Friday, January 10, 2014

It’s Déjà vu All Over Again: Does a Mere Statutory Violation Without Any Actual Damage Confer Article III Standing?

by Robert B. Fitzpatrick

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In re Hulu Privacy Litigation, No. 3:11-cv-03764, 2013 U.S. Dist. LEXIS 179934 (N.D. Cal. Dec. 20, 2013) and Sterk v. Best Buy Stores, L.P., No. 11 C 1894, 2012 U.S. Dist. LEXIS 150872, 2012 WL 5197901 (N.D. Ill. Oct. 17, 2012)

I.                   The Issue

During its 2011-12 term, the Supreme Court considered whether a plaintiff had standing to sue under Article III where the plaintiff had alleged a violation of a statutory prohibition, the Real Estate Settlement Procedures Act (RESPA), but had not asserted that the plaintiff had incurred any actual damage.  See First Am. Fin. v. Edwards, 132 S. Ct. 2536, 183 L. Ed. 2d 611 (June 28, 2012).  Importantly, RESPA does not require that the plaintiff show actual injury in order to establish a prima facie case and be awarded damages.  In the face of such statutes, the dispute has arisen as to whether Article III of the Constitution places any limits on Congress’ ability to allow statutory private rights of action, even where the plaintiff suffered no actual injury.  In the First American case, The Ninth Circuit held that the mere statutory violation was an injury-in-fact, even though there was no actual damage. Edwards v. First Am. Corp., 610 F.3d 514, 515-16 (9th Cir. 2010).  After full briefing and oral argument, the Supreme Court, at the term’s end, dismissed the case on the grounds that certiorari had been improvidently granted. First Am. Fin., 132 S. Ct. 2536. 

Now, under another federal statute, the Video Privacy Protection Act (“VPPA”), 18 U.S.C. § 2710 et seq., this standing issue has arisen again.  The VPPA was enacted to prevent what it refers to as “wrongful disclosure” of records of rental or sale of video tapes, or of similar audio visual materials. 18 U.S.C. § 2710 et seq.  Congress passed the VPPA after Judge Robert Bork’s video rental history was published during his Supreme Court nomination.

The district courts appear to be in conflict on the issue of whether a violation of the VPPA can be sufficient to confer standing, or whether an actual injury must also be shown.  The most recent decision on this question, In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934, 17 (N.D. Cal. Dec. 20, 2013), from a court within the Ninth Circuit, relying on Edwards v. First Am. Corp., finds standing despite the absence of actual damage.  The other, Sterk v. Best Buy Stores, L.P., No. 11 C 1894, 2012 U.S. Dist. LEXIS 150872, 2012 WL 5197901 (N.D. Ill. Oct. 17, 2012), instead concluded that the absence of actual damage defeats standing.

II.                The Sterk Case 

In Sterk, the Plaintiff was a customer of Best Buy, which sells, among other items, movies in DVD and other formats.  Best Buy maintains digital records detailing its customers’ movie purchase histories, and their billing and contact information. Sterk, 2012 U.S. Dist. LEXIS 150872 at *2.  The Plaintiff purchased movies from various Best Buy locations over the course of several years. Id. at *2-3.  Best Buy communicated its records regarding the plaintiff’s name, purchase history, and credit card information from one or more of Best Buy’s corporate subsidiaries, to the parent company, Best Buy Inc. Id. at *3.  The plaintiff claimed that this disclosure was a “wrongful disclosure” within the meaning of the VPPA. Id. at *1-3.  An issue was also raised as to how long the defendants had maintained the records in question, as the VPPA also covers how long such records should be stored. Id. at *9-10.

One major issue in the Sterk case was whether the communications, which were internal communications between two or more corporations within the Best Buy corporate umbrella, constituted a “disclosure” for the purposes of the VPPA. Id. at *8-9.  The court, in an opinion written by Judge John Darrah, ultimately concluded that the plaintiff had failed to adequately plead facts which would support a finding of a disclosure. Id. 

As to the retention of records issue, Judge Darrah concluded that the VPPA does not provide a private right of relief for damages under the record retention provision of the statute. Id. at *13.  While the Judge recognized that the plaintiff had also sought injunctive relief, the Judge did not reach that issue, as he found that the plaintiff had failed to plead an injury-in-fact, and that the plaintiff therefore lacked standing to support his retention claim. Id.

As to standing, Judge Darrah reasoned as follows:

While injury required by Article III may exist when created by statute, that rule only applies where Congress elevates ‘to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.’ Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992)…

None of Plaintiff’s theories establishes an injury-in-fact for his disclosure or retention claims under the VPPA. The SCA and the VPPA require a plaintiff to be ‘aggrieved,’ meaning the individual has suffered an Article III injury-in-fact. See U.S.C. § 2707(a); 18 U.S.C. § 2710(c)(1); Kyles v. J.K. Guardian Sec. Services, Inc., 222 F.3d 289, 295 (7th Cir. 2000). Therefore, a plaintiff must plead an injury beyond a  statutory violation to meet the standing requirement of Article III. Plaintiff argues that a statutory violation is adequate to meet this requirement. However, while Congress is permitted to expand standing to the extent permitted under Article III, Congress cannot abrogate the basic standing requirement that an individual suffer an actual redressable injury-in-fact. Gladstone Realtors v. Village of Bellwood, 441 U.S. 91, 100, 99 S. Ct. 1601, 60 L. Ed. 2d 66 (1979).

Id. at *15-17.

III.             The Hulu Case

On December 20, 2013, Magistrate Judge Laurel Beeler of the U.S. District Court for the Northern District of California denied a defense motion for summary judgment, in a class action suit, brought under the VPPA, against the online video streaming service Hulu.  Magistrate Judge Beeler held that the VPPA defined “any aggrieved person” as a customer whose “personally identifiable information” had been disclosed, and that the VPPA did not require the customer to demonstrate any actual harm resulting from such a disclosure. 18 U.S.C. § 2710(b); In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934, 17 (N.D. Cal. Dec. 20, 2013).

The case began in September of 2011, when a group of Hulu customers brought a suit alleging that the service violated several federal privacy statutes by tracking customers’ browsing history and sharing their viewing history with Facebook and other Internet companies. In June 2012, Magistrate Judge Beeler dismissed all but the claim under the VPPA.

The court then placed a hold on the VPPA claim, pending the Supreme Court’s ruling in First American Financial v. Edwards, on the issue of whether a statutory violation was sufficient to support a finding of standing, without a separate finding of an actual injury.  As noted above, the Supreme Court ultimately declined to issue a ruling in First American, and instead dismissed the case, finding that the Court had improvidently granted the cert. petition.

After the Supreme Court’s dismissal of First American, Magistrate Judge Beeler addressed other issues in the case. Hulu argued that it did not qualify as a video tape service provider under the VPPA because it did not sell or otherwise provide “video cassette tapes or similar audio visual materials” under the Act. The court looked to the dictionary and to legislative history and rejected Hulu’s argument, concluding that “Congress used ‘similar audio visual materials’ to ensure that VPPA’s protections would retain their force even as technologies evolve.” Similarly, the court rejected Hulu’s argument that the plaintiffs were not protected “subscribers” under the VPAA because they were not paid subscribers. The court reasoned that “if Congress wanted to limit the word ‘subscriber’ to ‘paid subscriber,’ it would have done so.” 2012 U.S. Dist. LEXIS 112916, 24 (N.D. Cal. Aug. 10, 2012).

Following the beginning stages of pretrial discovery and an October 2013 defense motion for summary judgment, Magistrate Judge Beeler then analyzed the standing issue in a December 20, 2013 opinion. In the motion for summary judgment, Hulu argued that an “aggrieved person” under the VPPA must be injured in some way.  Magistrate Judge Beeler noted that statutory analysis “begins with the plain language of the statute, and it ends there if the text is unambiguous.” At *15.   Magistrate Judge Beeler continued:

The plain language of the statute shows that Congress considered a consumer to be an ‘aggrieved person’ under the VPPA if a video tape service provider wrongfully discloses that consumer’s personally identifiable information. Id. § 2710(b). Subsection (b) refers to the ‘aggrieved  person’ in the singular and precedes it with a definite article. Thus, ‘the aggrieved person’ is the consumer whose information was disclosed. Subsection (b) does not refer to ‘an aggrieved person’ or ‘any person aggrieved.’ The consumer, therefore, is ‘aggrieved’ based solely on the disclosure of personally identifiable information to third parties and the video tape service provider is liable to that ‘aggrieved person’ for the relief in subsection (c)…

Nothing in subsection (c) (or any other part of the statute) requires an injury beyond a violation of subsection (b). Moreover, the practical import of the statute is that the words ‘aggrieved person’ in subsection (c) mean the same thing they do in subsection (b)(1): a consumer whose personally identifiable [information] is disclosed by the video provider in violation of the statute. Hulu provides no alternative reading of the plain language of the statute.

Id. at *16-18.

            In arguing that a mere statutory violation was insufficient to confer standing, Hulu pointed to the opinion issued in the Sterk case discussed above. Id. at *26.  In declining to follow Sterk, Magistrate Judge Beeler primarily pointed to the Ninth Circuit’s 2010 decision in the First American Financial case which, given the Supreme Court’s dismissal of the case, remained controlling precedent in the Ninth Circuit. Id. at *27-28. 

            Thus, one could argue that the Sterk and Hulu cases are in direct conflict with one another over the question of whether something more than a statutory violation is needed to demonstrate standing.  Of note, it appears that Magistrate Judge Beeler might not agree that the two cases directly conflict.  In arguing that the two cases are factually distinguishable, Magistrate Judge Beeler noted that in Sterk, the court found that the plaintiff had not adequately alleged a disclosure of the information in question, and that the plaintiff had therefore failed to allege a cognizable claim under the VPPA. In re Hulu Privacy Litig., 2013 U.S. Dist. LEXIS 179934 at *30-31.  It was in that context, Magistrate Judge Beeler reasoned, that the Sterk court had noted that the Plaintiff had also failed to allege any economic harm which was grounded in the facts. Id. at *30.  Thus, Magistrate Judge Beeler concluded, “Sterk does not support a conclusion that injury beyond disclosure is a prima facie element of a VPPA claim.” Id. at *31. 

            Thus, one cannot help but wonder whether Judge Darrah would have found standing had there been an adequately pled disclosure in Sterk.  Given Judge Darrah’s holding that “a plaintiff must plead an injury beyond a  statutory violation to meet the standing requirement of Article III”, one would think not.  But then again, whether the disclosure itself would have caused one or more cognizable harms which Judge Darrah would have found sufficient to confer standing, one can only conjecture.

IV.              Implications in the Employment Law and Other Contexts

            Courts have considered similar standing arguments in the context of employment statutes.  See, e.g., Kendall v. Employees Retirement Plan of Avon Products, 561 F.3d 112 (2d Cir. 2009) (holding that a retirement plan participant and purported class representative lacked constitutional standing to sue under ERISA, despite the allegation that the plan administrator had breached its fiduciary duty, in the absence of an alleged injury in fact distinct from the statutory violation).  The same can be said of many other categories of statutes.  See, e.g., Wilson v. Glenwood Intermountain Properties, Inc., 98 F.3d 590 (10th Cir. 1996) (the Fair Housing Act); Heard v. Bonneville Billing & Collections, Nos. 99-4092 & 99-4100, 2000 WL 825721 (10th Cir. June26, 2000) (The Fair Debt Collection Practices Act); Vermont Agency of Natural Res. v.United States ex rel. Stevens, 529 U.S. 765, 772 (2000) (the False Claims Act). See also Raines v. Byrd, 521 U.S. 811, 818 (1997) (members of Congress lacked standing to challenge constitutionality of legislation, despite having statutory authority to sue, because they failed to show a ‘personal injury’) (internal quotations and emphasis omitted).  So, it is clear that this dispute has potential consequences which reach far beyond the controversy in the Sterk and Hulu cases over the scope of who has standing under the VPPA in particular.

As the Supreme Court has yet to rule on Article III’s power to rein in Congress’ authority to allow private rights of action for those who have not suffered actual injury, cases like Sterk, Hulu, and the others cited above, will no doubt continue to arise. If the Supreme Court chooses to rein in Congress’ power in this area, it will face many obstacles in doing so, including where to draw the line on what constitutes “actual injury”. And, even if the Court requires an actual injury for every case, what constitutes an actual injury will undoubtedly continue to puzzle courts for years to come.

So, the next time you read a standing case dealing with the issues discussed above, you can declare, as Yogi Berra once did, that “It’s like déjà vu all over again!”.  These are issues which we are not likely to see completely resolved anytime soon.

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