Supreme Court Pares Back Class-Action Suit

By a 5-4 vote, the court said Congress overstepped its powers by authorizing consumers to sue under the Fair Credit Reporting Act when credit bureaus fail to use reasonable procedures to maintain accurate information, but don’t disseminate erroneous reports to third parties.

“No concrete harm, no standing” to sue, Justice

Brett Kavanaugh

wrote for the court in its decision on TransUnion LLC v. Ramirez. The decision was joined by Chief Justice

John Roberts

and Justices

Samuel Alito,

Neil Gorsuch

and Amy Coney Barrett.

The ruling is expected to limit the number of people that can qualify for any class seeking to sue companies in federal court over a violation of federal law, likely accelerating a trend to file such claims in state courts, where standing rules are often more generous.

Federal courts in California had awarded $40 million in damages to a class of 8,185 consumers the credit bureau


LLC falsely labeled as potential terrorists on their credit reports. Justice Kavanaugh wrote that only the 1,853 whose reports were disseminated to third-party business could bring claims under the constitutional limitation of lawsuits to “cases” and “controversies.”

The remaining 6,332 couldn’t show they suffered a sufficiently concrete injury, he said, and therefore couldn’t seek damages despite federal law authorizing awards of up to $1,000, plus punitive damages and attorneys’ fees, for violating the Fair Credit Reporting Act. The 1970 law requires credit-reporting agencies to “follow reasonable procedures to assure maximum possible accuracy” in consumer files.


Clarence Thomas,

splitting from other conservatives, filed a dissent joined by liberal Justices Stephen Breyer,

Sonia Sotomayor

and Elena Kagan.

“TransUnion generated credit reports that erroneously flagged many law-abiding people as potential terrorists and drug traffickers,” Justice Thomas wrote. “Yet despite Congress’ judgment that such misdeeds deserve redress, the majority decides that TransUnion’s actions are so insignificant that the Constitution prohibits consumers from vindicating their rights in federal court.”

“We are pleased that the court upheld a jury trial verdict for 1,853 class members falsely labeled as terrorists by TransUnion,” said Samuel Issacharoff, a New York University law professor who represented the plaintiffs. “We are disappointed by the fact that we did not prevail as to the entire matter, but we are reviewing the next steps in light of the complicated opinion.”

A TransUnion representative said the company “appreciates the court’s decision in this important case. We look forward to resolving this matter.”

The court’s conservative majority has cast a skeptical eye toward class actions, and in previous opinions has tightened the requirements for litigation that groups myriad small harms into a single lawsuit that could yield big damages from corporate defendants.

Friday’s decision held that even when Congress seeks to authorize individuals to obtain damages, the Constitution protects defendants from liability over speculative or abstract injuries.

“The mere presence of an inaccuracy in an internal credit file, if it is not disclosed to a third party, causes no concrete harm,” Justice Kavanaugh wrote. “The plaintiffs’ harm is roughly the same, legally speaking, as if someone wrote a defamatory letter and then stored it in her desk drawer. A letter that is not sent does not harm anyone, no matter how insulting the letter is. So too here.”

If plaintiffs weren’t required “to demonstrate a ‘concrete harm,’ Congress could authorize virtually any citizen to bring a statutory damages suit against virtually any defendant who violated virtually any federal law,” he wrote.

In dissent, Justice Thomas wrote that American law has conceived injuries more broadly. “The First Congress enacted a law defining copyrights and gave copyright holders the right to sue infringing persons in order to recover statutory damages, even if the holder ‘could not show monetary loss,’” he wrote. Moreover, subjecting an individual to risk of harm is itself actionable. he wrote, and there was ample evidence that TransUnion had done so in this case.

That one-fourth of the class members actually had false reports disseminated during the seventh-month period at issue “seems, to me, ‘a degree of risk sufficient to meet the concreteness requirement.’”

Justice Thomas suggested, however, that the decision could be a “pyrrhic victory for TransUnion,” because state courts, which have jurisdiction to hear claims brought under federal law, have different standing requirements than federal courts.

Business defendants often prefer their cases heard in federal court, which some perceive as more sympathetic to corporate interests. “By declaring that federal courts lack jurisdiction, the Court has thus ensured that state courts will exercise exclusive jurisdiction over these sorts of class actions,” Justice Thomas wrote.

Like the Fair Credit Reporting Act, several federal laws, primarily dating from the 1970s, authorized individuals to sue over privacy and other rights, said Thomas Bennett, a University of Missouri law professor whose article on class-actions Justice Thomas cited. With the increasing digitization of records and communications, lawsuits under such statutes have multiplied, he said.

While Friday’s decision will accelerate a litigation shift to state courts, Mr. Bennett said it would mean that an individual’s federal rights depend on state court rules.

“If you live in a state where state courts choose to follow federal standing doctrine”—about half—”then you are going to find it difficult to sue,” he said. “If you happen to live in a state with more liberal standing rules like California, no problem.

The credit bureau acknowledged that the lead plaintiff,

Sergio Ramirez,

suffered embarrassment and hardship when the false report blocked him from buying a car. But the company argued that lower courts shouldn’t have certified the class action under the Fair Credit Reporting Act because in most instances the erroneous reports weren’t disseminated to potential lenders.

Last year, the Ninth U.S. Circuit Court of Appeals, in San Francisco, upheld the verdict, although it cut the punitive damage award to each consumer to about $3,937 from $6,353.

The problems arose in a product TransUnion marketed following the Sept. 11, 2001, terrorist attacks called OFAC Advisor, aimed at creditors faced with USA Patriot Act provisions prohibiting transactions with individuals listed by the Treasury Department’s Office of Foreign Assets Control.

“TransUnion OFAC Advisor provides the most comprehensive international list of known terrorists and criminals using the OFAC list as well as expanded information from multiple sources. TransUnion OFAC Advisor is designed to minimize the number of ‘false positives’ using unique matching logic,” a 2002 press release announcing the product said.

But the product in fact produced thousands of false positives, evidence showed. Mr. Ramirez learned in February 2011 that TransUnion identified him as a potential terrorist when he tried to buy a Nissan Maxima at a Dublin, Calif., dealer. The salesman canceled the deal after a credit check, which stated that Mr. Ramirez’s “input name matches name on the OFAC database.”

Mr. Ramirez requested his credit report from TransUnion; the version he received by mail included the legally-required disclosure of his rights but omitted the OFAC warning. The next day, he received a letter from TransUnion indicating he was a potential OFAC match but no summary of his rights. He alleged that the confusing nature of these disclosures was another violation of federal law.

In 2007, another consumer won a six-figure award from the company under similar circumstances. TransUnion, however, didn’t substantially change its procedures for checking the OFAC list, according to a federal appeals court, relying on a vendor to do name matches.

Write to Jess Bravin at

Copyright ©2020 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

Source: WSJ – US News

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