Supreme Court Class Action Case may be Transformative

CourthouseOn Monday October 9th, the U.S. Supreme Court heard oral arguments in a case that could have far reaching consequences for countless companies at risk for class action lawsuits.  Also called a representative action, a class action is a type of lawsuit in which one or several persons sue on behalf of a larger group of persons, referred to as “the class.”

Class actions are often brought when allegations involve a large number of people who have been injured by the same defendant in the same way.  Many times, the injury is so small, that it is uneconomical for a single individual to sue based on that injury.  A good example is a case in which a consumer purchased a product that was described as guacamole, which did not in fact include avocados, which is a key ingredient of that delicacy.  Had the consumer known that the product was not, in fact, true guacamole, he would not have spent the $3.00 it cost to purchase it.  There’s no point in spending thousands of dollars in legal fees to sue the company for a lousy $3.00, the consumer sues on behalf of everyone who purchase the ersatz guac.  If we’re talking about 1 million consumers, we’re talking about real money.

The Supreme Court case did not involve that sort of scenario.  Instead, it dealt with the violation of the Fair Credit Reporting Act (FCRA), which allows consumers to sue violators regardless of whether they suffered any harm.   There are other statutes that also form the basis of class action lawsuits, such as the Telephone Consumer Protection Act (TCPA) and the Americans With Disabilities Act (ADA).  The courts are being choked with these types of class actions, despite the fact that the only persons that are truly interested in bringing them are class action attorneys, who stand to make millions on a successful case.

The matter before the Court involved a class action brought by a consumer (on behalf of similarly situated consumers) against the “people search engine” Spokeo, which inaccurately described the plaintiff as being married, and better educated and wealthier than he actually was.

In his proposed class action, the plaintiff claimed that Spokeo’s incorrect information violated FCRA, which requires consumer reporting agencies to create and follow procedures to ensure the accuracy of information they report about consumers.  By any reasonable standard, an inaccurate description of this nature is highly unlikely to cause any harm, and the plaintiff did not allege that he suffered any specific injury based on the inaccuracy.

The basic question before the Court was whether the mere violation of a consumer protection statute, absent actual injury, is sufficient to permit a consumer to bring a class action.  The Court’s answer to this question may either pave the way for class actions by otherwise uninjured plaintiffs under all sorts of statutes, or further reign in class action litigation

The Supreme Court appeared sharply divided on the issue of whether a plaintiff has standing to sue for a technical violation of a federal consumer law even when there is no indication that the plaintiff has actually been harmed.  Justices Sotomayor and Ginsburg appeared to lean in favor of finding standing in circumstances where a party alleges only a violation of a right created by statute without necessarily needing to show a specific injury-in-fact to a particular plaintiff, while Chief Justice Roberts, and Justices Scalia and Alito seemed to suggest that more than a simple violation was necessary to establish standing.  Justice Kennedy, who often fills the role of tie-breaker, did not provide any clue as to where he may stand on the matter.

Decision from the Court is expected in early 2016. If you’re interested in taking a nice nap, you can read the transcript of the oral argument here.

Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.