A Low Bar—But Not “No Bar” First American Financial Corp. v. Edwards, Statutory Damages, and Preserving the Injury-in-Fact Requirement of Article III Standing
On June 28, 2012—the same day that the Supreme Court announced its ruling on the constitutionality of federal health care reform—the court also released an unsigned, one-sentence order stating that it had “improvidently granted” certiorari in First American Financial Corp. v. Edwards.1 The high court had agreed to hear First American in order to determine whether the availability of statutory damages is, by itself, sufficient to create the Article III “injury in fact” required for standing to bring suit. Statutory damages, when multiplied in a class-action setting, can impose substantial liability. The court’s basis for later declining review is unclear. There is no doubt, however, about why this issue matters: it addresses whether Congress can create causes of action for injuries that would not exist but for the legislation.
First American concerned an alleged kickback arrangement between a title insurance company and real estate closing agents that would violate the Real Estate Settlement Procedures Act. The RESPA bars such kickback schemes and allows homebuyers to recover statutory damages, even if the scheme itself did not cause the homebuyers any out-of-pocket loss. In First American, the U.S. Court of Appeals for the Ninth Circuit faced a difficult legal question: where a homebuyer has suffered no financial harm from a kickback scheme, is the homebuyer’s entitlement to damages under the anti-kickback statute enough to meet the “injury in fact” requirement of Article III standing? The Ninth Circuit ultimately said “yes,” joining the Third and Sixth circuits.2 But the Fifth Circuit has said “no.”3
This article examines First American and the future of Article III’s “injury-in-fact” requirement. In particular, this article posits that the common law tradition behind the RESPA may have led the Supreme Court to avoid the case as a vehicle for addressing the “injury in fact” requirement. The court may find an appropriate vehicle, however, in the current wave of litigation regarding consumer privacy laws.
Facts of the Case:
First American Financial v. Edwards
The RESPA prohibits the payment of “any fee, kickback, or thing of value” in exchange for business referrals and also forbids that a “portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service” be paid for services that are not actually rendered to the customer.4 Thus a real estate closing agent may not receive payments from a property title insurer in return for referring business to the insurer.5 The RESPA also provides for statutory damages of up to three times the amount the buyer was charged.6 In a class action, these damages quickly multiply.
When plaintiff Denise Edwards bought a home in Cleveland, Ohio, in September 2006, she relied on her closing agent, Tower City, to handle the purchase of the necessary title insurance. The agent referred the title insurance business to First American. In her complaint, Edwards claimed that First American had paid $2 million for a minority stake in Tower City in exchange for an agreement requiring Tower City to refer all future title insurance exclusively to First American.7 Edwards sought statutory damages under the RESPA, but she did not claim that she had suffered any financial loss. Indeed, she was unable to claim that her charge for title insurance was higher than it would have been without the exclusivity agreement, because Ohio law mandates that all title insurers charge the same price.8
First American moved to dismiss Edwards’s complaint for lack of standing. Article III standing requires plaintiffs to plead (1) an injury-in-fact; (2) a causal connection between the injury and the challenged action; and (3) that the injury can be redressed by a favorable decision.9 First American argued that Edwards failed to demonstrate standing as she had not pled an injury-in-fact, but rather only a statutory injury.
Faced with the important threshold question of whether Edwards had standing to proceed, the U.S. District Court for the Central District of California held that a RESPA statutory injury was sufficient for injury-in-fact.10 On June 21, 2010 the Ninth Circuit affirmed, holding that the RESPA gives rise to a statutory cause of action regardless of whether an insurance overcharge occurred. The Ninth Circuit’s decision followed decisions from both the Third and Sixth circuits.11
First American petitioned the Supreme Court for certiorari, and the court granted certiorari specifically as to the standing issue. Over 25 organizations submitted amicus briefs. On the plaintiff’s side, groups such as the Electronic Privacy Information Center and Public Law Professors submitted briefs. For First American, groups such as the American Land Title Association, the International Association of Defense Counsel, and even Facebook weighed in.
First American’s brief focused on Edwards’s inability to point to any concrete harm. It further discussed the distinct roles of the branches of government, explaining that “allowing a plaintiff to pursue a statutory cause of action in the absence of an actual injury would expand judicial and legislative power at the expense of the executive.”12
Amici for First American spent much time discussing the broader business implications of allowing standing without evidence of an actual injury. For example, Facebook’s brief explained that:
Allowing plaintiffs to file such no-injury class action lawsuits could subject businesses such as amici to damages demands that, at least on their face, would be potentially bankrupting. Just the threat of these massive damages claims create strong incentives to end even baseless suits with settlement payments, essentially rewarding plaintiffs (and their opportunistic counsel) for filing extortionate strike suits.13
Edwards’s brief took a completely different approach, claiming that a fiduciary relationship exists between a homebuyer and a real estate professional, similar to a trustee/beneficiary relationship. As such, Edwards argued that any violation of that trust relationship is necessarily an injury, and no other injury need be proven.14
After months of anticipation by consumers and businesses alike, the Supreme Court released its ruling on June 28, 2012. In just one sentence, the court wrote that certiorari “is dismissed as improvidently granted.”15 As a result, the Ninth Circuit’s opinion stands, and all the speculation about the Supreme Court’s decision and its potentially broad implications has come to a standstill. But questions about standing in statutory damages cases persist. Indeed, without guidance from the Supreme Court, litigation on this issue will become more prevalent, forcing district courts and circuit courts around the country to address the question in many cases brought under a variety of statutory damages statutes.
Consumer Privacy Case Law Provides
a Likely Vehicle for Addressing the Injury-In-Fact Requirement
Although the Ninth Circuit’s First American decision stands, its analysis of Article III’s requirements was quite short, and it did not delve deeply into the relevant precedent.16 Instead, the court briefly looked at the plain language of RESPA and concluded that “[b]ecause RESPA gives Plaintiff a statutory cause of action, we hold that Plaintiff has standing to pursue her claims against Defendants.”17 The court did not explain why a statutory cause of action was sufficient for standing. It also did not address the seminal case of Raines v. Byrd, in which the Supreme Court wrote that “[i]t is settled that Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing.”18
Article III standing is inextricably tied to the Constitution’s division of power between the three branches of government. The Supreme Court recently made this very point: “the standing doctrine is a critical and inseparable element of the separation of powers principle and the separation of powers is a fundamental method of protecting liberty.”19 This is true because the president, as chief executive, has the duty to ensure that laws are executed. Authorizing “roving private attorneys general to seek out violations of law that have caused them no actual injury and prosecute them in court in the hopes of obtaining a bounty” transfers this important duty of the executive to the judiciary.20
The Supreme Court’s decision not to decide First American leaves the question unanswered for now. Since the decision, commentators have speculated about the court’s reasons for declining certiorari. One possibility is that the court is waiting for the right set of facts to arise in another case before addressing the issue. Because Edwards argued that a “trust relationship” exists between homebuyers and real estate professionals, the case arose against the backdrop of the common law tort of breach of fiduciary duty. At common law, this tort was actionable even if the person to whom the duty was owed had suffered no out-of-pocket loss; a simple breach of the trust relationship was considered a sufficient injury in itself.21 Thus, in First American, there was arguably an alternative basis upon which the court might have found that Edwards had suffered a sufficient “injury-in-fact.”
The Supreme Court may have an opportunity to consider the issue again through pending privacy statute litigation. Similar to the RESPA, many privacy statutes provide for statutory damages but fail to require explicitly that actual damages first be proven.22 As a result, these damages can multiply into multi-million or multi-billion dollar claims in a class action context, without the plaintiff ever alleging or proving any financial injury.23
Privacy statutes may also be a better vehicle for the Supreme Court to address the issue. In contrast to the RESPA, which can be analogized to the common law of fiduciary duty, privacy statutes would be analogized to common law privacy torts. The four privacy torts are appropriation of personality, intrusion on seclusion, publication of private facts, and false light; and invasion of those rights might be considered an Article III injury whether economic or emotional in nature.24
Yet congressional privacy enactments have extended beyond the common law definition of a privacy injury. For example, the Fair and Accurate Credit Transactions Act requires retailers to redact from receipts an individual’s credit card expiration date and credit card number, allowing only the last five digits to be printed. The statute provides for statutory damages of $100 to $1000 per violation.25 In Lopez v. KB Toys Retail, the plaintiffs requested statutory damages of $290 million to $2.9 billion because the first four credit card numbers rather than last five numbers had been included on their receipts.26 Thus, if violation of a statute is by itself sufficient for an injury-in-fact, a FACTA plaintiff could state a claim for literally billions in damages even if the first four digits provided no useful information to anyone and their printing caused harm to no one.27
Because the certified question in First American asked generally whether statutory damages are sufficient for standing or whether a specific injury in fact must also be identified, the same question could arise in the context of many other statutes. Indeed, the amicus brief filed by Facebook, Yahoo!, LinkedIn, and Zynga listed the following privacy statutes as just a few examples: the Telephone Consumer Protection Act, the Video Privacy Protection Act, the Cable Communications Privacy Act, the Fair Credit Reporting Act, the Electronic Funds Transfer Act, the Drivers Privacy Protection Act, and the Electronic Communications Privacy Act.28
Pending Privacy Cases
The remainder of this article describes four privacy cases currently pending in the lower courts, two of which had been stayed pending the First American decision. These cases may well deepen the circuit split, forming the backdrop for the Supreme Court to eventually address head-on whether a statutory violation, with specified statutory damages, is alone sufficient to establish “injury-in-fact.”
Charvat (District of Nebraska)
In Charvat v. First National Bank of Wahoo, the plaintiff made two electronic fund transfers from the defendant’s ATM. The Electronic Funds Transfer Act requires that a notice be posted “on or at” the ATM informing individuals that a fee is charged to use the ATM.29 The plaintiff alleged a violation of EFTA and sought statutory damages, but did not allege any other injury. In June 2012, the court issued a decision discussing whether the statutory violation was itself an injury-in-fact. The court concluded it was not, writing that “it is undisputed that Congress can create a legal right sufficient for standing under EFTA, but Plaintiff must still allege a ‘distinct and palpable injury to himself.’”30 The court went on to say, however, that the then-upcoming First American decision might alter the court’s analysis, and therefore stayed the matter pending the Supreme Court’s decision. Following the Supreme Court’s non-decision, the district court dismissed the lawsuit for lack of standing and the plaintiff has since appealed to the Eighth Circuit.31
Sucec (Southern District of West Virginia)
In Sucec, plaintiff asserted a violation of the Credit Card Accountability Responsibility and Disclosure Act and the EFTA. The CCARDA prohibits gift cards with an expiration date of less than five years, and enables statutory damages under the EFTA.32 The plaintiff alleged that the defendant violated the CCARDA by issuing a gift card with a three-year expiration date. Defendant moved to dismiss on standing grounds, asserting that plaintiff had not been actually injured because he had not pleaded that his use of the gift card had been denied or limited due to the three-year expiration date. The court denied the motion, holding that “violations of the EFTA constitute an injury sufficient to confer standing.”33
Hulu (Northern District of California)
In In re Hulu Privacy Litigation, the plaintiffs alleged that Hulu, a video-watching website, transmitted their viewing choices and personal identification information to third parties without obtaining their consent. The plaintiffs claimed that these actions violated the Video Privacy Protection Act, and that each putative class member should be awarded $2,500 in statutory damages. Hulu moved for dismissal arguing, among other things, that the plaintiffs only had a statutory injury. In June 2012, the court tentatively held that the plaintiffs had sufficiently alleged standing but nonetheless stated that it would allow further briefing and arguments on the issue pending the Supreme Court’s First American decision.34 Because the Supreme Court dismissed its writ of certiorari, the Hulu court abided by its earlier decision and denied the motion to dismiss for lack of standing.35
Kinder (Eastern District of Michigan)
In Kinder v. Dearborn Federal Savings Bank, the plaintiff had withdrawn funds from defendant’s ATM. Like the facts in Charvat, the plaintiff alleged that the transaction fee was not physically posted at the ATM, in violation of the EFTA. The defendant argued that the plaintiff lacked standing because the ATM provided notice of the fee electronically—before plaintiff completed the transaction—and therefore the plaintiff caused her own injury. The court disagreed. Noting that the EFTA requires both posted notice and electronic notice, the court held, “Plaintiff’s alleged failure to receive notice in the form required by the statute is an injury, notwithstanding the fact that she received notice in another form.”36
Due to the Supreme Court’s dismissal of First American, the question remains as to whether statutory violations, with their attached statutory damages, are alone sufficient for Article III standing. With Charvat now pending before the Eighth Circuit, Sucec proceeding in a district court in the Fourth Circuit, and Hulu and Kinder raising the standing issue in a new context in the Ninth and Sixth circuits respectively, the Supreme Court will likely have another opportunity to address the issue that it avoided in First American.
Joel A. Mintzer is a trial lawyer and partner in the Minneapolis office of Robins, Kaplan, Miller & Ciresi LLP. Mintzer’s practice focuses on complex litigation, often involving multijurisdictional, class action, and bankruptcy issues. He also handles cases in employment, health care litigation, ERISA, and products liability litigation. He can be reached at email@example.com.
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