KT Class Action Blog

Category: Privacy

Posted on Monday, December 4 2017 at 12:49 pm by
Following Federal Courts’ Lead, North Carolina Superior Court Dismisses No-Injury Class Action For Lack of Standing

by Joe Dowdy and Phillip Harris

The United States Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), which holds plaintiffs without concrete injury lack standing to sue in federal court, relies on federal constitutional and jurisprudential principles. Because federal standing flows from Article III of the Constitution, Spokeo does not control the standing issue in state court litigation. As a recent North Carolina trial court decision shows, however, federal Spokeo precedents can be persuasive to a state court judge faced with a class action in which the named plaintiff cannot allege or prove a concrete injury.

In Miles v. The Company Store, Inc., at al., No. 16-CVS-2346 (Alamance Cnty, N.C. Sup. Ct. Nov. 16, 2017) (slip op.) (unpublished), the named plaintiff (Miles) alleged that the defendants generated and provided a copy of a receipt revealing the first six digits and the last four digits of the credit card plaintiff used to make a purchase. Miles sought recovery on a class-wide basis for alleged intentional violations of the Fair and Accurate Credit Transactions Act (“FACTA”) (see 15 U.S.C. §§ 1681(c)(g)(1)), which prohibits the display of “more than the last 5 digits of the card number . . . upon any receipt provided at the point of the sale or transaction.” Problematically, however, Miles did not allege the receipt was seen by anyone other than himself. Miles, slip. op. at 2. Further, although Miles alleged he faced an increased risk of identity theft, he did not say that he actually suffered identify theft. Id.

North Carolina Superior Court Judge Richard S. Gottlieb ruled that the allegations did not confer standing for Miles to bring suit in state court. Judge Gottlieb relied upon North Carolina appellate decisions and did not cite Spokeo. He did, however, cite to federal cases that relied on Spokeo. See id. at 3 (“This court agrees that the injury alleged here does not meet the concreteness requirement to establish an injury in fact in order to support standing.”).

Miles predictably argued that North Carolina required less for state-court standing than Spokeo and its progeny require in federal court. But Judge Gottlieb found the no-injury claims insufficient under North Carolina standing law just as under federal standing decisions:

Plaintiff correctly notes that the Supreme Court of North Carolina has identified some circumstances where standing is proper in North Carolina even when it would not be proper under federal law. However, standing still requires a plaintiff to allege such a personal stake in the outcome of the controversy as to assure that concrete adverseness . . . sharpens the presentation of issues. For example, . . . a plaintiff c[an] maintain standing if they have [been] injuriously affected, even if they [cannot] show an injury in fact which is concrete and particularized. Here, Plaintiff has only alleged that Defendants provided him a copy of his own personal information, exceeding federal statutory limits. Since Plaintiff already has access to his personal information, this does not have an injurious effect or create any other personal stake in the controversy sufficient to assure concrete adverseness. Therefore Plaintiff does not have standing to pursue a claim.

Id. at 3 (citations and quotation marks omitted).

Miles might appeal the decision, which could result in a published decision on the issue from the North Carolina Court of Appeals or the North Carolina Supreme Court. In the meantime, defendants facing no-injury state-court class actions should consider carefully urging Spoke-type standing challenges wrapped in state law standing limitations.

Key Takeaway: Spokeo can impact the standing analysis in no-injury class action at the state level, when a state trial court is left to analyze state constitutional and jurisprudential principles. Accordingly, a defendant in a state court no-injury class action should marshal state law and consistent elements of Spokeo jurisprudence to mount the most effective challenge to state-court standing in such cases.

Posted on Monday, November 27 2017 at 8:51 am by
FCRA Injury Requirement Remains Murky Following Supreme Court Denial of Certiorari

by Annica Bianco

On November 12, 2017, the U.S. Supreme Court declined to hear a case that would have clarified an important issue in Fair Credit Reporting Act (FCRA) litigation, a popular source of no-injury class action litigation. The petition sought review of a Ninth Circuit decision in a putative class action holding that an “informational injur[y]” constitutes a “real-world harm” sufficient to establish standing for purposes of FCRA litigation. Petition for Writ of Certiorari at 4, M-I LLC v. Syed, No. 16-1524 (June 19, 2017).

What constitutes an informational injury, practically speaking? The answer is far from clear. In Syed, the alleged “informational injury” arose from the simple fact that the prospective employer combined into one document the required FCRA disclosure with a liability waiver. Syed v. M-I, LLC, 853 F.3d 492, 499 (9th Cir. 2017). Plaintiff’s signature on that single document served as both an authorization for the employer to procure his consumer report and as a broad release of liability. Id. Plaintiff alleged that the combination generated confusion concerning his rights and that he would not have authorized the disclosure had it been a standalone document. Id. The Ninth Circuit held those allegations were sufficient to establish standing. Id. at 500.

Stated more generally, the Ninth Circuit found that an informational injury can arise in the FCRA context “when applicants are deprived of their ability to meaningfully authorize [a] credit check.” Id. at 499. In reaching this conclusion, the court reasoned that FCRA’s requirement that a job candidate authorize the collection of consumer information by a prospective employer creates a right to privacy because the candidate can withhold permission. Id.

But the takeaway is broader: so-called “informational injuries” can provide the requisite injury-in-fact to establish standing to pursue a FCRA claim. This is important because FCRA violations can result in statutory penalties ranging from $100 to $1,000 per violation, as well as punitive damages at the discretion of the court, and attorneys’ fees and costs. On a class level, these numbers add up. In a 1,000 member class, for example, statutory penalties alone can reach $1,000,000.

Syed broadened the universe of harms that may give rise to a FCRA claim, and following the Supreme Court’s denial of certiorari in Syed, the concept of an “informational injury” will continue to be subject to broad judicial interpretation.

The Supreme Court’s decision not to hear Syed is also important because it leaves intact the Ninth Circuit’s ruling on the merits. After finding the plaintiff had standing, the court went on to hold that the prospective employer’s combination of the required FCRA disclosure with a liability waiver was not only a statutory violation, but a willful violation of the statute. Id. at 503. Effectively, the court held that the combination of the forms was knowing or reckless. Id. (citing Safeco Insurance co. of America v. Burr, 551 U.S. 47 (2007)). Under this precedent, employers will continue to face the risk of FCRA liability from even technical violations.

The landscape is different in other circuits. In August of this year, for example, the Seventh Circuit considered an analogous situation to Syed and came to the opposite conclusion. Groshek v. Time Warner Cable, Inc., 865 F.3d 884 (7th Cir. 2017). In that case, the plaintiff alleged that the prospective employer’s failure to provide a FCRA compliant disclosure constituted a concrete informational injury. In Groshek, like Syed, the alleged violation stemmed from the inclusion of “extraneous information” in the disclosure. Id. at 885. The Seventh Circuit found, however, that while the plaintiff had alleged a statutory violation, it was “completely removed from any concrete harm or appreciable risk of harm.” Id. at 887.

But Groshek distinguished Syed on the facts. The Seventh Circuit reasoned that Syed, unlike Groshek, presented factual allegations plausibly suggesting that the disclosure, as structured, created confusion, and that the plaintiff in Syed would not have signed the disclosure had it been a standalone document, as required by the FCRA. Id. at 889.

The Supreme Court’s denial of certiorari preserves this arguable split in circuit authority for now. But if the plaintiff in Groshek has his way, the issue will be before the Supreme Court soon. On October 30, 2017, the Groshek plaintiff petitioned the Supreme Court for certiorari.

Until the Supreme Court decides whether to hear the Groshek appeal, employers concerned about potential FCRA liability should give careful attention to their disclosure forms to ensure they comply with the letter of the statute, to minimize the risk of litigation. If certiorari is granted, regardless of how the Supreme Court decides the matter, the issue of FCRA standing and injury could finally be clarified.

Posted on Friday, August 11 2017 at 2:18 pm by
California Supreme Court endorses “fishing expedition” discovery under PAGA

by Jon Michaelson

In its recent decision concerning the proper scope of discovery under California’s Labor Code Private Attorneys General Act of 2004 – known as “PAGA” – the California Supreme Court authorized discovery just as broad as that available in California class action proceedings, while at the same time weakening the ability of defendants to object to such discovery on invasion of privacy grounds. As a result, Williams v. Superior Court, 5 Cal. 5th 331, 2017 WL 2980258 (Cal. July 13, 2017), presents new challenges for California employers and others in defending PAGA and similar “representative action” claims.

PAGA, set forth in California Labor Code sections 2698 et seq., authorizes and encourages employees to bring actions against their employers to recover civil penalties for certain Labor Code violations. A PAGA suit is essentially a qui tam or representative proceeding brought on behalf of all affected employees, and thus is similar to a class action. Unlike a class action, however, the named plaintiff is entitled to only 25 percent of any recovery, with the remaining 75 percent allocated to the State of California to fund enforcement and educational activities.

In the Williams case, the plaintiff alleged that his employer – Marshalls Stores – failed to provide required meal and rest periods or compensation in lieu of required breaks; understaffed stores, forcing employees to work during meal periods without compensation; directed managers to erase meal period violations from time records; instituted a systematic, company-wide policy to avoid paying premiums for missed breaks; failed to provide timely, accurate, and complete wage statements; and followed a policy and practice of forcing workers to carry out certain tasks without compensation. In early discovery regarding this pro forma laundry list of alleged wrongdoing, Williams served special interrogatories demanding the disclosure of contact information and basic employment history for all Marshalls employees in California. In response, Marshalls disclosed that it had roughly 16,500 California employees, and objected to furnishing their contact information on grounds of overbreadth, undue burden, and invasion of privacy.

Ruling on Williams’ motion to compel, the trial court directed Marshalls to provide employee contact information limited to the single store at which the plaintiff worked, subject to an opt-out notice to enable workers at that store to protect their privacy if they wished, and held open the possibility that following further discovery Williams might obtain contact information for additional employees depending on his ability to demonstrate that his claims had substantive merit. Recognizing that there was no controlling authority on this subject, the trial judge certified his order for immediate appellate review. The Court of Appeal upheld the order, ruling that Williams was required to “set forth specific facts showing good cause” for the broad discovery he had sought and also that, in view of the third party privacy interests involved, Williams “must demonstrate a compelling need for discovery” – in other words, “the discovery sought is directly relevant and essential to the fair resolution of the underlying lawsuit.”

In a unanimous opinion, the California Supreme Court reversed. The Court began with the fundamental proposition that a party has a right to obtain discoverable information, absent a clear legal prohibition. And in this instance, the California discovery statute expressly authorizes discovery of the identity and location of those who might have knowledge of discoverable evidence. As a result, Williams was presumptively entitled to the information he had sought, and the requirements which the trial court and Court of Appeal had attempted to impose on him to justify the interrogatories were improper. Rather, the California Supreme Court held that the burden clearly fell on Marshalls to substantiate its objections.

With respect to overbreadth, Marshalls argued that contact information as to employees who did not share Williams’ position, job classification, and store location “exceeded the scope of permissible discovery.” The Court, however, viewed Williams’ request as an effort to identify other aggrieved employees and to obtain evidence with respect to the state-wide Labor Code violations he alleged. The Court analogized the situation to a putative consumer class action where it had held that “[c]ontact information regarding the identity of potential class members is generally discoverable, so that the lead plaintiff may learn the identities of other persons who might assist in prosecuting the case.” Pioneer Electronics (USA), Inc. v. Superior Court, 40 Cal. 4th 360, 373, 53 Cal. Rptr. 3d 513, 150 P.3d 198 (2007). It found nothing in the purpose or language of PAGA to suggest that a different standard for discovery should apply. And it set aside differences between a class action and a PAGA case in terms of the differing duties of class versus PAGA counsel to those impacted by the case and in terms of possible binding impacts of judgments in class actions versus PAGA actions as potentially legitimate reasons for a trial court’s discretionary decision to alter the normal approach to discovery. In sum, “[t]he trial court had no discretion to disregard the allegations of the complaint making this case a statewide representative action from its inception,” and the Court of Appeal “likewise misread the complaint when it described Williams’ claim as ‘parochial” and thus affording no basis for statewide contact information.” 2017 WL 2980258, at *8.

Relative to burden, Marshalls argued that it should not be forced to provide contact information for thousands of other employees absent a prior showing that the named plaintiff himself had been subject to any alleged Labor Code violations or that at least some others had been. Marshalls did not, however, provide any information indicating how much effort or expense would be necessary to gather the data involved for its entire California workforce. That failure in proof proved fatal to the burden objection. The Court had little difficulty rejecting Marshalls’ attempt to impose a good cause requirement on Williams: “[a]s a general matter, the [discovery] statute… imposes no obligation on a party propounding interrogatories to establish good cause or prove up the merits of any underlying claims.” 2017 WL 2980258, at *9. Moreover, Marshalls had not made a formal request to the trial court to manage the sequence or timing of discovery “for the convenience of parties and witnesses and in the interests of justice.” Id. at *10. Accordingly, the burden contention was unavailing: “[t]hat the eventual proper scope of a putative representative action is as yet uncertain is no obstacle to discovery; a party may proceed with [discovery] precisely in order to ascertain that scope.” Id.

And then, turning to the question of privacy, the Court noted that neither the trial judge nor the Court of Appeal had undertaken the analysis mandated by Hill v. National Collegiate Athletic Ass’n, 7 Cal. 4th 1, 26 Cal. Rptr. 2d 834, 865 P.3d 633 (1994): (1) whether a legally protected privacy interest exists, (2) whether there is a reasonable expectation of privacy under the circumstances, and (3) the relative seriousness of the potential invasion of privacy. This framework had been extended over the years to the consumer class action arena, as in Pioneer Electronics, 40 Cal. 4th at 372, and to wage and hour class actions in California, as in Belair-West Landscape, Inc. v. Superior Court, 149 Cal. App. 4th 554, 561-562, 57 Cal. Rptr. 3d 197 (2007). Addressing these elements, the Court recognized that while other Marshalls employees had a reasonable expectation of privacy which was implicated by requests for their names and contact information, the second Hill factor – reasonable expectation of privacy under similar circumstances – was not met because those other employees might expect and indeed might even hope that their names and contact information would be shared so that their employment rights could be protected. And third, the potential seriousness of any invasion of privacy had been mitigated by Williams’ willingness to accept an opt-out arrangement for other employees. As a result, the Court rejected Marshalls’ privacy objection. 2017 WL 2980258, at *13.

But that was not all. The Court went on to discuss the manner in which the Court of Appeal had handled the privacy question. It observed that instead of following Hill, the Court of Appeal had started (and also essentially ended) its analysis by examining whether Williams, as the requesting party, had demonstrated a compelling state interest in the disclosure of the private information involved. In doing so, the Court of Appeal had followed a host of cases which effectively compressed the assessment of privacy objections down to that single consideration. Doing so, per the Supreme Court, was not appropriate: “[we reject] the de facto starting assumption that … an egregious invasion is involved in every request for discovery of private information. Courts must instead place the burden on the party asserting a privacy interest to establish its extent and the seriousness of the prospective invasion, and against that showing must weigh the countervailing interests the opposing party identifies….To the extent prior cases require a party seeking discovery of private information to always establish a compelling interest or compelling need, without regard to … other considerations … they are disapproved.” 2017 WL 2980258, at *14.

Applying this logic, the Court rejected several factors which the Court of Appeal had deemed important, including the fear of retaliation on the part of Williams’ fellow employees: “[to the extent real, this] cuts the other way, in favor of facilitating collective actions so that individual employees need not run the risk of individual suits.” 2017 WL 2980258, at *15. Nor, according to the Court, was it necessary for Williams to demonstrate the existence of any illegal uniform companywide policy as an element of “compelling need.” That “may be a convenient or desirable way to show commonality of interest in a case where class certification is sought, but it is not a condition for discovery, or even success, in a PAGA action, where recovery on behalf of the state and aggrieved employees may be had for each violation, whether pursuant to a uniform policy or not.” Id.

PAGA lawsuits are inherently difficult to defend, and the decision in Williams makes the task that much more difficult. While the sorts of objections which Marshalls raised are not absolutely foreclosed, employers in the future will have to advance far more compelling arguments and evidence to sustain those positions and avoid workforce- wide discovery.

Posted on Monday, July 31 2017 at 12:59 pm by
What the Third Circuit’s Decision in Susinno Means for Spokeo-Based Standing Arguments in TCPA Cases

by Joe Dowdy and Phillip Harris

Telephone Consumer Protection Act (“TCPA”) plaintiffs often file putative class actions seeking potentially crippling statutory damages. Not surprisingly, TCPA defendants often seek an early dismissal based on Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), particularly when the named plaintiff alleges minor, technical TCPA violations. The Spokeo argument typically contends that, despite a technical violation of the TCPA, the plaintiff has not suffered a “concrete injury” sufficient to confer Article III standing. Following the Ninth Circuit, the Third Circuit recently rejected this defense. See Susinno v. Work Out World Inc., No. 16-3277, 2017 WL 2925432 (3d Cir. July 10, 2017); Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1043 (9th Cir. 2017). Particularly after the Third Circuit’s decision in Susinno earlier this month, some observers are questioning the viability of Spokeo arguments in TCPA cases, but consideration of these cases in context reveals that this conclusion may be somewhat premature.

The Susinno complaint alleged what can only be described as a minor TCPA violation. The named plaintiff claimed that the defendant fitness company placed a single, unsolicited, and unanswered call to her cell phone and left a one-minute voicemail message. 2017 WL 2925432, at *1. The district court found this insufficient to establish standing, finding a single solicitation not “‘the type of case that Congress was trying to protect people against’” and that the plaintiff suffered no concrete injury. Id.

Following In re Horizon Healthcare Services Inc. Data Breach Litigation, 846 F.3d 625 (3d Cir. 2017), the Third Circuit broadly interpreted Spokeo to provide standing where a party brings a statutory claim “alleging ‘the very injury [the statute] is intended to prevent,’ and the injury ‘has a close relationship to a harm … traditionally … providing a basis for a lawsuit in English or American courts.’” 2017 WL 2925432, at *4 (citing Horizon, 846 F.3d at 638-40). In the Third Circuit’s view, the Susinno plaintiff met this standard because: (1) the TCPA “addresses itself directly to single prerecorded calls” for the purpose of protecting consumers’ interests in privacy and avoidance of nuisances, and (2) in enacting the TCPA, Congress sought to protect the same interests implicated in the traditional common law cause of action for invasion of privacy. Id. Thus, Plaintiff’s claim of nuisance and an invasion of privacy sufficed. Id. 

The Third Circuit also favorably cited Van Patten v. Vertical Fitness Group, LLC, 847 F.3d 1037, 1040-41 (9th Cir. 2017), where the Ninth Circuit found standing under Spokeo where the plaintiff received two unwanted text messages from a fitness company. In the Ninth Circuit’s view, the plaintiff possessed standing because “[t]he TCPA establishes the substantive right to be free from certain types of phone calls and texts absent consumer consent” and “[u]nsolicited telemarketing phone calls or text messages, by their nature, invade the privacy and disturb the solitude of their recipients.” Id. at 1043. As a technical matter, however, the Van Patten decision holds only that the plaintiff sufficiently alleged standing, and the court did not engage in a detailed factual analysis even though the case had proceeded to the summary judgment phase. Id. at 1040.

Key takeaways. The Susinno decision demonstrates that, when confronted with a complaint alleging that the plaintiff incurred the type of harm the TCPA seeks to address, at least some post-Spokeo courts will remain hesitant to find a lack of standing. In these jurisdictions, Rule 12 motions to dismiss will largely be unsuccessful. A defendant might be better served by deposing the plaintiff and developing direct evidence that the plaintiff’s alleged harms are inconsequential, and hoping that a fact-based attack on the standing issue will produce a dismissal on summary judgment.

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