Today, the Supreme Court issued three decisions, described below, of interest to the business community.
- Article III Standing—Pleading Injury-in-Fact
- Securities Exchange Act—Scope of Exclusive Federal Jurisdiction
- Bankruptcy—The "Actual Fraud" Bar
Article III Standing—Pleading Injury-in-Fact
Spokeo, Inc. v. Robins, No. 13-1339
The Supreme Court today issued its decision in Spokeo, Inc. v. Robins, a closely-watched case presenting the question whether Article III's "injury-in-fact" requirement for standing to sue in federal court may be satisfied by alleging a statutory violation without any accompanying real-world injury.
The Court held that a plaintiff must allege "concrete" harm—which it described as harm that is "real"—to have standing to sue, and that the existence of a private right of action under a federal statute does not automatically suffice to meet the "real" harm standard. The decision is likely to have a meaningful impact on class action litigation based on alleged statutory violations. Justice Alito authored the opinion for the Court, joined by Chief Justice Roberts and Justices Kennedy, Thomas, Breyer, and Kagan. (Mayer Brown represented Spokeo before the Supreme Court.)
The case involved claims that Spokeo, a web-based search engine, violated several provisions of the Fair Credit Reporting Act in connection with information about the plaintiff. The named plaintiff sought statutory damages on behalf of himself and every other individual whose information appeared on Spokeo's website. The Ninth Circuit found that he had standing based simply on the plaintiff's allegation that Spokeo "violated his statutory rights" and the fact that the plaintiff's "personal interests in the handling of his credit information are individualized."
The Supreme Court held that "the injury-in-fact requirement requires a plaintiff to allege an injury that is both 'concrete and particularized.'" The Ninth Circuit erred, the Court explained, because it ignored the "concreteness" element, which requires that the plaintiff show that his or her alleged concrete injury "actually exist[s]" and that it is "'real,' and not 'abstract.'"
The Court pointed out that it previously has held that "intangible injuries" can qualify as "concrete." It stated: "[i]n determining whether an intangible harm constitutes injury in fact, both history and the judgment of Congress play important roles." Therefore "it is instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts." And, Congress's judgment about whether a particular intangible harm satisfies Article III is "instructive and important."
But, the Court cautioned,
A "bare procedural violation, divorced from any concrete harm," cannot "satisfy the injury-in-fact requirement of Article III." That is a square rejection of the legal theory on which lower courts—most prominently the Ninth Circuit—have upheld standing in class actions under more than a dozen federal statutes.
The Court pointed out that the plaintiff need not have suffered concrete harm in order to sue: a "risk of real harm" can in some circumstances satisfy the concrete harm requirement. It cited its prior ruling in Clapper v. Amnesty International USA, which stated that a "'threatened injury must be certainly impending to constitute injury in fact,' and that '[a]llegations of possible future injury' are not sufficient."
Significantly, the Court in Spokeo emphasized that violations of FCRA procedural rights do not necessarily result in concrete harm. And "not all inaccuracies cause harm or present any risk of harm."
The Court remanded the case for the Ninth Circuit to consider whether "the particular procedural violations alleged in this case entail a degree of risk sufficient to meet the concreteness requirement."
Justice Thomas joined the Court's opinion but wrote separately to explain his view of how the injury-in-fact requirement applies to "public" versus "private" rights. Justice Ginsburg, joined by Justice Sotomayor, filed a dissenting opinion. Although "agree[ing] with much of the Court's opinion," Justice Ginsburg did not think it was necessary to remand the case to determine whether the plaintiff had alleged a concrete injury.
The decision in Spokeo eliminates the "no injury" class action. Plaintiffs' lawyers will now be required to demonstrate that the named plaintiff, and each class member, suffered "real harm" or faced a "certainly impending" risk of real harm. And to the extent the alleged harm is intangible, they will have to demonstrate that it "has a close relationship" to injury deemed sufficient to permit suit at common law and that Congress has made a judgment that the intangible harm should satisfy Article III. Although both of these inquiries are "instructive," the ultimate judgment is one for the courts.
Even if the concrete harm test is satisfied, class action lawyers will face an additional hurdle—the obligation to demonstrate that each class member has standing will create a significant individualized issue that may well preclude class certification on the ground that common issues do not predominate.
Securities Exchange Act—Scope of Exclusive Federal Jurisdiction
Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, No. 14-1132
The Supreme Court today rejected an effort to bring state-law suits that reference federal securities laws into federal court. The Court ruled that the provision of the Securities Exchange Act that grants federal courts "exclusive jurisdiction" over all suits "brought to enforce any liability or duty created by" the Act has the same scope as the familiar "arising under" federal law standard that controls general federal-question jurisdiction. As a result, the Securities Exchange Act grants exclusive federal jurisdiction only where a complaint asserts claims under one of the Act's provisions or asserts a state-law claim that rises and falls on the plaintiff's ability to prove a violation of the Act.
Applying this standard, the Court affirmed a Third Circuit order remanding the plaintiffs' suit against Merrill Lynch to state court, in an opinion by Justice Kagan. The complaint referenced federal securities regulations regarding short selling, but (in the unchallenged view of the Third Circuit) did not assert any claims under the Securities Exchange Act or assert any state-law claims that turn on proof of a violation of the Act.
The decision will also impact litigants under the nine other federal statutes that contain similar "brought to enforce" jurisdictional provisions.
Bankruptcy Code—Fraudulent Conveyances Qualify As "Actual Fraud"
Husky Int'l Electronics, Inc. v. Ritz, No. 15-145
Debtors seek the protections of the Bankruptcy Code to have their debts discharged, but there are exceptions. A creditor can prohibit discharge of a debt "obtained by ... actual fraud." 11 U.S.C. § 523(a)(2)(A). Today, in a 7-1 decision written by Justice Sotomayor, the Supreme Court ruled that a fraudulent conveyance qualifies as "actual fraud."
In so holding, the Court rejected the suggestion that a fraudulent conveyance could not constitute an "actual fraud" because it does not entail a misrepresentation, noting that frauds at common law did not necessarily include misrepresentations. The Court concluded that nothing in the Bankruptcy Code suggests that Congress intended for a different, narrower meaning of the term "actual fraud."
Beyond addressing the question presented, today's decision contains a notable discussion of the phrase "obtained by," which appears in the same statutory provision. Justice Thomas, in dissent, contended that "[t]he statutory phrase 'obtained by' is an important limitation on the reach of the provision." In his view, "Section 523(a)(2)(A) applies only when the fraudulent conduct occurs at the inception of the debt, i.e., when the debtor commits a fraudulent act to induce the creditor to part with his money, property, services, or credit." This theory would have significant implications; it would prohibit creditors from using later-in-time fraudulent conduct as a basis to exempt earlier-obtained debts from discharge. But the majority appears to have rejected this interpretation: "Nothing in the text of [Section] 523(a)(2)(A) supports that additional requirement."
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