United States: Procedural FCRA Violation Without Harm Is Insufficient For Standing, 9th Circuit Rules

The U.S. Court of Appeals for the Ninth Circuit held on July 13 that procedural violations of the Fair Credit Reporting Act without actual harm were insufficient to confer Article III standing. The court found in Dutta v. State Farm that, to establish standing, plaintiffs had to show that these violations actually harmed, or created a material risk of harm for them, making it more difficult for plaintiffs to succeed on such claims.

The Fair Credit Reporting Act

Congress enacted the FCRA to "ensure fair and accurate credit reporting, promote efficiency in the banking system, and protect consumer privacy." Safeco Insurance Company of America v. Burr (2007). The FCRA was intended to protect the privacy rights of job applicants and consumers seeking credit and insurance and to promote the correction of any errors in their consumer reports by providing them with notice that the consumer reports would be used. When consumer reports are used in the employment context, employees or prospective employees must be provided with their consumer report before adverse action is taken — known as a pre-adverse action notice — so that they have the opportunity to warn prospective employers of those errors.

The FCRA provides a private right of action against users of consumer reports, including employers who use background checks for hiring and retention, for their willful or negligent failures to comply with the FCRA's requirements. For willful violations, plaintiffs may recover statutory damages, punitive damages, and attorney's fees and costs.

Background

In 2014, Bobby Dutta applied for employment with State Farm Mutual Automobile Insurance Company through the company's Agency Career Tracking, or ACT, program. As part of the application process, Dutta authorized State Farm to obtain his consumer credit report. State Farm reviews the credit history of every ACT applicant for the 24-month period prior to applying. If an applicant's credit report indicates a charged-off debt greater than $1,000 or three or more than 90-day late payments, the applicant is disqualified from continuing in the ACT program. Charged-off debt is debt where the creditor has declared that the debt is unlikely to be collected and typically involves debt where the debtor has not made payments for a long period of time.

Dutta alleges that a State Farm employee informed him on a telephone call that, because of a charged-off debt and two loan delinquencies, his employment application was rejected. Three days after the phone call, Dutta received a pre-adverse action notice, which enclosed a copy of his credit report. Dutta contacted State Farm and disputed the accuracy of the report, specifically stating that, although the charged-off debt listed in the report was dated February 28, 2014, he had not made a payment on the debt since 2010. Dutta also stated his past loan delinquencies were modified mortgage loans and that he had made trial payments "much earlier than what was reported in the credit report." Despite his explanations, State Farm still informed him that he was withdrawn from the ACT program.

Dutta filed a class action complaint, alleging that State Farm had denied his employment application based on his credit report without providing him sufficient notice and an opportunity to correct the inaccuracies in the report required under FCRA. State Farm moved for summary judgment and attached the declaration of one of its employees to its reply papers. The declaration explained that the existence of the charge-off debt within the 24-month review period alone disqualified Dutta from continuing in the ACT program. Dutta did not object in the district court to this declaration or request an opportunity to file a surreply. Relying on the declaration, the district court granted summary judgment on behalf of State Farm, concluding that Dutta lacked standing because he had failed to alleged "an injury in fact."

Ninth Circuit Decision

The Ninth Circuit affirmed the district court's decision to grant summary judgment, finding that Dutta had failed to show "how the specific violation of [the FCRA] alleged in the complaint actually harmed or presented a material risk of harm to him" in Dutta v. State Farm Mutual Automobile Insurance (July 13, 2018).

As an initial matter, the Ninth Circuit considered the district court's reliance on the declaration that State Farm submitted in its summary judgment reply papers, which Dutta objected to as improper for the first time on his appeal. The court held that Dutta's failure to object at the district court level waived any challenge to the admissibility of the declaration.

Addressing the issue of standing, the Ninth Circuit cited the Supreme Court's opinion in Spokeo v. Robins (2016), and explained that Article III standing required that a plaintiff allege a "concrete and particularized" injury, which may be intangible, in the context of a statutory violation and not simply a "bare procedural violation, divorced from any concrete harm." To establish standing, the plaintiff must show the statutory violation presented an "appreciable risk of harm" to the underlying concrete interest that Congress sought to protect by enacting the statute.

The Ninth Circuit then cited its own decision in Robins v. Spokeo (2017) and observed that a "court must 'ask: (1) whether the statutory provisions at issue were established to protect [the plaintiff's] concrete interests (as opposed to purely procedural rights), and if so, (2) whether the specific procedural violations alleged in [the] case actually harm or present a material risk of harm to, such interests.'" Using this approach, the court found that the FCRA was established to protect a job applicant's interest in ensuring that employment determinations are not affected by inaccurate credit information and that this interest "is real and not 'purely procedural.'" However, the Ninth Circuit also found that Dutta had failed to demonstrate how the specific allegation alleged in his complaint actually harmed or "present[ed] a risk of harm" to him.

The Ninth Circuit compared Dutta to the plaintiff in Bassett v. ABM Parking Services, where the Ninth Circuit had held that the issuance of a parking receipt with a credit card's expiration date did not create a material risk of harm because no one else had viewed it. The court held that, although he had pled a FCRA violation on the part of State Farm for providing the required statutory notice only after taking adverse action against him, Dutta had not pled any "actual harm or substantial risk of such harm resulting from the violation." The Ninth Circuit found that Dutta's credit report was accurate because the report was not purporting to establish the date that Dutta stopped making payments. Instead, the report was simply listing the date that the creditor (who had the right to decide when to charge off the debt) had declared Dutta's debt as uncollectible. Because the date of the charge-off was within the 24-month review period and any charge-off within that period which exceeded $1,000 automatically disqualified ACT applicants, Dutta could not show that the alleged violation of his FCRA rights was more than just a "bare procedural violation."

Takeaways

The lessons of State Farm are twofold. First, if a party-opponent in a litigation attempts to offer factual information that was previously not presented in their motion papers, litigants should object to the admissibility of this information or, at the very least, ask for an opportunity to respond (if they do not already have such an opportunity). Failing to do so may result in the waiver of any challenge to the newly introduced factual information. Second, State Farm confirms the holding of Spokeo that mere procedural or technical violations of statutory rights created by Congress without any allegations of actual harm do not establish an Article III standing, giving defendants in statutory violation cases additional ammunition to challenge complaints premised on such violations. Unless they can allege "potential real-world harm" caused by a procedural statutory violation, plaintiffs in the Ninth Circuit will find it much more difficult to survive a motion to dismiss based on lack of standing.​​​

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