October Term, 2006
June 4, 2007
Today the Supreme Court issued two decisions, described below, of interest to the business community.
Safeco Insurance Co. of America v. Burr, Nos. 06-84 and 06-100 (previously discussed in the June 26, 2006 Docket Report). FCRA, the Fair Credit Reporting Act, regulates the accuracy and use of consumer credit information by consumer reporting agencies, generators of consumer credit information, and users of consumer reports such as lenders and insurers. 15 U.S.C. § 1681 et seq. FCRA requires users of consumer credit information to notify a consumer of any “adverse action” taken with respect to the consumer’s credit, insurance, or employment that is “based in whole or in part on any information contained in” the consumer’s credit report. Id. § 1681m(a). For insurance, adverse action is defined as, inter alia, “an increase in any charge for * * * any insurance, existing or applied for.” Id. § 1681a(k)(1)(B)(i). FCRA contains two civil liability provisions: Plaintiffs may seek relief for “negligent noncompliance” and recover actual damages (id. § 1681o(a)), or seek relief for “willful noncompliance” and recover, in lieu of “actual damages sustained,” statutory “damages of not less than $100 and not more than $1,000” (id. § 1681n(a)). Additionally, punitive damages are available under § 1681n. FCRA does not define “willful.”
Plaintiffs in No. 06-84 argued that Safeco willfully violated FCRA when it failed to notify them that the rates they were offered were higher than the best rates possible. Likewise, the plaintiff in No. 06-100 argued that GEICO willfully violated FCRA when it offered him a rate higher than the most favorable rate available but still equal to the “neutral” rate it would have quoted had it not relied on the plaintiff’s credit history at all. The Court granted certiorari and consolidated these two cases to clarify the meaning of the terms “adverse action” and “willful” as used in FCRA.
Today, in an opinion by Justice Souter, the Court began by unanimously holding that “willful noncompliance” includes acts that are in “reckless disregard” of FCRA’s notice requirement, rejecting the insurers’ argument that only actions known to violate the Act could be considered “willful.” The Court next held that the higher rates offered by Safeco constituted an “adverse action,” rejecting Safeco’s argument that quoting or charging for a first-time premium could never be considered “an increase in any charge for” insurance. As to GEICO, however, the Court (Justices Stevens and Ginsburg dissenting) held that there had been no “adverse action” because the rate that the plaintiff was quoted and charged was the same as the rate that he would have been charged had GEICO not taken his credit history into account at all—i.e., the rate based on a “neutral credit score.” The majority reasoned that the plaintiff’s proposed reading of the statute would lead to “hypernotification” and dilute the effectiveness of the notice requirement because all consumers other than those with the best credit would receive notice; the dissent countered that the majority’s reasoning will allow companies to adopt very low “neutral credit scores” and thereby avoid notifying many consumers who are, in a practical sense, adversely affected by their credit reports. Finally, the Court unanimously held that Safeco had not “willfully” violated the Act because its reading of the statute was “objectively reasonable,” albeit erroneous, and therefore was not “reckless”—i.e., it did not entail an “unjustifiable risk” of a violation. The Court emphasized that, before these cases, neither the FTC nor any court of appeals had addressed the issue.
The Court’s opinion provides needed clarification on FCRA’s willfulness standard and “adverse action” definition, and the decision represents a significant victory for insurers with respect to this type of “best rate theory,” which has been advanced by plaintiffs in a number of class actions around the country.
Sole v. Wyner, No. 06-531 (previously discussed in the January 16, 2007 [link to] Docket Report). Under 42 U.S.C. § 1988(b), a federal district court may, “in its discretion, allow the prevailing party [in certain civil rights actions] * * * a reasonable attorney’s fee as part of the costs.” Installation artist T.A. Wyner sued the Florida Department of Environmental Protection after it refused to grant her a permit to create a large peace symbol, made up of naked people, on a public beach. Following an emergency hearing, the district court granted Wyner a preliminary injunction and thereby allowed her to undertake the installation. The court thereafter denied Wyner’s request for a permanent injunction mandating the issuance of permits with respect to similar future projects, however, holding that the state’s nudity restrictions were no greater than necessary to protect the visiting public. Nonetheless, the court awarded Wyner attorneys’ fees for that portion of her fees related to the successful preliminary injunction petition. The Eleventh Circuit affirmed.
In an opinion by Justice Ginsburg, a unanimous Court reversed, holding that “[p]revailing party status” cannot be conferred on a party that “achieve[s] * * * a preliminary injunction that is reversed, dissolved, or otherwise undone by the final decision in the same case.” The Court reasoned that, when determining a plaintiff’s entitlement to preliminary injunctive relief, a district court assesses only “the probability of the plaintiff’s ultimate success on the merits,” a decision that may be affected by the “thoroughness of * * * exploration undertaken by the parties and the court.” If the district court later decides the merits of the case against the plaintiff, that decision “supersede[s] the preliminary ruling” and “ultimately reject[s]” the plaintiff’s claim. In such circumstances, the “initial victory was ephemeral,” and the plaintiff is not a prevailing party entitled to attorneys’ fees under Section 1988(b). The Court expressly reserved judgment as to whether attorneys’ fees may appropriately be awarded if a party obtains a preliminary injunction but the court never enters final judgment on the merits.
Today’s decision is of significant interest to businesses that bring Section 1983 actions against states and municipalities. Under the Court’s ruling, such businesses will not be entitled to attorneys’ fees if they are awarded preliminary injunctive relief on their claims but ultimately lose on the merits of the action.