California Federal Court Strikes Down FCRA Claim

30 October 2017 Labor & Employment Law Perspectives Blog

Earlier this month, in a case pending in the U.S. District Court for the Central District of California, Home Depot avoided a class action suit under the Fair Credit Reporting Act (FCRA). The lawsuit accused the company of improperly obtaining personal information about job applicants by relying on background check authorization forms that did not meet the FCRA’s specific procedural requirements.  The company prevailed in having the case dismissed by successfully arguing that the named plaintiff, Katherine Saltzberg, did not allege a “concrete injury” and as a result, lacked legal standing to sue her employer.

The court’s decision should be carefully reviewed, because it puts a fine point on the importance of pleading concrete harm in procedural FCRA claims, following the U.S. Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S.Ct. 1540 (2016).

Congress passed the FCRA in 1970 in order to protect consumer rights to privacy and to ensure fair and accurate credit reporting. The statute includes several stringent procedural requirements, which most employers are aware (and weary) of. Namely, employers must disclose to applicants in writing that they may obtain the applicant’s consumer credit report, and they must get each applicant’s written authorization before doing so. The disclosure and authorization must be contained in a “stand-alone” document, free of any extra language that might confuse or distract the applicant from reading and understanding the disclosure.  In her complaint against Home Depot, Saltzberg alleged that the company failed to present its disclosure and authorization form to her as a stand-alone document, and, therefore, improperly obtained her personal information (despite the fact that she signed the authorization).

These detailed procedural requirements, including the one at issue in Saltzberg’s suit, have long been a minefield for employers, because even minor missteps could place the employer on the hook for $1,000 in damages for each violation. For years, class counsel enjoyed a lucrative business arising from employers’ procedural mistakes, whether or not they resulted in any concrete harm to the class members. Saltzberg’s bare procedural complaint may have passed muster back then. But that was then, and this is now.

In its 2016 Spokeo opinion, the Supreme Court emphasized that a plaintiff cannot withstand a motion to dismiss by simply alleging a procedural FCRA violation—there must be some tangible or intangible “concrete injury” to establish standing.  The Spokeo Court sent the case back to the 9th Circuit Court of Appeals to conduct an analysis of whether the plaintiff there had alleged a concrete injury, not merely a bare procedural violation. On remand, the 9th Circuit found that even though the plaintiff did not lose any job opportunity as a result of the alleged materially inaccurate credit reporting, he nevertheless had standing to sue under FCRA because the dissemination of false information in consumer reports can itself constitute concrete harm.

In essence, the court found that the FCRA procedural violation created a per se concrete harm, and that pleading the violation itself likewise pleaded the requisite harm to establish standing. The Spokeo cases, as a result, leave just as many questions as they provide answers.  When is an intangible harm concrete enough to give a plaintiff standing to sue?  Which procedural FCRA violations create a per se injury?

Having not alleged any separate harm, Saltzberg tried the “per se injury” approach.  She argued on her motion to dismiss that “additional information in a disclosure form is per se confusing to prospective employees such that those employees are unable to provide informed consent to the release of their private information, [therefore] this Court can reasonably infer that Plaintiff suffered information and privacy injuries when she alleged that Defendant’s notice was improper and its authorization invalid….”

In this context, the district court disagreed and did not find a per se concrete harm in Home Depot’s alleged failure to maintain its FCRA disclosures as stand-alone documents.  Instead, the court looked to Saltzberg’s complaint for allegations of an actual injury in fact and found none.

Importantly, Saltzberg did not allege that she did not understand the FCRA disclosure when she signed the authorization, or that, had it been more clear, she would not have signed the authorization. She did not allege that she never freely consented to the background check. Nor did she allege that Home Depot’s collection of her personal information invaded her right to confidentiality. Without any of these allegations, the district court determined that Saltzberg failed to plead any tangible or intangible concrete injury.

In a final attempt to save her suit from dismissal, Saltzberg asked the court to permit her to amend her complaint to make the above allegations, but the court simply dismissed the case. Given Saltzberg’s legal argument that her consent was invalid merely because of the procedurally improper disclosure and authorization form, it seems that she could not plausibly (or truthfully) plead that she did not consent due to a lack of understanding.

Although the post-Spokeo world remains full of mystery and courts continue to arrive at disparate conclusions concerning whether complaints adequately allege concrete injury to establish plaintiffs’ standing, this recent Home Depot win confirms that employers should carefully review any FCRA claims for allegations of concrete injury and move to dismiss in the absence thereof.

Even as plaintiffs’ counsel smarten up in the wake of decisions like the Saltzberg decision, and even as we may see more artful pleading alleging concrete harms such as confusion and a failure to truly consent to background checks, employers should carefully consider the merits of such allegations early on and before making generous offers of settlement. Early interrogatories and requests for admission may help weed out rote and baseless allegations of concrete injury. The issue of standing may be raised at any point, and barely plausible allegations will unlikely withstand a post-discovery motion.

Finally, while this case provides a helpful line of argument for employers who may be subject to FCRA lawsuits, companies that utilize background checks should continue to carefully review and follow the FCRA’s procedural requirements.

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