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The Supreme Court’s ruling on the Affordable Care Act was not the only surprise decision on Thursday. Although the nation’s attention was focused on the health care law, the Court was also expected to issue an important opinion in First American Financial Corp. v. Edwards, a case involving issues of constitutional standing in consumer-protection cases. Instead, the Court dismissed the Edwards case without issuing a decision, prompting speculation that the Justices were unable to agree on a majority opinion. The unexpected dismissal means that constitutional standing will remain a volatile and frequently litigated issue in consumer-protection suits.

In Edwards, the plaintiff sued her title insurer (First American), claiming that the insurer violated the Real Estate Settlement Practices Act (RESPA) by paying an illegal “kickback” to plaintiff’s title agent when the plaintiff purchased her home. First American moved to dismiss the lawsuit, arguing that the plaintiff did not have constitutional standing because she was not actually injured by the alleged RESPA violation. The alleged “kickback” scheme had not impacted the price of the plaintiff’s title insurance, nor had she been injured in any other way. The plaintiff’s response: First American’s statutory violation was alone sufficient to establish standing. The Ninth Circuit agreed with the plaintiff, and the U.S. Supreme Court granted First American’s petition for review.

Edwards’ potential impact stretched beyond RESPA, which is only one of many federal consumer-protection statutes allowing consumers to recover minimum “statutory” damages, even in the absence of “actual” damages. The banking, lending, and consumer credit industries are plagued by similar lawsuits under, among others, the Truth in Lending Act¹, the Fair Debt Collection Practices Act², the Electronic Fund Transfer Act³, and the Fair Credit Reporting Act⁴. Likewise, internet companies, communications providers, advertisers, and other businesses are vulnerable to liability under a growing number of federal privacy laws, such as the Stored Communications Act⁵, the Video Privacy Protection Act⁶, the Cable Communications Privacy Act⁷, and the Driver’s Privacy Protection Act⁸.

From the defense bar’s perspective, these types of statutes incentivize individuals and their attorneys to hunt for technical statutory violations and file “strike suits” against defendants, even when there has been no injury. In the aggregate, nuisance lawsuits can amount to a massive headache for defendants and raise the cost of doing business, particularly where plaintiffs file class-actions on behalf of other consumers.

Many thought that the Edwards case presented an opportunity for the Supreme Court to limit Congress’ legislative power to authorize these types of suits. Regardless of what a federal statute might allow, the constitutional doctrine of standing prevents a federal court from hearing a case unless the plaintiff has suffered some “injury-in-fact.” The question in Edwards was whether Congress can create an injury-in-fact by enacting federal statutes such as RESPA, or whether the constitutional standing requirement represents a “hard floor” that “cannot be removed by statute.”⁹

Because of its potential impact beyond RESPA, Edwards was closely monitored. For example, the world of electronic privacy law took a keen interest in the Edwards case—indeed, Facebook, Linkedin, Yahoo, and Zynga banded together to file an amicus brief in support of First American, citing their potential liability under federal statutes similar to RESPA. And earlier this month, in In re Hulu Privacy Litigation,¹⁰ a federal district court decided to defer its ruling in a major consumer-privacy lawsuit against Hulu, the online-video website, pending the outcome of Edwards.

But with the surprise dismissal of Edwards behind us, lower courts will be left to decide standing challenges without additional guidance from the Supreme Court. Whether the Court will someday revisit the issue raised in Edwards remains to be seen.

¹ 15 U.S.C.A. § 1640.

² 15 U.S.C.A. § 1692k.

³ 15 U.S.C.A. § 1693m.

⁴ 15 U.S.C.A. § 1681n.

⁵ 18 U.S.C.A. § 2707.

⁶ 18 U.S.C.A. § 2710.

⁷ 47 U.S.C.A. § 551.

⁸ 18 U.S.C.A. § 2724.

⁹ Summers v. Earth Island Inst., 555 U.S. 488, 497 (2009).

¹⁰ No. 3:11-cv-03764-LB, 2012 WL 2119193 (N.D. Cal. June 11, 2012)

This advisory was prepared by Eric P. Magnuson, a member of the Business Litigation and Banking and Financial Services practice groups at Nutter McClennen & Fish LLP. For more information, please contact Eric at 617.439.2324 (or emagnuson@nutter.com) or your Nutter attorney at 617.439.2000.

This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.