Good news for businesses that use fax machines to communicate with customers: A panel of the D.C. Circuit has just struck down the FCC’s 2014 order mandating that even faxes requested by the recipient that contain advertising material include a special opt-out notice. The decision issued today in Bais Yaakov of Spring Valley v. FCC, No. 14-1234 (D.C. Cir. Mar. 31, 2017), is available here (pdf).
We’ve often argued that when the principal rationale for approving a low-value class settlement is that the claims are weak, that is a signal that the case should not have been filed as a class action in the first place. The Second Circuit recently reached that exact conclusion when considering a proposed class settlement in a Fair Debt Collection Practices Act (FDCPA) case, holding that the putative class couldn’t be certified and that the FDCPA claims should be dismissed.
For years, defendants have argued that federal courts may not entertain class-action lawsuits when the plaintiff does not allege that he or she suffered any concrete personal harm and instead relies solely on an “injury in law” based on an alleged exposure to a technical violation of a federal statute. As we (and others) have contended, Article III of the U.S. Constitution places limits on the jurisdiction of federal courts, and therefore forbids lawsuits when a plaintiff has not suffered an “injury in fact”—one of the critical elements of standing. That requirement has constitutional dimensions; as the Supreme Court explained in DaimlerChrysler Corp v. Cuno, “[n]o principle is more fundamental to the judiciary’s proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies.” Thus, although Congress enjoys significant latitude to create private causes of action, it cannot invent standing to sue in federal court when, in the absence of the federal statute, a plaintiff could not allege a real and palpable injury.
Nearly two years ago, the Supreme Court appeared poised to answer the question whether Congress can essentially create Article III standing in First American Financial Corp. v. Edwards. But—in a surprising turn of events—the Court dismissed the case as improvidently granted on the last day of its term. Readers can be forgiven if they don’t remember the occasion, as it was the same day that the Court issued its far more attention-getting rulings in the health-care cases. Yet the non-decision was extremely significant: as Deepak Gupta, one of the leading appellate lawyers in the plaintiffs’ bar, tweeted, “On pins and needles for First Am Fin’l v Edwards standing decision tomorrow. Oh yeah, and I hear there’s some health thing pending too.” Kevin Russell of SCOTUSblog similarly observed: “Lost in the hubbub of the health care decision is the Court’s surprise punt in a case that many (including myself) thought would be the sleeper case of the Term.”
Fast forward to now: As soon as next Friday (March 7), the Supreme Court will decide whether to grant a petition for certiorari (pdf) that we have filed in Charvat v. First National Bank of Wahoo, which presents essentially the same question as in First American: “Whether Congress has the authority to confer Article III standing to sue when the plaintiff suffers no concrete harm and alleges as an injury only a bare, technical violation of a federal statute.”
Congress and state legislatures have enacted many statutes that provide for minimum statutory damages recoveries that are far in excess of the actual damages most individuals will suffer. A prominent example is the Telephone Consumer Protection Act (TCPA), which offers $500 per violation of the statute, trebled to $1500 for willful violations. The idea is that offering such damages will create incentives for individual plaintiffs to pursue such claims in court when actual damages are minimal or difficult to measure. But the numbers can quickly add up when such statutory damages claims are aggregated as part of a putative class action. By the simple expedient of cutting and pasting standard class allegations into their complaints, plaintiffs’ lawyers can transform a $500 claim into one for $500 million. (For fans of the Austin Powers movies: Insert Dr. Evil impression here (or take a look at this clip).)
For good reasons, defendants find this phenomenon troubling, to say the least. My colleagues and I have argued in a pair of articles (here and here) that courts should refuse to certify class actions when the claims involve statutory damages. It is hard to believe that when Congress enacted laws providing for statutory damages, it intended to hand private plaintiffs (and their counsel) the ability to threaten massive liability—perhaps even bankruptcy—for often relatively minor or technical violations of a statute, especially when, as is common, the actual harm is minor or speculative.
That said, these arguments have met with mixed success in the courts. But a recent Supreme Court opinion issued earlier this week, Maracich v. Spears, No. 12-25, could provide defendants with new hope.
In Maracich, the Court held that attempts by lawyers to solicit clients did not qualify for the “litigation exception” to the Driver’s Privacy Protection Act of 1994 (DPPA). In an ironic twist, a group of plaintiffs’ lawyers had themselves become defendants in a class action. In order to solicit new plaintiffs for lawsuits against certain auto dealers, these lawyers had obtained personal information about customers of those auto dealers from the state DMV. Some of the customers didn’t like it, including one who happened to work for a defendant auto dealer. These customers sued the plaintiffs’ lawyers in a class action, alleging violations of the DPPA.
By a 5-4 vote, the Court held that soliciting clients doesn’t count under the DPPA’s litigation exception. We summarize that holding elsewhere. But to me the most interesting takeaway from Maracich is what the decision has to say about statutory damages.
Justice Ginsburg’s dissent expressed a concern with “astronomical liquidated damages”; the customers “sought $2,500 in statutory damages for every letter mailed—a total of some $200 million—and punitive damages to boot.” As she put it, “such damages cannot possibly represent a legislative judgment regarding average actual damage.”
In response, Justice Kennedy’s majority opinion recognized that the Court was leaving open two questions about the appropriateness of such massive awards. First, “[w]hether the civil damages provision in [the DPPA], after a careful and proper interpretation, would permit an award in this amount”—in other words, as a matter of statutory interpretation, did Congress intend to allow such enormous liability? Given the DPPA’s express language allowing individual claims for $2500, that question boils down to whether courts should assume that Congress intended to allow class actions that transform a $2500 claim into lawsuits for $200 million. Second, if that is what Congress intended, “whether principles of due process and other doctrines that protect against excessive awards would come into play.”
To be sure, the Court did not answer those questions; as Justice Kennedy pointed out, they were not “argued or presented in” Maracich. But it now seems clear that at least some Justices are open to the possibility that when class actions exponentially increase potential liability in statutory damages cases, such “astronomical” damages may violate constitutional limits.
Accordingly, businesses (and the lawyers who represent them) should read Maracich as extending an invitation to challenge class actions for statutory damages. Specifically, when businesses face class actions for massive damages under federal or state statutes—including the TCPA, Fair Credit Reporting Act, or some state consumer-protection statutes—they should consider arguing that class actions are not a superior method for adjudicating the statutory claims because the potential for extraordinarily massive liability imposes excruciating (and improper) pressure on defendants to settle, raising serious due process concerns.
A few months ago, my colleagues Kevin Ranlett, Phil Dupré, and I began writing a six-part series for Inside Counsel on potential constitutional challenges to class-action lawsuits. The series is now complete, and so I wanted to provide readers with links to our articles. In addition to our overview piece on the subject, we have addressed the following topics:
- Using due process and federalism-based arguments to prevent plaintiffs from applying a single state’s law to a nationwide or multi-state class in an attempt to sidestep the variations in states’ laws that otherwise would preclude class certification;
- Challenging proposed class actions that would purport to alter substantive rights or deprive the defendant of the right to present individualized defenses;
- Invoking Article III’s standing requirements to defeat certification of putative classes that include uninjured class members;
- Opposing the excessive aggregation of potential statutory damages in a class action; and
- How to spot potential constitutional challenges in the first place.
Many of these arguments operate in tandem with (though are distinct from) the arguments that defendants often make to oppose class certification under Federal Rule of Civil Procedure 23. These constitutional arguments are often worth making in federal court. Not only are they powerful in their own right, but they may also increase the appeal of the defendant’s other arguments, because a federal court can avoid confronting these thorny constitutional questions only by denying certification on Rule 23 grounds.
Asserting constitutional arguments can be even more important in state courts for two reasons. First, some states apply—either formally or in practice—less stringent criteria for certifying a class than the federal rules require, and so constitutional arguments may help fill the gap. Second, constitutionally-based arguments may be the only way to preserve objections to class certification for U.S. Supreme Court review, which is certainly worth doing in any class action of significance.
Tomorrow, the Supreme Court will hear argument in United States v. Bormes, a case that apparently has not captured the attention of most class action practitioners. That’s understandable: The question presented (pdf) is “whether the Little Tucker Act, 28 U.S.C. § 1346(a)(2), waives the sovereign immunity of the United States with respect to damages actions for violations of the Fair Credit Reporting Act, 15 U.S.C. § 1681 et seq.” But the impetus for the federal government’s request for immunity—the enormous liability generated by aggregating statutory damages in a FCRA class action—is one that routinely affects businesses targeted by similar class actions. Businesses therefore should stay tuned to see what, if anything, the Court might say about the concerns that result from piling up large amounts of potential statutory damages in class actions.
Continue Reading Federal Government Acknowledges Undue Risk of Potentially Massive Liability from Class Actions for Statutory Damages Under the Federal Credit Reporting Act, but Proposes a Solution Good for One Defendant Only