Statutory Class Actions: Developments And Strategies

In today's litigation and regulatory climate, class actions alleging statutory violations can pose some of the most persistent and troublesome threats to lenders, mortgage servicers, and financial service businesses. Consumer protection statutes, whether adopted at the federal or state level, frequently go beyond prohibiting certain types of business conduct and impose affirmative obligations on the target businesses, often including highly technical disclosure requirements to consumers. In addition to providing for a private right of action, such statutes often allow for the recovery of statutory damages on behalf of plaintiffs without imposing any explicit statutory requirement of proof of actual damage and injury. Class actions brought under such statutes can represent huge exposure for companies in many cases. The applicability of a uniform federal law for a nationwide statutory damage class action (or a uniform state law for statewide statutory damage class actions brought under state law), combined with judicial constructions loosening or eliminating the necessity of proof of actual injury and causation, make it considerably easier for plaintiffs to obtain class certification and coerce classwide settlement in the statutory context, or alternatively demand disproportionately favorable individualized settlements prior to certification proceedings.

That of course does not mean that surrender is the only option. To obtain class certification and establish liability, a plaintiff still must satisfy Rule 23's requirements as well as those of the statute(s) at issue. See, e.g., Halliburton Co. v. Erica P. John Fund, Inc., — U.S. —, 134 S. Ct. 2398 (2014) (Securities Exchange Act of 1934); Comcast Corp. v. Behrend, — U.S. —, 133 S. Ct. 1426 (2013) (Sherman Act); Wal-Mart Stores, Inc. v. Dukes, — U.S. —, 131 S. Ct. 2541 (2011) (Civil Rights Act). But the strategy for defending such actions will frequently involve considerations that may be given less focus and import in the defense of other forms of class litigation.

1. AN ASPECT OF ADEQUACY: DO TRADITIONAL STANDING REQUIREMENTS APPLY TO STATUTORY CLASS ACTIONS?

Plaintiff standing is rarely the subject of great debate in most forms of litigation, including class litigation. When common law tort or contract claims are at issue, a plaintiff's standing or lack thereof is generally obvious and rarely debatable. Statutory damage actions are different. A statutory damage plaintiff must demonstrate not only statutory standing, but Constitutional standing as well. Lerner v. Fleet Bank, N.A., 318 F.3d 113, 126 (2d Cir. 2003). Exactly how these two types of standing interrelate is currently the subject of substantial judicial uncertainty and debate.

The necessity and meaning of the traditional "injury-in-fact" component of Constitutional standing in the context of statutorily-based claims is the primary focal point of this debate.. Where a plaintiff brings a putative statutory class action seeking only statutory damages for technical violation of the statute, but asserts no allegations of actual injury to herself or others, some courts have been willing to find the requirements of both statutory and Constitutional standing satisfied, even though traditional injury-in-fact does not exist. Such decisions have engendered an ongoing debate over whether a legislative body may, consistent with separation of powers principles, eliminate or modify the Constitutional requirement (or, at the state level, state constitutional or judicially created requirements) that a plaintiff allege and later prove the type of injury-in-fact that has traditionally been required to demonstrate a bona fide case or controversy exists between her and the defendant within the meaning of Article III (or its state analogue).

Obviously, this ongoing debate complicates the defense of statutory class actions, but at the same time presents important opportunities for a defendant. A defendant should always evaluate whether the plaintiff has adequately alleged—and can prove—not just a statutory violation, but also whether that violation inflicted an injury in fact on the named plaintiff. The nature of such an injury (particularly if it is individualized in nature), and the associated issue of causal link between the statutory violation and the injury, can impact not just the merits of the named plaintiff's claims but also a company's defenses to class certification

1. What Constitutional Principles Are We Talking About?

   At the federal—and often the state—level, courts are subject to restraints on the exercise of their judicial power. At the federal level, such restrictions derive directly from the Constitution. See U.S. CONST., art. III., § 2, cl. 1. At the state level, such restrictions may derive from provisions of state constitutions,1 or they may be creatures of judicial creation.2 The point is that where constitutional standing rules apply, "threshold individual standing is a prerequisite for all actions, including class actions."3 "In [this] era of frequent litigation, class actions, sweeping injunctions with prospective effect, and continuing jurisdiction to enforce judicial remedies, courts [should] be more careful to insist on the formal rules of standing, not less so." Accord Arizona Christian Sch. Tuition Org. v. Winn, —U.S.—, 131 S. Ct. 1436, 1449 (2011).

   In recognition of the fact that their judicial power is not unrestrained, federal courts may entertain only those cases involving "injury to the complaining party, even though the court's judgment may benefit others collaterally." Warth v. Seldin, 422 U.S. 490, 499 (1975). A federal court's jurisdiction is only properly invoked when the plaintiff asserts an actual and personally-particularized injury because the court's role is not to resolve "generalized grievances shared in substantially equal measure by all or a large class of citizens" or claims seeking "relief on the legal rights or interests of third parties." Id. Therefore, to evidence standing (e.g., to make out the sort of case involving a stake sufficiently personal to the plaintiff to warrant invocation of the court's jurisdiction), a plaintiff "must show (1) [she] has suffered an 'injury in fact' that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Friends of the Earth, Inc v. Laid-law Envtl. Servs., Inc., 528 U.S. 167, 180 (2000) (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–561 (1992)); see also Clapper v. Amnesty Int'l USA, — U.S. —, 133 S. Ct. 1138, 12247 (2013).4 Courts have long resisted efforts to water down these minimal requirements, including the injury-in-fact requirement. Abundant authority recognizes that it is the necessity of demonstrating a personalized injury, and a casual connection between it and the defendant's conduct, which serve to distinguish those claims properly subject to judicial resolution from the sort of generalized grievances that are best resolved by the legislative branch of government.5

   This is not to say, however, that the standing doctrine requires that the claimed injury be great or "substantial . . . ; an identifiable trifle will [often] suffice." Public Citizen v. Lockheed Aircraft Corp., 565 F.2d 708, 714 (D.C. Cr. 1977) (citing U.S. v. Students Challenging Regulatory Agency Procedures (SCRAP), 412 U.S. 669,689 n.14 (1973)). The injury need not even be economic in nature. Lujan, 504 U.S. at 562–63; Assoc. of Data Processing Serv. Orgs, Inc. v. Camp, 397 U.S. 150, 152 (1970). What is instead required is that the plaintiff evidence some injury from the defendant's alleged...