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Hunstein II – The Phantom Harm Still Stands

Eleventh Circuit HunsteinCostumes, candy, and frightening movie sequels often mark the end of October. Just in time for Halloween, the U.S. Court of Appeals for the Eleventh Circuit released its own scary sequel with its substituted opinion in Hunstein v. Preferred Collection and Management Services, Inc.

A copy of the opinion in “Hunstein II” is available at: Link to Opinion. 

You surely know the first chapter of this chilling tale. Hunstein’s vendor-disclosure claim was vanquished in the District Court but was then shockingly revived on appeal. Preferred fought back with a petition for rehearing, which was supported by a volley of amicus briefs. Then a higher power in the form of the Supreme Court of the United States sent our phantom-harm fighters another weapon: its decision in TransUnion LLC v. Ramirez. There appeared to be no way Hunstein’s claim could survive the sequel. Spoiler alert: It lives, and it continues to haunt collectors in the dark forests and murky bayous of Alabama, Florida, and Georgia. Put another way, the Eleventh Circuit held for a second time that Hunstein has standing to maintain his case in federal court and that his complaint states a claim under 15 U.S.C. § 1692c(b).

Many anticipated that the Hunstein sequel would star an ensemble cast comprising all the judges of the Eleventh Circuit in an en banc review. Instead, the three-judge panel decided to vacate its prior opinion and substitute a new opinion after reviewing Preferred’s petition, the amicus briefs, and the Supreme Court’s decision in TransUnion.

Kind, Not Degree

Standing decisions, like horror films, are largely formulaic so by now you know the plot. The plaintiff in a federal lawsuit must allege (among other things) that he has suffered a concrete injury. He can do this by alleging a tangible harm, a risk of real harm, or an intangible injury that is nonetheless treated by courts as concrete. Hunstein’s alleged statutory violation falls into this third category.

In many instances, the intangible harm associated with a statutory violation is a ghost that cannot be seen, heard, or felt. The federal courts simply do not acknowledge these creatures; and plaintiffs who burden the federal courts with stories of such specters are told to seek their relief elsewhere. But two types of phantom harms can be sufficiently concrete to exist in federal court: (1) harms that bear a close resemblance to a harm historically recognized as actionable, such as that associated with a common-law tort claim; and (2) intangible (but nonetheless real) harms that were previously inadequate at law, but which Congress has elevated to the status of legally cognizable injuries.

In its original decision, the Hunstein panel explained that the harm associated with the disclosure to a mail vendor of information related to Hunstein’s debt and his son’s medical condition was sufficiently analogous to the common-law tort of public disclosure of private facts. Hunstein II takes a deeper look at how closely a phantom harm must resemble the harm associated with a common-law cause of action and ultimately holds that those harms need only be similar in kind, not in degree.

A public disclosure of private facts occurs when one gives publicity to the private matter of another. Courts have traditionally held that a plaintiff can recover only when the private matter was publicized, which means it must have been made known to the public or to a large group of people. Hunstein’s allegation that Preferred disclosed his information to the employees of a mail vendor, a relatively small group, appears to fall well short of the publicity required for a public-disclosure-of-private-facts claim. However, the majority in Hunstein II said that the difference is a matter of degree not of kind, and thus held that Hunstein’s alleged harm bore a sufficiently close relationship to a harm traditionally recognized by American courts.

Perhaps in that same spirit, the costume judges at a Halloween party two weeks ago decided that someone in a Where’s Waldo outfit qualified for the Freddy Krueger look-alike contest.[1] The would-be Waldo sported a sweater with horizontal red stripes, so his appearance was similar in kind to Freddy’s even if the degree to which he resembled an undead, homicidal, knife-fingered slasher left much to be desired.[2]

The Impact of TransUnion v. Ramirez

How did Hunstein’s phantom claim survive TransUnion, which was hurled like a thunderbolt from a judicial Olympus after the petition for rehearing was briefed? As you might recall, the Supreme Court in TransUnion held that class members whose credit reports contained misleading information related to a terrorist list had standing only if their reports were published to third parties. According to the Hunstein II majority, TransUnion does not foreclose Hunstein’s standing but rather confirms that the Eleventh Circuit struck the right balance by drawing a line between kind and degree.

However, the Eleventh Circuit still had to confront TransUnion’s footnote 6, which seemed eerily aimed at the spectral harm associated with a vendor disclosure. In that footnote, the Supreme Court addressed whether TransUnion “published” class members’ information to its own employees and to the vendors that printed notices and mailed them to the members of the class. The Supreme Court noted that “[m]any American courts did not traditionally recognize intra-company disclosures as actionable publications for purposes of the tort of defamation…[n]or have they necessarily recognized disclosures to printing vendors as actionable publications.” The Supreme Court also suggested that a plaintiff who alleges damages based on internal publication to employees or publication to third-party vendors would have to show that the defendant “brought an idea to the perception of another” and that “the document was actually read and not merely processed.”

Hunstein II brushes TransUnion’s footnote 6 aside as mere dicta, noting that the plaintiffs in TransUnion forfeited that argument by raising it for the first time on appeal. The Hunstein II majority also observed that TransUnion went to trial, whereas it was reviewing a motion to dismiss. As a result, the Eleventh Circuit had “no ‘evidence’ by which to evaluate whether anyone at [the mail vendor] ‘actually read and not merely processed’ Hunstein’s sensitive information.” Instead, the court had to accept as true Hunstein’s allegation that the defendant debt collector did disclose his son’s medical information to the mail vendor’s employees. The court used this allegation, along with the defendant’s concession that its transmittal of information to the mail vendor was a “communication” under the FDCPA, to distinguish Hunstein’s standing from that of certain class members in TransUnion.

So perhaps Hunstein will have to prove on remand that at least one sentient being employed by the mail vendor read the information related to his debt. Or perhaps not. The Hunstein II majority also suggests that requiring Hunstein to show that mail-vendor employees actually read his information would “transform Spokeo’s ‘close relationship’ test into a ‘perfect match’ test…[and] would do the very thing that the Court [in TransUnion] said it was not doing, namely, ‘requir[ing] an exact duplicate’ of a common-law claim.”

Recall that in TransUnion the Supreme Court analogized the plaintiffs’ Fair Credit Reporting Act claim to the common-law tort of defamation, even though a statement generally must be false to be defamatory and the statements at issue in TransUnion were merely misleading. After all, the credit reports at issue in that case did not say that the class members were terrorists, only that their names potentially matched names on a list of suspected terrorists. Similarly, if the credit reports of Mike Myers, the Canadian comedian, and Fred Krueger, a hypothetical sleep therapist in Peoria, indicated their names were on a list of suspected demons it would not technically be defamation, but it would be close enough to support an FCRA claim. Returning to Hunstein II, the publication of private information to a handful of people (or to a corporate entity) is not publicity to the degree usually required for a public-disclosure-of-private-facts claim, but the majority held that it sufficiently resembles the type of harm associated with that tort to confer standing (at least in this case).[3]

The Vendor-Disclosure Allegation States a Claim

As for the merits of Hunstein’s claim, the panel again held that he stated a claim under § 1692c(b), even while acknowledging once more that its decision “runs the risk of upsetting the status quo in the debt-collection industry” and that preventing collectors from using vendors “may not purchase much in the way of ‘real’ consumer privacy.”

The Hunstein II majority believed the wording of the statute compelled its decision. Like an evil incantation, Congress’s words breathed life into these shadowy harms and conjured them into existence. The remedy, therefore, is to ask Congress to remove its spell. However, there is reason to believe the battle in the Eleventh Circuit has not yet concluded.

Don’t Skip the Dissent, or the Footnotes

While the Supreme Court’s decision in TransUnion did not slay the mail-vendor-disclosure claim in the way some anticipated, it did convert one of the panel’s three judges. That judge wrote a blistering dissent explaining his revised conclusion that Hunstein lacked Article III standing and failed to state a claim. The dissent also highlighted several strong arguments that defendants can use to fight similar claims in other circuits.

Also, it’s easy to skip the footnotes when reading a decision that runs 65 pages in total, but you should take time to read them.[4] Those long footnotes are where the majority responds to points raised in the dissent.

Will there be a Hunstein III?

Like the final moments in many franchise films, the dissent provides a glimpse of what we might see unfold in a potential Hunstein III. Preferred can re-petition the court to grant en banc review of the panel’s substituted opinion, and the entire Eleventh Circuit might be more inclined to review Hunstein II given that at least one judge now believes the majority’s decision conflicts with the Supreme Court’s holding in TransUnion.

Have we just seen the second part of a Hunstein trilogy? Maybe, but Hunstein III is (at most) a project in early development. Stay tuned.

[1] This analogy isn’t perfect, but it’s probably no worse than some of the analogies we will see as courts struggle to apply the kind/degree distinction.  

[2] Our surprise contestant was later disqualified when the judges were unable to locate him for the final evaluation, which I suppose is a win in its own way for someone dressed like Waldo.

[3] The majority said that the judgment of Congress also supported a finding of standing, but it did not add much to what it said on this point in Hunstein I.

[4] This was a test. You passed.

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Brent Yarborough practices in Maurice Wutscher's Birmingham office in its Appellate, Commercial Litigation, Consumer Credit Litigation and Regulatory Compliance groups. He has substantial experience representing financial institutions, debt buyers and law firms. He has defended cases involving the Fair Debt Collection Practices Act, the Fair Credit Reporting Act, the Truth In Lending Act, and various state law claims asserted against lenders and their assignees. He has also provided compliance advice on matters related to the FDCPA, UDAAP, and state debt collection laws. He is a frequent speaker to national audiences and publishes on topics related to consumer financial services regulation and litigation. For many years Yarborough has served on the Executive Board of the Birmingham Bar Association’s Bankruptcy and Commercial Law Section. He also serves on the Legislative Task Force of the Creditor Attorney Association of Alabama and is the immediate past president of the Birmingham-Southern College National Alumni Association. In October 2015, he was elected Secretary of NARCA – The National Creditors Bar Association, after serving on its Board of Directors for the previous eight years. In addition, he chairs NARCA’s Government and Regulatory Affairs Committee. Yarborough earned his B.A., cum laude, from Birmingham-Southern College and his J.D. from Cornell University, where he was Secretary/Treasurer of the Cornell Law School Moot Court Board. For more information, see https://mauricewutscher.com/attorneys/brent-yarborough/

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