Nationwide class action claims against employers under the federal Fair Credit Reporting Act (FCRA) are more common now than ever before. On July 13, 2018, the U.S. Court of Appeals for the Ninth Circuit issued an opinion, Dutta v. State Farm, addressing an important procedural issue in FCRA cases: constitutional standing. Standing is a legal rule that addresses whether a person has been adversely affected by some action resulting in a right to assert the claim at issue, and a person without standing cannot continue a lawsuit in federal court. The standing issue is being litigated in courts across the country based on the U.S. Supreme Court’s ruling in another FCRA case, Robins v. Spokeo, Inc. In Dutta, the Ninth Circuit ruled for the employer, State Farm, and affirmed summary judgment on the ground that the plaintiff lacked standing to assert his claim for violation of the “pre-adverse action” notice provision in the FCRA.

Spokeo and Syed Summarized

In Spokeo, the plaintiff alleges that Spokeo violated the FCRA by reporting inaccurate information about him as a “consumer reporting agency,” not as an employer. While the district court dismissed the case for lack of standing under Article III of the United States Constitution, the Ninth Circuit reversed and found that the plaintiff established an adverse consequence from the defendant’s actions under the FCRA or an “injury-in-fact.” 

In May 2016, the U.S. Supreme Court vacated the Ninth Circuit’s opinion and declared that a plaintiff does not “automatically” have the requisite injury-in-fact “whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right.” The Supreme Court held that the Ninth Circuit’s standing analysis was incomplete because it did not address the “concreteness” element of standing—i.e., whether the statutory violation cause some “real” harm that “actually exists in the world.”¹ On remand from the Supreme Court, the Ninth Circuit recently determined that the plaintiff’s allegations of inaccurate reporting of information about his marital status, age, education, and employment history constitute harm sufficiently concrete to satisfy the injury-in-fact requirement for standing.²

In Syed v. M-I, the Ninth Circuit applied Spokeo in the employment setting and became the first appellate court to rule on the lawfulness of a liability waiver in an employer’s background check disclosure.³ Such disclosures must satisfy certain hyper-technical statutory requirements (e.g., must be presented in a stand-alone format without any other “extraneous” information).⁴  In the process of doing so, the court held that the plaintiff had alleged sufficient facts to establish his standing to sue in federal court. In its cursory analysis, the court went out of its way to infer that the liability waiver confused the plaintiff about what he was agreeing to when he authorized a background check.

Dutta

The plaintiff in Dutta alleged that State Farm rejected him for employment based on information in his credit report, without first providing him with a pre-adverse action notice and an opportunity to contest the information in the credit report. State Farm in fact mailed a pre-adverse action notice to the plaintiff. However, the plaintiff claimed that the notice was not compliant because he had already been told by State Farm on the phone that he was being rejected due to adverse information on his credit report (a charged-off debt and two loan delinquencies). The plaintiff contacted State Farm to contest the adverse information, but State Farm did not change its decision.  The district court granted summary judgment, finding that the plaintiff lacked standing. The Ninth Circuit affirmed. 

The court first explained that the pre-adverse action notice requirement is a procedural protection that affords job applicants an opportunity to surface concerns about inaccurate background reports before suffering an adverse action. The court continued that, although the plaintiff alleged a violation of this protection, he failed to demonstrate that the violation resulted in any actual harm or substantial risk of such harm. What “dashed any hope” that the plaintiff could assert anything more than an insufficient “bare procedural violation” of the FCRA was the fact that indisputably accurate information in his credit report regarding the charged-off debt. The plaintiff’s failure to demonstrate any other adverse consequence was fatal to his application under State Farm’s standards. According to the court, this rendered “immaterial” all of the inaccuracies or explanations that the plaintiff wanted to present to State Farm.

Takeaways

This is one of a number of recent victories for employers in FCRA cases.⁵  Nonetheless, the FCRA remains a fertile source of nationwide class action litigation against employers.⁶  Standing to proceed with FCRA claims in federal court is an evolving area of the law. While the Ninth Circuit found for the employer in this instance, different panels of the Ninth Circuit, and courts in other Circuits, are not always like-minded and sometimes reach seemingly conflicting results. They key to minimizing legal risk is thus to be hyper-vigilant about compliance with the hyper-technical FCRA as well as the many other local “ban-the-box” laws in California⁷ and other jurisdictions.⁸