Business Law

Schumacher v. SC Data Center, Inc. (8th Cir.)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:

SUMMARY

In yet another circuit court ruling on Article III standing to assert consumer claims under a federal statute, here the Fair Credit Reporting Act (FCRA), the Eighth Circuit Court of Appeals (the Court) denied standing to a prospective employee who was denied employment when a criminal background check showed an undisclosed felony on her record. Schumacher v. SC Data Center, Inc., 2022 WL 997742 (8th Cir. April 4, 2022).

To view the opinion, click here. 

FACTS

Plaintiff Ria Schumacher applied for employment with SC Data in August 2015. As part of her employment application, she answered the question whether she had ever been convicted of a felony by saying that she was arrested when 17 but found not guilty. This answer was not true. She had been tried as an adult for murder, convicted, and sentenced to 25 years in prison, for which she had served 12 years. Based on her application, Schumacher was offered a position to begin in October 2015. SC Data sent her an orientation email, which asked her to complete an Authorization for Release of Information form (the Form) and informed her that it would be conducting a criminal background search. The Form had several paragraphs of information which she was directed to read, including that the offer of employment could be withdrawn if she had provided false information on her application, authorizing the search company to investigate her in public and private records, advising her of her right to receive a copy of any report prior to any denial of employment, and notifying her she would have an opportunity to address negative information in any report if she thought it was inaccurate.

Not surprisingly, the criminal background check turned up the felony and SC Data withdrew the offer of employment without fully complying with all the provisions on the Form, specifically failing to give her a copy of the report and not allowing her to challenge its accuracy before the offer was terminated. Schumacher never disputed the accuracy of the information in the report. However, she sued SC Data under three subsections of the FCRA based on it (1) not first providing her a copy of the report before terminating her, (2) not giving her all proper disclosures before obtaining a consumer report, and (3) exceeding the scope of the Authorization.

SC Data filed a motion to dismiss for lack of standing, which was denied by the district court. The parties later reached a tentative settlement, but SC Data then reversed course after the Supreme Court addressed Article III standing in Spokeo, Inc. v. Robins, 578 U.S. 330 (2016). SC Data instead again challenged her standing, asserting she had not suffered a concrete injury in fact. The district court denied the motion and after procedural steps not pertinent to this review, SC Data appealed to the Court, which vacated the district court orders and remanded with instructions to dismiss the complaint.

REASONING

The Court first reviewed the three elements of constitutional standing: (1) facts demonstrating “an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, (3) that is likely to be redressed by a favorable judicial decision.” Spokeo, 578 U.S. at 338. In addition, the Supreme Court has construed injury in fact as meaning “an invasion of a legally protected interest” that is “concrete and particularized” and “actual or imminent, not conjectural or hypothetical.” Id. Concreteness is measured by whether the harm asserted has a close relationship to a harm traditionally recognized as providing a basis for a lawsuit in American courts.

The Court then observed that asserting a mere statutory violation is not enough, citing another Supreme Court dictate: “an injury in law is not an injury in fact” TransUnion LLC v. Ramirez, 594 U.S. ___, 141 S. Ct. 2190 (2021). Schumacher’s three FCRA claims all boiled down to technical violations of the statute without alleging any concrete harm to her. Although the Court agreed that SC Data had not provided her a copy of the report before withdrawing the offer nor had it given her the promised opportunity to explain anything negative in the report, such technical violations did not result in any “physical, monetary, or cognizable intangible harm” to her in this factual scenario.

The FCRA does not compel an employer to offer an opportunity to contextualize negative information, so not allowing her to explain was not a violation. Moreover, she never alleged that anything in the criminal background report was false. As such, the violations were only procedural in nature and did not directly cause her concrete injury. The only harm here was the denial of employment when SC Data learned that she was a felon and lied on her application, both adequate grounds to terminate the offer. In sum, the procedural violations did not cause the alleged harm. Without a specific resulting harm, simply seeking to ensure SC Data’s compliance with the law does not create Article III standing.

The Court noted that other circuit courts had addressed issues similar to the procedural, statutory violations alleged here in the employment context. The Third Circuit and Seventh Circuit both had found sufficient harm for Article III standing when an employee did not receive a copy of the relevant consumer report prior to the employer taking adverse action. The Ninth Circuit ruled to the contrary. This decision aligns the Eighth Circuit with the Ninth on that issue.

AUTHOR’S COMMENTS

Lawyers representing employees making FCRA claims should read this opinion, as there are nuances in the Court’s analysis which this review does not explore. It does not foreclose standing for the types of statutory violations alleged here, but the factual context has to demonstrate an independent tangible or intangible harm which goes beyond just ensuring compliance with technical aspects of the statute. These are admittedly “bad facts;” lying on an employment application about being convicted of murder would cause any employer to withdraw an offer, with or without input from the employee. I have to wonder why this case was pursued all the way to the circuit.

This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.


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