Bullet Dodged: Statutory Damages Are Safe, for Now

Bullet Dodged: Statutory Damages Are Safe, for Now

By Leah Nicholls, Kazan-Budd Attorney

Consumers can breathe a sigh of relief—the Supreme Court has denied review of a case that could have destroyed the ability of consumers to obtain statutory damages from companies that break the law.

Statutory damages are an important tool for the enforcement of consumer and other laws. Under a law providing for statutory damages, a plaintiff is awarded a set monetary amount when the defendant breaks the law whether or not the plaintiff can prove that the illegal conduct caused the plaintiff quantifiable damages. Congress authorizes statutory damages when there is illegal conduct that should be deterred, but where monetary damage to the consumer is difficult or impossible to prove.

For example, under the Fair Debt Collection Practices Act, debt collectors who make harassing phone calls are on the hook for up to $1,000 whether or not the person on the receiving end of the phone calls can show that he or she suffered monetary, emotional, or other damages. Congress thought it was important to deter such phone calls and to compensate people subjected to illegal harassment.

As Congress also recognized, though, showing that a person suffered damages as a result of a harassing phone call, however real, could be tough, and so it provided for statutory damages. Statutory damages show up in a host of other federal laws, including the Truth in Lending Act, the Fair Credit Reporting Act, and the Cable Privacy Act.

Displeased with the ability of consumers to get statutory damages (and preferring to get away with illegal behavior without any financial penalty), corporations and their lawyers began arguing several years ago that plaintiffs suing for statutory damages lacked constitutional standing (legal right to sue) because they couldn’t show that they suffered an injury—even though Congress has said being subjected to illegal conduct is enough to hold corporations liable. This is an extremely radical position: No court had ever held that plaintiffs lack standing to sue when Congress has said they can.

Fortunately, courts weren’t buying this argument, but consumer advocates collectively held their breaths when the Supreme Court granted review of a case called First American Financial v. Edwards in 2011. That case involved a claim for statutory damages under the Real Estate Settlement Procedures Act, which protects home buyers by prohibiting brokers from engaging in kickback schemes. The defendant argued that the plaintiff didn’t have standing because she couldn’t prove that her broker’s kickback scheme had made her home purchase more expensive. It was unclear how the Court would have decided that issue, but due to particularities of that case, the Court ended up reneging on its decision to hear the case.

Corporations have been looking for another vehicle to get this issue before the Court ever since, and they thought they had found one in Mutual First Federal Credit Union v. Charvat, a case involving statutory damages under the Electronic Funds Transfer Act. The plaintiff sought statutory damages because the bank had failed to comply with the Act’s required disclosures of ATM fees. Again, the bank argued that the plaintiff lacked standing even though the statute gave him the right to sue. Unsurprisingly, the bank’s petition for certiorari was supported by the corporation-friendly groups Chamber of Commerce, Washington Legal Foundation, and the Association of Credit and Collection Professionals—all arguing that no matter what Congress says counts as harm, plaintiffs cannot bring cases seeking statutory damages unless they can prove they would be entitled to monetary damages under traditional tort law, laws that enable people to sue when they are harmed.

If the Court would have granted review and sided with the bank in Charvat, consumers subject to illegal conduct by corporations could not bring suit unless they could prove they were quantifiably injured by the illegal conduct. Such a decision would have decimated the enforcement mechanisms in a slew of federal consumer-protection laws, and corporations could assume that they could act illegally with impunity.

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