In the wake of this year’s decision by the Supreme Court in Spokeo Inc. v. Robbins, 136 S. Ct. 1540, 194 L. Ed. 2d 635 (Sup. Ct. May 16, 2016), the Fifth Circuit handed down an opinion last week that speaks to the question of whether debtors can obtain monetary awards for statutory violations absent proof of “concrete harm.”
The Fifth Circuit’s Sept. 15 opinion, in a non-bankruptcy case, tilts the odds slightly in favor of debtors asserting claims based on violations of the automatic stay or the federal Fair Debt Collection Practices Act, or FDCPA.
Before the death of Justice Antonin Scalia, the Supreme Court granted certiorari in Spokeo, ostensibly to decide whether Congress can confer Article III (or “constitutional”) standing to sue in federal court based on a bare violation of a federal statute when the plaintiff suffers no concrete harm. Perhaps because the justices would have been split 4-4 given Justice Scalia’s death in the meantime, the Court, by a 6-2 vote, remanded the case in May for the Ninth Circuit to analyze whether the plaintiff satisfied the “concreteness” aspect of the standing requirements.
Spokeo involved the federal Fair Credit Reporting Act of 1970, under which a violation of the statute entitles a plaintiff to actual damages or statutory damages of $100 to $1,000 per violation. In addition, the plaintiff can recover costs, attorneys’ fees, and possibly punitive damages.
The Fifth Circuit appeal involved a class action alleging a violation of the Employee Retirement Income Security Act of 1974, known as ERISA. The plaintiff contended that defendant Verizon Communications Inc. violated ERISA by paying $8.4 billion to purchase annuities from insurance companies to take over liability for $7.4 billion in benefits owing to employees who were already receiving benefits under a Verizon defined-benefit pension plan.
The class plaintiff was a Verizon employee whose pension benefits were NOT hived off to the insurance companies. He alleged that Verizon violated its fiduciary duties under ERISA by paying the insurance companies $1 billion more than the benefits covered by the purchased annuities, thus reducing the protection for his benefits by a plan that, allegedly, was only 66% funded in the first place.
The district court dismissed the suit and was upheld by the Fifth Circuit in August 2015. The plaintiff filed a petition for certiorari. The Supreme Court vacated the judgment and remanded the case for reconsideration by the Fifth Circuit in light of Spokeo.
After further briefing, the Fifth Circuit again upheld dismissal for lack of constitutional standing in an opinion by Circuit Judge Fortunato P. Benavides. The appeals court’s decision last year was an unpublished, non-precedential per curiam opinion.
In substance, the Fifth Circuit held there was no constitutional standing because the plaintiff did not – and indeed probably could not – allege any risk of default by the plan, given Verizon’s continuing obligation to top off the plan if the plan’s asset ultimately turn out to be insufficient to pay benefits in full.
Judge Benavides said that Spokeo reaffirmed the principle that “violation of a procedural right granted by statute may in some circumstances be sufficiently concrete, albeit intangible, harm to constitute injury in fact without an allegation of ‘any additional harm.’” He went on to paraphrase Spokeo as meaning that a statutory violation, to represent concrete intangible injury, “must constitute a ‘risk of real harm’ to the plaintiff.”
With those principles in mind, Judge Benavides said that alleging a violation of fiduciary duty under ERISA, without a concomitant allegation of risk to “actual benefits,” will not confer constitutional standing.
On the next page of the opinion, Judge Benavides implied that alleging a potential risk might confer constitutional standing.
By contrast, the Fifth Circuit upheld dismissal last year for failure to allege “imminent risk of default by the plan.” Spokeo therefore may have prompted the appeals court to cut back on the requirement of “imminent risk” by suggesting in the new opinion that potential risk is sufficient.
Spokeo issues can arise in the bankruptcy context because some judges do not tolerate the slightest transgression of the automatic bankruptcy stay before finding a violation of the FDCPA.
Pending petitions for certiorari are asking the Supreme Court to decide whether the Bankruptcy Code is the exclusive remedy for debtors suing under the FDCPA. Assuming the Supreme Court holds that debtors can file suits under the FDCPA, a lack of constitutional standing still might bar suit for a stay violation or filing a time-barred claim when there is no demonstrable injury.
Similarly, an individual debtor can recover “actual damages” and attorneys’ fees for a willful violation of the automatic stay under Section 362(k).
Although some courts have held that incurring attorneys’ fees is a sufficient showing of damages for the FDCPA and Section 362(k), it is unclear whether Spokeo will evolve to require some other concrete harm to the plaintiff, especially if an inexpensive letter to the offending party would have prevented further harm.
To read ABI’s discussion of Spokeo, click here.