Frivolous Business Lawsuits Slapped Down by Supreme Court

Frivolous Business Lawsuits Slapped Down by Supreme Court

Imagine being sued by a person for a technical violation of law by someone who suffered no injury but who sued you anyway . . . because he could (and because his lawyer would earn a handsome fee).  Believe it or not, this happens all the time.  Congress has passed a number of complex laws that carry statutory penalties — many of which also carry attorney’s fees.  If one runs afoul of one of these laws, a person could sue him and collect the statutory fine (usually a $1,000 or so) plus thousands of dollars in attorney’s fees — even if the plaintiff suffered no harm at all but is just trolling for a lawsuit and jackpot justice.  Business are faced with this all the time.  It is enough to hate lawyers!

Fortunately, the United State Supreme Court slapped down some of these most aggregious acts of “tort terrorism.”

On May 16, 2016 the Supreme Court of the United States issued the opinion for Spokeo, Inc. v. Robins, No. 13-1339, a case addressing the constitutional requirement of “standing” – the floor requirement for a plaintiff to file a claim in federal court. The Court held that plaintiffs can’t rely merely on a statutory violation to establish standing; the plaintiff must suffer some injury in fact. Unfortunately, the Court did not address whether the facts of the case satisfied the injury in fact requirement. The court, however, provided guidance to future litigants on what constitutes injury in fact. Although this sounds academic, this case has many real-world implications for many businesses.

Article III Standing

The question in Spokeo was whether a plaintiff who suffers no concrete harm, but who instead alleges only a bare statutory violation, has standing under Article III of the United States Constitution to file a lawsuit in federal court.

Article III of the U.S. Constitution specifically limits the jurisdiction of the federal courts to actual “cases and controversies.” For there to be an actual case or controversy, courts require a plaintiff show he has “standing” to sue. To have “standing” a plaintiff must show he has suffered an “injury in fact,” caused by the defendant, which the courts can redress with a favorable decision. If the plaintiff cannot show an injury in fact, he has no standing to sue, and the federal court may not hear the case. Congress may not circumvent the standing requirement by granting a plaintiff the right to sue by statute when he would otherwise not have standing.

A problem arises when Congress creates a cause of action for violation of a statute when such a violation may, but importantly, may not cause an injury in fact to the plaintiff. Congress has created many of these causes of actions, one of which led to the Spokeo case.

Spokeo, Inc. v. Robins

The Spokeo case arose when a data broker, Spokeo, Inc., published inaccurate information about a man’s personal and professional life. Although inaccurate, the misinformation did not harm the man.
The man, Thomas Robins, sued Spokeo, Inc. in federal court, alleging Spokeo violated the Fair Credit Reporting Act (FCRA). Among its many requirements, the FCRA requires consumer reporting agencies to follow reasonable procedures to assure maximum possible accuracy of their consumer reports. If a consumer reporting agency fails to follow these procedures, the FCRA grants consumers a statutory right to sue the agency. Although Robins claimed Spokeo violated the FCRA by posting the inaccurate information, he did not allege he suffered any actual damage by the post. Robins merely argued Spokeo’s alleged violation of the FCRA was “willful” which entitled him to statutory damages in the range of $100 to $1000.
The trial court dismissed the case, holding that a plaintiff has no standing to sue when he has not properly pled any injury in fact, even if the statute grants him a cause of action. Robins appealed to the United States Court of Appeals for the Ninth Circuit which reversed the District Court’s ruling, holding that “violation of a statutory right is usually sufficient injury in fact to confer standing.”
The Supreme Court of the United States granted certiorari, deciding to hear the case. At the time of the appeal, the federal appeals courts were split on the issue (a “circuit split”), with the Fifth, Sixth, and Seventh Circuits in agreeance with the Ninth Circuit, while the Second, Third, and Fourth Circuits had required more than mere statutory standing.

Unfortunately, the Supreme Court did not fully set out a clear definition of what amounts to injury in fact. Instead, the court held the Ninth Circuit failed to properly address whether the plaintiff’s injury was concrete, a necessary requirement for standing, and remanded the case to the Ninth Circuit to complete the analysis.
The Court did at least supply some guidance on determining whether a plaintiff’s injury is “concrete” and established that a mere statutory violation is not enough to establish standing. The Court also provided guidance in the context of the FCRA, stating, “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation. A violation of one of the FCRA’s procedural requirements may result in no harm. For example, even if a consumer reporting agency fails to provide the required notice to a user of the agency’s consumer information, that information regardless may be entirely accurate. In addition, not all inaccuracies cause harm or present any material risk of harm. An example that comes readily to mind is an incorrect zip code. It is difficult to imagine how the dissemination of an incorrect zip code, without more, could work any concrete harm.”

How This Affects Maryland and Virginia Businesses

Many businesses are subject to suit under federal statutes that if violated, create a right to sue for the plaintiff, without requiring actual concrete injury. Many of these statutory rights of action exist under the Fair Credit Reporting Act (FCRA), the Fair Debt Collection Practices Act (FDCPA), the Real Estate Settlement Procedures Act (RESPA), the Telephone Consumer Protection Act (TCPA), the Employee Retirement Income Security Act (ERISA), and other similar federal statutory schemes. Many of these laws provide monetary penalties recoverable by consumers and are often brought as class action lawsuits, exposing businesses to liability when the consumers were never harmed by the alleged statutory violations.
For business owners located in the Second, Third, and Fourth Circuits, the Court’s ruling is a victory as it preserves and bolsters the business-friendly law of their respective circuits. Maryland and Virginia are located within the Fourth Circuit, and since 2013, the Fourth Circuit’s holding in David v. Alphin, 704 F.3d 327 (4th Cir. 2013) has protected businesses once subject to bare statutory rights of action without concrete injury. In David v. Alphin, the Fourth Circuit decided the same standing question that the Supreme Court considered in Spokeo, although in the context of an ERISA violation. The court held that a plaintiff must have Article III standing, showing an injury in fact, for the federal courts to hear the case.

The Supreme Court’s decision in Spokeo, Inc. v. Robins preserves the Fourth Circuit’s decision in David v. Alphin, continuing to allow businesses in the Fourth Circuit subject to federal statutory rights of action to file a motion to dismiss for lack of subject matter jurisdiction whenever a plaintiff files a lawsuit alleging statutory standing without alleging injury in fact. Potentially being able to dismiss certain claims early in litigation saves businesses time and money while also minimizing the stress that comes with a prolonged lawsuit. Sometimes knowing this rule can be useful prior to litigation when responding to demand letters. A simple assertion of the rule in a response may prevent potential plaintiffs from filing claims in federal court from the outset.

Conclusion

Although the Supreme Court did not narrow, let alone decide what constitutes concrete injury, the Court’s determination that “Article III standing requires a concrete injury even in the context of a statutory violation” is a victory for businesses across the country in that it sets a threshold requirement that some Circuits have ignored. The decision is a victory for businesses within the Second, Third, and Fourth Circuits because it nonetheless maintains and bolsters the law of those jurisdictions, which preserves a tool for businesses to defend themselves from unwarranted litigation.

By:  W. Hank Fisher, a trial lawyer at Dave Albo – Attorney practicing creditor rights law, business law, and civil litigation.

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