Article III Challenges to No-Injury Class Actions: Will the Defense Bar Win Itself a One-Way Trip Back to State Court?

In a so-called “no injury” class action, a plaintiff alleges that a defendant violated a technical statutory obligation to a class of consumers, thereby entitling that class to statutory civil penalties. Often, these technical violations do not result in any actual harm or even inconvenience to the named plaintiff, let alone the entire class. In recent years, most notably in Spokeo, Inc. v. Robins, 570 U.S. 330 (2016), the defense bar has been pushing back at these suits, with some success, through arguments based on a plaintiff’s lack of standing.

Article III of the U.S. Constitution permits federal courts to hear only “Cases” and “Controversies.” Applying the historical definition of those terms, the Supreme Court has held that federal courts have jurisdiction to hear only cases in which the plaintiff has “suffered an injury in fact.” While that injury need not be economic and can be intangible, it nevertheless must be “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Thus, even if a federal statute allows for recovery of statutory civil penalties as a result of a defendant’s actions, federal courts lack jurisdiction to hear a claim arising from such a statute unless the plaintiff suffered some form of harm.

Five years after Spokeo, the Supreme Court is considering another case—TransUnion LLC v. Ramirez—that could further limit federal jurisdiction over these types of claims by clarifying the extent to which a “material risk of harm,” as opposed to actual harm, could constitute an Article III injury. But if the Supreme Court further narrows the scope of Article III standing with respect to statutory civil penalties, what happens next? Article III defines only the jurisdiction of federal courts. That leaves open a possibility—which, as discussed below, has already manifested in some cases—that these no-injury class actions could find a new home in state courts with more expansive definitions of standing. Ironically, because jurisdictions with broad definitions of standing are often quite plaintiff-friendly, the consequence of chasing these cases from federal court could be to give plaintiffs a removal-proof venue in comparatively less defendant-friendly state courts.

Standing in Federal and State Courts

Article III, section 2 of the U.S. Constitution provides that the “judicial Power” of federal courts extends only to “Cases” and “Controversies.”

The Supreme Court has long held that the “irreducible constitutional minimum of standing” under Article III contains three elements. First, the plaintiff must suffer an “injury in fact,” meaning “an invasion of a legally protected interest” that is both “concrete and particularized” and “actual or imminent.” Second, there must be a “causal connection between the injury and the conduct complained of.” And, third, it must be “likely” that the plaintiff’s injury is “resdess[able] by a favorable decision.” Lujan v. Defs. of Wildlife, 504 U.S. 555, 560–61 (1992).

Because the Supreme Court’s standing jurisprudence arises out of a question of the scope of federal courts’ jurisdiction under the U.S. Constitution, it should, as a technical matter, have no effect whatsoever on questions about what types of cases state courts can hear. But many state courts have nevertheless adopted federal standing requirements into their own law or at least closely hewed to those principles. See, e.g., Ex parte Merrill, 264 So. 3d 855, 862–63 (Ala. 2018); Riverfront Hotel LLC v. Bd. of Adjustment of City of Wilmington, 213 A.3d 89, 2019 WL 3884031, at *1 (Del. 2019); Choice Feed, Inc. v. Montierth, 481 P.3d 78, 91 (Idaho 2021); Buckeye Firearms Found. Inc. v. Cincinnati, 163 N.E.3d 68, 73 (Ohio Ct. App. 2020); Collins v. Collins, 481 P.3d 270, 278 (Okla. Civ. App. 2019); Jowers v. S.C. Dep’t of Health & Envtl. Control, 815 S.E.2d 446, 451 (S.C. 2018); Paige v. State, 205 A.3d 526, 530 (Vt. 2018).

Other state courts, however, have not limited their own jurisdiction to be coextensive with the jurisdiction of federal courts. These courts’ broader interpretation of standing under their respective state constitutions gives them leeway to hear disputes that federal courts cannot. See, e.g., League of Women Voters of Mich. v. Sec’y of State, 2020 WL 7765755, at *13 (Mich. 2020); Edison Bd. of Educ. v. Zoning Bd. of Adjustment of the Twp. of Edison, 235 A.3d 249, 253 (N.J. App. Div. 2020); State ex rel. Zignego v. Wis. Elec. Comm’n, 941 N.W.2d 284, 292 (Wis. Ct. App. 2020).

Standing in State Courts after Spokeo

In Spokeo, the plaintiff sued “people search engine” Spokeo Inc. under the Fair Credit Reporting Act (FCRA) for failure to follow “reasonable procedures” to ensure accuracy of information in consumer reports. The plaintiff alleged that the Spokeo website described him as holding a graduate degree and as being wealthy—both of which were untrue—and alleged that this misinformation hurt his ability to find a job. He sought, on behalf of a class of similarly situated individuals, statutory damages of up to $1,000 per violation.

Notwithstanding the congressional invention of a cause of action for statutory damages under FCRA, the Court held that the “bare procedural violation” advanced by the plaintiff did not mean he had necessarily suffered an injury for purposes of Article III standing. Instead, the Court explained, to establish standing, a statutory procedural violation must be matched against the harm Congress sought to mitigate. So a violation of FCRA might establish Article III injury if it “cause[d] harm” or (perhaps) “present[ed] any material risk of harm.” But Article III standing would not exist in the case of something inconsequential like “the dissemination of an incorrect zip code, without more.”

The Court’s holding in Spokeo, while nominally little more than a straightforward application of well-established standing law to the context of claims for statutory civil damages, created an incongruity. The possibility now existed that federal courts might not have jurisdiction to hear federal consumer protection claims even if the congressionally prescribed cause of action allowed for statutory damages. And it thus raised an obvious question: If federal jurisdiction did not exist, could the claim be brought in state court? While states closely adhering to federal standing jurisprudence would be predictably resistant to hearing such claims, other states might not be.

A post-Spokeo decision of an Illinois appellate court provides an example of exactly where the future of such claims might rest. In Duncan v. FedEx Office & Print Services, Inc., 123 N.E.3d 1249 (Ill. App. Ct. 2019), the plaintiff sued FedEx under the Fair and Accurate Credit Transactions Act (FACTA) for displaying the first two and last four digits of her credit card number on a printed receipt. (FACTA permits only the last five digits of a card number or the expiration date to be so printed.) FedEx moved to dismiss under Spokeo, and the trial court granted its motion. The appellate court reversed, explaining that in Illinois, standing is not jurisdictional and that “Illinois courts generally are not as restrictive as federal courts in recognizing the standing of a plaintiff to bring a claim.” Explicitly rejecting Spokeo, the court held that “when a plaintiff alleges a statutory violation, no ‘additional requirements’ are needed for standing.”

Illinois is not an outlier. Some other states’ courts have suggested that they will not follow Spokeo insofar as it limits the scope of private litigation between private parties. See, e.g., Kline v. Southgate Prop. Mgmt., LLC, 895 N.W.2d 429, 437 n.4 (Iowa 2017). At the same time, some state courts have, conversely, avowed to continue to abide by federal standing requirements, including Spokeo. See, e.g., Estate of Mikulski, 2021 WL 457678, at *10 (Ohio App. Ct. 2021).

The disparity in state and federal treatment of jurisdiction in these “no-injury” class actions yields unexpected procedural conundrums for defendants. Spokeo is generally considered a defendant-friendly decision, but in some instances, it has trapped unwary defendants in state court, the very forum defendants generally seek to avoid. The paradigmatic example occurs when a defendant facing a civil-penalty claim removes the case to federal court only to find that the plaintiff lacks standing under Article III, thus necessitating a remand back to state court. See, e.g., Brahamsha v. Supercell OY, No. 16-8440, 2017 WL 3037382 (D.N.J. July 17, 2017); Mocek v. Allsaints USA Ltd., 220 F. Supp. 3d 910 (N.D. Ill. 2016).

Thus, a narrow interpretation of Article III standing in this context might prove to be a Pyrrhic victory for the defense bar. If federal courts are too restrictive in allowing such cases, plaintiffs will no doubt seek refuge for such claims in more accommodating state courts. And without Article III standing, even the expansive removal rules of the Class Action Fairness Act will provide no respite for defendants facing large “no-injury” class actions in plaintiff-friendly state courts.

The Potential Implications

Defense attorneys should take jurisdiction into account when crafting a defense to these “no-injury” class actions. While there is an immediate temptation to minimize the named plaintiff’s alleged injury, there is an advantage in certain jurisdictions to acknowledging at least the allegation of an Article III injury, if it would facilitate a removal from a hostile state court into a more hospitable federal district court.

In addition to claims under FACTA and FCRA, the possibility of jurisdiction permanently nested in state courts exists for other statutory-penalty class action vehicles as well. These other potential causes of action include claims under the Telephone Consumer Protection Act, Fair Debt Collection Practices Act, the Truth in Lending Act, the Stored Communications Act, the Electronic Fund Transfers Act, and the Cable Communications Privacy Act.

Reprinted with permission. © 2021 by the American Bar Association. All rights reserved.