Last Friday, the U.S. Supreme Court issued a new decision on the requirement that plaintiffs have “standing” to sue in federal court. More specifically, the Court addressed what is required for a plaintiff to demonstrate “concrete harm.” Following this decision, defendants in class actions will have significant strategic decisions to make about whether and when to challenge the standing to sue of class members.

In TransUnion LLC v. Ramirez, Sergio Ramirez learned that TransUnion, one of the major credit reporting agencies, identified him as a “potential match” to someone on the Office of Foreign Assets Control (OFAC) list of terrorists, drug traffickers and other criminals with whom it is unlawful to do business. Although by all accounts Ramirez was a law-abiding citizen, a car dealership refused to sell a car to him because TransUnion identified him as a potential match to the OFAC list simply because he shared the same first and last names with someone on the list (without checking any other information). Ramirez brought a class action suit under the Fair Credit Reporting Act, alleging that TransUnion failed to “follow reasonable procedures to assure maximum possible accuracy” in credit reports, as required by that statute. He also alleged that disclosures made to him by TransUnion after he requested his credit report were inaccurate.  Ultimately a class was certified, the case was tried to a jury, and the jury awarded over $60 million, later reduced by the Ninth Circuit to about $40 million.

The Supreme Court addressed whether all or only some of the class members were entitled to recover. Out of a total of 8,185 class members, TransUnion issued credit reports to third parties on 1,853 of them during the relevant time period. The remaining 6,332 did not have credit reports issued to any third party, but complained about inaccurate disclosures made to themselves. The Supreme Court concluded that only the 1,853 had suffered “concrete harm” and thus had standing to sue. Doing some quick math, it appears the Court reduced TransUnion’s liability by about 80%.

Justice Kavanaugh wrote the majority opinion. He explained that, even where Congress has created a right to sue under a statute, Article III of the Constitution, which provides for courts to decide “cases” or “controversies,” requires courts to “assess whether the alleged injury to the plaintiff has a ‘close relationship’ to a harm ‘traditionally’ recognized as providing a basis for a lawsuit in American courts.” (Opinion, at 9.) This is straightforward when there is physical or monetary harm, and can also include “reputational harms, disclosure of private information and intrusion upon seclusion,” but overall is less clear when the harm is intangible. (Id.) Applying this test, the Court concluded that the class members whose credit reports were provided to third parties had standing to sue because their harm was similar to the longstanding tort of defamation. (Id. at 17.) But the bulk of the class, whose credit reports were inaccurate but never disseminated during the class period, did not have standing on the “reasonable procedures” claim because publication of the false information is a traditional requirement for defamation (although they might have had standing to sue for injunctive relief). (Id. at 19-20.) The risk of future harm, the Court wrote, was too speculative and unproven because there was no evidence that many of this group of class members were even aware that TransUnion had identified them as a potential match to the OFAC list. “[M]any of them would first learn that they were ‘injured’ when they received a check compensating them for their supposed ‘injury.’” (Id. at 23.) With respect to the claims about inaccuracies in disclosures made when credit reports were requested, the Court characterized these as “formatting violations” and mere “procedural” violations that failed to meet the test of “a harm with a close relationship to a harm traditionally recognized as providing a basis for a lawsuit in American courts.” (Id. at 25.) The Court sent the case back to the Ninth Circuit for reconsideration of the class certification decision and other issues. (Id. at 27.)

Four justices dissented. In brief, Justice Thomas’s view is that any violation of private, individual rights where Congress creates a private right and a cause of action is sufficient to confer standing. Stressing how the majority took the law in a new direction, he wrote that “never before has this Court declared that legislatures are constitutionally precluded from creating legal rights enforceable in federal court if those rights deviate too far from their common-law roots.” (Thomas, J., dissenting, at 12-13.) Justice Kagan (joined by Justices Breyer and Sotomayor) joined Justice Thomas’s dissent with a qualification. They would not alter the Court’s prior precedent under which “Article III requires a concrete injury even in the context of a statutory violation,” but would find standing to sue on all of the claims in this case, and would give substantial deference to Congress. Justice Kagan wrote that “[o]verriding an authorization to sue is appropriate when but only when Congress could not reasonably have thought that a suit will contribute to compensating or preventing the harm at issue.” (Kagan, J., dissenting, at 3.)

So what does all this mean for defending against class certification in putative class actions? What I found most significant was that the Court confirmed that “[e]very class member must have Article III standing in order to recover individual damages,” a proposition that Chief Justice Roberts had previously endorsed in a concurring opinion, but which had not previously been stated by a majority of the Court. (Opinion, at 15.) In a footnote, however, the Court stated that “[w]e do not here address the distinct question whether every class member must demonstrate standing before a court certifies a class,” citing an Eleventh Circuit decision that requires district courts to consider whether individual issues of standing predominate over common issues when deciding class certification.  (Id. at 15 n.4.) The Eleventh Circuit stated in that case that, in some circumstances, it might be appropriate for a district court to certify a class in which some class members would not have standing and deal with that issue later in the proceeding (while noting that such an approach may be inappropriate where many class members do not have standing). The courts of appeals are split on whether plaintiffs in class actions must establish standing of class members at the class certification stage, with some circuits saying that only the named plaintiffs need to have standing, and others requiring that all class members have standing. The Supreme Court may well take that issue up in a future case.

Significantly, footnote 9 in Justice Thomas’s opinion suggested that there may be circumstances in which, based on the Court’s decision, state courts, some of which have less rigorous standing requirements, might have jurisdiction over claims (even under federal statutes) that cannot be brought in federal court. In some instances, federal courts finding a lack of standing have remanded cases to state court where a defendant would prefer to litigate in federal court. This presents significant strategic considerations for defendants. In some circuits, defendants may be able to defeat class certification because a substantial portion of the class does not have standing. But there also could be cases where a defendant might decide it is better off not challenging the issue of whether a portion of the class has standing until after class certification is decided, or not challenging the standing issue at all and instead challenging those claims on the merits. If a class is likely to be certified, a final judgment against a portion of the class on the merits could be more advantageous to a defendant than a finding of lack of standing in federal court that may leave open the possibility for state court litigation.