United States District Court, D. South Dakota, Western Division
JEFFREY L. VIKEN CHIEF JUDGE.
an action plaintiff Charles Scott Benson brought against
defendant Wells Fargo Bank, N.A. (Docket 1). Defendant filed
a motion to dismiss counts nine and ten of plaintiff's
first amended complaint. (Docket 5). Plaintiff filed a motion
for leave to file a second amended complaint. (Docket 20).
Plaintiff also filed a motion to compel defendant's
payment of the fees associated with defendant's
deposition of plaintiff's expert witness. (Docket 15).
AND PROCEDURAL BACKGROUND
applied for a job with defendant's home mortgage division
on September 25, 2007. (Docket 1-1 at p. 3). Recruiters
affiliated with defendant had been in contact with plaintiff
about the job since October 2006. Id. at pp. 1-2.
Plaintiff indicated to the recruiters he had a misdemeanor
theft conviction from several years earlier. Id. at
pp. 2-4. In his job application plaintiff disclosed his
conviction. Id. at pp. 3-4. The recruiters told
plaintiff his conviction would not affect his employment.
Id. Defendant completed a background check of
plaintiff, offered him a job and he started work in November
January 2011, defendant screened the backgrounds of many of
its employees. Id. at p. 5. Defendant states it
conducted the screenings to comply with recently-enacted
federal law. (Docket 6 at p. 2). The screening of plaintiff
revealed the conviction he disclosed in his original job
application. (Docket 1-1 at p. 5). Defendant believed the
Financial Institutions Reform, Recovery and Enforcement Act
(“FIRRE”), 12 U.S.C. § 1829(a), required
terminating plaintiff. (Docket 1-1 at p. 5). FIRRE prohibits
a person convicted of a crime involving dishonesty from
working in plaintiff's position at a federally insured
institution. 12 U.S.C. § 1829(a); (Docket 1-1 at p. 5).
Defendant terminated plaintiff's employment on February
15, 2011. (Docket 1-1 at p. 5).
filed his original complaint against defendant in South
Dakota state court on March 18, 2011. (Docket 14-3). The
complaint revolved around defendant firing plaintiff and
included nine counts: breach of contract, promissory
estoppel, fraudulent inducement, fraudulent concealment,
fraud and deceit, negligent misrepresentation, intentional
infliction of emotional distress, negligent infliction of
emotional distress and punitive damages. Id. at pp.
5-11. On June 6, 2016, the state court granted plaintiff
leave to file an amended complaint, and he filed his first
amended complaint on June 13, 2016. (Docket 1-1).
first amended complaint introduces two new counts.
Id. at pp. 12-32. At count nine of the first amended
complaint plaintiff sets forth a claim based on violations of
the Fair Credit Reporting Act (“FCRA”), 15 U.S.C.
§ 1681. (Docket 1-1 at pp. 12-16). Plaintiff claims
defendant “failed to comply with the procedural
protections and requirements of the FCRA when it used the
consumer reports of [p]laintiff and hundreds of other
employees to make adverse employment decisions resulting in
their termination.” Id. at p. 12. Plaintiff
59. Years after hiring Plaintiff, Defendant ordered a
background check, which is a consumer report, from First
Advantage Background Services Corp. ("First
Advantage"), which is a consumer reporting agency . . .
66. . . . Defendant failed to provide a clear and conspicuous
written disclosure in a document that consists solely of that
disclosure to Plaintiff, that a consumer report may be
obtained for employment purposes.
67. Defendant further failed to obtain a valid authorization
to procure a consumer report for employment purposes from
68. Defendant further failed to provide Plaintiff with the
required notice and a copy of the consumer report upon which
it based its decision to take adverse employment action
against Plaintiff, within the timeframes required under the
69. Defendant further failed to provide Plaintiff with a
written summary of his FCRA rights prior to taking adverse
employment action against him.
70. Defendant terminated Plaintiff without providing any
advance notice of such adverse action.
Id. at pp. 13-14. Paragraphs 66 and 67 delineate
violations of the FCRA's disclosure and authorization
requirements in 15 U.S.C. §§
1681b(b)(2)(A)(i)-(ii). This section provides that when a
consumer report is procured for employment purposes, the
consumer must first authorize the procurement in writing and
receive “a clear and conspicuous disclosure . . . in a
document that consists solely of the disclosure” before
the report is obtained. Id. Paragraphs 68 and 69 of
plaintiff's first amended complaint assert violations of
the FCRA's “[c]onditions on use [of consumer
reports] for adverse actions . . . .” 15 U.S.C. §
1681b(b)(3) (bold omitted). These conditions require the
consumer to receive a copy of the credit report and a
description of the consumer's rights before “any
adverse action based in whole or in part on the report”
may occur. 15 U.S.C. §§ 1681b(b)(3)(A)(i)-(ii).
first amended complaint's tenth count sets forth a claim
based on violations of the Racketeer Influenced Corrupt
Organizations Act (“RICO”), 18 U.S.C.
§§ 1962, 1964. (Docket 1-1 at pp. 16-32). Plaintiff
alleges defendant hired him and numerous other people with
criminal records disqualifying them from their jobs, and
defendant deliberately failed to obtain consent from the
Federal Deposit Insurance Corporation (“FDIC”) as
federal law required. Id. at pp. 17-18; see
18 U.S.C. § 1829. Plaintiff asserts defendant's
termination of his employment was part of a “Background
Checks Project” (“Project”) defendant
instituted to terminate “employees en masse . . . under
the auspices of compliance with federal regulation . . .
.” (Docket 1-1 at p. 21). During this Project,
plaintiff claims defendant “explicitly instructed the
operative group for the Background Checks Project not to
share [the project's] information, or the fact that the
Project was actually a ‘business decision, ' with
lower level management and rank-and-file employees.”
Id. at pp. 21-22 (emphasis in original).
states the Project constituted a pattern of racketeering
activity affecting interstate commerce carried out by a
“higher-level group” of defendant's
employees. Id. at p. 24. According to plaintiff, the
purpose of the Project was “terminating employees in
mass, reducing payroll, eliminating earned and accrued
employee bonuses and benefits, and depressing the relevant
job-market, under the fraudulent pretext of compliance with
federal regulation.” Id. Plaintiff alleges
defendant made “affirmative fraudulent
representations” regarding federal law requiring
termination of employees and “deliberately conceal[ed]
and omit[ted] material facts to [p]laintiff” so it
could advance its scheme. Id. at p. 28.
is an essential and unchanging part of the
case-or-controversy requirement of Article III [of the United
States Constitution.]” Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560 (1992). “Standing . .
. is a jurisdictional requirement, and thus ‘can be
raised by the court sua sponte at any time during the
litigation.' ” Pucket v. Hot Springs Sch. Dist.
No. 23-2, 526 F.3d 1151, 1156-57 (8th Cir. 2008)
(quoting Delorme v. United States, 354 F.3d 810, 815
(8th Cir. 2004)). “The [standing] doctrine limits the
category of litigants empowered to maintain a lawsuit in
federal court to seek redress for a legal wrong. In this way,
the law of Article III standing . . . serves to prevent the
judicial process from being used to usurp the powers of the
political branches, and confines the federal courts to a
properly judicial role . . . .” Spokeo, Inc. v.
Robins, 136 S.Ct. 1540, 1547 (2016) (internal citations
omitted) (internal quotation marks omitted).
‘irreducible constitutional minimum' of standing
consists of three elements.” Id. (quoting
Lujan, 504 U.S. at 560). “The plaintiff must
have (1) suffered an injury in fact, (2) that is fairly
traceable to the challenged conduct of the defendant, and (3)
that is likely to be redressed by a favorable judicial
decision.” Id. (citations omitted).
“Where, as here, a case is at the pleading stage, the
plaintiff must ‘clearly . . . allege facts
demonstrating' each element” Id. (quoting
Warth v. Seldin, 422 U.S. 490, 518 (1975)).
“In assessing a plaintiff's Article III standing,
we must ‘assume that on the merits the plaintiffs would
be successful in their claims.' ” Am. Farm
Bureau Fed'n v. U.S. Envtl. Prot. Agency, 836 F.3d
963, 968 (8th Cir. 2016) (quoting Muir v. Navy Fed.
Credit Union, 529 F.3d 1100, 1106 (D.C. Cir. 2008)).
second and third elements of standing tend to be
straightforward, but the injury element is harder to pin
down. The United States Supreme Court recently ruled on the
injury element in Spokeo. Spokeo clarified
the requirements that the injury suffered is “concrete
and particularized . . . .” Spokeo, 136 S.Ct.
at 1548 (citing Lujan, 504 U.S. at 560) (internal
quotation marks omitted). A particularized injury
“affect[s] the plaintiff in a personal and individual
way[, ]” as opposed to an injury affecting an
undifferentiated collection of people. Id.
(citations omitted). A concrete injury is one that
“actually exist[s].” Id. It can be a
tangible injury, such as physical pain, or it can be
intangible, like curtailing someone's right to free
speech. Id. at 1549 (citing Pleasant Grove City
v. Summum, 555 U.S. 460 (2009)). Spokeo
acknowledged Congress can create statutes providing people
rights, which, if violated, may result in an Article III
injury. Id.; see, e.g., Fed. Election
Comm'n v. Akins, 524 U.S. 11, 20-25 (1998) (holding
that certain voters' “inability to obtain
information” Congress chose to make accessible to them
yielded an Article III injury). However, Spokeo held
“Article III standing requires a concrete injury even
in the context of a statutory violation. . . . [A plaintiff]
could not, for example, allege a bare procedural violation,
divorced from any concrete harm, and satisfy the
injury-in-fact requirement of Article III.”
Spokeo, 136 S.Ct. at 1549.
on the parties' briefing and the court's view of this
case, the court must determine standing in relation to
plaintiff's FCRA claims only. See Dockets 28, 29
& 32. For the FCRA allegations, the core issue is whether
plaintiff sets forth violations of substantive rights
sufficient to constitute a concrete injury or whether he
asserts “a bare procedural violation, divorced from any
concrete harm . . . .” Spokeo, 136 S.Ct. at
court notes this precise issue divides many United States
District Courts. Compare Thomas v. FTS USA, LLC, 193
F.Supp.3d 623, 629-37 (E.D. Va. 2016); Banks v. Cent.
Refrigerated Servs., Inc., No. 2:16-CV-356, 2017 WL
1683056, at *3 (D. Utah May 2, 2017), with In re Michaels
Stores, Inc., Fair Credit Reporting Act (FCRA)
Litigation, MDL No. 2615, 2017 WL 354023, at *4- 11
(D.N.J. Jan. 24, 2017); Fisher v. Enterprise Holdings,
Inc., No. 15-CV-00372, 2016 WL 4665899, at *2-4 (E.D.
Mo. Sept. 7, 2016). In Thomas and Banks, the
courts concluded the FCRA violations before them set forth
concrete injuries because they involved substantive rights.
See Thomas, 193 F.Supp.3d at 637 (“Section
1681b(b)(3), like § 1681b(b)(2)(A), provides the
consumer with a legally cognizable right to specific
information.”); Banks, 2017 WL 1683056, at *3
(noting “[s]everal courts have recognized that multiple
sections of the FCRA provide consumers with a [substantive]
right to information”). In contrast, the courts in
In re Michaels Stores and Fisher determined
the FCRA claims did not constitute more than procedural
rights, which alone do not amount to concrete injuries.
See In re Michaels Stores, Inc., 2017 WL 354023, at
*7 (“I respectfully disagree with Thomas's
conclusion that the disclosure requirements set forth in
§ 1681b(b)(2)(A)(i) are substantive rather than
procedural.”); Fisher, 2016 WL 4665899, at
reaching its conclusion about the nature of the rights the
FCRA confers, Thomas started, “as
Spokeo instructs, [by] look[ing] to the common law
and to the judgment of Congress, as reflected in the FCRA, to
determine whether the violations of that statute alleged by
[the plaintiff] constitute concrete injuries that satisfy the
case or controversy requirement.” Thomas, 193
F.Supp.3d at 631.
Spokeo Court itself explained the background of
Congress passing the FCRA:
The FCRA seeks to ensure “fair and accurate credit
reporting.” § 1681(a)(1). To achieve this end, the
Act regulates the creation and the use of “consumer
report[s]” by “consumer reporting
agenc[ies]” for certain specified purposes, including
credit transactions, insurance, licensing, consumer-initiated
business transactions, and employment. See
§§ 1681a(d)(1)(A)-(C); § 1681b. . . . [T]he
FCRA applies to companies that regularly disseminate
information bearing on an individual's “credit
worthiness, credit standing, credit capacity, character,
general reputation, personal characteristics, or mode of
living.” § 1681a(d)(1).
The FCRA imposes a host of requirements concerning the
creation and use of consumer reports. . . . [T]he Act
requires consumer reporting agencies to “follow
reasonable procedures to assure maximum possible accuracy
of” consumer reports, § 1681e(b); to notify
providers and users of consumer information of their
responsibilities under the Act, § 1681e(d); to limit the
circumstances in which such agencies provide consumer reports
“for employment purposes, ” § 1681b(b)(1);
and to post toll-free numbers for consumers to request
reports, § 1681j(a).
Spokeo, 136 S.Ct. at 1545.
sections at issue in this case are 15 U.S.C. §§
1681b(b)(2)(A) & 1681b(b)(3)(A). (Docket 1-1 at p. 13);
see supra 3-4. Section 1681b(b)(2)(A) stated in full
[A] person may not procure a consumer report, or cause a
consumer report to be procured, for employment purposes with
respect to any consumer, unless: (i) a clear and conspicuous
disclosure has been made in writing to the consumer at any
time before the report is procured or caused to be procured,
in a document that consists solely of the disclosure, that a
consumer report may be obtained for employment purposes; and
(ii) the consumer has authorized in writing (which
authorization may be made on the document referred to in
clause (i)) the procurement of the report by that person.
Thomas court held § 1681b(b)(2)(A) establishes
two rights. Thomas, 193 F.Supp.3d at 631-32.
“First, it establishes a right to specific information
in the form of a clear and conspicuous disclosure, ”
which is supported by “the textual command that the
disclosure be clear and conspicuous.” Id. at
631. “Second, [it] establishes a right to privacy in
one's consumer report that employers may invade only
under stringently defined circumstances.” Id.
at 631-32. Thomas held those rights “are
clearly substantive, and neither technical nor
procedural.” Id. at 632; see Demmings v.
KKW Trucking, Inc., No. 14-CV-494, 2017 WL 1170856, at
*8 (D. Or. Mar. 29, 2017) (“The Court finds persuasive
these, and other cases that similarly hold that the Sections
1681b(b)(2)(B) and (b)(3)(B) and similar provisions of the
FCRA establish substantive informational and privacy rights
held by the consumer.”); Mix v. Asurion Ins. Servs.
Inc., No. CV-14-02357, 2016 WL 7229140, at *6 (D. Ariz.
Dec. 14, 2016) (“Violations of FCRA that unfairly
deprive a consumer of relevant information, or obtain consent
for a background check without a statutorily-proper
disclosure, implicate the harms Congress identified in FCRA,
and thus cause concrete harms.”); Moody v. Ascenda
USA Inc., No. 16-CV-60364, 2016 WL 5900216, at *5 (S.D.
Fla. Oct. 5, 2016) (holding § 1681b(b)(2)(A) confers
substantive rights); Meza v. Verizon Commc'ns,
Inc., No. 16-CV-0739, 2016 WL 4721475, at *3 (E.D. Cal.
Sept. 9, 2016) (same).
Syed v. M-I, LLC, the United States Court of Appeals
for the Ninth Circuit adopted the view that §
1681b(b)(2)(A) is a grant of substantive rights. 853 F.3d
492, 499 (9th Cir. 2017). The Ninth Circuit held:
Syed alleges more than a “bare procedural
violation.” The disclosure requirement at issue, 15
U.S.C. § 1681b(b)(2)(A)(i), creates a right to
information by requiring prospective employers to inform job
applicants that they intend to procure their consumer reports
as part of the employment application process. The
authorization requirement, § 1681b(b)(2)(A)(ii), creates
a right to privacy by enabling applicants to withhold
permission to obtain the report from the prospective
employer, and a concrete injury when applicants are deprived
of their ability to meaningfully authorize the credit check.
By providing a private cause of action for violations of
Section 1681b(b)(2)(A), Congress has recognized the harm such
violations cause, thereby articulating a “chain[ ] of
causation that will give rise to a case or
controversy.” See Spokeo, 136 S.Ct. at 1549
(quoting Lujan, 504 U.S. at 580 (Kennedy, J.,
court is aware other courts have come to the opposite
conclusion: that § 1681b(b)(2)(A) consists of procedural
rights the violation of which does not amount to an Article
III injury. See In re Michaels Stores, Inc., 2017 WL
354023, a *7-8; Landrum v. Blackbird Enters., LLC,
No. CV 16-0374, 2016 WL 6075446, at *3-4 (S.D. Tex. Oct. 3,
2016). The court respects the well- reasoned rulings in
In re Michaels Stores and Landrum. But the
court disagrees with their analysis of the FCRA.
determining whether an intangible harm constitutes injury in
fact, both history and the judgment of Congress play
important roles.” Spokeo, 136 S.Ct. at 1549.
The FCRA's backdrop the Ninth Circuit explained in
Syed supports concluding § 1681b(b)(2)(A)
grants substantive rights. In 1996, Congress amended the
26-year-old FCRA with the specific concern that
“prospective employers were obtaining and using
consumer reports in a manner that violated job
applicants' privacy rights.” Syed, 853
F.3d at 496 (citing S. Rep. No. 104-185 at 35 (1995)).
“The disclosure and authorization provision codified at
15 U.S.C. § 1681b(b)(2)(A) was intended to address this
concern by requiring the prospective employer to disclose
that it may obtain the applicant's consumer report for
employment purposes and providing the means by which the
prospective employee might prevent the prospective employer
from doing so-withholding of authorization.”
Id. (citing S. Rep. No. 104-185 at 35)). Section
1681b(b)(2)(A) advances Congress' broader goals of
“ensuring accurate credit reporting, promoting
efficient error correction, and protecting privacy.”
Id. at 496-97. By enacting the FCRA, Congress found
there “is a need to insure that consumer reporting
agencies exercise their grave responsibilities with fairness,
impartiality, and a respect for the consumer's right to
privacy.” 15 U.S.C. § 1681(a)(4). As time moved
forward and technology developed, the “modern
information age has shined a spotlight on information
privacy, and on the widespread use of consumer credit reports
to collect information in violation of consumers' privacy
rights.” Syed, 853 F.3d at 495.
to § 1681b(b)(2)(A) with this background in mind, it is
clear the statute takes the consumer's personal
information and grants the consumer substantive protections
regarding its release. To protect the consumer's personal
information, § 1681b(b)(2)(A) grants the consumer a
right to information in a disclosure form and a right to
privacy an employer “may invade only under stringently
defined circumstances.” See Thomas, 193
F.Supp.3d at 631-32. If an employer does not secure the
consumer's disclosure authorization as the statute
requires, the employer may “unfairly deprive a consumer
of relevant information, or obtain consent for a background
check without a statutorily-proper disclosure, [which]
implicate[s] the harms Congress identified in FCRA, and thus
cause[s] concrete harms.” Mix, 2016 WL
7229140, at *6. “It is clear from the statute's
legislative history that Congress intended that the FCRA be
construed to promote the credit industry's responsible
dissemination of accurate and relevant information and to
maintain the confidentiality of consumer reports. To that
end, it was Congress' judgment, as clearly expressed in
§§ 1681b(b)(2) and (3), to afford consumers rights
to information and privacy.” Thomas, 193
F.Supp.3d at 633.
argues it did not violate the FCRA's disclosure and
authorization requirements because plaintiff was not confused
by the disclosure form. (Docket 29 at p. 6). The fundamental
point is that defendant's deviation from the
statute's disclosure standards did not vitiate
plaintiff's authorization for defendant to obtain his
background information. However, the “proper inquiry is
whether a procedural violation [of § 1681b(b)(2)(A)]
creates a ‘risk of real harm.' ”
Mix, 2016 WL 7229140, at *5 (quoting
Spokeo, 136 S.Ct. at 1549-50). The court finds an
employer “does create a real risk of harm” when
it uses “a disclosure that, because it is merely one
section of a larger document, results in ‘information
overload' which inhibits a consumer's ability to
agree to a background check with full knowledge of their
rights and the potential consequences.” Id.
“Drawing all reasonable inferences in favor of the
non-moving party, ” Syed, 853 F.3d at 499, the
court finds plaintiff's allegations that the disclosure
was “wordy” and not in a “stand-alone
document” sufficiently show the disclosure created a
risk of real harm. (Docket 1-1 at p. 15). Plaintiff's
claims grounded in § 1681b(b)(2)(A) allege a concrete
injury under Article III.
second section of the FCRA at issue in this case, §
[I]n using a consumer report for employment purposes, before
taking any adverse action based in whole or in part on the
report, the person intending to take such adverse action
shall provide to the consumer to whom the report relates: (i)
a copy of the report; and (ii) a description in writing of
the rights of the consumer under this ...