Legal Alert

U.S. Supreme Court Rules “Real” Harm Required to Recover Statutory Damages

May 17, 2016

In a long-anticipated and significant decision, the U.S. Supreme Court has ruled 6-2 that a plaintiff alleging a violation of the Fair Credit Reporting Act (FCRA) does not have standing under Article III of the U.S. Constitution to sue for statutory damages in federal court unless the plaintiff can show that he or she suffered "concrete," "real" harm as a result of the violation. The ruling will extend beyond FCRA litigation to numerous other statutes used by the plaintiffs' class action bar to obtain massive recoveries in class actions based on alleged technical violations that did not cause any actual harm to the named plaintiffs and class members.

In Spokeo, Inc. v. Robins, the plaintiff claimed that the defendant website operator willfully violated the FCRA by allegedly publishing inaccurate personal information about him. Reversing the district court's dismissal of the plaintiff's complaint for lack of standing, the U.S. Court of Appeals for the Ninth Circuit ruled that the defendant's alleged violations of the plaintiff's FCRA statutory rights were sufficient to satisfy the injury-in-fact requirement of Article III. The Ninth Circuit concluded that it was constitutionally permissible for Congress to treat violations of such rights as "concrete, de facto injuries" that automatically satisfy the injury-in-fact requirement.

Justice Alito wrote the Supreme Court opinion, in which Chief Justice Roberts and Justices Kennedy, Thomas, Breyer, and Kagan joined. (Justice Ginsburg filed a dissenting opinion in which Justice Sotomayor joined.) The Supreme Court rejected the Ninth Circuit's conclusion that a plaintiff automatically has Article III standing "whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right." Instead, it interpreted Article III standing to require "a concrete injury even in the context of a statutory violation" and observed that "[f]or that reason, Robins could not, for example, allege a bare procedural violation, divorced from any concrete harm, and satisfy the injury-in-fact requirement of Article III."

Observing that particularization "is necessary to establish injury in fact, but it is not sufficient," the Court found the Ninth Circuit's standing analysis to be incomplete because it "failed to fully appreciate the distinction between concreteness and particularization." According to the Court, the Ninth Circuit's observations regarding the personal and individualized nature of the plaintiff's alleged injury only concerned particularization and did not address the concreteness of the alleged injury. The Court indicated, however, that although an injury must "actually exist" to be concrete, the Article III concreteness requirement can be satisfied by "the risk of real harm" and "the violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact." Because the Ninth Circuit did not address whether the alleged FCRA violations "entail a degree of risk sufficient to meet the concreteness requirement," the Court vacated the Ninth Circuit's judgment and remanded the case for proceedings consistent with its opinion.

The Court's decision could discourage the filing of class actions under the numerous federal statutes that provide for statutory damages where actual or potential harm resulting from a violation is often nonexistent. It could also create individualized issues that will present challenges for class-certification motions in cases involving such statutes. In addition to the FCRA, such statutes include the Truth in Lending Act, the Real Estate Settlement Procedures Act, the Telephone Consumer Protection Act, the Electronic Fund Transfer Act, the Fair Debt Collection Practices Act, the Homeowners Protection Act, the Fair Housing Act, the Credit Repair Organizations Act, the Employee Retirement Income Security Act, the Lanham Act, the Americans with Disabilities Act, and the Video Privacy Protection Act. The decision could also affect state law statutory damages claims that are filed in federal court.

On June 7, 2016, Ballard Spahr attorneys will hold a webinar on the Spokeo decision from 12 p.m. to 1 p.m. ET. The webinar will feature an in-depth discussion of the decision and its potential implications. The webinar registration form is available here.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws, and its skill in litigation defense and avoidance.

Copyright © 2016 by Ballard Spahr LLP.
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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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