Standing Room Only: Spokeo and the Video Privacy Protection Act

As we’ve discussed before, standing is often a key issue in data-breach litigation.  Standing is also frequently at issue in another type of privacy case: litigation arising from violations of privacy rights created by statute.   

Privacy and consumer protection laws such as the Telephone Consumer Protection Act and the Fair Credit Reporting Act, which create private rights of action and provide for statutory damages, have been a fertile source of consumer class action litigation. The injuries in these cases often consist primarily—or solely—of the violation of rights created by the statute. Defendants frequently seek to dismiss these actions on standing grounds.  They argue that mere violation of a right created by statute does not by itself constitute an injury-in-fact under Article III.

In Spokeo v. Robins the Supreme Court provided some guidance for analyzing these standing challenges. This post examines Perry v. Cable News Network, a recent decision from the Eleventh Circuit that applied Spokeo. Perry involved a class action arising from an iPhone app’s alleged sharing of users’ video-watching history with a third party data analytics company without those users’ consent. The plaintiffs alleged this sharing violated the Video Privacy Protection Act (VPPA).

Statutory Violations and Standing Under Spokeo

In Spokeo, the Supreme Court considered whether the violation of a right created by statute (in that case, the Fair Credit Reporting Act) can, without more, be enough to establish Article III standing in federal court.  

The Supreme Court held that violation of a statutory right may constitute an injury-in-fact sufficient to establish Article III standing, but only if the plaintiff suffers “concrete” harm from that violation. The Supreme Court, however, did not explain precisely how a plaintiff might establish the requisite concreteness in a given case.

The Court did suggest that harm caused by the violation of a statutory right can be concrete—even without a showing of additional harm—where it “has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American Courts.” But a “bare procedural violation,” absent more, would not be sufficient.    

Since Spokeo, defendants in class actions founded on violations of statutorily-created privacy rights have frequently sought to dismiss for lack of standing, with mixed success. 

Streaming Didn’t Kill the Video Privacy Protection Act

In Perry, the statute in question was the VPPA. Subject to certain exceptions, the VPPA prohibits a “video tape service provider” from disclosing consumers’ personally identifiable video rental and sale records. The statute was famously enacted in 1988 in response to a newspaper’s publication of an article discussing Supreme Court nominee Judge Robert H. Bork’s rental history from a Washington, DC videotape rental store.

Although adopted in the VHS era, the statute has also been held to apply to modern-day video streaming services. In that context, the VPPA has been interpreted to prohibit disclosures that tie “specific people to the videos they watch.”

Watching You Watching Me

Perry centered on CNN’s iPhone app, which was available for free download from the iTunes store. The CNN app allowed users to watch recorded CNN video clips and the network’s coverage of live events. According to the complaint, CNN tracked and recorded app users’ viewing activity, and then, without their knowledge or consent, sent the collected records to a data analytics company called Bango. Those records included unique numeric identifiers that corresponded to users’ iPhones, but not the users’ names or other identifying information. Bango would then combine the records received from CNN with data collected from other sources to build a profile of users’ online behavior.

In a single count class action complaint, plaintiff Ryan Perry alleged that CNN’s disclosure of app users’ device identifiers and viewing activity to Bango without their consent violated the VPPA. He sought an injunction, as well as statutory and punitive damages for the violation of his “statutorily-defined right to privacy.”

In a pre-Spokeo decision, the trial court granted CNN’s motion to dismiss. It found after a brief discussion that Perry had standing to sue because he alleged a violation of the VPPA. But the court determined that Perry’s complaint did not state a claim under the VPPA, both because his allegations did not establish that he was a “consumer” under the statute and because the data disclosed by CNN to Bango did not constitute “personally identifiable information.”

Is the violation of a privacy interest in video-viewing history a concrete injury?

The Supreme Court decided Spokeo shortly after the trial court’s dismissal.  On appeal, CNN relied on Spokeo to argue that Perry lacked standing.

In its brief, CNN argued that Perry could not establish injury-in-fact under Spokeo because any violation of the VPPA, standing alone, did not give rise to a “concrete” harm. CNN reasoned that the disclosure of his video-viewing history to Bango did not cause personal embarrassment or damage to his employment prospects. Nor, contended CNN, did that disclosure otherwise resemble a harm that traditionally provided a basis for a lawsuit in English or American courts. 

The Eleventh Circuit disagreed. It explained that the “right of privacy” has been widely recognized by American courts to give individuals an interest in control over their personal information. It noted that the Supreme Court had previously recognized that an individual has an interest in preventing the disclosure of personal information. And it observed that the well-established tort of intrusion upon seclusion subjected defendants to liability for “the intrusion itself,” even without publication or other use of information gleaned through the intrusion.

The court thus concluded that a disclosure of personal information in violation of the VPPA is—even without a showing of additional harm—a concrete injury that can establish Article III standing.  

Although Perry won the standing battle, he ultimately lost the war. The Eleventh Circuit concluded that under an earlier decision in which it had interpreted the VPPA, Perry could not establish that his use of CNN’s free app made him a “consumer” protected by the statute. The court thus affirmed dismissal of Perry’s VPPA claim on that ground.

Lessons from Perry

Despite its affirmance of the dismissal of Perry’s claims, Perry can be viewed as a significant win for the plaintiffs’ bar on the standing front. That’s certainly true for VPPA cases in the Eleventh Circuit.

But the decision will also provide ammunition to plaintiffs seeking to ward off standing-based challenges in cases that allege violations of other privacy statutes. Provided they can credibly show that those statutes protect privacy interests that have been recognized by courts before, Perry’s reasoning would seem to insulate such claims against dismissal for lack of standing.

Author: Alex Pearce

The North Carolina Business Court Hands Down an Important Healthcare Antitrust Decision, Part 1

It is rare that a North Carolina state court hands down a Chapter 75 decision in a “pure” antitrust matter. The North Carolina Business Court, however, recently did just that.  This new decision, moreover, may have far-reaching implications both about who can bring antitrust claims under North Carolina law and how health insurers contract for services with medical providers.

The deciding judge, Judge Michael L. Robinson, himself recognized the importance of the opinion—in fact, Judge Robinson encouraged the defendant, the second-largest public hospital system in the United States, to appeal his decision to the North Carolina Supreme Court immediately!

Insureds Allege Antitrust Injuries from Contracts between Health Insurers and Hospitals

The plaintiffs in Christopher DiCesare, et al. v. The Charlotte Mecklenburg Hospital Authority d/b/a Carolinas HealthCare are individual North Carolinians who purchased health insurance that covers acute hospital services. The plaintiffs brought the action on behalf of a putative class of all North Carolinians that purchased insurance from four particular health insurers since January 1, 2013.

The plaintiffs allege that the defendant, Carolinas HealthCare, maintains a 50% share of the Charlotte-area hospital market.

The plaintiffs accuse Carolinas HealthCare of forcing insurers to enter into service contracts that contain provisions that violate state antitrust law. The plaintiffs allege that the contracts contain “anti-steering” terms that discourage insurers from providing accurate information to their insureds about treatment alternatives to Carolinas HealthCare.

The plaintiffs claim that the anti-steering provisions harm competition because insurers would pay hospitals less if insurers could provide customers with more complete information about customers’ healthcare choices. The plaintiffs further allege that the insurers would pass the savings on to their customers. Ultimately, the plaintiffs contend that individual North Carolinians would pay less for insurance in the absence of the anti-steering contract provisions.

The plaintiffs brought two separate claims: (1) a claim that the contracts constitute an unlawful contract, combination, or conspiracy in restraint of trade in violation of  N.C. Gen. Stat. §§ 75-1, and 75-2; and (2) a claim for monopolization in violation of §§ 75-1.1, 75-2, and 75-2.1.

After the plaintiffs filed an amended complaint, Carolinas HealthCare moved to dismiss for lack of standing. Carolinas HealthCare also moved for judgment on the pleadings as to both antitrust claims. Judge Robinson denied each motion, but issued a single opinion that covered both.

Because of the multiple significant issues that Judge Robinson’s opinion raises, we will divide our analysis into two posts. In our first post, we will discuss Judge Robinson’s determination that the plaintiffs have standing to bring their antitrust claims. In our second post, we will discuss the court’s analysis of the substantive antitrust claims.

The Plaintiffs Have Standing to Bring Antitrust Claims

In its motion to dismiss, Carolinas HealthCare argued that the plaintiffs lacked standing because they did not allege that they had received services directly from Carolinas HealthCare.  Carolinas HealthCare posited that the plaintiffs’ alleged injuries, which primarily related to the price that the plaintiffs paid for insurance coverage, were too attenuated to give the plaintiffs standing. 

In general, federal antitrust law allows only direct purchasers in the supply chain standing to bring antitrust claims for damages. The United States Supreme Court has ruled, however, that the general prohibition on “indirect-purchaser” standing under federal antitrust law does not categorically restrict indirect purchasers from bringing state antitrust claims.

In a seminal case, the North Carolina Court of Appeals ruled that indirect purchasers could bring antitrust claims under North Carolina law.  The North Carolina Business Court subsequently tried to define the scope of indirect-purchaser standing by developing a multi-factor test to determine when an indirect-purchaser injury was too remote or otherwise too difficult to prove to convey standing.

In Teague v. Bayer AG, the North Carolina Court of Appeals rejected the Business Court’s test.  The Teague court held that N.C. Gen. Stat. § 75-16, which controls standing in all Chapter 75 cases, should be read liberally to allow indirect-purchaser standing.

The North Carolina Supreme Court has never waded in on this precise issue. In one case, decided after Teague, the Supreme Court appeared to endorse the Court of Appeals’s broad interpretation of § 75-16, but that decision did not address indirect-purchaser standing in an antitrust case.

Carolinas HealthCare argued that the individual plaintiffs lacked standing because the insurers, not Carolinas HealthCare, set the prices for their insurance policies. Carolinas HealthCare argued that the plaintiffs could not demonstrate that the anti-steering provisions caused higher insurance premiums; in turn, any injury allegedly caused to the insureds was too speculative to convey standing.

The Business Court Rejects that the Alleged Injury to Insureds Is Too Speculative

Judge Robinson rejected Carolinas HealthCare’s argument. He determined that Teague is controlling precedent and that Teague did not require the plaintiffs “at the pleading stage to prove a causal chain between the Hospital’s challenged conduct and [p]laintiffs’ alleged injury.” Judge Robinson also expressly rejected the applicability of the Business Court’s prior multi-factor standing test. He also noted that the North Carolina Supreme Court has not spoken on the precise issue of indirect-purchaser standing.

Judge Robinson expressed concern, however, that healthcare and the health insurance industry are very important to society and the economy. He recognized that, even though the plaintiffs adequately pleaded standing, they would ultimately have to prove injury-in-fact and causation. Judge Robinson speculated that such an undertaking would involve burdensome, time-consuming, and expensive discovery.

In light of his concerns, Judge Robinson took the extraordinary step of encouraging Carolinas HealthCare to seek immediate review of his decision to the North Carolina Supreme Court. He went so far as to offer that he would stay all trial-court proceedings while the Supreme Court considered the appeal.

Judge Robinson’s decision is certainly not the last word on indirect-purchaser standing. Whether the North Carolina Supreme Court will weigh in now, or somewhere down the line, is anyone’s guess. As of the time that this post went to press, Carolinas HealthCare had not noticed an appeal or applied for a writ to the Supreme Court to hear the case interlocutory. The time for Carolinas HealthCare to do so, however, has not yet run. 

In our next post, we will discuss how Judge Robinson decided the substantive antitrust claims.

Author: George Sanderson

Section 75-1.1 Claims and Conduct by Government Employees

A recent decision of the North Carolina Court of Appeals highlights an unusual issue:  Does N.C. Gen. Stat. § 75-1.1 apply to conduct by a government employee in a claim brought by his employer, a government entity?

In County of Harnett v. Rogers, Harnett County accused a former employee of obstructing various public-utility projects. The trial court granted offensive summary judgment in the County’s favor on its claim against the former employee, Randy Rogers, for violation of section 75-1.1.

On appeal, Rogers argued that section 75-1.1 does not apply to disputes involving a government entity and one of its employees. In response, the County argued that section 75-1.1 applies to any conduct that affects commerce and that Rogers’s conduct affected commerce.

This post studies how the Court of Appeals resolved these competing arguments.

Making a Mess of Sewer Line Projects

Rogers served as a right-of-way agent for the Harnett County Department of Public Utilities. In that job, Rogers acquired easements for water and sewer lines in connection with public-utility projects.

In 2010 and 2011, the County experienced problems acquiring easements on certain projects. Those problems caused delays, and those delays cost the County money. The County ultimately hired a law firm to investigate potential corruption within the department.

The investigation concluded that Rogers caused some of the issues related to the easements. Unsurprisingly, the County fired Rogers. The County then found a flash drive and County-issued laptop that contained hundreds of hours of audio recordings that Rogers surreptitiously recorded. The recordings confirmed that Rogers had stolen documents from the County and had attempted to sabotage certain projects.

The County sued Rogers for fraud and violation of section 75-1.1. The trial court granted the County’s motion for summary judgment on these claims.

Does the Nature of Employee Interactions Determine Section 75-1.1 Liability?

In his opening brief, Rogers argued that section 75-1.1 does not apply to disputes involving a governmental entity and one of its employees. Rogers emphasized that the General Assembly enacted section 75-1.1 to protect consumers against unfair and deceptive business practices. Allowing the government to sue private citizens under section 75-1.1, Rogers wrote, would be “an exponential expansion” of government power.

The County responded by citing cases in which our appellate courts have allowed a government entity to sue for violations of section 75-1.1. The County cited Marshall v. Miller, a 1981 decision in which the North Carolina Supreme Court wrote that the scope of section 75-1.1 does not change based on whether the plaintiff is public or private. The County also cited F. Ray Moore Oil Co. v. State, a 1986 decision of the Court of Appeals holding that the State can sue under N.C. Gen. Stat. § 75-16.

The County also argued that the operation and maintenance of water and sewer lines is a proprietary function, not a governmental function, and that the County competed with private enterprise in performing that function. According to the County, this point showed that Rogers’s conduct to obstruct this proprietary function affected commerce and therefore fell within the ambit of section 75-1.1.

In its decision, however, the Court of Appeals started with a different standard than those presented in the parties’ briefs: it instructed that section 75-1.1 applies to conduct that occurs in interactions between businesses and between businesses and consumers.

The Court of Appeals then assessed whether Rogers’s conduct fell within either category of interactions.

The Court reasoned that, when Rogers made false statements to the County, those statements could not be characterized as interactions between market participants. Instead, those statements should be characterized as conduct internal to a business—conduct that section 75-1.1 does not cover.

Rogers’s bad conduct, however, extended beyond misrepresentations to his employer. He also made misrepresentations to a project engineer and to a consulting firm involved with the projects, and he met with property owners to undermine the completion of many projects.

The Court of Appeals concluded that these interactions with persons and entities other than the County fell within the conduct covered by section 75-1.1. According to the Court of Appeals, this conduct was closer in nature to the “buyer-seller relations” that fall within section 75-1.1’s purview.

In reaching this conclusion, the Court of Appeals cited to the North Carolina Supreme Court’s decision in Sara Lee Corp. v. Carter. In Sara Lee, a corporate employee engaged in self-dealing when he developed separate businesses that supplied his employer with computer parts and services at high costs—all concealed from his employer. The Supreme Court held that section 75-1.1 applied to the employee’s conduct because the conduct concerned a buyer-seller transaction.

According to the Court of Appeals, Rogers’s conduct with individuals and entities other than his employer was comparable to the conduct of the employee in Sara Lee.

Finally, the Court of Appeals clarified its ruling by noting that Rogers’s failure to obtain easements from property owners does not violate section 75-1.1. The Court reasoned that the failure to act is not, by definition, a “dealing” of any sort.

Potential Reverberations

The Rogers decision raises substantial questions about the interpretation and application of section 75-1.1.

In particular, the decision appears to interpret Sara Lee to extend the scope of section 75-1.1 to employee conduct with a third party, even if the employee does not actually transact business with the third party. In Sara Lee, the defendant-employee transferred corporate funds to his own business. In contrast, the defendant-employee in Rogers did not buy from or sell to a third party.

For a few reasons, however, the lasting effects of Rogers are unclear.

First, the Court of Appeals reversed summary judgment on the County’s fraud claim because of genuine issues of material fact. The Court, in turn, reversed summary judgment on the 75-1.1 claim itself because that claim rested on the same facts as the fraud claim. Thus, for the case to have a continuing appellate heartbeat, it will likely need to survive another trial and reach the Court of Appeals again.

Second, the Court of Appeals designated Rogers as an unpublished decision. This designation does not stop a party from arguing that the reasoning in Rogers is persuasive, but Rogers is not controlling legal authority.

Third, as we have seen, the North Carolina Business Court has issued several opinions that draw the line on what conduct by a former employee can violate section 75-1.1. Decisions of the Business Court must now be appealed directly to the North Carolina Supreme Court. Thus, the next definitive—and controlling—word on this important area of 75-1.1 jurisprudence might well come from the Supreme Court.

Author: Stephen Feldman