Frank v. Gaos and the importance of actual injury

By Daryl L. Joseffer and Ashley C. Parrish

In a welcome development, a case that was supposed to be about cy pres settlements has turned into one about the viability of no-injury class actions.  The Supreme Court granted cert. in Frank v. Gaos to consider the permissibility of cy pres settlements, which provide no direct relief to class members but instead benefit charitable entities and enrich class counsel.  While observers generally expected the Court to restrict or even bar the use of such settlements, an interesting thing happened:  the Court realized that the case presents a serious standing problem and requested supplemental briefing from the parties and the United States on that topic. 

While the appropriateness of cy pres settlements is an important topic, standing is an even more fundamental and far-reaching question—a point the Chamber made in its amicus brief.  No-injury class actions have become a scourge precisely because many courts have not required class representatives to demonstrate an injury-in-fact, as required by Article III.  Plaintiffs’ supplemental briefing underscores that point by arguing that an unauthorized disclosure of information is per se an injury-in-fact—even if the disclosure did not cause any real-world harm.  That would eviscerate the injury-in-fact requirement in a broad swath of cases, encouraging a wave of abusive class actions that has already been building and could reach epic proportions if the Court were to adopt plaintiffs’ position.

Though a determination of no standing would require the Court to dismiss this case for lack of jurisdiction without resolving the permissibility of cy pres settlements, it would address the cy pres problem in a different way—by greatly reducing the impetus for such settlements.  Some class actions have ended in cy pres settlements precisely because the class members were not meaningfully harmed, and thus had not incurred any actual damages.  Frank v. Gaos is a classic example.  It does not appear that Google’s disclosure of search terms to website operators caused any meaningful, real-world harm to anyone.  Named plaintiff Anthony Italiano, for example, searched only for publicly available information concerning his own divorce. 

No-Injury Class Actions

It’s a simple point.  “Article III standing requires a concrete injury even in the context of a statutory violation.”  Spokeo, Inc. v. Robins, 136 S. Ct. 1540, 1549 (2016).  Because Spokeo rejected attempts to dilute Article III’s requirements, many hoped it would help control the surge of abusive class-action lawsuits brought on behalf of unharmed plaintiffs.  But the results have been mixed.  While some courts have properly concluded that plaintiffs lack standing to pursue claims for technical statutory violations that cause no appreciable real-world harm, others have taken a far more permissive approach.  See Ezra Church et al., The Meaning of Spokeo, 365 Days and 430 Decisions Later, LAW360 (May 15, 2017) (discussing hundreds of cases decided in first year after Spokeo).  A class-action plaintiff’s standing often depends more on the forum in which a case is litigated than on the facts of the case.  See id. (“We have found numerous cases that are essentially indistinguishable on the facts presented, yet courts have reached opposite results”).

The erosion of Article III standing requirements is a significant problem for American businesses.  If any invasion of a loosely defined right to privacy is sufficient to establish standing, then the requirements of Rule 23 are largely toothless.  When courts approach standing at such a high level of generality, they fail to consider in any meaningful way whether the named plaintiff suffered an actual injury, which in turn makes it impossible to determine whether the named plaintiff “suffered the same injury” as other class members.  See Wal-Mart v. Dukes, 564 U.S. 338, 350 (2011).  The standing analysis thus infects the Rule 23 inquiry, turning any alleged bare statutory violation into a common question that, according to some courts, predominates over individual ones.  Courts thereby transform into super-regulators with power to impose massive penalties on a classwide basis.

An Opportunity for Reform

Frank v. Gaos provides an ideal opportunity for the Supreme Court to clarify the essential requirements for standing in class actions while also reducing the use of cy pres settlements.  Doing so would require the Court to flatly reject plaintiffs’ misguided suggestion that any disclosure of generalized information concerning internet search terms is sufficient to establish standing to bring a claim for violation of the Stored Communications Act, 18 U.S.C. §§ 2701 et seq.  In plaintiffs’ view, the mere disclosure of search terms entered in a web browser is equivalent to situations at common law where the unauthorized disclosure of private communications was presumed to invade a private right and cause individual harm. 

These situations are not remotely comparable for at least two reasons.  First, modern-day internet search terms like “the weather,” “2019 calendar,” or “Supreme Court,” to name just a few innocuous examples, are by no means analogous to traditional private communications including love letters and discussions of trade secrets.  Second, when an individual searches the internet by entering terms into a web browser, the information that is transmitted to third parties does not cause any appreciable injury if there is no link between the information and the identity of the individual who performed the search.  The disclosure is too generalized to harm the plaintiff (or, in Spokeo terms, there is no “particularized” injury to the plaintiff).

While the Stored Communications Act imposes general regulatory requirements on companies that store data, it expressly requires that an individual be “aggrieved” by the violation.  18 U.S.C. § 2707(a).  In other words, instead of permitting courts to presume an injury, as plaintiffs advocate, Congress stated its intent that a plaintiff must “have suffered injury in fact.”  Nat’l Credit Union Admin. v. First Nat’l Bank, 522 U.S. 479, 504 (1998); see also Thompson v. N. Am. Stainless, LP, 562 U.S. 170, 177 (2011).  At a minimum, anyone seeking to bring a cause of action would need to plead specific and individualized facts establishing that a disclosure (i) revealed the search terms, (ii) revealed the identity of the searcher, and (iii) did so in a way that caused the individual to suffer concrete, particularized harm.  In theory, there may be individuals who could bring such a cause of action, perhaps in rare situations involving search terms that were scandalous or revealing in some way and where the terms could be tied back to the individuals who performed the searches.  But even then, such claims would not be susceptible to class treatment because the plaintiff’s injury would be personalized and not typical of many other class members’ searches.

Plaintiffs’ extraordinarily expansive view of standing would impose a heavy burden on businesses and courts alike.  In today’s data-driven economy, information is collected and aggregated by businesses large and small on a regular basis to better serve their customers.  In this environment, there is always some risk of disclosure, either because the information is being shared or because of a hack or breach.  There are ways to reduce these risks, but it is impossible to guarantee that disclosures will never occur.  If the mere sharing of information without permission is sufficient to establish standing, courts will face more and more abusive class actions that provide few, if any, benefits to anyone but the lawyers who bring them.

Any step in the direction of weakening the requirements for Article III standing is an incentive for enterprising class-action lawyers to litigate alleged statutory violations in the abstract in order to expand the size of the class and increase settlement amounts.  When businesses face massive class actions seeking crippling amounts of statutory damages for conduct that caused concrete and particularized injury to no one or to only a handful of people, they inevitably face substantial pressure to settle, no matter how questionable the claims might be.  AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 350 (2011); see also Shady Grove Orthopedic Assocs., P.A. v. Allstate Ins. Co., 559 U.S. 393, 445 n.3 (2010) (Ginsburg, J., dissenting).  Moreover, as the Seventh Circuit has recognized, the only “victims” of adhering to Article III’s injury-in-fact requirement are, by definition, “persons or organizations who suffer no significant deprivation if denied the right to sue.”  Gubala, 846 F.3d at 912.  Because class members are not aggrieved, enforcing Article III’s requirements hurts only opportunistic “class counsel and, to a lesser degree, the class representatives” who seek to be enriched at the expense of everyone else.  In re Subway Footlong Sandwich Mktg. & Sales Practices Litig., 869 F.3d 551, 557 (7th Cir. 2017). 

In sum, standing is no mere procedural roadblock to consideration of the cy pres issue.  Frank v. Gaos provides an opportunity for a truly important precedent targeting the underlying problem of no-injury class actions. 

Daryl is the Chamber Litigation Center’s Chief Counsel for Appellate Litigation.  Ashley is one of the partners who leads King & Spalding LLP’s Appellate, Constitutional and Administrative Law practice.

12/20/2018