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8th Cir. Vacates FCRA Class Settlement on Spokeo Grounds

The U.S. Court of Appeals for the Eighth Circuit recently vacated a trial court’s order approving a class action settlement agreement because the trial court did not first determine whether the FCRA class representative had standing.

In so ruling, the Eighth Circuit held that a court’s approval of a settlement was a judgment, which is invalid unless the court has Article III standing and subject matter jurisdiction.

A copy of the opinion in Schumacher v. SC Data Center, Inc. is available at:  Link to Opinion.

The plaintiff filed a putative class action in Missouri state court alleging the defendant violated the federal Fair Credit Reporting Act by failing to provide her with a copy of her consumer report and time to explain the report before rescinding her employment offer. She also alleged improper disclosure and improper authorization related to the defendant’s use of a form to procure the consumer report. The defendant removed the case to federal court.

Shortly thereafter, the parties reached a settlement agreement during mediation. Days later, the U.S. Supreme Court rendered its decision in Spokeo v. Robins, “holding that the Ninth Circuit failed to properly analyze Article III standing in assessing a claim brought under the FCRA.”

The defendant then moved to dismiss for lack of standing, which the trial court denied, reasoning that “[plaintiff’s] standing to bring the FCRA claims underlying this settlement is irrelevant to whether she has standing to enforce the parties’ settlement agreement.”

The trial court then directed the parties to “submit their settlement for approval under Fed. R. Civ. P. 23(e)” and approved the settlement.  The defendant appealed.

On appeal, the Eighth Circuit held that “the trial court erred by not assessing standing before enforcing the settlement agreement.”

The Court reasoned that “Article III standing must be decided first by the court and presents a question of justiciability; if it is lacking, a federal court has no subject-matter jurisdiction over the claim.” In addition, the trial court has a continuing obligation to make sure that standing exists throughout the case, not just when the complaint is filed, and this applies to class actions because an order approving a settlement agreement is a judgment, which is invalid unless the court has subject matter jurisdiction to enter it.

The Eighth Circuit rejected the class representative’s argument that the trial court did not need to address standing after Spokeo because the defendant was bound by the settlement agreement even if the law changed, reasoning that Spokeo “was not a change in the substantive law bearing on [plaintiff’s] claim that would have ‘altered the settlement calculus.’”

In other words, the class representative argued that only changes in the law that directly affect Article III standing or subject-matter jurisdiction would invalidate a settlement. However, the Eighth Circuit rejected this argument, holding that “Spokeo did not change the law of standing and thus was not a post-agreement change in the law. It merely reiterated that an Article III injury must be both particular and concrete.”

The Eighth Circuit concluded that because there was no finding in the record reflecting whether the plaintiff had standing, the trial court’s approval of the settlement would be vacated and the case remanded for a determination of whether plaintiff had standing to sue, expressing no opinion “on whether the Seventh Circuit’s opinion on FCRA standing or one of the competing approaches in other circuits is best applied to the facts of this case.”

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.

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