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Berry v. Schulman

United States Court of Appeals, Fourth Circuit

December 4, 2015

GREGORY THOMAS BERRY; SUMMER DARBONNE, on behalf of herself and all others similarly situated; RICKEY MILLEN, on behalf of himself and all others similarly situated; SHAMOON SAEED, on behalf of himself and all others similarly situated; ARTHUR B. HERNANDEZ, on behalf of himself and all others similarly situated; ERIKA A. GODFREY, on behalf of herself and all others similarly situated; TIMOTHY OTTEN, on behalf of himself and all others similarly situated, Plaintiffs - Appellees,
v.
ADAM E. SCHULMAN, Party-in-Interest - Appellant. and LEXISNEXIS RISK AND INFORMATION ANALYTICS GROUP, INC.; SEISINT, INC.; REED ELSEVIER, INC., Defendants - Appellees, JAMES TAYLOR LEWIS GRIMMELMANN, Amicus Supporting Appellants. GREGORY THOMAS BERRY; SUMMER DARBONNE, on behalf of herself and all others similarly situated; RICKEY MILLEN, on behalf of himself and all others similarly situated; SHAMOON SAEED, on behalf of himself and all others similarly situated; ARTHUR B. HERNANDEZ, on behalf of himself and all others similarly situated; ERIKA A. GODFREY, on behalf of herself and all others similarly situated; TIMOTHY OTTEN, on behalf of himself and all others similarly situated, Plaintiffs - Appellees, and LEXISNEXIS RISK AND INFORMATION ANALYTICS GROUP, INCORPORATED; SEISINT, INCORPORATED; REED ELSEVIER, INCORPORATED, Defendants - Appellees,
v.
MEGAN CHRISTINA AARON and the Aaron Objectors, Party-in-Interest - Appellant. JAMES TAYLOR LEWIS GRIMMELMANN, Amicus Supporting Appellants. GREGORY THOMAS BERRY; SUMMER DARBONNE, on behalf of herself and all others similarly situated; RICKEY MILLEN, on behalf of himself and all others similarly situated; SHAMOON SAEED, on behalf of himself and all others similarly situated; ARTHUR B. HERNANDEZ, on behalf of himself and all others similarly situated; ERIKA A. GODFREY, on behalf of herself and all others similarly situated; TIMOTHY OTTEN, on behalf of himself and all others similarly situated, Plaintiffs - Appellees, and LEXISNEXIS RISK AND INFORMATION ANALYTICS GROUP, INCORPORATED; SEISINT, INCORPORATED; REED ELSEVIER, INCORPORATED, Defendants - Appellees,
v.
SCOTT HARDWAY and the Hardway Objectors, Party-in-Interest - Appellant. JAMES TAYLOR LEWIS GRIMMELMANN, Amicus Supporting Appellants

Argued September 15, 2015.

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Appeals from the United States District Court for the Eastern District of Virginia, at Richmond. (3:11-cv-00754-JRS). James R. Spencer, Senior District Judge.

ARGUED:

Richard Monroe Paul, III, PAUL McINNES LLP, Kansas City, Missouri, for Appellants.

William Walter Wilkins, NEXSEN PRUET, Greenville, South Carolina; Joseph R. Palmore, MORRISON & FOERSTER LLP, Washington, D.C., for Appellees.

ON BRIEF:

Ashlea G. Schwarz, PAUL McINNES LLP, Kansas City, Missouri; Samuel Issacharoff, New York, New York; Thomas W. Bevan, Patrick M. Walsh, BEVAN & ASSOCIATES LPA, INC., Boston Heights, Ohio; Edwin F. Brooks, EDWIN F. BROOKS, LLC, Richmond, Virginia; Adam E. Schulman, CENTER FOR CLASS ACTION FAIRNESS, Washington, D.C., for Appellants.

Michael A. Caddell, Cynthia B. Chapman, CADDELL & CHAPMAN, Houston, Texas; Kirsten E. Small, Andrew A. Mathias, NEXSEN PRUET, Greenville, South Carolina; Leonard A. Bennett, Matthew J. Erausquin, CONSUMER LITIGATION ASSOCIATES, P.C., Newport News, Virginia; James A. Francis, David Searles, John Soumilas, FRANCIS & MAILMAN P.C., Philadelphia, Pennsylvania; Dale W. Pittman, THE LAW OFFICE OF DALE W. PITTMAN, P.C., Petersburg, Virginia; Ronald I. Raether, Jr., FARUKI, IRELAND & COX, PLL, Dayton, Ohio; David Neal Anthony, TROUTMAN SANDERS, LLP, Richmond, Virginia; Marc A. Hearron, Washington, D.C., James F. McCabe, San Francisco, California, Michael B. Miller, MORRISON & FOERSTER LLP, New York, New York, for Appellees.

Daniel F. Goldstein, Matthias L. Niska, BROWN GOLDSTEIN & LEVY, LLP, Baltimore, Maryland; James Grimmelmann, Professor of Law, Francis King Carey School of Law, UNIVERSITY OF MARYLAND, Baltimore, Maryland, for Amicus Curiae.

Before KING and HARRIS, Circuit Judges, and George J. HAZEL, United States District Judge for the District of Maryland, sitting by designation. Judge Harris wrote the opinion, in which Judge King and Judge Hazel joined.

OPINION

Page 604

PAMELA HARRIS, Circuit Judge:

The class action settlement at issue in this appeal is " the culmination of years of litigation and negotiations" between class counsel and the defendants, LexisNexis Risk and Information Analytics Group, Inc.; Seisint, Inc.; and Reed Elsevier Inc. (together, " Lexis" ). Berry v. LexisNexis Risk & Info. Analytics Grp., Inc., No. 3:11-CV-754, 2014 WL 4403524, at *1 (E.D. Va. Sept. 5, 2014). The dispute centers around Lexis's sale of personal data reports to debt collectors. According to the plaintiffs, Lexis has failed to provide the protections of the Fair Credit Reporting Act (the " FCRA" or the " Act" ), 15 U.S.C. § 1681, et seq., in connection with its reports. According to Lexis, its data reports do not qualify as " consumer reports" within the meaning of the FCRA, and so it is not required to comply with the Act.

After three separate lawsuits, extensive discovery, and a long series of mediation conferences, a deal was struck. Lexis would make sweeping changes to its product offerings in order to protect consumer information, and in exchange, the class members would release any statutory damages claims under the Act. The district court certified a settlement class under Rule 23(b)(2) of the Federal Rules of Civil Procedure and approved the settlement, finding that it would make Lexis " the industry leader among data aggregation companies in the protection of customer information provided to debt collectors." Berry, 2014 WL 4403524, at *3.

Now, a group of class members claiming the right to opt out of the settlement class and pursue statutory damages individually (the " Objectors" ) seeks to undo that settlement.[1] We find no error in the release of the statutory damages claims as part of a Rule 23(b)(2) settlement, and no abuse of discretion in the district court's approval of the settlement agreement. Accordingly, we affirm the district court's decision in full.

I.

A.

The FCRA regulates the collection and dissemination of certain consumer data

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bearing on credit eligibility. Its protections are focused on the sale of " consumer reports" - communications (1) containing information related to any one of seven specific consumer characteristics (including credit standing and worthiness and other personal information), which are (2) prepared to assist buyers in making certain eligibility determinations, including credit eligibility. 15 U.S.C. § 1681a(d).

The Act imposes various obligations on " consumer reporting agencies" - companies that regularly prepare " consumer reports," 15 U.S.C. § 1681a(f) - and provides a wide panoply of protections for consumers. For example, consumer reports may be furnished only for certain uses, such as credit transactions. Id. at § 1681b(a)(3)(A). Consumers are given the right to view the information in their files, id. at § 1681g(a)(1), and if they dispute the information they find, the consumer reporting agency must conduct a reasonable investigation into the information's accuracy, id. at § 1681i(a)(1)(A). None of those protections applies, however, unless and until a " consumer report" has been issued.

Lexis is a data broker that sells an identity report called Accurint® for Collections (" Accurint" ), used to locate people and assets, authenticate identities, and verify credentials. The Accurint database contains information on over 200 million people, and millions of Accurint reports are sold each year. For years, Lexis sold Accurint without complying with the FCRA, on the theory that Accurint is not a " consumer report" that triggers the Act's protections. Whether Accurint reports in fact constitute " consumer reports" under the FCRA is the crux of the parties' dispute.

B.

Class counsel and Lexis have a long history. This is the third national putative class action brought by counsel against Lexis, each alleging essentially the same thing: that Lexis violated the FCRA by selling Accurint reports without affording FCRA protections. Neither of the two prior suits resulted in any class settlement or court-ordered relief. In Graham v. LexisNexis Risk & Information Analytics Management Group, Inc., No. 3:09-cv-00655-JRS (E.D. Va. Jan. 21, 2011), the plaintiffs dismissed the claims after Lexis moved to dismiss for lack of standing. And in Adams v. LexisNexis Risk & Information Analytics Group, Inc., No. 08-4708 (D.N.J. October 28, 2010), the parties settled after the district court denied Lexis's motion for judgment on the pleadings. Over the course of these lawsuits, class counsel and Lexis negotiated numerous times, including at least nine in-person mediation conferences and many more telephone conferences.

Throughout this litigation, class counsel endeavored to prove not only that Lexis violated the FCRA, but also that it did so " willfully." That is because in addition to creating liability for actual damages sustained by an individual as a result of a violation, 15 U.S.C. § 1681o(a), the FCRA provides for statutory damages of between $100 and $1,000 for willful violations, id. at § 1681n(a), which would be available to all class members. But willfulness is a high standard, requiring knowing or reckless disregard of the FCRA's requirements. Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57, 69, 127 S.Ct. 2201, 167 L.Ed.2d 1045 (2007). Unless Lexis was " objectively unreasonable," id. at 69, in concluding that its Accurint reports were not " consumer reports" subject to the FCRA, then there would be no liability for statutory damages.

The Adams court's treatment of the willfulness issue, in particular, is relevant

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to the case we review today. Class counsel focused on the district court's refusal to dismiss the case on the pleadings because it would be " premature . . . to say that [the p]laintiff can produce no evidence to support [a willfulness] finding," No. 08-4708, 2010 WL 1931135, at *10 (D.N.J. May 12, 2010). But Lexis pointed to an Opinion Letter issued by the Federal Trade Commission in 2008 declaring that Accurint reports are not " credit reports" under the FCRA, see FTC Opinion Letter to Marc Rotenberg at 1 n.1 (July 29, 2008) (" FTC Opinion Letter" or " Opinion Letter" ), and argued that it cannot be " objectively unreasonable" to adopt the view of the federal agency responsible for enforcing the FCRA. And indeed, as Lexis noted, the Adams court subsequently clarified that unless discovery showed that the FTC had reversed the view taken in its 2008 Opinion Letter, the Adams plaintiffs would have difficulty showing willfulness.

C.

This case began in 2011, when the named plaintiffs (the " Plaintiffs" or the " Class Representatives" ), individuals who were the subject of Accurint reports, filed a putative class action against Lexis. The complaint alleged that Lexis violated the FCRA in three ways: by selling Accurint reports without first ensuring that buyers were purchasing the reports for uses permitted by the FCRA, refusing to allow consumers to view their Accurint reports, and refusing to investigate when consumers disputed information in Accurint reports. The Plaintiffs proposed three classes to match: an " Impermissible Use" class, including all persons listed in Accurint reports sold by Lexis; and " File Request" and " Dispute" classes, limited to consumers who interacted more directly with Lexis and were refused access to their Accurint reports or denied investigations when they filed disputes. The Plaintiffs sought both actual and statutory damages. But - as has become important to the Objectors' argument - because the FCRA does not provide expressly for an injunctive remedy in private actions, they did not seek injunctive relief.

Over a year later, after months of discovery and a series of negotiations with the aid of " three highly skilled mediators," including two federal judges, Berry, 2014 WL 4403524, at *14, the Plaintiffs and Lexis at last reached a settlement agreement (the " Agreement" ). Instead of the three classes contemplated by the Plaintiffs' complaint, the Agreement calls for just two. The first, not directly at issue here, consists of approximately 31,000 individuals who actively sought to treat Accurint reports as consumer reports under the FCRA by requesting copies or attempting to dispute information. Under the Agreement, those class members will release all potential FCRA claims against Lexis in exchange for financial compensation of approximately $300 per person. The ...


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