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From Banking and Finance Law Daily, November 1, 2018

Terminated employees’ FCRA judgment, damages, attorney fees vacated for lack of standing

By Thomas G. Wolfe, J.D.

Although four plaintiff pension-portfolio managers who worked at the equity desk of Allstate Insurance Company were awarded statutory damages, punitive damages, and attorney fees at trial for the company’s alleged violations of the Fair Credit Reporting Act, the U.S. Court of Appeals for the Seventh Circuit has vacated those awards and dismissed the FCRA claims because the claims rested on a "bare procedural violation" of section 1681a(y)(2) of the FCRA "unaccompanied by any concrete and particularized harm or risk of harm to an interest protected by the statute." Allstate retained a law firm to investigate "suspicious trading" at its equity desk, and, after the firm provided its oral findings to the company, Allstate fired the four managers. Rejecting the managers’ claims that Allstate violated the FCRA by failing to provide them with a summary of the law firm’s investigative findings after they were fired, the Seventh Circuit asserted that the managers failed to: show how any minor FCRA noncompliance hampered their case against Allstate; identify any prospective employer that refused to hire them as a result; and demonstrate how they suffered any resulting concrete injury. In other words, the plaintiff managers lacked Article III standing to sue Allstate (Rivera v. Allstate Insurance Company, Oct. 31, 2018, Sykes, D.).

Notably, the Seventh Circuit also vacated the jury’s verdict awarding over $27 million in compensatory and punitive damages in favor of the managers, based on the managers’ defamation claims against Allstate.

Backdrop. After conducting its own internal investigation into suspicious trading at its equity desk, the company retained attorneys from a third-party law firm, Steptoe & Johnson, to investigate further. In turn, Steptoe & Johnson hired an economic consulting firm to calculate any potential losses. The Steptoe lawyers delivered oral findings to Allstate. Afterward, Allstate determined that four portfolio managers "had violated the company’s conflict-of-interest policy by timing trades to improve their bonuses," and the company fired them "for cause."

In addition, Allstate provided information about its investigations on its annual Form 10-K for 2009, and sent a memo to its own Investment Department about the Form 10-K disclosures but did not name the four fired portfolio managers.

Complaint, trial. The four portfolio managers who were fired by Allstate then filed a lawsuit in Illinois federal district court against the company. The managers not only asserted defamation claims, based on the Form 10-K filing and the internal memo, they also alleged that Allstate violated the FCRA provision (§1681a(y)(2)) by "failing to give them a summary of Steptoe’s findings after they were fired."

According to the court’s opinion, the federal jury returned a verdict in the managers’ favor, awarding them more than $27 million in compensatory and punitive damages on the defamation claims. In connection with the FCRA claims, in addition to the $1,000 in statutory damages awarded each manager by the jury, the trial court judge tacked on additional punitive damages and attorney fees. The judge awarded $3,000 in punitive damages under the FCRA to each manager and approved the managers’ request for $357,716 in attorney fees associated with their statutory claims.

Decision on appeal. On appeal, Allstate argued that the plaintiff managers lacked standing under the U.S. Supreme Court’s Spokeo decision, and that the factual record in the case did not support the jury’s finding of a willful violation of the FCRA, which is required for awarding statutory and punitive damages. Further, Allstate challenged the lower court’s award of FCRA attorney fees as "excessive and disproportionate considering the relative insignificance of the statutory claims" in the litigation.

In interpreting the applicable FCRA provisions, the Seventh Circuit emphasized that its opinion "should not be construed as endorsing the position that a law-firm investigation of this type qualifies as a consumer report within the meaning of the Act or that subsection [§1681a(y)(2))] applies in a like situation." The Seventh Circuit noted that "[t]he question we confront here is whether subsection (y)(2) is sufficiently similar to §1681b(b)(3)(A) to require the same outcome. The answer is no." According to the court, a post-decision, summary-only disclosure obligation under FCRA §1681a(y)(2)) like the one in the case before it "is a far cry" from the disclosure required under §1681b(b)(3)(A), which requires an employer to provide "a complete copy of the consumer report" and a written explanation of an employee’s FCRA rights.

The appellate court focused on vacating the FCRA awards on jurisdictional grounds, based on the lack of any concrete injury to support an Article III standing to sue. The court emphasized that under the standard enunciated by the Supreme Court in Spokeo, there must be an "injury in fact" element that is "both concrete and particularized." Further, to be "concrete," the injury must be "real" and "not abstract—that is, it must actually exist." As a result, the Seventh Circuit vacated the FCRA awards and remanded the case for dismissal of the FCRA claims.

The opinion covers consolidated case Nos. 17-1310 and 17-1649.

Attorneys: Michael T. Brody (Jenner & Block LLP) for Daniel Rivera. Paul R. Garry (Cozen O'Connor) and Rex S. Heinke (Akin Gump Strauss Hauer & Feld LLP) for Allstate Insurance Company.

Companies: Allstate Insurance Co.; Steptoe & Johnson

MainStory: TopStory FairCreditReporting IllinoisNews IndianaNews SecuritiesDerivatives WisconsinNews

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