In one of the most significant post-Spokeo decisions to date, the Fourth Circuit unanimously reversed and dismissed a nearly $12 million Fair Credit Reporting Act ("FCRA") class action judgment, finding plaintiff, Michael T. Dreher, lacked Article III standing to bring his claims. The decision provides much needed clarity from the Fourth Circuit on the viability of "informational injuries" post Spokeo.
The Trial Court Proceedings
Dreher's Complaint alleged a national consumer reporting agency violated FCRA § 1681g when it identified a defunct credit card company, rather than the name of the current servicer, as the source of a tradeline on Dreher's credit report. In a published opinion, the Court held "receiving a creditor's name rather than a servicer's name – without hindering the accuracy of the report or efficiency of the credit report resolution process – worked no real world harm on Dreher."
Dreher's case originated from a dispute about an "Advanta" tradeline that appeared on Dreher's credit report in 2010 that was generated in connection with a background check for a security clearance. Dreher made efforts to dispute the tradeline, and he eventually determined the servicer on the Advanta account, was the source of the information regarding the Advanta tradeline.
The servicer was appointed after the Utah Department of Financial Institutions closed Advanta. The servicer continued to do business using Advanta's name, phone number and website "with the goal of making the servicing transfer seem as innocuous as possible." Consistent with that goal, the servicer listed the Advanta tradelines under Advanta's name, in part, because that name would be less confusing to cardholders who might not recognize the new servicer.
Once Dreher became aware of the servicer's involvement, he sued the servicer and the national consumer reporting agency for violations of § 1681g(a)(2) which requires every consumer reporting agency, upon request, to "clearly and accurately disclose to the consumer . . . the sources of the information" in a consumer's file at the time of the request. In connection with his claim, Dreher argued the failure to list the servicer as a "source" in the Advanta tradeline was a willful violation of § 1681g(a)(2).
The district court granted Dreher summary judgment on his willfulness claim and instead of trying the case to a jury, the parties stipulated to an award of $170 in statutory damages for each class member. On August 26, 2015, the district court entered a final judgment totaling over $11.7 million. The national consumer reporting agency appealed to the Fourth Circuit.
The Fourth Circuit's Decision
Reversing the district court and applying the Supreme Court's 2016 decision in Spokeo Inc. v. Robins, the Fourth Circuit emphasized the concept that a statutory violation "divorced from any real world effect" does not confer standing. Taking a page from Spokeo, the Court's opinion acknowledged that, while not necessarily fatal to his claim, Dreher had not proposed a common law analogue for his FCRA injury. There was also no traditional right of action comparable to Dreher's claimed injury.
Finding Dreher was left only with a bare statutory violation, the Fourth Circuit reversed the district court's ruling and remanded the case for dismissal, putting the proverbial nail in the coffin on Dreher's claim under Section 1681g and the accompanying $11.7 million judgment.
Implications of the Decision
The Dreher decision is consistent with Beck v. McDonald where the Fourth Circuit held a claim for "enhanced risk of future identity theft" as a result of a data breach was too speculative to confer Article III standing. While Beck addressed standing in the data breach context, Dreher has broadened the Fourth Circuit's unwillingness to recognize informational injuries alone as sufficient to confer Article III standing. While recognizing that such an injury might create Article III standing under the appropriate circumstances, the Fourth Circuit held that an "informational injury" did not suffice in this context because it was not coupled with a "real" harm with an "adverse effect" on the consumer. The Fourth Circuit held that the "harm" alleged by the plaintiff were chiefly "customer service" complaints in terms of "knowing who you're dealing with," and not the type of harm that Congress sought to prevent when enacting the FCRA (e.g., accuracy in credit reporting and an efficient credit reporting system). If anything, the Fourth Circuit held that listing the Advanta name was likely more beneficial to plaintiff than disclosing the servicer.
Case law applying Spokeo to consumer protection claims continues to evolve. The Fourth Circuit, in McDonald and now in Dreher, is firmly in the camp of requiring a showing of "real" harm to support standing. Dreher is welcome and significant good news for defendants, and a warning to plaintiffs that hyper-technical claims premised on hypothetical harms may not be sufficient in the Fourth Circuit.
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