Third Circuit Builds on Post-Spokeo “Bare Procedural Violation” Standing Jurisprudence

Featured Expert Contributor—Civil Justice/Class Actions

Frank Cruz-Alvarez, a Partner in the Miami, FL office of Shook, Hardy & Bacon L.L.P., with Erica E. McCabe, an Associate in the firm’s Kansas City, MO office.

On March 8, 2019, the U.S. Court of Appeals for the Third Circuit, in Kamal v. J. Crew Grp., Inc., et al., ___F.3d___, 2019 WL 1087350 (3d Cir. Mar. 8, 2019), affirmed the U.S. District Court for the District of New Jersey’s judgment that plaintiffs’ putative class complaint failed to properly assert Article III standing under the guidelines established by Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016) (Spokeo I).  In so holding, the Third Circuit joined its sister courts from the Second, Eighth, and Ninth Circuits in establishing that alleged procedural violations do not create Article III standing unless “the violation actually harms or presents a material risk of harm to the underlying concrete interest.”  Kamal, 2019 WL 1087350, at *17.  

In Kamal, the putative class alleges that J. Crew Group, Inc. (“J. Crew”) violated provisions of the Fair and Accurate Credit Transactions Act of 2003 (“FACTA” or the “Act”), 15 U.S.C. § 16801c(g), when it printed receipts showing the first six and last four digits of plaintiffs’ credit card numbers.  Kamal, 2019 WL 1087350, at *3.  In addition to the bare statutory violation, the putative class alleges that the offending receipts put them at an increased risk of identity theft.

Congress passed FACTA as an amendment to the Fair Credit Reporting Act (FCRA) with the intent of reducing identity theft.  FACTA prohibits retailers from printing credit and debit card receipts that display more than “the last 5 digits of the card number or the expiration date.”  Willful violators of this Act are liable for “any actual damages . . . or damages of not less than $100 and not more than $1,000, punitive damages, and attorneys’ fees and costs.”

Responding to concerns of merchant confusion and abusive litigation, Congress subsequently enacted the Credit and Debit Card Receipt Clarification Act (“Clarification Act”), which created a “temporary safe harbor” for merchants who violated FACTA by printing credit card expiration dates on receipts between 2004 and 2008.  Id. at *5.  Although merchants that printed expiration dates had undeniably violated FACTA, Congress felt that such suits “did not contain allegations of harm to any consumer’s identify.”  Congress intended that the Clarification Act “ensure consumers suffering from actual harm to their credit or identify are protected while simultaneously limiting abusive lawsuits that do not protect consumers.”

Alleging that J. Crew willfully violated FACTA, named plaintiff, Ahmed Kamal, brought this putative class action after he received receipts from J. Crew stores in Maryland, Delaware, and New Jersey that displayed the first six and last four digits of his credit card number.  Kamal sought statutory damages, punitive damages, and attorneys’ fees—all remedies available to him under the Act.

Upon a motion from J. Crew, the District Court dismissed plaintiffs’ amended complaint without prejudice for lack of Article III standing, holding that they failed to allege a “concrete” injury.  Id.  Plaintiffs later filed their second amended complaint, this time asserting two specific injuries: (1) “the printing of the prohibited information itself,” and (2) the increased the risk of identity theft.  Id. at *7.  Notwithstanding plaintiffs’ bolstered allegations, the District Court again dismissed the complaint without prejudice, holding that a mere technical violation of FACTA—especially one that did not result in any actual harm—was insufficient to establish an injury in fact.  Id. at *8-9.

Instead of amending their complaint a third time, plaintiffs moved for “reconsideration, or alternatively for amendment of the court’s order so as to redenominate it final and appealable.”  Id. at *9 (internal quotations omitted).  The District Court granted plaintiffs’ motion, amended its order, and dismissed the putative class action with prejudice.  Plaintiffs appealed.  

Article III standing “limits the category of litigants empowered to maintain a lawsuit in federal court and has developed in our case law to ensure that federal courts do not exceed their authority.”  Id. at *11 (quoting Spokeo, 136 S. Ct. at 1547) (internal quotations omitted).  To demonstrate standing, plaintiffs must show that they have: “(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decision.”  Id. (internal quotations omitted).  Plaintiffs can only demonstrate injury in fact by alleging “an invasion of a legally protected interest that is concrete and particularized and actual or imminent, not conjectural or hypothetical.”  Id. (quoting Lujan v. Defs. of Wildlife, 504 U.S. 555, 560) (internal quotations omitted).

Although Spokeo I certainly permits standing for intangible harms, the Supreme Court was careful to establish that the injury-in-fact requirement cannot be satisfied by “a bare procedural violation divorced from any concrete harm.”  Spokeo, 136 S. Ct. at 1549.  Moreover, Spokeo I directs courts to “consider whether [the alleged] harm has a close relationship to a harm that has traditionally been regarded as providing a basis” for common-law action.  Id.

Looking first to plaintiffs’ alleged injuries, the Third Circuit rejected the argument that J. Crew’s procedural violation of FACTA was sufficient to create an injury in fact and held that plaintiffs failed to allege any other viable risk of harm.  In a nod to Spokeo I, the court recognized Congress’s intent to create a right of action for willful violations of FACTA.  However, the court also noted that “the Clarification Act . . . expresses Congress’s judgment that not all procedural violations of FACTA will amount to concrete harm.”  Id. at *19.

Next the court considered plaintiffs’ argument that their injury “is analogous to common law privacy torts and an action for breach of confidence.”  Id.  Although Spokeo I instructs courts to consider if plaintiffs’ harm is closely connected to a traditional common-law action, the Third Circuit found that plaintiffs’ injuries are not similar to the harms that give rise to common-law privacy or breach of confidence actions.  The court opined that, while plaintiffs’ harms are, in some ways, aligned with the tort of unreasonable publicity, plaintiffs failed to demonstrate that any third party obtained access to their personal information—a requirement for the common-law tort.

Last, the court rejected plaintiffs’ final argument that J. Crew’s procedural violation of FACTA was alone sufficient to demonstrate concrete harm under Spokeo IId. at *21.  To support this assertion, plaintiffs look to a passage in Spokeo I where the Court explains that “the violation of a procedural right granted by statute can be sufficient in some circumstances to constitute injury in fact. In other words, a plaintiff in such a case need not allege any additional harm beyond the one Congress has identified.”  Id. (quoting Spokeo, 136 S. Ct. at 1549).

However, the Third Circuit found this argument similarly unconvincing.  The court emphasized that the term “additional harm” “presumes that the putative plaintiff had already suffered a de facto injury resulting from the procedural violation,” and held that plaintiffs failed to prove they suffered from the concrete harms FACTA was enacted to protect—namely, identity theft.  Id. at *21-22.  Indeed, the court noted that the chain of events required for these FACTA-violating receipts to result in identity theft is far too speculative to constitute a material risk of harm.  Id. at *24.

In line with decisions in the Second, Eighth, and Ninth Circuits, the Third Circuit’s ruling in Kamal offers important insight into the judiciary’s interpretation of Article III standing post-Spokeo I.  See Strubel v. Comenity Bank, 842 F.3d 181, 190 (2d Cir. 2016); Braitberg v. Charter Commc’ns, Inc., 836 F.3d 925, 930 (8th Cir. 2016); Robins v. Spokeo, 867 F.3d 1108, 1115 (9th Cir. 2017), cert. denied, 138 S. Ct. 931 (2018).  Indeed, these decisions demonstrate that a growing number of circuits are hesitant to find Article III standing for procedural or statutory violations that do not result in concrete harm.  However, despite a trend of favorable decisions, companies should not consider this issue settled.  Companies should continue to carefully consider their compliance with state and federal regulations to avoid potentially lengthy and costly litigation.

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