A victory for LexisNexis under the FCRA – Fourth Circuit

Berry v. LexisNexis Risk and Information. The Fourth Circuit has handed down an appellate win for Lexis and other major data collectors involved in class litigation and seeking to minimize their financial liability.

Class action plaintiffs alleged that Lexis failed to follow the protections under the Fair Credit Reporting Act, which requires certain protections for consumer reports. If this sounds familiar, it’s because it’s similar to the underlying action in Spokeo Inc. v. Robins, which is currently pending at SCOTUS (though the issue there is Article III standing for statutory damages).

Here, the underlying suit revolves around whether Accurint reports are “consumer reports” under the FCRA. Many attorneys are familiar with Accurint, the people search product from Lexis that provides information on a person’s property, liens, judgments, etc.

There were two classes of plaintiffs in this case.  After years of litigation, Lexis and each of the classes reached settlements. Under the agreements, each plaintiff in the first class of about 31,000 people would receive about $300. Each plaintiff in the second class of “roughly 200 million people,” would receive no financial compensation. Instead, it required Lexis to change some practices. But, individual class plaintiffs would not be paid.

The district court certified the class, approved of the settlements, awarded incentive awards of $5,000 to each of the class representatives and awarded about $5.3 million in attorneys’ fees.

On appeal, the issue is whether a group of class members from the second class (called “Objectors” in the opinion) can opt out of the settlement and instead pursue statutory damages.

Under Rule 23(a) of the Federal Rules of Civil Procedure, a party seeking class certification, whether for settlement or litigation purposes, first must demonstrate that: “(1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; and (4) the representative parties will fairly and adequately protect the interests of the class.” Fed. R. Civ. P. 23(a).

Second, if the requirements of Rule 23(a) are met, then the proposed class must fit within one of the three types of classes listed in Rule 23(b). At issue here is Rule 23(b)(2), which permits certification where “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Fed. R. Civ. P. 23(b)(2). “[B]ecause of the group nature of the harm alleged and the broad character of the relief sought, the (b)(2) class is, by its very nature, assumed to be a homogenous and cohesive group with few conflicting interests among its members.” Allison v. Citgo Petroleum Corp., 151 F.3d 402, 413 (5th Cir. 1998). Accordingly, Rule 23(b)(2) classes are “mandatory,” in that “opt-out rights” for class members are deemed unnecessary and are not provided under the Rule. See id.; see also Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2558 (2011).

Where monetary relief predominates, 23(b)(2) certification is inappropriate. But, where it is incidental to injunctive or declaratory relief, it may be permissible. Monetary damages are more likely to be individualized.

The Objectors challenged the district court decision to certify the class.

The Objectors argued that the statutory damages waived by the settlement agreement predominated over the injunctive relief provided, and therefore class certification was inappropriate. The Fourth Circuit disagreed:

The “meaningful, valuable injunctive relief” afforded by the Agreement is “indivisible,” “benefitting all [] members” of the (b)(2) Class at once. Berry, 2014 WL 4403524, at *11. And the statutory damages claims released under the Agreement are not the kind of individualized claims that threaten class cohesion and are prohibited by Dukes [Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2558 (2011)]. When it comes to statutory damages under the FCRA, what matters is the conduct of the defendant, Lexis – which, as the district court emphasized, “was uniform with respect to each of the class members.” Id. at *12. The availability of statutory damages in this case, in other words, is a simple function of Lexis’s policies with respect to its Accurint reports, applicable to the entire (b)(2) Class. If Lexis unreasonably failed to treat Accurint reports as “consumer reports” subject to the FCRA, then every class member would be entitled uniformly to the same amount of statutory damages, set by rote calculation. Id.

Footnote omitted.

Importantly, under the agreement, individualized actual damages are retained by the class.

The Objectors also argued that the statutory damages could not be deemed “incidental” because the original complaint did not even seek injunctive relief. The Fourth Circuit concludes, however, that because the FCRA does not actually provide any right to injunctive relief, it would not have been properly included in the complaint. That does not, however, mean that it would be improper in a settlement, because the parties are free to agree to nearly anything they like.

Alternatively, the Objectors argued that even if the statutory damages were incidental, due process precluded certification without opt-out rights. But, under Dukes, only claims for individualized monetary relief could not be certified (and, as explained above, the statutory damages in this context were not individualized). And, again, the opinion points to the right to pursue the individualized actual damages claims outside of the settlement.

The Opinion also includes some policy justification:

What is being sought is a blanket right to opt out of a Rule 23(b)(2) settlement that provides purely injunctive relief solely because non-individualized statutory damages claims are released, while individualized actual damages claims are retained. That such a rule would discourage settlement seems undeniable; defendants like Lexis surely will not agree to settlements like this one if they cannot buy something approaching global peace. And in light of all the other procedural protections already in place, not to mention the retention of actual damages claims under this Agreement, any marginal benefit that might accrue to disenchanted class members is unlikely to be worth this cost.

Citation omitted.

The Objectors also argued that approval of the settlement itself was improper because the settlement was unfair and inadequate because it released the statutory damages claims with no monetary relief.

Fairness, in the class context, essentially only means that it was an arm’s length deal. Not that the class members feel vindicated or fulfilled. There was no real argument that the deal here didn’t fit that standard.

As to inadequacy: “the most important factor in weighing the substantive reasonableness of a settlement agreement [is] the strength of the plaintiffs’ claims on the merits.” In order to recover statutory damages under the FCRA, they would need to show Lexis willfully violated the law through an “objectively unreasonable” reading of the act. That would have been a tough statutory fight over the interpretation of “credit report.” And, “with agency guidance expressly specifying that Accurint reports are not subject to the FCRA,” that it seems relatively reasonable to come to the same conclusion.

The opinion also points out that: “There was no realistic prospect that Lexis could or would provide meaningful monetary relief to a class of 200 million people.”

The Fourth Circuit also rejected the argument that the settlement impermissibly immunizes Lexis from future FCRA liability.

[Under the settlement agreement], Lexis has no free pass from FCRA liability; instead, the Agreement applies only so long as Contact & Locate remains true to the parties’ intent and is not used in a manner that would make it a “consumer report.”

Finally, the court rejected one (just one) Objector’s challenge to the award of fees to class counsel.

There is a clear incentive to class defendants to work toward injunctive-relief-based settlements to avoid potentially staggering financial liability. This opinion bolsters that incentive.