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Supreme Court Chucks Class Damages Over Errant Terror Labeling

TransUnion informed thousands of people that their names were a match for a U.S. government watch list, but class standing is only possible if each suffered a specific level of damage.

WASHINGTON (CN) — In a case where a credit report company incorrectly flagged some 8,185 people as potential terrorists but few suffered any measurable harm from the label, the U.S. Supreme Court reversed a massive class damages award 5-4 Friday.

"In short, the 1,853 class members whose reports were disseminated to third parties suffered a concrete injury in fact under Article III," Justice Brett Kavanaugh wrote for the majority.

"The remaining 6,332 class members are a different story," the ruling continues. "To be sure, their credit files, which were maintained by TransUnion, contained misleading OFAC alerts. But the parties stipulated that TransUnion did not provide those plaintiffs’ credit information to any potential creditors during the class period from January 2011 to July 2011."

As the court determined Friday: "the mere presence of an inaccuracy in an internal credit file, if it is not disclosed to a third party, causes no concrete harm."

"In cases such as these where allegedly inaccurate or misleading information sits in a company database, the plaintiffs’ harm is roughly the same, legally speaking, as if someone wrote a defamatory letter and then stored it in her desk drawer," Kavanaugh wrote, joined by Chief Justice John Roberts as well as Justices Samuel Alito, Neil Gorsuch and Amy Coney Barrett. "A letter that is not sent does not harm anyone, no matter how insulting the letter is. So too here."

Article III injury means that the harm a plaintiff suffers is concrete rather than generalized — parameters that the Supreme Court refreshed not so long ago in the 2016 ruling Spokeo v. Robins

The class action in this case stems from Sergio Ramirez's attempt to buy a car in 2011. When TransUnion produced a credit report that said that Ramirez matched two names on the U.S. Office of Foreign Asset Control’s “Specially Designated Nationals” list — essentially a terrorist watch list — the dealership asked Ramirez’s wife to make the purchase instead. 

Ramirez said he worked to correct the error only to find that TransUnion didn’t use any sort of identifying information, like a Social Security number or a birthday, to distinguish individuals seeking a credit report whose names matched information on OFAC reports. 

In court, a federal judge certified Ramirez to represent a class of 8,815 people who all received letters falsely flagging them as terrorists. They won $7,300 in damages a pop, and the Ninth Circuit affirmed that damages award of more than $40 million.

TransUnion balked at the result, noting that none of the class members were denied a loan, and only 1,853 had their credit report requested by a potential lender. It went to the Supreme Court, which delivered the rare outcome of Justice Clarence Thomas joining the liberal justices in the minority this morning.

“Never before has this court declared that legal injury is inherently insufficient to support standing," Thomas wrote in the lead dissent, signed onto by Justices Stephen Breyer, Sonia Sotomayor and Elena Kagan.

In an email to Courthouse News following the ruling, Ramirez's attorney Samuel Issacarrof took heart in the court's endorsement of standing for the 1,853 class members falsely labeled as terrorists. 

“We are disappointed by the fact that we did not prevail as to the entire matter, but we are reviewing the next steps in light of the complicated opinion,” Issacarrof said.

Thomas called it undisputed that each class member possesses a cause of action.

"And no one disputes that the jury found that TransUnion violated each class member’s individual rights," he added. "The plaintiffs thus have a sufficient injury to sue in federal court."

Issacaroff had said as much on March 30 at high court oral arguments. “Being labeled as a potential OFAC match is not a misreported ZIP code, it is the scarlet letter of our time,” Issacaroff told the justices. “It banishes individuals from the marketplace.”

TransUnion’s attorney, Paul Clement, did not respond to a request for comment.

In the dissent, Thomas pointed to the broad power held by Congress to create and define rights. Congress protects those rights, he added, by authorizing suits for both past and future harms.

“According to the majority, courts alone have the power to sift and weigh harms to decide whether they merit the Federal Judiciary’s attention,” the baffled justice wrote. 

The majority decided nonetheless that the 6,332 plaintiffs with a standing problem did not demonstrate that harm from the labeling could come their way, whether from emotional turmoil about the situation, a denial of credit or disclosure to a third party. Kavanaugh said their inability to show that they even knew about the labeling carries weight here.

"It is difficult to see how a risk of future harm could supply the basis for a plaintiff ’s standing when the plaintiff did not even know that there was a risk of future harm," Kavanaugh wrote.


Follow Samantha Hawkins on Twitter.

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