SCOTUS Ruling Could Increase Business, Data Privacy Risks Tied to Class Actions

April 13, 2021, 8:00 AM

Manufacturers, tech companies, and the broader business community may be set to receive a mixed result from the U.S. Supreme Court on how tough it is to get a class action lawsuit dismissed at an early stage. While directly addressing class action standing to bring suit, this pending decision may give broader indication of the court’s position on plaintiffs’ ability to show they have been sufficiently injured.

At issue in TransUnion v. Ramirez is whether a named plaintiff, who suffered unique injuries after being incorrectly placed on a terrorism-related watchlist—and then sued alleging violations of the Fair Credit Reporting Act—should have been allowed to represent a class that included people who may have suffered no actual injury at all.

If that were permitted, the U.S. Chamber of Commerce warned in an amicus brief it would provide a “road map to transform what should be an individualized dispute between a uniquely sympathetic plaintiff and a defendant into a multimillion-dollar class action.” Businesses, in turn, “will find themselves mired in massive lawsuits over alleged technical statutory violations that have not caused actual harm to the vast majority of the class.”

While it was not the kind of oral argument that provides a clear sense of where the justices are going, their questions on March 30 suggest the business community may avoid the sprawling liability that some had forecast. There appear to be enough votes to narrow the class.

But businesses are not certain to walk away with all they had hoped for. The court seemed inclined to recognize a right to standing for a statutory violation that many believed was foreclosed by a key ruling five years ago.

Takeaways From Oral Argument

That 2016 ruling was Spokeo v. Robins, which came up more than 40 times during oral argument. In Spokeo, Justice Samuel Alito wrote for a 6-3 majority that “a bare procedural violation” is not enough for a plaintiff to have standing—the person must have actually been harmed.

Based on that opinion (and the intervening changes to the court’s composition), many observers thought the court would continue raising the bar for standing—perhaps by holding that Spokeo extended past the named plaintiff to apply to absent class members as well; and that the intangible harm from the mere disclosure of information, without more, would not be a sufficient injury for standing.

On the first point, the bar may be as high as projected. Namely, a majority of the justices seem inclined to substantially narrow the size of this class: paring it down to the 1,900 or so people whose inclusion on the terrorism-related list was actually disclosed to a third party, as opposed to the certified class of 8,000 or so whose incorrectly listed names merely could have been disclosed.

But the bar may stop there, as several justices questioned why disclosure itself was not a sufficient injury in this context. Even Alito raised the idea of a “psychological injury” here, commenting at one point, “You know, Spokeo’s discussion of harm is quite clipped and it’s potentially subject to different interpretations.”

It also remains unclear where the court will land on another other issue —how “typical” a named plaintiff must be relative to the rest of the class. Justices Sonia Sotomayor, Elena Kagan, and Stephen Breyer seemed to take the position that typicality is all about the claim—in this case, the general issue of mistakenly being put on the same list—rather than a more narrow requirement of similar harm resulting from that claim.

“I just see this as a trial error,” Sotomayor said of how TransUnion handled that aspect of the case.

It was not as clear where the court’s conservative majority stands on that. They may embrace a more rigorous definition of typicality. But they may agree that unique injury suffered by the named plaintiff is a matter that can be resolved at trial.

Impact on Business Litigation and Data Privacy

In all, the Supreme Court seems unlikely to issue a ruling that fulfills the worst-case scenario the business community warned about. At the very least, the justices seem inclined to substantially narrow the class to those whose names were actually disclosed. That narrowing would itself be significant, as businesses would avoid liability for internal mistakes that never see the light of day.

But if a mistake does leave the company, the justices appear to be inclined to say that disclosure gives class members standing, and, perhaps, that they can be represented by a uniquely harmed named plaintiff.

From there, the class action is off to the races—a result businesses still fear, as, in some ways, businesses already have lost once a class is certified and discovery begins. Expenses build from there, as does the pressure to settle.

It also remains to be seen what type of incorrect disclosure gives rise to an injury. There is, of course, a wide gap between being incorrectly linked to terrorism and getting your ZIP code wrong, as was the case in Spokeo. It may prove difficult for the court to provide a bright-line rule allowing businesses to distinguish between those extremes.

Such a murky ruling could raise unique concerns for tech companies, as some of the country’s largest ones warned in their own amicus brief. “The volume and type of communications and interactions that amici’s technologies facilitate,” they wrote, ”make amici especially susceptible to abusive, no-injury class action litigation similar to the matter before the Court.”

The implications could extend to data privacy and security more generally as well. For example, traditionally, affected parties in a data breach often struggle to establish standing because their injury can be so speculative.

But there have been a few lower court rulings recently that took a more expansive approach to what could be included as an injury. If the Supreme Court softens on that as well, it might open the door to more data breach class actions.

For all the reasons above, the justices’ ruling in TransUnion will be critical for the business community. Even if the court limits the size of the class in this case, it may do so in a way that broadens plaintiffs’ ability to claim an injury and certify a class. That, as the Chamber warned in its brief, would “ratchet up the coercive settlement pressure of future class actions.”

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

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Steve Carey and Sarah Hutchins are partners in Parker Poe’s Business Litigation Group.

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