For the first time in the Ninth Circuit, the Court of Appeals addressed the issue of whether every class member in a class action lawsuit needs “standing” to recover damages at the final judgment stage, and found in the affirmative. In Ramirez v. TransUnion LLC, No. 17-17244, 2020 WL 946973 (9th Cir. Feb. 27, 2020), a class of 8,185 consumers brought a class action against the credit reporting agency TransUnion LLC (“TransUnion”) pursuant to the Fair Credit Reporting Act (“FCRA”), alleging that TransUnion, knowing that its practice was unlawful, incorrectly placed terrorist alerts on the front page of consumers’ credit reports and later sent the consumers misleading and incomplete disclosures about the alerts and how to remove them.
TransUnion placed the alerts on the credit reports by “matching” the names of individual consumers to a list of individuals who are prohibited from transacting business in the United States for national security reasons, known as Specially Designated Nationals (“SDNs”), maintained by the United States Department of the Treasury’s Office of Foreign Assets Control (“OFAC”). TransUnion generated the alleged matches by working with a third-party vendor and using a software program that conducted basic searches of the consumers’ first and last names, which led to inaccurate results shown on the front page of thousands of credit reports. When the consumers discovered the existence of the alerts and tried to remove them, TransUnion sent them confusing information that falsely suggested the alerts were removed and failed to fully disclose how to dispute the alerts.
After a trial in the United States District Court for the Northern District of California, the jury awarded the class about $8 million in statutory damages and about $52 million in punitive damages. TransUnion appealed, alleging, among other things, that the district court should have granted its motion to decertify the class because none of the class members other than the named plaintiff, Ramirez, had standing under Article III of the United States Constitution. Standing is required in every case in the United States and has three elements: 1) an “injury in fact” suffered by the plaintiff that is “concrete and particularized” and “actual or imminent”; 2) a “causal connection between the injury and the conduct complained of”; and 3) it is “likely” as opposed to “merely speculative” that the injury will be “redressed by a favorable decision.”
TransUnion claimed that the class members could not recover the damages they were awarded because each member lacked standing as to each of their three FCRA claims that TransUnion failed to: 1) follow “reasonable procedures” in preparing consumer reports “to assure maximum possible accuracy”; 2) disclose to class members that they were identified as potential OFAC matches when they requested their credit reports; and 3) include a “summary-of-rights” form when TransUnion mailed the class members letters informing them that their names were a potential match on OFAC’s list of prohibited SDNs.
The Ninth Circuit agreed with TransUnion that each individual class member in a class action lawsuit was required to have standing to recover damages, but also agreed with the plaintiff and found that each of the 8,185 class members had standing. The court relied on the Supreme Court case Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1543 (2016), as revised (May 24, 2016), and held that each class member was not required to show that TransUnion actually disclosed his or her credit report to a third party because TransUnion’s violation of the consumers’ statutory rights under the FCRA constituted a concrete injury sufficient to confer standing.
In Spokeo, the Supreme Court adopted a two-part inquiry for determining whether the violation of a statutory right constitutes a concrete injury: (1) whether the statutory provisions at issue were established to protect the claimant’s concrete interests, as opposed to purely procedural rights; and (2) if so, whether the alleged specific procedural violations actually harm or present a material risk of harm to such interests.
As to the class’s failure to follow reasonable procedures claim, the court held that part one was satisfied because the FCRA was enacted “to protect consumers’ concrete interests.” The court acknowledged that “given the ubiquity and importance of consumer reports in modern life . . . the real-world implications of material inaccuracies in those reports seem patent on their face.” The court further held that part two was satisfied because of, among other reasons, the severity of the reporting inaccuracies. TransUnion’s inaccurate matches labeled the consumers as threats to national security such as potential terrorists or drug traffickers, as opposed to merely providing an incorrect zip code. TransUnion’s actions risked causing consumers the uncertainty and stress that the FCRA was designed to prevent.
The court reached a similar conclusion as to the class’s claims that TransUnion failed to disclose that the consumers were identified as potential OFAC matches, and failed to include a summary-of-rights form. First, the court found that the FCRA was enacted “to protect consumers from the transmission of inaccurate information about them,” which satisfied part one. Part two was satisfied because TransUnion’s failure to disclose and include a summary-of-rights form “exposed every class member to a material risk of harm to the core interests the FCRA was designed to protect—their interests in being able to monitor their credit reports and promptly correct inaccuracies.”
The court also reversed the punitive damages award of 6.45 times the statutory damages award because it was unconstitutional, and reduced it to 4 times the statutory damages award.
Notwithstanding the determination that standing existed, the Ninth Circuit’s holding that each class member is required to have standing to recover damages is a first in the Ninth Circuit and is good news for employers and other defendants in class action lawsuits. As stated in the court’s opinion in Ramirez, to “hold otherwise . . . would transform the class action—a mere procedural device—into a vehicle for individuals to obtain money judgments in federal court even though they could not show sufficient injury to recover those judgments individually.”