FCRA when it reported he was wealthy and had a graduate degree; in reality, he was struggling to find work. The district court had dismissed the lawsuit because plaintiff lacked standing, and the Ninth Circuit reversed. In its 6 to 2 ruling, the Supreme Court held that the wrong analysis of standing had been undertaken, and it remanded the case for further findings. In so doing, the Supreme Court articulated that standing requires a showing of a “concrete injury” that is not necessarily synonymous with a tangible injury. Hence, certain types of intangible harms may be sufficient to satisfy standing requirements. The decision reflects that the Supreme Court’s class action jurisprudence has taken a more nuanced and measured approach toward constraints on the ability of representative parties to litigate class actions. By opening the door to more expanded standing principles, Spokeo is apt to subject employers to more litigation under statutes like the FCRA.

EEOC v. CRST Van Expedited, Inc., 136 S. Ct. 1642 (2016) – This case concerned the largest fee sanction award approximately $4.7 million ever issued against the EEOC. It arose from a systemic sexual harassment lawsuit that the agency lost for failing to meet pre-suit obligations relative to the claims of 67 female employees for whom the EEOC sued, but whose claims the Commission failed to investigate before filing suit. The dispute over legal fees arose when the employer subsequently secured a fee award for its expenditures in fighting the claims. The Eighth Circuit subsequently upended that award on the basis that the district court improperly ruled that it had to determine on an individual basis whether each of the 67 claims in question were frivolous or groundless (and as the employer’s victory on procedural grounds was not a victory on the merits). On further appeal to the Supreme Court, it unanimously held that a favorable outcome on the merits is not a prerequisite for an employer to recover fees against the EEOC. As a result, it remanded the case for an examination of the fee issue and resuscitated the employer’s quest to recover millions of dollars from the Commission. In so doing, it gave the EEOC a significant bench-slap over its arguments. While the decision dealt specifically with Title VII’s attorneys’ fee provision, it is likely that the attorneys’ fee provisions in many other statutes will be intercepted in a similar fashion.

Campbell-Ewald Co. v. Gomez, et al., 136 S. Ct. 663 (2016)Campbell-Ewald concerned whether a company can moot and defeat a class action brought under the TCPA by offering a settlement by way of a Rule 68 offer of judgment, and what happens to potential class actions when such proposals are accepted. In this case, defendant made the Rule 68 offer before plaintiff filed a motion for class certification, and it moved to dismiss the lawsuit as moot after plaintiff declined the offer. In a 6 to 3 ruling, the Supreme Court held that under basic contract principles, an unaccepted offer creates no lasting right or obligation, and plaintiff’s claims were not rendered moot. In so ruling, the Supreme Court eliminated a potential defense strategy that employers had used to eviscerate class actions with “pick off” offers to the named plaintiff.

Amgen, Inc. v. Harris, et al., 136 S. Ct. 758 (2016) – In this unanimous ruling, the Supreme Court reversed and remanded a breach of fiduciary duty claim under the ERISA on the grounds that ERISA fiduciaries that manage publically-traded employee stock investments in 401(k) plans need not overcome a presumption of prudence. In so ruling, the Supreme Court reaffirmed its ruling in Fifth Third Bank v. Dudenhoeffer, 134 S. Ct. 2459 (2014). The Supreme Court reversed on the basis that the Ninth Circuit imposed too low of a burden on plaintiffs when attempting to show that the ERISA fiduciaries should have done something to halt the decline in stock values.

Encino Motorcars, LLC v. Navarro, et al., 136 S. Ct. 2117 (2016) – This case involved interpretation of an exemption for service advisors at automobile dealerships who sued for unpaid overtime under the FLSA. The district court had dismissed the claim on the basis of an exemption for salesmen, partsmen, and mechanics under the FLSA, but the Ninth Circuit reversed on the basis of an interpretative regulation of the DOL in 2011 (that reversed the DOL’s position on the exemption without explanation). In a 6 to 2 ruling, the Supreme Court reversed the Ninth Circuit’s decision, holding that reliance on the DOL’s interpretative regulation lacked the force of law because it was arbitrary and capricious. The Supreme Court criticized the DOL’s position and instructed the Ninth Circuit to reinterpret the FLSA exemption without giving any deference to the DOL’s 2011 regulation.

Gobeille, et al. v. Liberty Mutual Insurance Co., 136 S. Ct. 936 (2016) – In this case, the Supreme Court held in a 6 to 2 ruling that a Vermont state law – that required the disclosure of payments relating to healthcare claims and information about healthcare services – was preempted by the ERISA to the extent the Vermont law applied to ERISA-governed plans. In so ruling, the Supreme Court articulated the contours of how the ERISA preempts state law attempts to regulate healthcare benefit issues.

The decisions in Spokeo, Campbell-Ewalt, and Tyson Foods are sure to shape and influence class action litigation in a profound manner relative to preemptive defense strategies and “pick-off” attempts, standing concepts, and statistical evidence for class certification and proof of class claims for damages. To the extent that extrinsic restrictions on class actions – i.e., limits on the ability of representative plaintiffs to litigate class actions, such as Article III standing concepts and the mootness doctrine – are relaxed or lessened (as in Spokeo and Campbell-Ewalt), class actions are easier to maintain and litigate. Further, Tyson Foods is certainly a setback for employers and reflects an approach to class certification that seems at odds with Wal-Mart and Comcast. To that end, one indication of their impact is the fact that after the Supreme Court’s rulings in these cases, lower federal and state courts cited Spokeo in 365 decisions, cited Campbell-Ewald in 185 decisions, and cited Tyson Foods in 104 decisions during the remainder of 2016.

Amgen, Navarro, Gobeille, and CRST Van Expedited are also apt to shape the future of workplace  litigation in the contexts of ERISA fiduciary duty claims, deference to DOL regulations in wage & hour litigation, ERISA preemption, and claims for breaches of statutory duty against the EEOC. While arguably defense-oriented rulings, they are not as significant for employers as Spokeo, Campbell-Ewalt, and Tyson Foods are for plaintiffs.

Rulings Expected In 2017

Equally important for the coming year, the Supreme Court accepted five additional cases for review in 2016 that are likely to be decided in 2017 that also will impact and shape class action litigation and government enforcement lawsuits faced by employers. Those cases include four employment lawsuits and one class action case. The Supreme Court undertook oral arguments on two of these cases in 2016; the other three will have oral arguments in 2017. The corporate defendants in each case have sought rulings seeking to limit the use of class actions or control government enforcement lawsuits.

NLRB v. SW General, No. 15-1251 – In this case, which was argued on November 7, 2016, the Supreme Court will determine whether an unfair labor practice charge was unauthorized due to the NLRB’s acting general counsel serving in violation of a federal statute in terms of NLRB procedure. The Supreme Court is apt to decide the scope of Presidential authority with executive agencies, the contours of federal labor law, and a blueprint for how future Administrations can exercise power over labor policies.

Microsoft v. Baker, et al., No. 15-457 – Although not an employment case, this case may well impact the ability of employers to defend class action litigation. It involves a consumer fraud class action where the district court denied class certification, which was reversed on appeal by the Ninth Circuit. The Supreme Court will determine the impact and implications in a class action when the named plaintiffs voluntarily dismiss their claims with prejudice while others in the class wish to proceed with the class litigation. This case is expected to be set for oral argument in 2017.

Czyzewski, et al, v. Jevic Holding, No. 15-649 –  Argued on December 7, 2016, this case involves the Worker Adjustment and Retraining Notification (“WARN”) Act and the interplay between worker rights under that statute and bankruptcy proceedings after a company allegedly violates the WARN Act. The Supreme Court likely will determine whether priority in distributing assets in bankruptcy may proceed in a manner that allegedly violates the priority scheme in the Bankruptcy Code. The case also may decide rules for priority in reorganizations and liquidations that impact employers and workers in economically challenged industries and organizations.

EEOC v. McLane Co., Inc., No. 15-1248 – In this case, the Supreme Court will examine whether a district court’s decision to quash or enforce a subpoena in an EEOC administrative enforcement proceeding should be reviewed de novo, or reviewed deferentially. The process of responding to or challenging an EEOC subpoena may become considerably more expensive if the Supreme Court sides with the Commission’s position, especially as the EEOC been exceedingly aggressive in pursuing systemic administrative investigations through liberal use of subpoenas for all sorts of employer data. This case is expected to be set for oral argument in 2017.

Advocate Health Care Network v. Stapleton, et al., No. 16-74 – In this case (a consolidation of three separate appeals), the Supreme Court will examine whether church-affiliated hospitals are exempt from the ERISA. The hospitals assert that their retirement plans are excluded from the ERISA’s coverage and that they should not face class actions over alleged breaches of fiduciary obligations and minimum funding requirements. This case is expected to be set for oral argument in 2017.

The Supreme Court is expected to issue decisions in these five cases in 2017.

Each decision may have significant implications for employers and for the defense of high-stakes workplace litigation.

The Key Decision Expected In 2017

On January 13, 2017, 3 cases were accepted for review that pose what may be the most important issue for employers presently before the Supreme Court on the legality of class action waivers in arbitration agreements. Those cases – NLRB v. Murphy Oil USA, Inc. (No. 16-307), Epic Systems Corp. v. Lewis (No. 16-285), and Ernst & Young, LLP v. Morris (No. 16-300) – will examine whether a class action waiver illegally interferes with the right of employees under the National Labor Relations Act to engage in concerted activity for their mutual aid or protection if the waiver precludes them from pursuing class or collective actions in any judicial forum.

Hanging in the balance is a litigation management tool that many employers have utilized with success to combat and minimize their exposure to class actions and collective actions.

Filling The Scalia Vacancy On The U.S. Supreme Court

Days out from the Presidential inauguration, the Supreme Court remains shorthanded after the death of Justice Antonin Scalia in February of 2016. The potential exists for 4-to-4 deadlocks on key issues. Given the timing of President Trump’s nomination for Justice Scalia’s successor, the Supreme Court is apt to be short one member until the late spring or potentially even longer given the politics and logistics of the confirmation process.

In terms of the impact of the successor to Justice Scalia, it is reasonable to assume that he or she will be conservative and cut more in the mold of the types of judges that President Trump described in his campaign in terms of the significance of the judicial process in general and the Supreme Court in particular. While the current ideological alignments on the Supreme Court are fragile, a “conservative” replacement of Justice Scalia would almost certainly preserve the current moderate-conservative approach to class action questions. That being said, Justice Scalia had an outsized influence on class action issues during his tenure on the Supreme Court. As illustrated by his opinions in Wal-Mart Stores, Inc. v. Dukes and Comcast Corp. v. Behrend, Justice Scalia advocated putting the spotlight on class action litigation, and the consistent thread of his opinions were to make class actions more difficult to certify and more challenging  to win. In sum, skeptics of class actions lost their strongest judicial ally, and his passing likely will weaken the intellectual championing of counter-points to a future rebound of class action jurisprudence at the Supreme Court.

For more in depth analysis of workplace class action trends, please click here to order Seyfarth’s 2017 Workplace Class Action Report eBook and here to download Chapter 1 on the 2017 Executive Summary/Key Trends.  Our annual webinar on the Report is now set for February 21, 2017, click here to register.

thCADQZ9HPBy Gerald L. Maatman, Jr., Pamela Q. Devata, Robert T. Szyba

This morning the U.S. Supreme Court heard oral arguments in Spokeo, Inc. v. Robins, No. 13-1339. As our loyal blog readers know, this is a case that corporate counsel need to follow closely in light of the stakes for the future of class action litigation.

Spokeo arises as a putative class action brought under the Fair Credit Reporting Act (“FCRA”) and addresses one of the fundamental prerequisites to civil litigation: Does this plaintiff have standing under Article III of the U.S. Constitution to bring this case under the FCRA in the first place?  Groups on both sides of this argument have been watching this case closely (as we have noted here, here, here, and here), as the Supreme Court’s determination may have a very significant impact on consumers (as well as employees and prospective employees), employers, and the consumer reporting industry as a whole.

The question specifically presented to the Supreme Court is straight-forward — “Does a plaintiff who suffers no concrete harm, but who instead alleges only a statutory violation, have standing to bring a claim on behalf of himself or a class of individuals?”

We were at the SCOTUS today to hear the parties’ arguments, as well as the Justices’ questions.  Here is our take based on the argument (a copy of the argument transcript is here).

The Case’s Background And Context

Among its provisions, the FCRA requires that a consumer reporting agency (“CRA”) follow reasonable procedures to assure maximum possible accuracy of its consumer reports (15 U.S.C. § 1681e(b)), issue specific notices to providers and users of information (1681e(d)), and post toll-free phone numbers to allow consumers to request their consumer reports (1681b(e)).

Spokeo, Inc. (“Spokeo”) operates a “people search engine” — it aggregates publicly available information about individuals from phone books, social networks, marketing surveys, real estate listings, business websites, and other sources, which it organizes into comprehensive, easy-to-read profiles. Notably, Spokeo specifically states that it “does not verify or evaluate each piece of data, and makes no warranties or guarantees about any of the information offered…,” and warns that the information is not to be used for any purpose addressed by the FCRA, such as determining eligibility for credit, insurance, employment, etc.

In July 2010, Plaintiff Thomas Robins filed a purported class action alleging that Spokeo violated the FCRA because it presented inaccurate information about him. He alleged that Spokeo reported that he had a greater level of education and more professional experience than he in fact had, that he was financially better off than he actually was, and that he was married (he was not) with children (he did not have any). But beyond identifying the inaccuracies, he did not allege any actual damages.  Instead, he argued that Spokeo’s alleged FCRA violation was “willful” and therefore he sought statutory damages of between $100 and $1,000.  The district court held that “where no injury in fact is properly pled” the plaintiff does not have standing to sue, and dismissed the case. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”

In its petition for certiorari, Spokeo posed this question to the Supreme Court: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.”  The answer, as it turns out, is likely to resolve a circuit split, as the Fifth, Sixth, and Seventh Circuits are lining up with the Ninth Circuit’s approach, while the Second, Third, and Fourth Circuits have generally disagreed and have required an actual, concrete injury to have standing.

The Company’s Position

Spokeo’s briefing argued that in order for any plaintiff to bring a “case” or “controversy” of the type that the courts can hear, the plaintiff must point to a concrete, actual, and particularized harm, as supported by the Supreme Court’s precedents and centuries of history dating back to the beginnings of the English common law. A technical violation of the statute, even if coupled with a monetary bounty to the plaintiff, is not, and has never been, enough. And the fact that the statute purports to provide redress does not itself evidence a harm, as here it merely awards damages to an uninjured plaintiff.  Spokeo further argued that analogizing Robins’ claim to a common law defamation claim also does not help, because at their core, common law defamation claims require injury. Lastly, the mere possibility of harm to his employment prospects is also not an actual, concrete harm. Thus, Spokeo maintained that the plaintiff has no standing, and therefore cannot proceed with his putative class action.

The Consumer’s Position

Robins took the opposite position on every point. He argued that so long as Congress provides a cause of action and allows a plaintiff to recover damages, that is all that is required for Article III standing.  No actual or concrete harm is necessary because the statutory violation suffices.  Looking to much of the same history and precedents, he disagreed with the company on whether a concrete harm is actually required. And even if it were, Robins argued he had “pocket-book Injury” — that is, if the company violated the law, it owed him the statutory damages. He analogized his cause of action to one of defamation, in that the litigation was centered on statements about Robins, although updated by Congress from the claims “fossilized” form to remove the requirement that plaintiffs point to an actual harm.

Both sides raised concerns over separation of powers, pointing out that eliminating the requirement of concrete harm runs the risk of courts reaching beyond their limited role to deciding “cases” and “controversies,” and the risk of Congress delegating to private (and thus financially interested) plaintiffs the Executive’s enforcement function. On the other hand, a determination that concrete hard is required would impermissibly override Congress’s policy determination to create a legal protection for consumers.

Today’s SCOTUS Oral Argument

Both sides encountered intense, probing questions from the Justices this morning.

If a questioning scorecard is indicative of the issues, it broke out this way by our rough tally:

Questions To Spokeo – 26 in the opening argument and 3 questions in the rebuttal argument [questions by Justice – Kagan (9), Sotomayor (6), Scalia (5), Ginsburg (4), Kennedy (2), Alito (1), Breyer (1), and Roberts (1)]

Questions To Robins – 36 in the opposition argument [questions by Justice – Scalia (13), Roberts (9), Breyer (3), Kennedy (3), Kagan (3), Ginsburg (2), and Sotomayor (1)]

From the start of the argument, Justices Kagan and Sotomayor challenged the company’s position, pressing for an explanation why, if Congress determined that the dissemination of false information is something it sought to protect, should the Court find that a plaintiff has no standing when seeking to recover statutory damages after false information was disseminated.  The justices zeroed in on the dissemination of inaccurate information, in and of itself, as potentially creating the injury required for standing.  Justice Kagan further pointed out that it could be difficult to know exactly what the impact dissemination of false information might be have, and Justice Sotomayor challenged whether the argument simply sought to superimpose of the word “concrete” onto the requirement to identify a legally protected right being violated.  Justice Scalia interjected in the questioning to point out that the statutory text did not identify “misinformation” as a remedy the statute sought to right, but instead the statute sought to require procedures that would be followed, such as the inclusion of a toll-free phone number, and pointing out that Robins’ interpretation would allow anyone to sue if the toll-free number was not provided (or any other technical violation), regardless of whether there was any concrete injury.

In terms of questioning directed to the Robins’ counsel, Justice Kennedy pointed out the circular logic that a plaintiff should be considered to sustain a monetary injury simply because a statute attributes an amount to a technical violation.  Chief Justice Roberts also posed the hypothetical of where a plaintiff’s phone number was disseminated in violation of a statute, but the phone number that was given was wrong.  The Chief Justice expressed skepticism that an injury could be established.  Indeed, Justice Breyer went on to characterize the respondent’s position as arguing that individuals who sustained no harm should be entitled to sue simply because they have knowledge that non-compliant procedures were followed, not because they sustained a concrete injury.  Justice Alito interjected to ask whether anyone actually performed a search of Robins, pointing out that if no search had been performed this would be the “quintessential speculative harm.”  Chief Justice Roberts followed with another hypothetical, where an individual was paid double a statutorily-required fee — would that constitute an injury because the statute was violated when the individual was paid the wrong amount (i.e., double)?  Robins’ counsel conceded there would be no standing there.  As to the analogy to defamation, Justice Scalia pointed out that defamation requires injury and thus does not help the respondent.

The Solicitor General, as amicus, also argued in support of Robins.  Chief Justice Roberts expressed concern about the possibility of Congressional attempts to authorize private litigants to enforce laws in a way that would interference with the Executive Branch, a phenomenon in which the Solicitor General’s office should have interest.  Justice Scalia also pointed out that violations of procedure do not give rise to standing, having previously pointed out that the FCRA requirements are procedural in nature.

What’s Next?

A decision from the Supreme Court as to the requirements for standing have clear and obvious implications for the future of putative class actions brought under the FCRA in general and perhaps other class actions too.  Indeed, the implications here would likely apply in a variety of other contexts, such as consumer class actions and other federal statutory claims.  The questioning this morning reveals that Justices Kagan, Sotomayor, and Ginsburg might be receptive to the notion that the dissemination of false information in and of itself suffices to confer standing, whereas Chief Justice Roberts, and Justices Scalia, Breyer, and Alito might require a plaintiff to identify a harm beyond a technical violation of a statutory provision.  Regardless of possible leanings, the argument made clear that the Justices have an interest in and have given thought to the issue.  We expect a decision in the winter/spring 2016, so stay tuned!

 

By Pamela Q. Devata, Gerald L. Maatman, Jr., and Robert T. Szyba

thCADQZ9HPToday the U.S. Supreme Court granted the petition for writ of certiorari filed in Spokeo, Inc. v. Robins, No. 13-1339 (U.S. Apr. 27, 2015).

As we previously reported, the Spokeo petition poses a question with a significant impact on the future scope of consumer and workplace-related class actions: whether Congress can confer standing on a plaintiff who suffers no concrete harm, but who instead alleges only a statutory violation?

 

Supreme Court Grants Review Despite Government’s Opposition

The Supreme Court rejected the Solicitor General’s recommendation to deny certiorari or simply avoid the broader question of Congressional power and instead focus on the specifically alleged injury in Spokeo (the public dissemination of inaccurate personal information) and the specific statute at issue (the Fair Credit Reporting Act or “FCRA”), and granted certiorari regarding the broader question of congressional power.

Implications For Employers

The Supreme Court’s ultimate decision in this case is likely to have a significant impact on congressional power as well as the future of consumer, workplace, and other class actions.  Although rooted in the complex arena of separation of powers between the Congress and the federal judiciary under Article III of the Constitution, the Supreme Court’s future decision is likely to have a practical impact on the viability of claims under a variety of federal statutes, including the FCRA.  Ultimately, the Supreme Court’s determination is likely to answer a simpler question than the one presented:  Can plaintiffs sue for the violation of a statute when they can show no actual injury or harm that they have suffered?

The Supreme Court may limit Congress’ power to create private causes of action based solely on statutory violations, and require plaintiffs to plead and establish actual injury — not just a violation of the underlying statute.  Congressional power and the number of viable class actions under the FCRA and other federal statutes may be limited.  This decision would likely discourage the current wave of consumer, workplace, and other class actions seeking millions in statutory damages.  On the other hand, a decision allowing individual and class claims to go forward alleging only statutory damages without injury in fact would likely have the opposite outcome, resulting in claims based on alleged violations of statutory requirements, brought by individuals who suffered no adverse consequence of the identified possible violation.

Stay tuned as we monitor the developments in this case.

imagesBy Pam Devata, John Drury, and Robert Szyba

On March 13, 2015, the Solicitor General of the United States filed an amicus brief opposing the petition for writ of certiorari filed in Spokeo, Inc. v. Robins, No. 13-1339 (U.S.). The Spokeo petition poses a question with a significant impact on the future scope of consumer and workplace-related class actions: whether Congress can confer standing on a plaintiff who suffers no concrete harm, but who instead alleges only a statutory violation? To date, ten different amicus briefs have been filed urging the Supreme Court to grant review.

Case Background

In July 2010, Plaintiff Thomas Robins filed a purported class action under the Fair Credit Reporting Act (“FCRA”) against Spokeo, Inc., a search engine that compiles publicly available information on individuals into a searchable database. Robins alleged that the search results associated with his name included inaccurate information about him, in violation of the FCRA. Robins did not allege that he suffered actual damages, but only that he was entitled to statutory damages because the FCRA created a private right of action where inaccurate consumer information is reported. The district court dismissed Robins’ complaint, finding that a mere violation of the FCRA does not confer standing “where no injury in fact is properly pled.” 2011 WL 11562151, at *1. In February 2014, the U.S. Court of Appeals for the Ninth Circuit reversed, holding that the “violation of a statutory right is usually a sufficient injury in fact to confer standing” and that “a plaintiff can suffer a violation of the statutory right without suffering actual damages.”  742 F.3d 409, 413.

In May 2014, Spokeo filed its petition for writ of certiorari to the U.S. Supreme Court. Spokeo posed this question: “Whether Congress may confer Article III standing upon a plaintiff who suffers no concrete harm and who therefore could not otherwise invoke the jurisdiction of a federal court, by authorizing a private right of action based on a bare violation of a federal statute.”  Spokeo’s petition identified a circuit split. The Fifth and Sixth Circuits agree with the Ninth Circuit’s Spokeo decision and permit plaintiffs to maintain lawsuits without “injury-in-fact” and based solely on an alleged statutory violation. The Seventh Circuit also has signaled that it agrees with this position. In contrast, the Second, Third and Fourth Circuits have held that Congress cannot create standing by statute alone, and the mere deprivation of a statutory right is insufficient to confer standing.

The Solicitor General Opposes The Grant Of Certiorari

In October 2014, the Supreme Court invited the Solicitor General to file an amicus brief on behalf of the United States. The Supreme Court frequently follows the Solicitor General’s recommendation to grant or deny certiorari. In its opposition to certiorari, the Government essentially recommends that the Supreme Court avoid the broader question of Congressional power to create statutory standing and instead focus on the specifically alleged injury in Spokeo – the public dissemination of inaccurate personal information – and the specific statute at issue – the FCRA. The Government’s position is that a concrete harm exists where a defendant unlawfully disseminates inaccurate personal information. Although the Second, Third and Fourth Circuits have rejected the concept of “statutory standing,” they each did so under other federal statutes.

Implications for Employers

Given the Solicitor General’s recommendation, the Supreme Court may deny certiorari and maintain the uncertain status quo. As a consequence, in some circuits, plaintiffs will be allowed to maintain private causes of action for alleged violations of federal statutes — even where the plaintiffs themselves suffered no actual injury.

If certiorari is granted, the Supreme Court’s ultimate decision will have a significant impact on the future of consumer, workplace, and other class actions. Its impact may reach other federal statutes that authorize private rights of action or statutory damages, such as the Truth in Lending Act, the Fair Debt Collection Practices Act, the Employee Retirement Income Security Act, and the Americans With Disabilities Act. If Spokeo is reversed, plaintiffs would be required to plead and establish actual injury, and not just a violation of the underlying statute. Such a result would undoubtedly limit the number of viable class actions under the FCRA and other federal statutes.

The resolution of the Spokeo petition and appeal stands to dramatically affect employers, consumer reporting agencies, and other corporate defendants. Although the United States’ opposition makes a grant of certiorari less likely, it speaks volumes that ten separate amicus briefs have been filed on behalf of seventeen different companies, trade associations, and other organizations (including the National Association of Professional Background Screeners, Chamber of Commerce of the United States, eBay, Facebook, Google, Yahoo, and leading consumer reporting agencies). Their support for resolution of the Spokeo question — whether Congress can confer standing through statute alone — may tip the scales in favor of the grant of certiorari. For the time being, employers will have to wait and see whether the Supreme Court will ultimately entertain this important question.

By Pamela Devata and Paul Kehoe

 

On April 21, 2014, Swift Transportation Co. of Arizona and a class of plaintiffs jointly moved for preliminary settlement approval to end litigation for alleged violations of the Fair Credit Reporting Act (“FCRA”) in Ellis, et al. v. Swift Transportation Co. of Arizona, LLC, Case No. 13-CV473 (E.D. Va. April 21, 2014).

Plaintiffs brought the class action on behalf of applicants who applied for truck driving positions at Swift and were the subject of a consumer report obtained by Swift for employment purposes. Plaintiffs alleged the Swift failed to disclose that it would obtain a consumer report for employment purposes, and failed to advise the applicants that they could have access to, and dispute the accuracy of, the consumer report used during the hiring process. Ultimately, the plaintiffs argued that the failure to disclose these rights amounted to a lack of authorization for Swift to view the reports.

By way of background, under the FCRA, plaintiffs can seek damages for negligent non-compliance or willful non-compliance. To prove willfulness, plaintiffs must show either malice or reckless disregard for the law. The damages available for willful non-compliance are actual damages or statutory damages of not less than $100 and not more than $1,000, attorneys’ fees, and punitive damages. Most class actions under the FCRA allege willful violations so that statutory damages are at issue, which are much easier to calculate than actual damages because actual damages arguably involve a specific individualized inquiry into each potential class member’s damage.

Under the terms of the agreement in Ellis, et al. v. Swift Transportation Co. of Arizona, LLC, the parties agreed to settle the claims on a class-wide basis for $4.4 million. Many class members will automatically receive $50, while seven class representatives will receive an additional $1,000 and another will receive an additional $5,000.

Notably, while these damages are below the statutory minimum, this settlement continues a trend of increased FCRA litigation resulting in multi-million dollar settlements for employers failing to comply with the FCRA’s specific and detailed disclosure and authorization requirements. The current environment is reminiscent of early wage & hour litigation as plaintiffs’ counsel become more sophisticated in building class actions with limited personal recovery but significant attorneys’ fees.

Implications For Employers

Given the increased litigation and high settlement value of these cases, employers should review their processes to ensure compliance with the FCRA’s requirements, especially those related to disclosures and authorizations.  While the damages to any one individual may be small, the cumulative effect can very quickly exceed millions of dollars. The larger the company, the larger the potential class, and the larger the ultimate potential for damages.  This settlement is another reminder for employers of the risks associated with background check class actions under the FCRA.

By Pamela Q. Devata and Kendra K. Paul

On December 2, 2013, the U.S. District Court for the Western District of Pennsylvania opined on when employers’ deficient disclosures can make them liable under the Fair Credit Reporting Act (“FCRA”) in Reardon v. ClosetMaid Corporation, No. 2:08-CV-01730, 2013 U.S. Dist. LEXIS 169821 (W.D. Pa. Dec. 2, 2013).

In this FCRA class action, Plaintiffs, a group of former job applicants, alleged that ClosetMaid had a standard practice of disqualifying job applicants for employment on the basis of their consumer reports in violation of the FCRA. Plaintiffs specifically alleged, among other things, that ClosetMaid did not send them a standalone FCRA disclosure. Instead, most Plaintiffs received a combined FCRA disclosure/authorization that contained a liability waiver. The Court agreed with Plaintiffs that the company’s failure to utilize a standalone FCRA disclosure could, and in this case did, violate the FCRA.

This opinion is important for two reasons. First, Reardon is the second published decision to address whether the inclusion of a liability waiver in an FCRA disclosure invalidates the disclosure. After Reardon, two federal district courts have now held that liability waivers invalidate FCRA disclosures as a matter of law. Only one federal district court has held otherwise. Second, the Reardon case shows how such a simple mistake could subject a large employer that receives thousands of applications and conducts thousands of background checks to significant liability on a class-wide basis.

The Court’s Decision: FCRA Disclosures Cannot Contain Liability Waivers

In Reardon, Plaintiffs alleged that ClosetMaid relied upon information in their consumer reports without providing them with the appropriate disclosures required by the FCRA.  The “Disclosure Class” consisted of about 1,800 individuals. The Court observed that at one time ClosetMaid had both a “Notice of Intent to Obtain Consumer Credit Report” (the “Notice Form”) and an “Authorization to Obtain a Consumer Credit Report and Release of Information for Employment Purposes” (the “Authorization Form”). The Authorization Form contained a liability release that purportedly “released” ClosetMaid from complying with the FCRA’s disclosure and authorization obligations. The Court also observed that ClosetMaid did not always provide job applicants with the Notice Form and ultimately discontinued using the Notice Form altogether. 

ClosetMaid tried to argue that the Authorization Form served as both an FCRA disclosure and authorization for those individuals who only received the Authorization Form. However, the Court held that ClosetMaid’s “disclosure” in that combined form was not a standalone document as required under Section 1681b(b)(2)(A)(i) of the FCRA. Although the FCRA allows for the authorization to be on the same document as the disclosure, the addendum of a liability release was extraneous information; thus, the Court held the form to be non-compliant. According to the Court, “ClosetMaid had no obligation to obtain a waiver of rights from the consumer; in fact, doing so in a disclosure form directly conflicted with the FCRA’s clear prohibition on an employer’s inclusion of any additional provisions, excluding the authorization itself, in the disclosure form.” Because the FCRA is clear in this regard, Plaintiffs alleged and the Court agreed that ClosetMaid’s actions were objectively unreasonable and therefore willful.  

This is the third reported case to address whether the inclusion of a liability waiver in an FCRA disclosure invalidates the disclosure. Two other courts have addressed this specific issue of a liability waiver in the past – Smith v. Waverly Partners, LLC, No. 3:10-CV-00028-RLV, 2012 WL 3645324 (W.D.N.C. Aug. 23, 2012) (finding that the waiver of rights language included in the employer’s combined disclosure and authorization form was kept sufficiently distinct from the disclosure language so as not to render it ineffective); Singleton v. Domino’s Pizza, No. 11-1823,  2012 WL 245965 (D. Md. Jan. 25, 2012) (finding that “both the statutory text and FTC advisory opinions indicate that an employer violates the FCRA by including a liability release in a disclosure document”). The Reardon Court agreed with the reasoning in the Singleton case.

Implications For Employers – – (Hint: In Class Actions, Small Individual Damages Awards Can Add Up)

In this case, the Court has already determined that a significant portion of the 1,800 individuals in the Disclosure Class are entitled to willful damages under the FCRA. These individuals could each receive the greater of his or her actual damages or $1,000 plus attorneys’ fees.  Multiply these individual damages by 1,800 and that is a lot of money.  The moral of this story is the larger the company, the larger the potential class, and the larger the potential damages. Thus employers should consider using separate disclosure forms, or at least remove any liability release from a combined disclosure/authorization form, and ensure they comport with the strict standards of the FCRA.

By Pamela Devata and Reema Kapur

The refrain from the Rolling Stones’ iconic song “Satisfaction” reportedly was inspired by a phrase from a Chuck Berry ditty “I can’t get no satisfaction from the judge….”  This phrase aptly describes the outcome for a defendant seeking to dismiss putative class claims under the Fair Credit Reporting Act (“FCRA”) in Smith v. Res-Care, Inc., Case No. 13-5211 (S.D. W. Va. Aug. 28, 2013).  Judge Robert Chambers of the U.S. Court for the Southern District of West Virginia denied Res-Care’s motion to dismiss, which was brought before any discovery into plaintiff’s damages, holding that the defendant’s offer of judgment may not fully satisfy Plaintiff’s request for relief.

Employers seeking to neutralize putative class claims through an offer of judgment strategy should carefully read the Res-Care opinion. In the class context, the efficacy of Rule 68 offers of judgment may depend entirely on the law of the particular federal Circuit where the action is pending — four federal Circuits hold that even if an offer of judgment moots the claims of a Rule 23 class representative, it does not necessarily moot the claims of the class. Further, assuming employers can get over this initial hurdle, different Circuits analyze the concept of “full satisfaction” differently, thereby making it critical that defendants properly calibrate an offer of judgment. Thus, employers may find themselves in a predicament where they “can’t get [full] satisfaction,” at least at a motion to dismiss stage, because of controlling Circuit precedent with respect to Rule 68 offers of judgment.

Background Facts In The Case

Plaintiff, a job applicant, brought a putative class action pursuant to the FCRA claiming that Res-Care violated FCRA requirements and improperly used a consumer report about him when it denied his job application and contending that an acknowledgment he provided to Res-Care was ineffective. Plaintiff sought statutory and punitive damages (in an unspecified amount), as well as attorneys’ fees and costs.

On May 10, 2013, Res-Care made an offer of judgment to the individual Plaintiff in the amount of $25,000. Plaintiff had not yet moved for class certification. The offer of judgment was inclusive of all costs of the action (including all other costs, fees, amounts, and other relief) and all actual attorneys’ fees. Plaintiff did not accept or respond to the offer within the required 14-day timeframe before the offer expired. On July 1, 2013, Res-Care moved to dismiss for lack of subject matter jurisdiction, arguing that the unaccepted offer rendered the putative class action moot.

The Court’s Analysis

Because the Fourth Circuit generally recognizes that mooting an individual representative’s claims may moot the claims of a putative class, the Court’s analysis of Res-Care’s offer of judgment turned on the concept of “full satisfaction” of plaintiff’s claims. In particular, the Court found that analysis of Rule 68 offers of judgment is a two-part inquiry. First, the judge decides whether a defendant’s offer of judgment fully satisfies plaintiff’s request for relief. Second, if the answer to the first question is in the affirmative, the judge decides whether full satisfaction of the individual plaintiff’s request for relief — before the plaintiff files a motion for class certification — eliminates a case or controversy rendering the entire case moot. The Court never reached the second question because it found that the offer of judgment in that case did not provide complete relief to the plaintiff.

The relief requested by the plaintiff in Res-Care involved four components, including statutory damages, unspecified punitive damages, costs, and attorneys’ fees. Computing statutory damages was straightforward because the FCRA allows a maximum statutory damages recovery of $1,000.  15 U.S.C. § 1681n. Next, although Res-Care acknowledged that punitive damages under the FCRA are uncapped, it argued that because of constitutional due process concerns, an award of punitive damages rarely exceeds nine times the amount of actual damages. Thus, it argued that under the FCRA, the maximum combined amount of actual ($1,000) and punitive damages ($9,000) that the plaintiff could recover was $10,000. Its offer of $25,000, it argued, more than fully satisfied the plaintiff’s request for relief, including costs and attorneys’ fees.

Relying on Fourth Circuit precedent in Warren v. Sessoms & Rogers, P.A., 676 F.3d 365 (4th Cir. 2012), the Court rejected Res-Care’s argument. According to the Court, the reasoning in Warren is that if a plaintiff seeks uncapped and unspecified damages, an unaccepted offer of judgment cannot be said to provide full relief. Because the FCRA does not cap the amount of punitive damages, the plaintiff’s request for unspecified punitive relief in Res-Care blocked the defendant from effectively using an offer of judgment to render the case moot at the motion to dismiss stage. Turning to the defendant’s argument that any “realistic” punitive damages that the plaintiff could recover would be limited to a single-digit ratio to the amount of statutory damages, the Court found that “[a]lthough it may be unlikely that plaintiff will recover an amount of punitive damages in excess of $9,000, such an award is possible, and plaintiff need not demonstrate the likeliness of the amount of any punitive award at this point.” In so holding, the Court expressly acknowledged the tension between Warren and cases from other circuits where federal judges have accepted arguments similar to those advanced by Res-Care. Specifically, judges outside of the Fourth Circuit have held that a properly calibrated offer of judgment can moot a plaintiff’s FCRA claims based on the theory that punitive damages must be closely tethered to the amount of statutory damages available under the FCRA. However, relying on Warren and citing the early stages of the case (“there has been no evidentiary hearing or judicial fact-finding regarding any potential amount of punitive damages”), the Court held that the defendant’s offer of judgment did not fully satisfy the plaintiff’s request for relief. Therefore, it denied Res-Care’s motion to dismiss as premature.

Implications for Employers

Rule 68 offers of judgment are an important defense tactic to force a settlement and potentially shut down a class action lawsuit. However, in the class context, the efficacy of Rule 68 offers depends on whether the defense tactic is favored in the federal Circuit where the lawsuit is pending. The decision in Res-Care is a narrowly tailored holding that the motion to dismiss was premature, and does not eliminate the use of Rule 68 offer of judgments for class cases in the Fourth Circuit. Further, should employers find themselves defending a putative class action in a federal Circuit that favors this tactic, Res-Care is an important reminder to employers to consider the procedural posture of the case and to carefully calibrate the amount of the offer so that it “beats” the maximum verdict that a plaintiff would be entitled to receive.

By Pamela Q. Devata

Under the Fair Credit Reporting Act (“FCRA”), an employer has a number of detailed requirements with which it must comply both before it can procure a background report (consumer report) about an applicant or employee, and if it intends to take action in whole or in part based on information in a consumer report. See 15 U.S.C. Sec. 1681 et seq. Specifically, an employer must: (i) have a permissible purpose for procuring a report in the first place; (ii) certify to the background screening company that it will comply with applicable law and will not use any information in violation of Equal Employment Opportunity laws or regulations; (iii) provide a written disclosure to the applicant or employee indicating that specific background checks will be conducted by a third party and obtain authorization from that applicant or employee to conduct such checks; and (iv) follow the detailed two-step adverse action requirements (including providing a copy of the report, a Summary of Rights, and a pre-adverse action notification letting a person know he or she could dispute inaccuracies in the report).

As evidenced by the recent approval of a $5.9 million class settlement in Hunter, et al v. First Transit,, Inc., Case Nos. 09-CV-6178 & 10-CV-7002 (N.D. Ill. Mar. 23, 2011), class actions involving violations of the FCRA carry lofty penalties. Plaintiffs in this litigation alleged that First Transit and First Student, respectively, failed to provide the requisite disclosures to applicants before running a background check on them and also failed to follow the required two-step adverse action process when they denied employment based on information in the criminal background reports.

Under the FCRA, an employer can be liable for willful non-compliance, 15 U.S. C. §1681n, or negligent non-compliance, 15 U.S.C. § 1681o. Claims of willful non-compliance carry possible statutory damages of $100 to $1000 per violation, attorneys’ fees, and unlimited punitive damages. Negligent non-compliance claims do not provide for statutory damages, but instead allow for actual damages, attorneys’ fees, and unlimited punitive damages. Accordingly, most FCRA class actions against employers assert statutory damages claims to avoid defense arguments that the class claims fail under Rule 23 on typicality grounds. 

The Court in Hunter, et al v. First Transit,, Inc., Case Nos. 09-CV-6178 & 10-CV-7002 (N.D. Ill. Mar. 23, 2011), granted preliminary approval of the settlement for more than 143,000 class members. The Court has scheduled a final fairness hearing for August 1, 2011.

It behooves employers to view these cases as an impetus to evaluate their current policies and procedures relating to the use of background checks in employment and seek legal guidance to ensure compliance with the FCRA and similar state laws.