In Ramirez v. Trans Union, the Ninth Circuit addressed whether, at the class certification stage of a putative class case, only the named plaintiff or all class members must have Article III standing (i.e., a concrete injury in fact) to certify a class.¹ The Ninth Circuit has been, and arguably remains, divided on this issue.  However, the court may have more or less settled the issue (at least for now) by ruling that only the named plaintiff must have standing.  Importantly, the court also observed that all class members must have standing at the damages stage of a certified class action.  Thus, although the plaintiff’s bar is likely to view the opinion as a resounding victory, the issue of standing in fact will remain a lively one in any damages class action certified under Federal Rule of Civil Procedure 23.

The Decision

The named plaintiff went to a dealership to buy a car.  After the dealership ran a credit check, the salesman told the plaintiff that it could not sell a car to him because he was on a “terrorist list.”  Specifically, the credit report, which had been prepared by the defendant credit bureau, stated on the first page that the plaintiff’s name “matched” two names on the Office of Foreign Assets Control (OFAC) database.² The salesman did not take any further steps to verify whether the plaintiff was in fact on the OFAC list.  The salesman ultimately agreed, however, to sell the car to the plaintiff’s wife.

A few weeks later, the plaintiff requested a copy of his credit report from the defendant.  The copy the defendant provided did not include the OFAC statement.  The defendant then sent a separate letter stating that the plaintiff’s name potentially matched information listed on the OFAC database.  The plaintiff testified that the information the defendant sent to him failed to clarify whether the OFAC information had been removed.  Concerned about the consequences of a possible OFAC match, the plaintiff cancelled an international vacation he had planned with his family.

Merchants that conduct business with somebody on the OFAC database face severe penalties and fines.  The defendant, one of the three largest credit reporting agencies in the country, capitalized on the need for this information and developed with another company software that matched only first and last names against individuals on the OFAC list.  This led to the defendant generating false reports for over 8,000 consumers. When many of those affected attempted to correct the reports, they, like the plaintiff, were falsely told the alerts had been removed. Information was also withheld as to how to contest the defendant’s actions.

The plaintiff sued on behalf of himself and the 8,000-plus other individuals, claiming that the defendant violated the Fair Credit Reporting Act (FCRA) by placing inaccurate information on their credit reports and sending misleading and incomplete disclosures about the OFAC alerts.  The trial court certified a class that ultimately prevailed on their claims at trial.

On appeal, the defendant argued that the verdict needed to be overturned because none of the class members, other than the plaintiff, had standing to sue under Article III of the U.S. Constitution.  Specifically, the defendant argued that many of the class members suffered no injury in fact, which is necessary to have standing, because it did not disseminate their credit report to any third parties.

The Ninth Circuit began its analysis by finding that only the named plaintiff needed to allege standing at the motion to dismiss and class certification stages.  The remaining class members, however, needed to have standing at the damages stage before they could recover individual monetary damages.  The court further noted that, although the standing injury in the early stages of a case focuses on named plaintiffs, district courts and parties must be able to identify class members who lack standing at the damages phase.

The appellate court held that the class members all had standing.  Even though the defendant did not publish reports on some of the class members, the majority found that there was a material risk that inaccurate OFAC reports could be furnished to third parties, such as potential creditors and employers.  One judge, who dissented in part and concurred in part, diverged from the majority on this point, finding that such class members lacked an injury in fact.  The dissent’s reasoning may cause the Ninth Circuit to grant an en banc review.

Takeaways

Although the Ninth Circuit has now possibly clarified that putative class members do not need to have standing at the class certification stage, it left the door open to consideration of how class members who suffered no injury in fact will be identified at the damages stage.  In many types of cases, it may not be possible to distinguish those class members from those who suffered actual injury without individual mini-trials that would undermine certification.  Defendants can, and often do, move post-certification for an order decertifying the case as a class action.

The case involved FCRA claims against a credit bureau rather than an employer.  Such claims against employers, however, are spiking.³  Employers therefore should continue to monitor developments with regard to the provisions of the FCRA governing the use of background reports for “employment purposes.”  This includes the provisions governing the disclosure and authorization for such reports,⁴ and related provisions governing the “pre-adverse action” notice process.⁵