High Court Prods Massive Damages for Class on Terror Watch List

Transunion informed thousands of people that their names were a match for a U.S. government watch list, but the company denies that each suffered the specific level of damage necessary for class standing.

(Image via Courthouse News)

WASHINGTON (CN) — In a class action with 8,185 plaintiffs, many of them share the same names. There are 99 Maria Hernandezes and three Sergio Ramirezes, one of whom is the lead plaintiff. But one thing in common for all of them is that each had his or her name on a terrorist watch list. 

In oral arguments on Tuesday morning, the Supreme Court attempted to decide whether all 8,815 individuals are entitled to monetary damages for being falsely flagged as a suspected terrorist or drug trafficker, even though most of them weren’t even aware they were on the “Specially Designated Nationals” list maintained by the U.S. Office of Foreign Asset Control. 

As per usual, the hearing saw the justices toss a slew of hypotheticals at the counsel, asking whether someone could sue if they were exposed to a carcinogen but never developed cancer, or if one could sue if they were at risk from being hit by a drunken driver but were never hit. 

“Why isn’t this… a no-harm, no-foul sort of situation?” Justice Elena Kagan asked. 

Class counsel Samuel Issacaroff insisted, however, that each class member had a sufficient allegation of actual injury. 

“Being labeled as a potential OFAC match is not a misreported zip code, it is the scarlet letter of our time,” Issacaroff said at virtual oral arguments this morning. “It banishes individuals from the marketplace.”

The risk of having an experience like his client faced is too great, Issacaroff argued. 

In the lead plaintiff’s case, he had been trying to buy a car in 2011 when TransUnion produced a credit report that said that his name matched two names on the OFAC list. The dealership asked Ramirez’s wife to make the purchase instead. 

After being “embarrassed, shocked and scared” at the car dealership, Ramirez contacted TransUnion to correct the error. The third-party vendor in turn disclosed that it didn’t use addresses or Social Security Numbers to definitively identify any of the people on the OFAC list when it detected a “potential match.”

Fearing that the terrorist flag on his credit report would come up again, Ramirez canceled a family vacation to Mexico and later filed a lawsuit under the Fair Credit Reporting Act.

The trial court soon awarded $7,300 in damages to each of 8,185 members of the class who also received a letter from Transunion about being falsely flagged as terrorists. None of them had been turned down for a loan, but about a quarter of the class members — 1,853 — had their credit report requested by a potential lender. 

“I think you have a good argument with respect to the 1,853 … but I’m more concerned about 6,632 whose information was not in essence published,” Justice Brett Kavanaugh told Issacharoff. 

TransUnion seeks a reversal after the Ninth Circuit shot it down. It says that class members didn’t suffer what is known as an Article III injury, meaning concrete rather than generalized, as required under the Supreme Court’s 2016 ruling in Spokeo v. Robins

Since Spokeo, courts have inconsistently applied the reasoning to determine what constitutes “concrete.” TransUnion’s counsel, Paul Clement of Kirkland & Ellis, argues that because most class members didn’t know that they were on the watch list until they received the TransUnion letter, they didn’t sustain concrete injuries. 

“If you were subject to a risk that you didn’t even know about, and the risk never materialized… at that point, I don’t think you can bring a retrospective action for damages,” Clement said. “It requires some knowledge of it in order for you to suffer an injury.”

Justice Samuel Alito pushed back. 

“The class members whose information was disclosed to third parties certainly had reasons to worry about that, wouldn’t you say?” Alito asked. 

Clement also argued that, because Ramirez’s experiences didn’t represent the experiences of the rest of the class, he was a “radically atypical” class representative, in violation of Rule 23 of the Federal Rules of Civil Procedure. 

“[Ramirez] suffered serious injuries that would have allowed him to seek actual damages in an individual action,” Clement said to justices. “But instead he sought statutory damages at the top of the range plus punitive damages for a class that shares few of his experiences.”

When the Ninth Circuit upheld the damages in a 2-1 decision, the court said Ramirez wasn’t an atypical representative even though his injuries were more severe than what other class members had faced. They ruled that members had constitutional standing because TransUnion’s actions could cause them reputational and privacy harm. 

Counsel for the government, Nicole F. Reaves, suggested that the high court send the case back to lower courts. 

“By placing OFAC alerts on all class members’ consumer reports, petitioners created a real risk of harm — that they would be denied credit, employment opportunities or other opportunities because they were wrongly labeled as potential matches on a terrorist list,” Reaves told the justices. “That is precisely the type of harm that congress sought to prevent by adopting the reasonable procedures provision.”

Reaves said there was a substantial likelihood that all class members’ reports with the alerts would be disseminated to third parties at some point. 

But, because Reaves agrees that Ramirez is an atypical representative of the class, she recommended that the high court vacate and remand the case, on the basis of Rule 23. 

“The lower court applied an incorrect legal framework, but not the wrong outcome,” Reaves said. “Every member deserves statutory damages, the question is how much.”

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