Trial Lawyer’s Version of a Tax Refund? SCOTUS Says No to Class Action Against Feds

Nov 14, 2012

Photographer: Chris Kleponis/Bloomberg.

A frivolous class action brought against the federal government demanding oodles in damages from federal coffers? Call it the trial lawyers’ version of a tax refund.

Sheldon Gilbert blogged recently about the host of U.S. Supreme Court cases this term that are addressing class action issues of paramount interest to the business community – but a class action lawsuit against the federal government is one you might have missed. Yesterday the U.S. Supreme Court put the brakes on a lawyer’s attempt to bring a class action under the Fair Credit Reporting Act (FCRA) against the federal government. The case is U.S. v. Bormes.

Recently, businesses large and small have been the targets of nearly identical class action lawsuits alleging “receipt mistakes” – basically, inadvertent displays of the last four digits of a credit card number, along with the expiration date. The U.S. Chamber’s public policy law firm, the National Chamber Litigation Center, filed an amicus brief in just such a case back in 2008, and the U.S. Chamber supported legislation that mooted more than 500 class action lawsuits that were filed nationwide against retailers, restaurants, and other businesses and put them at risk for billions of dollars in damages. It’s important to note that the vast majority of those lawsuits never even alleged that consumers suffered any harm from the receipt mistakes.

In the case decided by the Supreme Court yesterday, the receipt in question was an electronic receipt from the government’s electronic payment website, Pay.gov – a receipt from, ironically, the lawyer’s payment of filing fees for a federal lawsuit. After seeing the mistake on his receipt, the lawyer-plaintiff sued the federal government.

Because the federal government is by default immune to civil suit unless it waives its sovereign immunity, he claimed, the federal government had waived its immunity in FCRA. A unanimous Supreme Court disagreed, and instead ruled that the federal government had not waived “sovereign immunity” under FCRA. The case has been returned back to the lower courts. 

Unlike the federal government, businesses don’t get to choose what claims they can be sued for.  The Supreme Court is addressing a number of “bet-the-business” class action cases this Term. These cases present fundamental issues about just how easy it will be for plaintiffs to “certify” class actions. Gilbert explained,  

Plaintiffs’ lawyers know that getting a blockbuster class action certified is 99% of the game, because once certified, businesses large and small face immense pressure to settle even the most frivolous class action rather than bet the business. As a result, billions of dollars are spent settling class actions each year – much of which ends up in trial lawyers’ pockets.

Hopefully yesterday’s ruling is an indication that the Supreme Court has a low tolerance level for frivolous class actions.

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