By Thomas G. Wolfe, J.D.
Although four plaintiff pension-portfolio managers who worked at the equity desk of Allstate Insurance Company were awarded statutory damages, punitive damages, and attorney fees at trial for the company’s alleged violations of the Fair Credit Reporting Act (FCRA), the U.S. Court of Appeals for the Seventh Circuit, in Rivera v. Allstate Insurance Company, vacated those awards and dismissed the FCRA claims because the claims rested on a “bare procedural violation” of the FCRA “unaccompanied by any concrete and particularized harm or risk of harm to an interest protected by the statute.” Allstate retained a law firm to investigate “suspicious trading” at its equity desk, and, after the firm provided its oral findings to the company, Allstate fired the four managers. Rejecting the managers’ claims that Allstate violated the FCRA by failing to provide them with a summary of the law firm’s investigative findings after they were fired, the Seventh Circuit asserted that the managers: failed to show how any minor FCRA noncompliance hampered their case against Allstate; failed to identify any prospective employer that refused to hire them as a result; and failed to demonstrate how they suffered any resulting concrete injury. In other words, the plaintiff managers lacked Article III standing to sue Allstate.
Notably, the Seventh Circuit also vacated the jury’s verdict awarding over $27 million in compensatory and punitive damages in favor of the managers, based on the managers’ defamation claims against Allstate.
Backdrop. After conducting its own internal investigation into suspicious trading at its equity desk, the company retained attorneys from a third-party law firm, Steptoe & Johnson, to investigate further. In turn, Steptoe & Johnson hired an economic consulting firm to calculate any potential losses. The Steptoe lawyers delivered oral findings to Allstate. Afterward, Allstate determined that four portfolio managers “had violated the company’s conflict-of-interest policy by timing trades to improve their bonuses,” and the company terminated their employment “for cause.”
In addition, Allstate provided information about its investigations on its annual Form 10-K for 2009, and sent a memo to its own Investment Department about the Form 10-K disclosures but did not name the four portfolio managers who were fired.
Complaint, trial. The portfolio managers who were fired by Allstate then filed a lawsuit in Illinois federal district court against the company. The managers not only asserted defamation claims, based on the Form 10-K filing and the internal memo, they also alleged that Allstate violated the FCRA provision (§1681a(y)(2)) by “failing to give them a summary of Steptoe’s findings after they were fired.”
According to the court’s opinion, the federal jury returned a verdict in the managers’ favor, awarding them more than $27 million in compensatory and punitive damages on the defamation claims. In connection with the FCRA claims, in addition to the $1,000 in statutory damages awarded each manager by the jury, the trial court judge tacked on additional punitive damages and attorney fees. The judge awarded $3,000 in punitive damages under the FCRA to each manager, and approved the managers’ request for $357,716 in attorney fees associated with their statutory claims.
Allstate’s arguments. On appeal, Allstate argued that the plaintiff managers lacked standing under the U.S. Supreme Court’s 2016 decision in Spokeo, Inc. v. Robins, and that the factual record in the case did not support the jury’s finding of a willful violation of the FCRA, which is required for awarding statutory and punitive damages. Further, Allstate challenged the lower court’s award of FCRA attorney fees as “excessive and disproportionate considering the relative insignificance of the statutory claims” in the litigation.
Court skeptical about FCRA claims. In interpreting the applicable FCRA provisions, the Seventh Circuit emphasized that it was not conclusively determining that the Steptoe & Johnson law firm was a “consumer reporting agency” under the FCRA, nor was it definitively deciding that the firm’s oral report to Allstate about its investigation was a “consumer report” under the FCRA. As stated by the court, “the question we confront here is whether subsection [§1681a(y)(2)] is sufficiently similar to §1681b(b)(3)(A) to require the same outcome. The answer is no.” According to the Seventh Circuit, a summary-only disclosure obligation after an adverse employment decision under the FCRA (§1681a(y)(2))—like the one in the case before it—“is a far cry” from the disclosure required under the separate FCRA provision (§1681b(b)(3)(A)) requiring an employer to provide “a complete copy of the consumer report” and a written explanation of an employee’s FCRA rights before an adverse employment decision.
No standing. Ultimately, the federal appellate court focused on vacating the lower court’s FCRA awards on jurisdictional grounds, based on the lack of any concrete injury to support the managers’ Article III standing to sue. The court stressed that under the standard enunciated by the Supreme Court in Spokeo, there must be an “injury in fact” element that is “both concrete and particularized.” Further, to be “concrete,” the injury must be “real” and “not abstract—that is, it must actually exist.”
Determining that the managers’ FCRA claims against Allstate did not satisfy the Spokeo standard to establish their standing in the case, the Seventh Circuit vacated the judgment and awards for damages and attorney fees, and directed the lower court to dismiss the managers’ FCRA claims against the company.
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