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The Eleventh Circuit, sitting en banc, has vacated a pre-Spokeo “beat the clock” class action settlement for lack of standing post-Spokeo.  This decision is reflective of a developing trend in the Eleventh Circuit to undertake exacting reviews of class action settlements.  The decision was issued less than six weeks after an Eleventh Circuit panel vacated a district court order in another case for failure to sufficiently explain the grounds for approving a class settlement in that matter, as we previously reported.

The new decision is , No. 16-16486 & 16-16783, 2020 WL 6305084 (11th Cir. Oct. 28, 2020).  In Muransky, the parties had negotiated, executed and obtained preliminary approval of a $6.3 million settlement in January 2016, four months before the Supreme Court issued its seminal decision on Article III standing in , 136 S. Ct. 1540 (2016).  During the parties’ settlement negotiations, each side was mindful that the impending decision in Spokeo would significantly change the parties’ respective bargaining positions.  According to the Eleventh Circuit, the Spokeo decision did just that – setting a standard that conclusively established that the Muransky plaintiff lacked standing to pursue his case, or to settle the litigation.  Even so, four months after Spokeo was decided, the parties sought and obtained final approval of their settlement.  The parties’ moving papers contained references to Spokeo, principally relating to its import on the settlement negotiations, but without analysis of the decision’s application to the plaintiff’s allegations.  The district court’s final approval order did not mention Spokeo at all.

A nonparty objector appealed the district court’s order granting final approval of the settlement to the Eleventh Circuit.  Finding that the plaintiff had “shut his eyes and closed his ears to the requirements of Spokeo while his claims were still at the district court,” the Eleventh Circuit vacated the district court’s final approval of the class settlement, and directed the court to dismiss the Muransky lawsuit without prejudice.

This Eleventh Circuit decision is significant for two key reasons.  First, the opinion makes clear that a class action settlement will not pass muster – even if negotiated in the type of uncertain environment common to most litigation, and even if preliminarily approved – if subsequent legal developments are deemed to bar a settlement prior to final approval.  Second, as with its earlier decision this fall, the Eleventh Circuit has made absolutely clear that the appellate court will not simply defer to district court approvals of class action settlements as a matter of course.  Instead, the Eleventh Circuit has signaled – in no uncertain terms – that the court will rigorously review each settlement when presented.

Background

The Fair and Accurate Credit Transactions Act (“FACTA”) forbids merchants from printing more than the last five digits of credit card numbers on receipts offered to customers.  After the named plaintiff in Muransky spent $19.26 at a Godiva store in Florida, he was given a receipt with the first six and the last four digits of his 16 digit credit card number.  Less than a week later, the plaintiff filed a class action suit, alleging that defendant Godiva Chocolatier, Inc. had printed too many credit card digits on hundreds of thousands of receipts nationwide.  The plaintiff alleged that such violations of FACTA exposed class members to “an elevated risk of identity theft.”  The plaintiff disclaimed any recovery for actual damages, and instead sought only statutory damages.  In light of FACTA’s per-violation statutory damages of up to $1,000, Godiva’s potential liability was estimated to be more than $342 million.

When the Complaint was filed in April 2015, litigants and courts were “bedeviled” –according to the Eleventh Circuit – concerning whether pleading a bare statutory violation, without allegations of actual injury, was enough to establish standing.  In early November 2015, the Supreme Court heard argument on that issue in Spokeo.  Over the next three months, while the Supreme Court decision was pending, the Muransky parties negotiated and executed a January 2016 Settlement Agreement.

According to the Eleventh Circuit, “[b]oth parties had an interest in settling before [Spokeo] was decided, because the Supreme Court’s decision was likely to shift the bargaining calculus dramatically.  So they settled.”  On January 25, 2016, the district court granted preliminary approval of the settlement.  In March 2016, the court entered an amended preliminary approval order, setting a September 2016 final approval hearing.

In Spokeo, which was decided in May 2016, the Supreme Court held that a party lacks standing to sue when it pleads only a “bare procedural violation” of a statute, and not an actual injury.  As stated above, the parties’ final approval papers in Muransky did contain references to Spokeo, but without analysis of its application to the plaintiff’s allegations, including the plaintiff’s express disclaimer of seeking any actual damages.  At the final approval hearing in September, one objector asked the district court to consider whether the plaintiff’s claim comported with Spokeo, arguing that without standing, the settlement should not be approved.  One week later, the district court granted final approval, without any reference to Spokeo or to standing.

The objector appealed.  In October 2018, an Eleventh Circuit panel affirmed the final approval order. , 905 F.3d 1200 (11th Cir. 2018).  In April 2019, after the objector filed a petition for rehearing and for rehearing en banc, the same three-judge panel issued a superseding opinion, with a revised standing analysis, also affirming the final approval order.  (11th Cir. 2019).  In October 2019, after the objector filed a renewed petition for rehearing and for rehearing en banc, the Eleventh Circuit vacated the superseding opinion, and granted rehearing en banc.

The Majority Decision

A 7-3 majority (with two judges recused) initially found, consistent with decisions by other circuit courts of appeal, that the plaintiff’s allegations were insufficient to confer standing.  The prior three-judge panel had reasoned that a violation of a statute that causes even a marginal risk of harm is tantamount to a concrete injury, allowing standing.  The Eleventh Circuit majority disagreed, stating:  “[W]e know one thing to be true—alleging a statutory violation is not enough to show injury in fact.”

The majority then held that the district court “acted without jurisdiction” by approving the Muransky settlement post-Spokeo, stating that courts are “‘powerless to approve a proposed class action settlement’ if ‘no named plaintiff has standing.’”  The court was not sympathetic to the plaintiff’s protest that standing was not litigated before the district court – having been raised by Godiva only in a boilerplate affirmative defense, and then by the objector at the final approval hearing.  In a stern rebuke, the majority stated:  “We do not think it is too much to ask that litigants who are aware that their allegations may not satisfy constitutional standing requirements take the time to firm up those allegations—if it is possible to do so—before an en banc circuit court confirms their suspicions of inadequacy.”

There’s more.  Mincing no words, the majority declared:  “[E]ven if the parties wish to bargain around Spokeo, we cannot indulge them. . . .  Having shut his eyes and closed his ears to the requirements of Spokeo while his claims were still at the district court, the named plaintiff now tries to say that those claims surely show concrete injury under Spokeo in any event. . . .  But the emperor still has no clothes; the bare procedural violation the plaintiff alleges is just as bare as it ever was.  Because the plaintiff alleged only a statutory violation, and not a concrete injury, he has no standing.  That means we cannot evaluate the fairness of the parties’ settlement, and we vacate the district court’s order approving it.”

The Three Dissents

Each of the three dissenting judges wrote a separate opinion.  All argued that the plaintiff had standing.  In his dissent, Judge Adalberto Jordan, a member of the initial three-judge panel, also contended that in lieu of dismissal, “Supreme Court precedent and procedural fairness dictate that [the plaintiff] have an opportunity to amend his complaint or present facts in support of standing.”  In pointed language, Judge Jordan added:  “Not only is dismissal unfair to [the plaintiff], but it requires the majority to make assumptions about the risks of identity theft without the benefit of a factual record, expert reports, or adversarial testing of the issue in the district court. . . .  [I]t is not fair to expect parties to anticipate changes in the law and then dismiss their case if they fail to do so.  The proper resolution in that scenario is to remand.”

Takeaways

The Muransky decision is a clear warning that parties cannot ignore Article III standing in order to resolve a class action.  Though the Muransky parties wanted to “beat the clock” by settling their case prior to the imminent decision in Spokeo, the Eleventh Circuit majority was not receptive to the parties’ attempt to sidestep that decision when they sought final approval of their settlement four months after the Supreme Court had issued its opinion.

As such, the Muransky decision instructs that any relevant changes in the law – after execution of a settlement agreement but before final approval – must be carefully considered and then addressed, as appropriate, with a district court.  And, as explained above, the Muransky decision further informs that when objections to settlement approval orders are made, the Eleventh Circuit will conduct its own exacting and rigorous examination of the objections – without any inclination to simply show deference to a district court’s findings, or any hesitation to vacate final approval of a class action settlement.