Goodwin Insights August 04, 2021

Supreme Court Reinforces Limits on Federal Court Standing, But Important Questions Remain

On June 25, 2021, the U.S. Supreme Court decided TransUnion LLC v. Ramirez, revisiting some of the Article III standing principles it had set forth in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016), and addressing their application to Rule 23 class actions.

Parties defending claims under all sorts of consumer-protection statutes have cited Spokeo – with varying degrees of success in attacking claims in which plaintiffs allege a technical violation of the law but struggle to explain how they were harmed. Relatedly, parties defending class actions have again, with varying degrees of success raised standing defenses with respect to absent class members as grounds for denying class certification or limiting a judgment, reasoning that if a court lacks jurisdiction over claims by one unharmed plaintiff, it also lacks jurisdiction over a plaintiff class that might include any number of unharmed members.

Ramirez considered both aspects of federal court standing, clarifying how certain claims of harm should be addressed but leaving some important questions, particularly concerning the Rule 23 implications, unresolved.

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Ramirez, like Spokeo, arose from Fair Credit Reporting Act (FCRA) claims alleging that the defendant failed to “follow reasonable procedures to assure maximum possible accuracy” of its consumer background data, as the statute requires. 15 U.S.C. § 1681e(b).

In Spokeo, the case came to the Supreme Court from the pleading stage of the case, where the district court had dismissed it on the ground that the data, while technically inaccurate, caused the plaintiff no harm. The Supreme Court held that this “bare procedural violation, divorced from any concrete harm,” deprived him of standing to sue in federal court.

Ramirez, by contrast, came to the Supreme Court after a full trial and $60 million verdict in favor of the plaintiff and a certified class. The key factual difference was that the plaintiff there, unlike in Spokeo, had concededly suffered palpable harm when an alert that he was a “potential match” to a name on a government list of sanctioned terrorists and drug traffickers cost him an auto loan. His class included 1,853 others who had the same alert on their credit reports and 6,332 additional members who had it in their credit file without it ever appearing on a report sent to a third party. The U.S. Court of Appeals for the Ninth Circuit had affirmed a damages award to the entire class on the stated ground that it was sufficient for standing that “all 8,185 class members suffered a material risk of harm” from having the alert in their file, regardless whether it was ever disseminated. See Ramirez v. TransUnion LLC, 951 F.3d 1008 (9th Cir. 2020).

The Supreme Court granted certiorari to address “[w]hether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, let alone an injury anything like what the class representative suffered.” Justice Kavanaugh’s opinion for the 5-4 majority ended up holding that the 1,853 class members whose reports were disseminated suffered actual injury in the form of “concrete reputational harm,” but the 6,332 class members whose reports were never disseminated suffered no harm and had no standing to seek damages. Several important takeaways emerge from the opinion for companies that face suits under all varieties of consumer statutes, and especially for those that face putative class claims where the class-certification stage is the most outcome-determinative stage of the case.

The Court rejected several theories of liability plaintiffs had used to satisfy (or evade) Spokeo’s concrete injury requirement. In claiming that the 6,332 class members whose reports were never disseminated suffered a concrete injury, the Ramirez respondents argued that they had all suffered a “risk of future harm” i.e., that the information in their credit files “would be disseminated in the future to third parties and thereby cause them harm.” They had based this theory on language in Spokeo obliquely suggesting that “the risk of real harm” can sometimes “satisfy the requirement of concreteness,” and indeed some lower courts had allowed claims to proceed on that basis.

But Ramirez now rejects the proposition that “the mere risk of future harm, standing alone, . . . qualif[ies] as a concrete harm.” The majority drew an analogy to a woman sharing the road with a reckless driver, who undoubtedly “exposed the woman to a risk of harm” even though she “makes it home safely.” Likewise, the Court held, “the 6,332 plaintiffs did not demonstrate that the risk of future harm materialized. . . . Nor did those plaintiffs present evidence that the class members were independently harmed by their exposure to the risk itself.” So it is now clear that a risk of harm only amounts to a concrete injury when the risk actually “materializes,” or when the unmaterialized risk caused some independent harm like anxiety or some other “emotional injury.” In particular, this calls into question the continued viability of some data-breach cases in which some courts have found that “plaintiffs whose data has been compromised, but not yet misused, have [] suffered an injury-in-fact sufficient to confer Article III standing.” E.g., Pisciotta v. Old Nat’l Bancorp, 499 F.3d 629, 634 (7th Cir. 2007). Ramirez can be cited to support an argument that actual “misuse” is the materialized risk necessary to amount to an injury.

Ramirez also rejected another tactic plaintiffs had used to satisfy Spokeo’s concrete-injury requirement. Spokeo cited in passing a pair of cases holding that the “inability to obtain information” Congress wanted to be available to voters is an Article III injury. See FEC v. Akins, 524 U.S. 11 (1998); Public Citizen v. DOJ, 491 U.S. 440 (1989). Plaintiffs have argued similar “informational injuries” in consumer cases when some statutorily mandated disclosure language is missing or in the wrong form. Ramirez rejects the “informational injury” precedents as a basis for standing in these circumstances. Akins and Public Citizen, it pointed out, “involved denial of information subject to public-disclosure or sunshine laws that entitle all members of the public to certain information,” but FCRA is not “such a public-disclosure law.” The Court added that the Ramirez plaintiffs “identified no ‘downstream consequences’ from failing to receive the required information.”

The Court upheld other theories plaintiffs have used to support claims of concrete injury. More hazardously for defendants, the Court may not have applied the “downstream consequences” principle consistently. For the 1,853 class members whose reports were disseminated, the Court found they had established a concrete injury on a “reputational harm” theory, rejecting TransUnion’s argument that a FCRA class should be defined “in terms of individuals who were denied credit because of faulty procedures” or suffered some similar downstream consequences.

The Court based this holding on a determination that the claimed reputational harms bore a “close relationship” to the common-law tort of defamation, referencing Spokeo’s statement that no further inquiry into concreteness is necessary when “an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts.” Even so, whether the dissemination of those credit reports in fact worked any reputational harm is arguably an open question turning on the presence (or absence) of downstream consequences such as whether anybody actually saw the allegedly misleading content, and, if so, whether they were in fact misled into believing the class member was a sanctioned criminal.

TransUnion may have invited the Court to discount these consequences by conceding it might “perhaps” be appropriate to define the class “in terms of those who had a credit report . . . actually disseminated to a third party” — precisely what the Court ended up doing. In any event, plaintiffs can be expected to continue resisting inquiries into downstream harms by analogizing their grievances to historic common law claims, and courts will have to decide ad hoc just how “close” a “relationship” is close enough.

The Court avoided the questions it granted certiorari to answer. Recall that the Court took Ramirez to address “[w]hether either Article III or Rule 23 permits a damages class action where the vast majority of the class suffered no actual injury, let alone an injury anything like what the class representative suffered.” There had been a circuit split with some jurisdictions holding that no class can be certified if any members lack standing, others holding otherwise, and others pursuing a third way like the Ninth Circuit’s holding in Ramirez that uninjured consumers can belong to the class but cannot recover monetary damages at final judgment. Many anticipated the Supreme Court would use Ramirez to resolve the split, but it did not. In a footnote, it said, “We do not address the distinct question whether every class member must demonstrate standing before a court certifies a class.” But it was only at that stage “before a court certifies a class” that there was any doubt about whether Article III or Rule 23 permits a class with uninjured members to proceed.

Ramirez came to the Court in the unusual posture where the 6,332 uninjured class members were identified with precision and easily segregated from the rest. But more often, the standing question arises at the certification stage, when defendants argue that certification must be denied because uninjured members can’t be included in the class without violating Article III and cann’t be identified and excluded from the class without violating Rule 23’s requirement that common issues predominate over individualized ones. The Court will have to find another vehicle to resolve whether the majority rule has it right that Article III and Rule 23 preclude such cases from proceeding past the certification stage.

Ramirez also concluded that it “need not decide whether Ramirez’s claims were typical of the claims of the class under Rule 23,” thus leaving unanswered the other question it posed, whether Rule 23 bars certification when there is no showing that absent class members suffered “injury anything like what the class representative suffered.” A dissent at the Circuit level summed up the problem: the trial “opened with class counsel telling jurors that they would learn ‘the story of Mr. Ramirez.’ And indeed they did. . . . The story of the absent class members, in contrast, went largely untold,” resulting in the jury’s awarding damages to thousands of others based on its reaction to Ramirez’s experiences without “any evidence that they were in the same boat as Ramirez.” The U.S. Department of Justice considered this question important enough to weigh in on it in Ramirez with an amicus submission, where it warned that “[i]f a plaintiff who suffered atypical injuries is permitted to represent a class, a jury might over- or under-value the impact that a defendant’s conduct had on other class members, and accordingly set statutory damages at too high or low an amount” exactly what the dissenting judge below believed had actually come to pass.

The Supreme Court decided its standing ruling relieved it from having to answer this question and instructed the Ninth Circuit to “consider in the first instance whether class certification is appropriate.” But the Ninth Circuit had already decided that question in the first instance in the ruling under appeal, when it recognized that the differences between Ramirez and the other class members “do not defeat typicality.” It’s unclear why the Supreme Court thought its standing determination rendered this separate holding unripe for review, as the typicality issue was not materially different for the shrunken class of 1,853 than for the original class of 8,185.

Spokeo might have lost a vote, as calls grow for further clarity. In 2016, Justice Thomas joined the Spokeo majority’s determination that Article III requires a concrete injury in fact. But in Ramirez, he dissented, opining that “[a]t the time of the founding,” a court could “possess judicial power over an action with no showing of actual damages” so long as “the plaintiff sought to enforce a right held privately by an individual” as opposed to “a duty owed broadly to the community.” He noted that “it was not until 1970 – 180 years after the ratification of Article III  that the Court even introduced the ‘injury in fact’ (as opposed to injury in law) concept of standing.”

For this proposition, Justice Thomas cited, and was obviously influenced by, Eleventh Circuit Judge Newsom’s recent concurrence in Sierra v. Hallandale Beach, 996 F.3d 1110 (11th Cir. 2021), in which Judge Newsom set forth an analysis that led him to “the view – reluctantly, but decidedly – that our Article III standing jurisprudence has jumped the tracks.” Aside from what he saw as a departure from the original understanding of judicial power, Judge Newsom expressed frustration that “Spokeo has raised more questions than it answered,” giving courts little guidance on how “to draw bright lines between injuries that are ‘real’ and ‘concrete,’ even if not ‘tangible’ . . . ; between statutory violations that ‘can be sufficient in some circumstances’ to constitute Article III injuries and ‘bare’ violations, which cannot; and between the circumstances in which the risk of real harm is ‘material’ and those in which it is not.” Ramirez, as we have seen, resolves the last of those quandaries, but not the rest. The lower courts will likely continue to reach disparate results on what, precisely, separates the tangibly concrete from the intangibly concrete until another opportunity arises for the Court to provide clearer guidance.