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November 10, 2015

No Harm, No Foul? The Supreme Court Determines the Future of Class Action Lawsuits over Federal Statutes

If you haven’t suffered any harm, can you still sue? That is the central question behind a class action lawsuit argued last week before the U.S. Supreme Court.

The case, Spokeo Inc. v. Robbins, involves a lead plaintiff who alleges the search engine Spokeo violated the Fair Credit Reporting Act (FCRA) by incorrectly stating his marital status, income, education, and age.

The issue before the Court is whether a plaintiff can bring a lawsuit solely because a federal statute granted him a cause of action, even though he didn’t actually suffer any harm. In fact, Spokeo reported that Mr. Robbins made more money and had a higher level of education than he actually does. And the same lack of harm is likely true for the potentially millions of people the plaintiffs’ lawyers included in this class action lawsuit, most of whom probably don’t know the suit even exists.

So what happens if the court decides in favor of Spokeo, and rules that in federal statute cases where there is no injury or harm done, an individual has no standing to sue?

The over-inflated class action lawsuits based on federal statutes, like the Telephone Consumer Protection Act, that ratchet up huge damages may finally start to be reined in. Currently, the plaintiffs’ lawyers have an incentive to add uninjured class members as a way to increase the total “damages” and pressure the defendant to settle. But the plaintiffs—the vast majority of whom don’t even collect their share of the settlement—often get next to nothing while the plaintiffs’ lawyers take home millions.

The threat of these huge no injury class action lawsuits are especially a concern as companies, from start-ups to household names, are more vulnerable than ever to suits over data hacking. The Spokeo decision will also likely have a big impact on the future of data class actions over federal statutes.

A recent report by ILR, A Perilous Patchwork: Data Privacy in the Era of the Data Breach, lays out the expanding data privacy concerns for businesses, including the federal statutes and potential infractions that plaintiffs’ lawyers might use as the basis for a lawsuit. The paper also highlights the tactics being used to justify these no injury suits, like the attorneys attempting to prove data negligence when no data breach has occurred or arguing that plaintiffs are susceptible to some elusive “future harm.”

Companies should right any legitimate wrongdoing, but in instances where there has been no discernable harm, who exactly is benefiting? Only the plaintiffs’ lawyers stand to gain from including more unharmed and possibly unknowing plaintiffs who contribute to the overall damages and ultimately their fees. Who stands to lose? Businesses and their consumers.

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