The TransUnion Decision: A Blessing or a Curse for the ARM Industry?

Did You Forget Something?

The Spanish philosopher George Santayana (Jorge Agustín Nicolás Ruiz de Santayana y Borrás) observed that those who cannot remember the past are condemned to repeat it. As it cheers recent decisions from the Supreme Court and multiple federal circuit courts of appeals, the credit and collection industry certainly proves him right.

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Let’s take a minute to discuss the past. Do you remember the Class Action Fairness Act of 2005 (“CAFA”)? CAFA was a law championed by the business community to make it easier to pull class actions into federal court. Why? Let’s look at the congressional findings.

Congress found that “class action lawsuits are an important and valuable part of the legal system when they permit the fair and efficient resolution of legitimate claims of numerous parties by allowing the claims to be aggregated into a single action against a defendant that has allegedly caused harm.” After decades of defending class actions across the country and of teaching consumer protection law I agree, both from a practical perspective and from an academic one. Class actions create efficiencies that can actually benefit defendants. You don’t believe me? Just ask Door Dash, which received a $12 million bill from AAA when its drivers individually filed mass arbitration demands, effectively punishing the company for its class action waivers.

The important thing to remember, though, is that Congress also found that over the decade preceding the enactment of CAFA, there had been numerous abuses of the class action process that had adversely affected interstate commerce and undermined public respect for our judicial system. Particularly relevant to the present is Congress’ finding in 2005 that:

Abuses in class actions undermine the national judicial system, the free flow of interstate commerce, and the concept of diversity jurisdiction as intended by the framers of the United States Constitution, in that State and local courts are—

• keeping cases of national importance out of Federal court;

• sometimes acting in ways that demonstrate bias against out-of-State defendants; and

• making judgments that impose their view of the law on other States and bind the rights of the residents of those States.

Please allow me to translate. Being stuck in state courts can be really bad if you are a class action defendant, especially if you are a big, out-of-state business like a bank, debt buyer, collection agency or law firm.

Congress declared that the purpose of CAFA was:

• assure fair and prompt recoveries for class members with legitimate claims;
• restore the intent of the framers of the United States Constitution by providing for Federal court consideration of interstate cases of national importance under diversity jurisdiction; and
• benefit society by encouraging innovation and lowering consumer prices.

Let’s recap. A mere sixteen years ago, the business community understood quite clearly that a federal court was far more likely to provide an even-handed, unbiased judicial forum than a local state court in which judges were likely to favor voters, contributors, and friends in the community. The business forces that supported CAFA argued that there was a need to increase access to federal courts in class and mass litigation in order to get out of what the American Tort Reform Association refers to as “judicial hellholes.” If you have had the opportunity to defend class actions just about anywhere in California or in places such as Madison County or St. Clair County, Illinois, you probably understand already why it can be really bad to be stuck in state court.

Federal court practice is not always a fun experience either, and there are certainly problems (like judges making up their own procedures) that Congress needs to address. But the odds of getting fair hearings at the trial court and appellate level certainly increase when the judges before whom you appear are not dependent upon large campaign donors or appointed by those who are dependent on such donors. CAFA provided additional opportunities to pull cases out of state courts through the process of removal to federal court.

What is the point of this bit of history? In 2005, the business community understood quite clearly why it wanted to get out of state courts and why federal courts were the solution to languishing in “judicial hellholes.” But then, the business community forgot the lessons of the past.

Flash forward a little over a decade after CAFA to 2016, when the Supreme Court decided Spokeo, Inc. v. Robins. If you talked to me about that case while it was pending before the high court, you know that I was very concerned that the business community was backing the wrong horse. I pointed out to multiple clients and colleagues that the legal position urged by Spokeo, Inc. was actually bad for businesses. I urged clients and colleagues not to fall for the trap of believing that which your adversary opposes must be good for you.

In Spokeo, the Supreme Court reiterated the need for a plaintiff to have standing to sue in federal court. A plaintiff who has not suffered a concrete, particularized, injury-in-fact does not present the “case or controversy” that is necessary for a federal court to have subject matter jurisdiction under Article III of the Constitution. Following the Spokeo decision, motions to dismiss for lack of subject matter jurisdiction became the favorite toy of the defense bar. Most such motions were denied, but since they were profitable for defense firms and clients loved the idea of trying to get cases tossed out of court, the motions continued.

The trend of largely unsuccessful Spokeo-based motions took a sudden turn in 2020. Although there had certainly been successful outcomes for defendants invoking Spokeo, 2020 was a big year for defendants (or so they thought). First, the Eleventh Circuit Court of Appeals held that the statutory damages provided for in the Fair Debt Collection Practices Act (“FDCPA”) did not eliminate the requirement that a plaintiff have an actual injury in order to have standing to sue in federal court. Next came a series of decisions from the Seventh Circuit Court of Appeals that mandated the dismissal of FDCPA cases because the plaintiffs failed to demonstrate the standing mandated by Spokeo. The Sixth Circuit got on the bandwagon, as have multiple district courts across the country. The business community cheered. My team cringed.

Before I explain, let me be clear: We use these decisions. We attack jurisdiction, when it is appropriate. The Seventh Circuit cases even suggest that it is our duty to do so. But that does not mean that we can ignore the consequences that are certain to follow.

When a case is dismissed from a federal court for lack of Article III standing, that is not a decision “on the merits,” and the defendant has not “won.” The plaintiff may be able to re-file in state court, depending on the state’s own standing jurisprudence. Admittedly, that does not happen often in our consumer cases. However, in light of all of the recent cases finding that plaintiffs lacked Article III standing, many plaintiffs’ attorneys are now filing suit in state court, sometimes in the “judicial hellholes” that led to the passage of CAFA. (Some other plaintiffs’ attorneys are skipping courts altogether and filing arbitration claims.) In a relatively recent trend, when defendants remove cases to federal courts, plaintiffs are moving to remand the cases back to state court, arguing that their claims do not give rise to Article III jurisdiction. And they are winning those motions.

On June 25, the Supreme Court issued its decision in TransUnion LLC v. Ramirez. The Court held that it is insufficient for the class representative to have Article III standing. Instead, every member of the class must also possess such standing for their class claims to proceed in federal court. Law360 quoted TransUnion’s attorney on the implications of the case: “It also will improve American businesses' ability to serve their customers and workers efficiently, with reduced litigation burden.” Many businesses seem to agree. But will it?

TransUnion v. Ramirez does not eliminate the right to sue. It did not strike down the Fair Credit Reporting Act (“FCRA”). It did not hold that the plaintiff class failed to allege violations of the FCRA. What it did was deny access to federal courts to plaintiffs and class members who cannot demonstrate the particularized, concrete, injury-in-fact that is required for Article III standing.

However, cases under the FDCPA “may be brought in any appropriate United States district court without regard to the amount in controversy, or in any other court of competent jurisdiction.” The FCRA contains identical language and similar jurisdiction provisions are in the Truth in Lending Act, the Equal Credit Opportunity Act, the Electronic Fund Transfers Act, and the Real Estate Settlement Procedures Act. A suit under any of those statutes may be brought in a state court that has jurisdiction over the amount in controversy.

The recent line of Article III cases does not let defendants defeat the claims under these statutes. Instead, the cases empower plaintiffs to sue in state courts and to keep their cases there. If ever the phrase “out of the frying pan and into the fire” had meaning, it seems to have it here. The business community has succeeded in getting itself out of the federal courts that it once knew it preferred and stuck in the “judicial hellholes” it wanted to escape.

My team and I are not the only lawyers with a sense of history and of impact. Justice Clarence Thomas recognized the anti-business impact of the majority decision in TransUnion. Joined by the unlikely trio of Justices Breyer, Sotomayor, and Kagan, he wrote, at footnote 9 in his dissent:

Today’s decision might actually be a pyrrhic victory for TransUnion. The Court does not prohibit Congress from creating statutory rights for consumers; it simply holds that federal courts lack jurisdiction to hear some of these cases. That combination may leave state courts—which “are not bound by the limitations of a case or controversy or other federal rules of justiciability even when they address issues of federal law,” ASARCO Inc. v. Kadish, 490 U. S. 605, 617, 109 S. Ct. 2037, 104 L. Ed. 2d 696 (1989)—as the sole forum for such cases, with defendants unable to seek removal to federal court. See also Bennett, The Paradox of Exclusive State-Court Jurisdiction Over Federal Claims, 105 Minn. L. Rev. 1211 (2021). By declaring that federal courts lack jurisdiction, the Court has thus ensured that state courts will exercise exclusive jurisdiction over these sorts of class actions.

The old saying goes that he who laughs last, laughs best. As the business community cheers the recent line of Article III decisions that consign it to the “judicial hellholes” that it sought to avoid with CAFA, Santayana’s ghost is probably laughing.