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posted: 10/19/2016 1:00 AM

Some background on background checks: Can a consumer sue based on improper disclosures?

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By Isaac Colunga and Martha O’Connor
Ice Miller LLP

You wouldn't think that a consumer could sue a company without actually having suffered concrete harm due to the company's actions. But this kind of lawsuit gets filed all the time, thanks to laws that provide for a statutory penalty for each violation, such as the Fair Credit Reporting Act ("FCRA"). The FCRA provides a $100-$1,000 statutory penalty for failing to make the proper disclosures before running a credit check on a job applicant. Plaintiffs' attorneys frequently file cases under the FCRA and similar statutes as class actions, because statutory damages of even a few hundred dollars per violation can quickly add up when class members number in the thousands. This means a huge potential liability for the company. Recent decisions, however, have provided some support for defendants in these lawsuits when no concrete harm has been alleged. For instance, in October of 2016, a federal judge in the Northern District of California tossed just such a case, holding that the plaintiff had no standing to sue.

In June of 2015, Lyft driver Michael Nokchan filed a federal class action lawsuit against the ride-sharing service Lyft, alleging that Lyft had violated the FCRA and California state law by failing to properly make disclosures about his rights to request his credit and background report before running a credit check on him, and that Lyft had embedded certain disclosures within a document containing extraneous information rather than in a stand-alone document as required by the statute. However, Nokchan failed to show he had sustained any injury-in-fact because of the improper disclosures. He did not allege that he was confused about his rights or that he wouldn't have consented to the background checks if he had understood his rights. Nor did he allege that he was harmed by the background check in any way; in fact, Nokchan was hired as a Lyft driver after Lyft completed the background investigation and still is a Lyft driver.

In dismissing the case, the Court relied on a recent Supreme Court decision, Spokeo v. Robins. In Spokeo, the Supreme Court held that a plaintiff who had not shown concrete injury could not bring a lawsuit under the FCRA. A "bare procedural violation," absent concrete harm, isn't enough to sue. Nokchan tried to argue that he was concretely injured by an "invasion of privacy" and an "informational injury." However, the Court held that these were not enough, especially given that various federal courts in California, Ohio, Wisconsin and Maryland had rejected similar arguments. The Court concluded that under Spokeo, Nokchan had failed to establish an injury-in fact and dismissed the lawsuit.

The Nokchan decision underscores Spokeo's holding that a "bare statutory violation" is insufficient to bring a lawsuit under the FCRA. This decision may provide some breathing room to companies who are sued under the FCRA in connection with employment background checks.

• Isaac Colunga is a Partner and Martha O'Connor is an Associate in Ice Miller's Litigation Practice Group. They are members of the Class Action Defense Team and defend companies in class action litigation. They may be reached at isaac.colunga@icemiller.com and martha.o'connor@icemiller.com.

This article is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel concerning the reader's specific circumstances.