Class-action lawsuits can no longer include people who suffered no harm.
Class-action lawsuits can no longer include people who suffered no harm.
F or the second time this week, the U.S. Supreme Court has ruled on big-money class actions against businesses, and this one is an even clearer win for business defendants. But today’s decision leaves one very big question still unanswered. The Court’s 5–4 decision in TransUnion LLC v. Ramirez, in an opinion written by Justice Brett Kavanaugh, ruled that people who suffered no injury cannot be members of a class action in federal court. That may sound like an obvious, commonsense position, but it matters a lot to current class-action practice. What the Court did not decide is when exactly a court hearing a class action is supposed to remove the unharmed class members from the case.
Where Is the Harm?
Lawyer-driven contingency-fee class actions can seem especially flimsy when a bunch of the people represented by class-action lawyers did not even suffer any harm. That also raises legal questions, both Article III standing issues (i.e., if you don’t have an injury and couldn’t sue on your own, how can your case be part of a class?) and the class-action rule (i.e., if you have no injury, how is your case similar to those of people who do?).
To bring a lawsuit in federal court, you need standing to sue — a concrete “injury in fact” that is both fairly traceable to the conduct of the defendant and redressable by court-ordered relief (usually money damages or an injunction). No harm, no standing, and thus no federal jurisdiction. This derives from Article III of the Constitution, which limits federal courts to hearing “Cases or Controversies” rather than abstract questions of law. State courts have their own rules. Standing issues have traditionally been most actively litigated in lawsuits challenging government policy, but they have become an increasing battleground in class actions against businesses as well.
Class actions are brought by one or more named plaintiffs on behalf of unnamed class members who are supposed to be “similarly situated,” such that their cases can be decided just by hearing evidence from someone else with the exact same grievance. The Supreme Court has long required that a named plaintiff have standing to bring every claim in the case, and since its 2016 decision in Spokeo v. Robins, the Court has cracked down further on cases in which the named plaintiff claims a technical violation of some federal statute but no actual harm.
Class actions have increasingly exploited a procedural anomaly. If the defendant files a motion to dismiss the case when the complaint is filed, all that is required in many jurisdictions is for the named plaintiff to have standing, and the case can go forward. The court can’t dismiss the claims of unnamed class members because technically they have not been added to the case until a class is certified.
When the case then gets to the judge’s decision on certifying it as a class action, the court is not supposed to be ruling on the merits of the claims. Taking a rigid view of this distinction, many courts have just asked whether the named plaintiff’s claim is “typical” of the legal theories pursued by the class — the standard used by Rule 23 of the Federal Rule of Civil Procedure — without examining whether the unnamed members of the class actually have claims of their own that could be pursued in federal court. The result has allowed classes to be certified on behalf of people who are supposedly “similarly situated” to the named plaintiff, but in fact have not actually suffered an injury that would have allowed them to bring their own lawsuits.
The idea of the Rules Enabling Act, under which Rule 23 and other civil-procedure rules are approved by the Supreme Court, is that it creates only procedures for hearing cases and does not create new rights to pursue lawsuits. But if a person with no case can recover by being added to a class, then he has had a new right created. Until today.
Defendants have attacked this setup in two ways. The narrower argument is that a named plaintiff who has suffered a real injury is not actually pursuing a claim that is typical of the class claims within the meaning of Rule 23. The broader argument is that the unnamed class members do not have a case within Article III, and therefore the courts should throw their claims out when asked to rule on class certification.
The Court largely ducked this question in the 2016 case of Tyson Foods, Inc. v. Bouaphakeo, because the case reached the Court after trial and the Court found that the defendants had not properly preserved their objections to including unharmed class members in the class. TransUnion also came to the Court after trial, but this time, the issue was squarely presented, and the Court ruled on the broader Article III issue. However, the Court’s opinion specifically noted that it was not deciding “the distinct question whether every class member must demonstrate standing before a court certifies a class.” That is a Rule 23 issue.
Under the logic of TransUnion, however, it would be irresponsible for federal judges to certify a Rule 23 class that includes members with no injury. Rule 23 is supposed to be, first and foremost, a tool for managing cases by deciding which ones are best handled by aggregating them into a class and forgetting about differences between individual class members in taking discovery and trying the case. When a class is certified, a list of class members must be drawn up and a legal notice mailed to inform them that they are in the case. That notice, in turn, has legal consequences: It lets class members know they have a right to file their own suits, and it can affect the running of the statute of limitations. A court that knows, under TransUnion, that some of the people on that list will have to be excluded from the final judgment has no business telling them that they are part of a class action.
The news gets worse for class-action plaintiffs, because in some cases, it may be a lot of work to determine who did and did not suffer an injury. Individual inquiry into that question could end up overwhelming the case — and the predominance of individual issues is one of the principal reasons given by Rule 23 for not certifying a class at all. Class-action lawyers who are looking to work around this decision will need to put more careful thought than before into how to define class membership in a way that does not require evidence from individual class members.
The Case
TransUnion was a Fair Credit Reporting Act (FCRA) case, involving statutory procedures for ensuring accurate credit reporting. There were more than 8,000 class members, but just under a quarter of them had actually had an inaccurate credit report sent to a third party. The Court concluded that only the latter had been injured — so three-quarters of the class members had been included in a lawsuit they could not have brought themselves.
The other claims in the case were an even flimsier basis for a class action. Here, the legal violation was a technical one: Separate reports were sent in two envelopes instead of one. The problem arose from a 2002 decision, made in the post-9/11 environment, to start matching the first and last names of people in TransUnion’s credit database to the Office of Foreign Assets Control watch list of terrorists and criminals. The plaintiff, Sergio Ramirez, has a common name, and so, when he tried to buy a car, he and the car dealer were sent a notice that he was a “potential match” to the watch list. Ramirez suffered the humiliation of having a car dealer identify him as a person on a terror watch list, and had to buy the car in his wife’s name. The legal basis for turning this into a FCRA lawsuit was that the notice did not include a summary of his legal rights to challenge this designation, which was sent separately. (This is the second case this term to turn on a notice of rights being sent in the wrong envelope.) But the $40 million jury verdict was backed by no evidence that most class members even opened the mailings. The Court concluded that nobody in the class but Ramirez actually had a case.
The Significance of TransUnion
Kavanaugh’s opinion led off with a separation-of-powers issue that has come into focus since Spokeo. That case held that Congress does not have an entirely free hand to create federal jurisdiction just by passing laws that allow people to sue for damages. If the plaintiff in a federal case has suffered a violation of federal law but has not suffered anything analogous to an injury historically recognized at common law, that plaintiff does not have Article III standing. As Kavanaugh wrote today, “under Article III, an injury in law is not an injury in fact.” He quoted Judge Jeffrey Sutton of the Sixth Circuit:
Even though Congress may elevate harms that exist in the real world before Congress recognized them to actionable legal status, it may not simply enact an injury into existence, using its lawmaking power to transform something that is not remotely harmful into something that is. (Quotation and citation omitted.)
Harms that can create Article III standing include, as the Court noted today, “reputational harms, disclosure of private information, and intrusion upon seclusion” as well as injuries to constitutional liberties such as free speech and free exercise of religion. Spokeo did, however, acknowledge that Congress has some latitude in pushing the envelope — so to speak — of what constitutes an Article III injury. The unresolved questions as to exactly where that line is have been extensively litigated since 2016. Today’s decision adds some clarity, but the battles will continue.
As Kavanaugh observed, allowing Congress too much latitude in permitting citizen lawsuits does not only overstep the legislative and judicial role, but also constricts the executive’s:
A regime where Congress could freely authorize unharmed plaintiffs to sue defendants who violate federal law not only would violate Article III but also would infringe on the Executive Branch’s Article II authority. We accept the displacement of the democratically elected branches when necessary to decide an actual case. . . . But otherwise, the choice of how to prioritize and how aggressively to pursue legal actions against defendants who violate the law falls within the discretion of the Executive Branch, not within the purview of private plaintiffs (and their attorneys). Private plaintiffs are not accountable to the people and are not charged with pursuing the public interest in enforcing a defendant’s general compliance with regulatory law. (Quotation and citation omitted.)
Justice Clarence Thomas wrote a detailed dissent, arguing for broader powers for Congress to define standing and noting that some federal laws would end up getting enforced in state courts that lack similar standing rules. There is a paradox here, because Congress has created statutory federal jurisdiction over nationwide class actions; a plaintiff seeking to evade that will now need to specifically create a separate class consisting only of people with no injury. The three liberals joined Thomas’s opinion but also joined an opinion by Justice Elena Kagan that took a less aggressive view of Congress’s powers. Also, Justice Kavanaugh noted that standing may be broader for class cases seeking an injunction — although class actions for injunctive relief are less lucrative for class-action lawyers and present their own, unique challenges in getting certified under a different provision of Rule 23.
All of which is to say that there will continue to be a cat-and-mouse game between class-action plaintiffs and business defendants. The Court will certainly come sooner rather than later back to the question of whether challenges to uninjured class members are properly raised at the class-certification stage. But for today, TransUnion is a big blow to overreaching class actions.