The Laboratorium (3d ser.)

A blog by James Grimmelmann

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A Pyrrhic Loss

Two years ago, I posted about a troubling class-action settlement in Berry v. LexisNexis Risk & Information Analytics Group. The suit alleged that Lexis violated the Fair Credit Reporting Act with a product called Accurint; the settlement worried me because it gave Lexis prospective immunity from the FCRA for a new and different product called Contact and Locate. As I explained in Future Conduct and the Limits of Class-Action Settlements, such forward-looking future-conduct releases are dangerous six ways from Sunday. Just like in the (fortunately rejected) Google Books settlement, they give defendants official court approval to do things that can blatantly violate class members’ rights in new and unprecedented ways.

One year ago, I filed an amicus brief in a appeal of the case to the Fourth Circuit. Together with an outstanding team from Brown Goldstein Levy, I argued that the settlement’s blanket go-ahead for Contact and Locate went beyond what the trial court could legitimately have approved.

Today, the Fourth Circuit rejected our argument and affirmed the approval of the settlement. But I’m still happy about the result. Let me explain.

The brief’s argument, in a nutshell, was the following:

  1. A class-action settlement that releases claims based on the defendant’s future conduct is impermissible if that future conduct is different in kind than the past conduct the defendant is being sued for.
  2. Under the proposed settlement in Berry, Contact and Locate (the future product) could be a substantially different product than Accurint (the past product).
  3. Therefore, the settlement in Berry is impermissible.

True, the Fourth Circuit rejected our conclusion and allowed the settlement, but it did so by rejecting our minor premise (about the facts in Berry) rather than our major premise (about the law of class-action settlements). In the passage that matters most to me, Judge Harris wrote:

According to the Objectors, the upshot is that Lexis has carte blanche to develop Contact & Locate into a product that is indeed a “consumer report” under the FCRA, while class members, bound by their stipulation, will be unable to respond.

We think that significantly overstates Lexis’s freedom under the Agreement. It is true that the Agreement provides Lexis the discretion it needs to develop Contact & Locate according to market needs. But as the district court explained, it also sets boundaries for the design and implementation of Contact & Locate, which assure that the product cannot operate as a “consumer report” for purposes of the FCRA. Under the Agreement, for instance, Contact & Locate may include only information that does not contain any of the “seven characteristic” consumer information covered by the FCRA. J.A. 121; Berry, 2014 WL 4403524, at *4. And in the section of the Agreement labeled the “Rule 23(b)(2) Settlement Class Release,” J.A. 129, the parties clarify that their agreement is only that the “Post Settlement Products” (of which Contact & Locate is one) “shall not be ‘consumer reports’ within the meaning of the FCRA _so long as [they] are not used in whole or in part as a factor in determining eligibility for credit_” or any other purpose that could qualify them as consumer reports. J.A. 132-33 (emphasis added). Under that provision, Lexis has no free pass from FCRA liability; instead, the Agreement applies only so long as Contact & Locate remains true to the parties’ intent and is not used in a manner that would make it a “consumer report.”

… Contact & Locate is a new name, but it is a new name for what is essentially a scaled-down version of the old Accurint reports, without the features that allegedly made Accurint troublesome under the FCRA. In class action settlements, parties may release not only the very claims raised in their cases, but also claims arising out of the “identical factual predicate.” See, e.g., In re Literary Works in Elec. Databases Copyright Litig., 654 F.3d 242, 248 (2d Cir. 2011). Although the name of the product has changed, now, as before, Lexis attempts only to sell information that will enable debt collectors to locate assets, and not information to be used for credit eligibility determinations. Because the (b)(2) Class can release claims against Accurint, it can do so for Contact & Locate, as well.

This is not how I read the settlement agreement; I think it was written to give Lexis much more freedom of maneuver than the Fourth Circuit now says it has. But my reading, right or wrong, doesn’t matter any more; the Fourth Circuit’s construction will control, and the Fourth Circuit says that Lexis is tightly circumscribed in what it can do with Contact & Locate. So on one way of looking at things, Judge Harris and her colleagues gave the settlement a narrowing construction to eliminate a potential obstacle to it – a narrowing construction that mostly fixes the thing I was worried about in it.

On the bigger issue – the law of future-conduct releases – Judge Harris’s opinion broke no new ground, but was precisely correct in what it said. Judge Harris applied the identical factual predicate test in exactly the way I think it ought to be applied, explaining, “Contact & Locate is a new name, but it is a new name for what is essentially a scaled-down version of the old Accurint reports.” So in future cases raising similar issues, Berry will stand for the right proposition: a settlement can include releases for less extreme future conduct by the defendant, but not for more extreme future conduct.

If this is what it feels like to lose, I’ll take more losses, please.