In Berry v. LexisNexis Risk and Information Analytics Group, Inc., et al., the U.S. Court of Appeals for the Fourth Circuit affirmed the certification of a class pursuant to Federal Rule of Civil Procedure 23(b)(2) and the settlement of class claims under the Fair Credit Reporting Act, 15 U.S.C. §§ 1681, et seq. (the “FCRA”), wherein the defendant would provide injunctive relief, while releasing all class member’s claims for statutory damages.
Rejecting the arguments of several objectors to the class and the settlement, the Court determined that plaintiffs’ statutory damages claims were “not the kind of individualized claims that threaten class cohesion.” Op. at p. 18. Noting that individual class members retained the right to pursue any FCRA claim for actual damages, the Court agreed with the trial court that plaintiffs’ statutory damages claims were “incidental” to the injunctive relief provided, which was indivisible and benefitting all members of the Rule 23(b)(2) class. See id. at pp. 17, 18.
Moreover, the Fourth Circuit expressly rejected any argument that certain dicta in the U.S. Supreme Court’s opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), demanded that due process requires opt-out provisions in a Rule 23(b)(2) class. Rather the Court re-affirmed the Fourth Circuit’s precedent of permitting certification of mandatory Rule 23(b)(2) classes involving monetary relief so long as such relief is “incidental” to the injunctive or declaratory relief sought. See Op. at p. 24.
A copy of the opinion is available here.
Defendants, including several related corporations (for convenience, “Defendants”) collectively serve as a data broker that sells identity reports used to locate people and assets, authenticate identities, and verify credentials (“Identity Reports”). For years, Defendant issued Identity Reports without complying with the FCRA on the theory that such reports were not “consumer reports” that trigger the Act’s provisions. Eventually, in 2011, several individuals who were the subject of Identity Reports filed a class action lawsuit against Defendant, claiming, inter alia, that Defendant violated the FCRA “by selling [Identity Reports] without first ensuring that buyers were purchasing the reports for uses permitted by the FCRA.” Op. at p. 10. Plaintiffs sought both actual and statutory damages, but did not seek injunctive relief, as the FCRA does not provide for such remedy.
Over one-year later, after months of discovery and a series of negotiations with the aid of several “highly skilled” mediators, the parties reached a settlement agreement (the “Agreement”), which included a two certified classes, one of which was certified under Federal Rule of Civil Procedure 23(b)(2) (the “(b)(2) Class”). The (b)(2) Class included all individuals about whom the Defendant’s database contained information from November 2006 to April 2013, amounting to “roughly 200 million people.” Op. at p. 11. Under the Agreement, the (b)(2) Class members would retain their rights to seek actual damages, though they would release any claim for statutory damages, as well as punitive damages. See id. In exchange, the (b)(2) Class members would receive injunctive relief – that is, “a fundamental change in the product suite that [Defendant] offers the debt-collection industry that will result in a significant shift from the currently accepted industry practices.” Id. (internal citations omitted).
The trial court granted the parties’ joint motion for preliminary certification of the (b)(2) Class for settlement purposes. Several Objectors filed motions challenging certification. The trial court ultimately certified the (b)(2) Class and approved the Agreement, and the Objectors appealed.
On appeal, the Fourth Circuit affirmed the certification of the proposed (b)(2) Class for settlement purposes. The appellate court noted that, absent a “clear abuse of discretion,” it would give the trial court “substantial deference,” recognizing that a “district court possesses greater familiarity and expertise than a court of appeals in managing the practical problems of a class action.” Op. at pp. 14-15 (citing Ward v. Dixie Nat’l Life Ins. Co., 595 F.3d 164, 179 (4th Cir. 2010)).
Under Rule 23(b)(2), certification of a class is permitted where “the party opposing the class has acted or refused to act on grounds that apply generally to the class, so that final injunctive relief or corresponding declaratory relief is appropriate respecting the class as a whole.” Op. at p. 16 (citing Fed. R. Civ. P. 23(b)(2)). A Rule 23(b)(2) class is assumed to be “a homogenous and cohesive group with few conflicting interests among its members,” such classes are “mandatory,” in that “opt-out rights” for class members are not provided. Op. at pp. 16-17 (citing Allison v. Citgo Petroleum Corp., 151 F.3d 402, 413 (5th Cir. 1998)).
Although Rule 23(b)(2) certification is inappropriate where monetary relief predominates, see Op. at p. 17 (citing Thorn v. Jefferson-Pilot Life Ins. Co., 445 F.3d 311, 331-32 (4th Cir. 2006)), such classes may be certified where monetary relief is “incidental” to the injunctive or declaratory relief. Op. at p. 17 (Allison, 151 F.3d at 415 413).
Here, several Objectors contested the certification of the (b)(2) Class, claiming that the statutory damages waived under the Agreement predominate over the injunctive relief awarded and are not “incidental” to such relief. See Op. at p. 18. Although the Court noted that there are individualized monetary damages claims at issue (i.e., those for actual damages under the FCRA), it emphasized that class member’s retained their rights to seek such damages. Op. at p. 19. However, with statutory damages under the FCRA, “what matters is the conduct of the defendant,. . . . which, as the district court emphasized, ‘was uniform with respect to each of the class members.’” Op. at pp. 18-19. Agreeing with the trial court, the Fourth Circuit concluded that the “meaningful, valuable injunctive relief” afforded by the Agreement is “indivisible,” “benefitting all members” of the (b)(2) Class at once. . . . And the statutory damages claims released under the Agreement are not the kind of individualized claims that threaten class cohesion and are prohibited by Dukes.” Op. at p. 18 (citing Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011)).
Although Objectors contended that statutory damages are not “incidental” because Plaintiffs’ original complaint did not seek any injunctive relief under the FCRA, the Court rejected such argument. See Op. at pp. 20-23. Although the FCRA does not provide for injunctive relief, the Fourth Circuit agreed with the trial court that, “[i]n the settlement context, ‘it is the parties’ agreement that serves as the source of the court’s authority to enter any judgment at all.’” Op. at p. 20 (citing Local Number 93 v. City of Cleveland, 478 U.S. 501, 522 (1986)). Likewise, Plaintiffs’ failure to seek injunctive relief in the original complaint does not independently preclude certification under Rule 23(b)(2). Rather, by its express terms, Rule 23(b)(2) apples so long as “final injunctive relief . . . is appropriate respecting the class as a whole.” Op. at p. 22 (emphasis in opinion); but see Op. at pp. 22-23 (explaining that Rule 23(b)(2) may preclude certification of a class when injunctive relief is “illusory” or “may only to justify a damages award that otherwise would be improper under Rule 23(b)(2)”).
Alternatively, relying on dicta in the Dukes decision that noted the “serious possibility” that due process requires opt-out rights, the Objectors asserted that the principles of due process precludes certification of the (b)(2) Class without opt-out rights. See Op. at p. 23 (citing Dukes, 131 S. Ct. at 2559). Again, the Fourth Circuit disagreed, explaining that federal courts have long permitted certification of mandatory Rule 23(b)(2) classes involving monetary relief so long as such relief is “incidental” to the injunctive or declaratory relief sought. See Op. at p. 24. In the context of Rule 23(b)(2) class certification, because the relief sought is uniform, so are the interests of class members, making class-wide representation possible and opt-out rights unnecessary. Op. at pp. 25-26 (citing Dukes, 131 S. Ct. at 2558; Thorn, 445 F.3d at 330 & n.25; Allison, 151 F.3d at 413-14). Again, the Fourth Circuit favorably noted that class members retain their right to pursue actual damages under the FCRA. See Op. at pp. 26-27.
Next, the Objectors complained that the class settlement was “unfair and inadequate because it releases class members’ statutory damages claims without providing for any monetary relief in exchange.” Op. at p. 30. However, the trial court deemed the case to be “speculative at best,” which the Fourth Circuit characterized as a “generous” description. Op. at p. 32. Notably, “with agency guidance expressly specifying that [the subject] reports are not subject to the FCRA, . . .it is hard to see how [Defendant] can be said to have acted unreasonably by adopting that reading.” Op. at pp. 32-33. Moreover, the trial court described the injunctive relief as a “significant shift” in industry practices, making [Defendant] “the industry leader” in consumer-information protection. Id. at p. 33. Indeed, the Fourth Circuit observed that the record included a finding that the injunctive relief “provided consumers with benefits so substantial that their monetary value is in the billions of dollars.” Id.
Finally, as to one Objector’s challenge to the approval of class counsel’s fees for securing injunctive relief, amounting to approximately $5.3 million, the Fourth Circuit found no reversible error. Acknowledging that the trial court’s discussion of the fee award was brief, the Fourth Circuit noted that the trial court did provide a sufficient basis for such award: “that class counsel ‘expended large amounts of time and labor,’ and ‘achieved an excellent result in this large and complex action.’” Op. at p. 39 (citing Berry v. LexisNexis Risk & Info. Analytics Grp., Inc., No. 3:11-CV-754, 2014 WL 4403524, at *15 (E.D. Va. 2014)).
Accordingly, the Fourth Circuit affirmed the decision of the trial court in its entirety.