Is receiving a letter from one of the “big three” credit reporting agencies identifying you as a “potential” drug trafficker or terrorist sufficiently harmful to establish a “real injury” under Article III of the U.S. Constitution? If not, how about being flagged as a “potential” child molester? Or as a racist? Or finding out that your credit score was reduced because of your race? In TransUnion v. Ramirez, No. 20-297, 594 U.S. __ (Jun. 25, 2021) (“TransUnion”)(slip op. available here) Justice Thomas, joined by three other dissenting justices of the United States Supreme Court, seriously posed these questions in a critique of the majority opinion’s take on Article III standing. Thomas, J., dissenting, slip op. at 17.

In TransUnion, Sergio Ramirez visited a Nissan dealership to buy a car. After he and his wife picked out the car and negotiated a price, the dealership ran a credit check on them. Nissan refused to sell Mr. Ramirez the car because his name was on a “terrorist list.” Slip op. at 4.

Mr. Ramirez is not a terrorist. The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) maintains a list of “specially designated nationals,” which largely includes terrorists and drug traffickers. Slip op. at 3. TransUnion’s credit check product flags anyone with the same first and last name as a person on the OFAC list, without comparing any other data. Id. at 4. The next day, Mr. Ramirez demanded a copy of his credit file. The mailing he received from TransUnion did not mention that his credit file contained the OFAC alert. In a subsequent second mailing, TransUnion informed him in a letter that his name was mentioned as a potential match to names on the list. Id. at 5.

Mr. Ramirez filed a class action alleging violations of the Fair Credit Reporting Act (“FCRA”) on behalf of himself and a class of 8,185 individuals with OFAC reports in their credit files. For 1,853 of the class members, TransUnion provided misleading credit reports to third-party businesses. The internal credit files of the other 6,332 class members were not provided to third-party businesses. Slip op. at 1-2. The United States District Court for the Northern District of California certified the class, and a jury awarded statutory and punitive damages totaling more than $60 million to the class. The Ninth Circuit affirmed, but reduced the punitive damages award, reducing the total award to approximately $40 million. 

The Supreme Court granted certiorari. The Court held that the 1,853 class members (including plaintiff) whose credit reports were provided to third-party businesses suffered a “concrete” harm and therefore had Article III standing. However, the Court held that the remaining 6,332 class members, whose credit reports were not provided to third-party businesses, did not. Slip. op. at 27. The Court analogized that for these class members “the plaintiffs’ harm is roughly the same, legally speaking, as if someone wrote a defamatory letter and then stored it in her desk drawer. A letter that is not sent does not harm anyone, no matter how insulting the letter is.” Id. at 19. The Court concluded, “[n]o concrete harm, no standing.” Id. at 27.

In the dissent, Justice Thomas retorted that “no concrete harm, no standing” “may be a pithy catchphrase, but it is worth pausing to ask why ‘concrete’ injury in fact should be the sole inquiry” in determining whether an injury is sufficient to establish standing. Thomas, J., dissenting, slip op. at 9. Justice Thomas examined how the law has historically distinguished between the enforcement of private rights and the enforcement of public rights by individuals. For example, an individual suing for violation of a private right – such as trespass on his land – needed only to allege the violation. Courts typically did not require any showing of actual damage. But an individual suing for violation of a duty owed broadly to the whole community, “such as the overgrazing of public lands,” had to show individual damage. Id. at 5. In the view of the minority, by violating the duties owed to individual class members under the FCRA, TransUnion violated the private rights of the 6,332 class members, who “thus have a sufficient injury to sue in federal court.” Id. at 8.

After all, “one need only tap into common sense to know that receiving a letter identifying you as a potential drug trafficker or terrorist is harmful,” which is “[a]ll the more so when the information comes in the context of a credit report.” Thomas, J., dissenting, slip op. at 17. This, however, was insufficient to establish a real injury for Article III standing here, which leaves one to wonder “what could rise to that level.” Id.  

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In 2019, the California legislature passed Assembly Bill 5 (“AB 5”), popularly known as California’s “Gig Worker Law.” The new law was designed to regulate companies that hire gig workers in large numbers, such as Uber and Lyft, by making it more difficult to classify them as independent contractors. In 2020, Uber, Lyft, and other gig economy companies responded by spending over $200 million to back Proposition 22, which sidesteps AB 5 by providing that an “app-based driver” is an independent contractor, not an employee, if the conditions of the law are met. Proposition 22 was billed as a major win for Uber and Lyft in their effort to continue classifying their drivers as independent contractors.

In Hassell v. Uber Technologies, Inc., No. 20-cv-04062-PJH (N.D. Cal. June 21, 2021) (slip op. available here), Uber attempted to bring to bear Proposition 22 to abate the plaintiff’s claims based on misclassification as an “independent contractor,” rather than an “employee,” when working as an Uber Eats driver. The district court, however, was not convinced that Uber had made its case for dismissal of the plaintiff’s claims under Proposition 22. Id. at 4.

As a matter of background, in Dynamex Operations West v. Superior Court, 4 Cal.5th 903 (2018), the California Supreme Court held that the “ABC test” applied to determine whether a worker qualifies as an “employee” or “independent contractor” for purposes of California’s wage orders. See slip op. at 6. The ABC test focuses on (a) the putative employer’s control of the worker, (b) whether the work is outside the usual course of business, and (c) whether the worker is customarily engaged in an independently established trade. Id. AB 5 codified the ABC conditions articulated in Dynamex as part of the Labor Code. Id. Proposition 22, the relevant provision of which has been codified as Business & Professions Code § 7451, provides different conditions specifically for classifying app-based drivers as independent contractors “[n]otwithstanding any other provision of law.” Id. at 7.

In Hassell, Uber argued that section 7451 “‘effectively repealed’ the ABC test ‘as to delivery people.’” Slip op. at 7. According to Uber, Proposition 22 required dismissal of the plaintiff’s claims based on misclassification both before and after the effective date of section 7451, in that plaintiff “makes no effort” to plead that the conditions for finding independent contractor status in section 7451 were not met. Id.

The district court noted that “the abatement argument appears to raise novel questions in a rapidly developing area of California law. That novelty aside, the parties’ briefing on the issues implicated by that argument falls short.” Slip op. at 4. Given that the court could not determine on the papers whether section 7451 abated the plaintiff’s claims, the court denied Uber’s motion to dismiss to the extent it was based on abatement. Id. at 16. The district court also rejected Uber’s contention that the plaintiff was required to affirmatively allege in his complaint Uber’s non-compliance with section 7451. The court observed that section 7451 does not address whether the “app-based driver” or the “network company” bears the burden of showing that the conditions of the section are, or are not, satisfied. Id. at 16.

The district court’s decision potentially sets the stage for a summary judgment motion as to whether Uber’s employment of the plaintiff met the conditions in section 7451 and whether the plaintiff’s claims based on misclassification are abated. Anticipating this, the district court helpfully detailed the deficiencies that it perceived in both Uber and the plaintiff’s positions on the issues. Slip op. at 16-23. Perhaps, with this guidance in mind, the novel issues presented by the application of Proposition 22 to the plaintiff’s claims will be resolved in the summary judgment context.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Bailey v. Rite Aid Corporation, Defendant Rite Aid recently petitioned the Ninth Circuit for permission to appeal an order certifying a class of California consumers who purchased Rite Aid gelcaps (an acetaminophen product) labeled as “rapid release.” See Petition for Permission to Appeal Under Federal Rule of Civil Procedure 23(f), Bailey v. Rite Aid Corporation, No. 21-80061 (9th Cir. June 9, 2021) Dkt. No. 1-3 (“Petition”) (petition available here).

According to the plaintiff, Rite Aid gelcaps labeled as “rapid release” are sold in Rite Aid stores within “eye-view” of less expensive Rite Aid acetaminophen tablets that are not labeled “rapid release.” The plaintiff’s theory of liability is that because both products are within “eye-view,” and only one product is labeled “rapid release,” reasonable consumers would conclude that the gelcaps are faster-acting than the tablets, when in fact they are not. See Bailey v. Rite Aid Corporation, No. 4:18-cv-06926-YGR, N.D. Cal. April 28, 2021 (order granting in part and denying in part motion for class certification; order re: motions to seal, slip op. available here) (“Bailey”). The district court accepted the plaintiff’s theory and concluded that whether a reasonable consumer is likely to be deceived by Rite Aid gelcaps’ “rapid release” claim can be resolved by common evidence on a class-wide basis. Id. at 7-8.

Rite Aid states in its petition, “[t]his is not a typical product mislabeling case where the challenged product label is false or misleading on its face.” Petition at 1 (emphasis in original). That is true. “[The plaintiff]’s theory of liability requires a comparison by consumers of the label and price of the Rite Aid gelcaps against the labels and prices of cheaper Rite Aid acetaminophen tablets placed near the gelcaps.” Slip op. at 5 (emphasis added).    

That is no bar to liability. It is indisputable that consumers compare labels when shopping for products. The plaintiff’s “eye-view” theory simply applies the merchandising principle that in comparing products, in-store product placement and layout strategy has a powerful influence on consumers’ purchasing decisions. Therefore, as Bailey demonstrates, consumer deception in labeling cases need not be limited to the four corners of a product’s label. Rather, the context of how products are presented in stores—what consumers see—can also deceive.

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC

In Silva v. Medic Ambulance Services, Inc., 9th Cir., No. 20-16135, memorandum 5/4/21 (unpublished mem. available here), the plaintiff, an Emergency Medical Technician, alleged in her state law complaint that her employer, Medic Ambulance Service, Inc. (“Medic”) violated California Labor Code § 226.7 and the Industrial Welfare Commission Wage Order by requiring her to remain on call during rest periods. Mem. at 1. Medic removed the action to the district court on the grounds that the Labor Management Relations Act (“LMRA”) completely preempted at least one of plaintiff’s claims and therefore presented a federal question. Id. at 2.

The plaintiff moved to remand. The district court denied the motion, reasoning that her claims were preempted because they “substantially depend on analysis of” the provisions of a collective bargaining agreement (“CBA”) that governed the terms of the plaintiff’s employment with Medic.  The plaintiff then appealed. The Ninth Circuit reversed, finding that Silva’s state law claims were not preempted because they were not substantially dependent on the CBA (i.e. she could prove them without resort to the CBA), and that the district court therefore lacked removal jurisdiction. The Ninth Circuit remanded the matter back to the district court with instructions to remand the action back to the state court.

What makes this case interesting is that the Emergency Ambulance Employee Safety and Preparedness Act, California Labor Code §§ 880, et seq. (“the Act”), became effective on December 19, 2019, before judgment was entered, potentially mooting plaintiff’s claim under section 226.7. Section 887 provides, in pertinent part, “[n]otwithstanding any provision of law to the contrary: (a) In order to maximize protection of public health and safety, emergency ambulance employees shall remain reachable by a portable communications device throughout the entirety of each work shift.” According to the concurring opinion, as a result of the Act, the plaintiff no longer had a viable statutory claim, there was no longer any “case or controversy,” and therefore plaintiff lacked Article III standing to pursue the appeal. Rawlinson, J. conc. at 1-3.

The majority of the justices did not reach the issue of whether section 887(a) eliminated plaintiff’s claim, finding it moot in light of its determination that “the federal courts lack subject matter jurisdiction over Silva’s claims.” Mem. at 4, n.1. This is important in a procedural sense since the district court never properly had subject matter jurisdiction over plaintiff’s claims, since they were never actually preempted by the LMRA. Remand is the proper remedy when a federal court lacks removal jurisdiction, not dismissal under Article III. 

Authored by:
Robert Friedl, Senior Counsel
CAPSTONE LAW APC