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Third Circuit: Consumer Does Not Have Standing to Raise FDCPA Challenge to Debt Collection Agency’s Disclosure of Private Information to Third Party Mailing Vendor

In Barclift v. Keystone Credit Services, LLC, the Philadelphia-based United States Court of Appeals for the Third Circuit determined that a Consumer did not have standing to sue under Fair Debt Collection Practices Act (“FDCPA”).

A Debt Collection Agency, had sent personal information about the Consumer, including her name, address, debt balance, and other information about the debt to a third-party Mailing Vendor, who used the information to create a notice which the mailing vendor printed and mailed to the consumer.

What is “Standing”?

“Standing” is a legal doctrine related to Article III of the United States Constitution. Article III granted the federal courts the “judicial power” to resolve “Cases” and “Controversies.” Barclift at 5. In order to “prevent courts from overstepping this role,” the doctrine of standing requires a litigant to establish three elements in order to bring a case before a federal court: “(1) an injury in fact that is concrete and particularized, (2) a causal connection between the injury and the challenged conduct, and (3) a likelihood that the injury will be redressed by a favorable judicial decision.” Barclift at 5 (citing In re Horizon Healthcare Servs. Inc. Data Breach Litig., 846 F.3d 625, 633 (3rd Cir. 2017)).

What is the FDCPA?

The FDCPA, 15 U.S.C. Sec. 1692 et seq., was enacted to “eliminate abusive debt collection practices by debt collectors.” Barclift at 6. Section 1692c(b) of the FDCPA prohibits debt collectors from “communicat[ing], in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector” “without the prior consent of the consumer.” Barclift at 6 (citing 15 U.S.C. Sec. 1692c(b)). Further, the FDCPA created a “civil cause of action for any individual who sustains damages due to a debt collector’s violation of the Act.” Barclift at 6 (citing 15 U.S.C. Sec. 1692k).

Standing to Assert a Claim Under the FDCPA

The legal question before the court was whether the Consumer had properly shown an “injury in fact” to meet the standing requirement to raise her claim under the FDCPA.

While cases dealing with disclosure of consumer information to third party mailing vendors were rare, there has been more litigation in this area, particularly since the United States Supreme Court’s decision in TransUnion LLC v. Ramirez, 594 U.S. 413 (2021). Barclift at 6. In TransUnion, the US Supreme Court determined that “intangible harms” could give rise to concrete injuries when they bear “a close relationship to harms traditionally recognized as providing a basis for lawsuits in American courts,” such as “reputational harms, disclosure of private information, and intrusion upon seclusion.” Barclift at 8 (citing TransUnion, 594 U.S. at 425).

TransUnion dealt with a class action filed by class of consumers under the Fair Credit Reporting Act, alleging that a credit reporting agency had mistakenly “matched” these consumers with individuals listed on a natural security threat list. Barclift at 7 (citing TransUnion at 420). The Supreme Court found that this claim was “sufficiently close” to common law harms resulting from false and defamatory statements. Barclift at 8 (citing TransUnion at 433). However, the Supreme Court continued, because “publication” is a necessary element for a defamation claim at common law, only those plaintiffs who showed that the “erroneous security alerts were actually disseminated to creditors” could show their harm was “substantially close.” Barclift at 8-9 (citing TransUnion at 434). The other plaintiffs, whose alerts “were never sent to third parties,” in turn, lacked standing to sue. Barclift at 9 (citing TransUnion at 434). Importantly, a footnote to TransUnion brushed off the argument that the alerts were “published” internally to employees and to the vendors who printed and sent the mailings. Barclift at 9 (citing TransUnion at 434 n.6).

Application of TransUnion

Since TransUnion, different courts have applied different methodologies in analyzing whether harms are “sufficiently close.” Barclift at 9-10. In Hunstein v. Preferred Collection & Mgmt. Servs., Inc., 48 F.4th 1236 (11th Cir. 2022), the Atlanta-based United States Court of Appeals for the Eleventh Circuit, for example, focused on the “elements” of a claim, reasoning that an “intangible harm is not closely related to a traditional harm if it is ‘missing an element “essential to liability” under the comparator tort.’” Barclift at 10 (citing Hunstein, 48 F.4th at 1242). The dissent in Hunstein, however, would have applied a different test, focusing less on elements and more on the “kind of harm” alleged. Barclift at 10 (citing Hunstein at 1261 (Newsom, J., dissenting)).

In Shields v. Professional Bureau of Collections of Maryland, Inc., 55 F.4th 823 (10th Cir. 2022), the Denver-based United States Court of Appeals for the Tenth Circuit “implicitly” accepted a Hunstein dissent’s “kind of harm” test. Barclift at 11 (citing Shields, 55 F.4th at 829). Despite applying a different test, however, the Tenth Circuit determined that the fact that “one private entity (and, presumably, some of its employees) [knew] of [a consumer’s] debt” was “not the same kind of harm as public disclosure of private facts.” Barclift at 11 (citing Shields at 829).

In Nabozny v. Optio Sols. LLC, 84 F.4th 731 (7th Cir. 2023), the Chicago-based United States Court of Appeals for the Seventh Circuit examined another case under both the Hunstein elements test and the Shields kind of harm test, determining that plaintiff in that case had failed to show standing under both tests. Barclift at 11-12 (citing Nabozny, 84 F.4th at 735-36).

Third Circuit Applies the Kind of Harm Test

Examining these previous cases, the Third Circuit determined that the “kind of harm” test, and not the elements test, is the proper test to be applied. Barclift at 13. Utilizing the kind of harm test, the Third Circuit determined that the communications from the debt collection agency to the mailing vendor was “functionally internal,” and not properly analogizable to the “public disclosure of private facts.” Barclift at 15-16. As such, consumer failed to show an “injury-in-fact” and did not have standing to sue.

Dissenting Opinion

In an opinion concurring in part, dissenting in part, and dissenting in the judgment, Judge Paul Matey prefaced his opinion with an eleven-page analysis describing the problematic nature of current standing jurisprudence with the text of the Constitution. He described current standing jurisprudence as “absent from the text of the Constitution, Founding-era discussions, English and Roman history, and the reported decisions of our federal courts throughout most of the twentieth century.” Barclift at 22 (Matey, J. concurring in part, dissenting in part, and dissenting in the judgment). Nevertheless, Judge Matey reiterates the binding precedent of the Supreme Court standing decisions and proceeds with his opinion regarding application of the test in TransUnion. Barclift at 36 (Matey, J. concurring in part, dissenting in part).  

In his opinion, Judge Matey concurs with the majority that the “kind of harm” test is the proper test to be applied. Barclift at 36 (Matey, J., concurring in part, dissenting in part). However, he dissents from the majority’s application of the test, which he describes as “veer[ing] into an unnecessary jot-for-jot exactness to some common-law cause of action,” and suggesting that the majority gives too much weight to footnote six of the TransUnion opinion. Barclift at 42-43 (Matey, Jr., concurring in part, dissenting in part).

Going forward, the Barclift decision is significant as it reinforces a split among the circuits about whether the elements test, as applied by the Eleventh Circuit in Hunstein or the kind of harm test, as applied by the Tenth Circuit and the Third Circuit, is the proper test to be applied. However, given the decisions in Shields, Nabozny, and Barclift, the burden on consumers to make a showing under the kind of harm test is still steep, requiring the showing of a strong analogy, particularly with the “public” nature of the disclosure, rather than “functionally internal” disclosure which courts have interpreted as lacking the “publicity” of the harm.    

March 06, 2024

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