Don't Make A Federal Case Out Of It: High Court Should Grant Review In No-Injury Class Action

Mar 5 2014, 1:24pm CST | by

Don't Make A Federal Case Out Of It: High Court Should Grant Review In No-Injury Class Action
Photo Credit: Forbes Business

The U.S. Supreme Court this week has a chance to strike a blow for judicial modesty and at the same time call a halt to a disturbing trend being pushed by the plaintiffs’ bar:  class-action lawsuits in which no one was injured but that seek millions of dollars in “damages.”  The Court is being asked, in the case of First National Bank of Wahoo v. Charvat, to consider whether federal courts possess jurisdiction to hear such no-injury lawsuits.  The Court should accept the invitation and announce that attorneys will no longer be permitted to flout Article III of the U.S. Constitution, which limits the filing of federal lawsuits to those who have actually suffered an injury.

The case involves two small Nebraska banks that, like most banks, charge a small fee to non-customers who use their ATM machines.  Federal law requires banks to provide notice that they charge such a fee.  The two Nebraska banks did provide notice (on the very first screen seen by ATM users), and no one has come forward to claim that he or she used one of the ATMs without being aware that a fee would be incurred.

Here’s the wrinkle: at the time this lawsuit arose, federal regulations (since repealed) also required a second form of notice—on a small placard physically attached to the ATM.  Some of the ATMs maintained by the First National Bank of Wahoo and the Mutual First Federal Credit Union did not display the placard.  Jarek Charvat, an enterprising young man working with a local plaintiffs’ law firm, knew about the ATM fees and observed that the banks were not in full compliance with the federal placard regulation.  So he went from bank branch to bank branch, making ATM withdrawals and deliberately incurring a $2.00 fee at each stop.

Mr. Charvat’s ensuing multi-million-dollar lawsuit, alleging that the banks violated the federal disclosure regulation, has now reached the Supreme Court.  He admits that he has not been injured in any real sense because he voluntarily incurred the small transaction fees, of which he had advance notice.  He notes, however, that a federal statute, the Electronic Fund Transfer Act (EFTA), provides that each violation of the fee-notice requirement renders an ATM operator liable to an individual plaintiff in “an amount not less than $100.”  Charvat and his attorneys seek to represent a class consisting of all those who were charged a fee at any of the ATMs from which Charvat withdrew funds.  If one adds all those $100 statutory damages claims together, that turns out to be a potential bonanza for Charvat’s attorneys. A federal district court dismissed the lawsuit, concluding that Charvat lacked “standing” to file a lawsuit because he had suffered no injury.  The federal appeals court in St. Louis reversed, finding that Congress had created the necessary standing by providing a $100 bounty to those who sue for such violations.  The Supreme Court is scheduled to consider at its upcoming conference this Friday whether to review the appeals court’s decision.

Lawsuits of the sort filed by uninjured plaintiffs like Mr. Charvat are becoming too common.  They are proliferating despite the Supreme Court’s repeated pronouncements that Article III of the Constitution prohibits lawsuits by individuals who have not suffered an “injury in fact.”  The Court needs to address the injury-in-fact requirement in the specific context of this case: is a desire to collect bounties of the sort established by EFTA sufficient to create the necessary “injury in fact?”

The Court was poised to decide this very issue two years ago, when it agreed to hear First American Corp. v. Edwards.  But after briefing was complete and the Court had heard oral arguments, it dismissed the case as “improvidently granted.”  Although the Court provided no further explanation, many have speculated that it ordered dismissal after facts arose suggesting that the plaintiffs in that case arguably had suffered a real injury.

No similar problems are lurking in the Charvat case.  It is undisputed that Mr. Charvat entered into his ATM transactions with his eyes wide open.  He admits that he was fully aware of the two banks’ fee policies and that he voluntarily agreed to pay the fees before making his ATM withdrawals.  Accordingly, his only “injuries” are his unhappiness that someone else was violating federal law and his desire to claim the bounty that Congress created for the benefit of successful EFTA claimants.  Many commentators—including Chief Justice John Roberts in a law review article he published before assuming the bench—have opined that the Framers, when they imposed Article III limitations on federal court jurisdiction, intended to prevent suits in which the plaintiff’s claimed injuries are of the sort claimed by Mr. Charvat.

Unfortunately, no-injury lawsuits are a growing problem.  More than a dozen federal statutes include bounty provisions similar to the EFTA provision at issue here.  As the Washington Legal Foundation pointed out in its brief urging the Supreme Court to hear the Charvat case, the appeals court’s rationale would empower Congress to grant roving commissions entitling private individuals to file suit for virtually any violation of federal law.  That is not the role envisioned for federal courts by the Framers of the Constitution.  Rather, they envisioned federal courts as a forum in which parties can seek redress of actual injuries.  In the absence of an identifiable victim who has suffered an actual out-of-pocket loss, it is for the Executive Branch—not the courts—to enforce federal law.

Source: Forbes Business

 
 

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