District of New Jersey Analyzes Article III Standing Requirement in the Class Action Context Under the Supreme Court’s Decision in TransUnion

In a post-TransUnion LLC v. Ramirez, 141 S. Ct. 2190 (2021) victory for the class action defense bar, the District of New Jersey has further clarified the standing requirement for showing concrete harm. In Schultz v. Midland Credit Management., Inc., the Honorable Madeline Cox Arleo, U.S.D.J. granted defendant Midland Credit Management, Inc.’s (“Midland”) motion for summary judgment because the plaintiffs failed to establish concrete harm and thus lacked standing.

In Schultz, the plaintiffs filed a putative class action against Midland alleging that the collection agency issued collection letters with false Internal Revenue Service (IRS) reporting language in violation of the Fair Debt Collection Practices Act (FDCPA). Midland sent letters to the plaintiffs stating: “We will report forgiveness of debt as required by IRS regulations. Reporting is not required every time a debt is canceled or settled, and might not be required in your case.” Pursuant to the Department of Treasury and IRS regulations, Midland only needed to report discharges of indebtedness greater than $600. As the plaintiffs’ debts were below the $600 threshold, the plaintiffs argued that the IRS reporting language was false, deceptive, and misleading in violation of the FDCPA because the language implied that “there could be ‘negative consequences with the [IRS]’ and ‘deliberately fail[ed] to disclose that such reporting is required under only limited circumstances.’”

To support their FDCPA claim, the plaintiffs pointed to the fact that they “panicked” when they saw the IRS language and became worried that the IRS would be involved in Midland’s collection matter. The court granted the plaintiffs’ Motion for Class Certification on June 5, 2020. After the Supreme Court decided TransUnion one year later, the defendant challenged the concreteness of the plaintiffs’ injury and argued that the plaintiffs lacked standing to pursue the class action lawsuit. Both parties filed summary judgment motions.

The court noted that Article III standing requires that an injury in fact be “particularized and concrete.” The plaintiffs, however, conceded that they had not suffered a tangible harm. The court cited language from TransUnion that a plaintiff may plead an intangible harm, but it must bear a “‘close relationship’ to a harm ‘traditionally recognized as providing a basis for a lawsuit in American courts.’” Under the facts of the case, the court analyzed the plaintiffs’ standing as being closely related to common law fraud, which requires showing reliance and damages to survive summary judgment. The plaintiffs did not meet this standard as they failed to demonstrate how they relied on the misleading IRS reporting language. The plaintiffs were not able to make any payments toward the debt and thus could not have relied on any false statements by paying the outstanding debt; nor was the plaintiffs’ emotional harm (fear, confusion, and distress) enough to establish Article III standing.

The plaintiffs further argued that they did not need to demonstrate reliance because proving reliance “would go beyond the Court’s holding in TransUnion because there, the Court did not require the first class of plaintiffs ─ whose credit reports were disseminated to third parties ─ to prove that they suffered an adverse event from TransUnion’s misleading communication.” However, the court noted the Supreme Court in TransUnion analyzed the plaintiffs’ claims for misleading information under defamation, not fraud, and under defamation plaintiffs need not prove reliance. Finally, the plaintiffs argued that they only needed to demonstrate standing at the time of trial. The court disagreed, holding that “standing is a threshold issue that cannot be delayed until after summary judgment,” a standard that was reiterated in TransUnion.

This case stresses the importance of establishing concrete harm that can be analogized to a traditionally recognized basis for a lawsuit. Most importantly, parties defending against individual and class actions alleging violations of statutory rights should ensure that the plaintiffs meet Article III standing by establishing all elements of the analogized cause of action and should assert such a defense at the early stages of a case.

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