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Gillison v. Lead Express, Inc.

United States District Court, E.D. Virginia, Richmond Division

March 30, 2017

FELIX GILLISON, JR., et al, Plaintiffs,
LEAD EXPRESS, INC., et al., Defendants.



         This matter comes before the Court on two motions: (1) Defendants Lead Express, Inc. and Takehisa Naito's (the "Defendants") Motion to Dismiss Second Amended Complaint for Lack of Subject-Matter Jurisdiction, Personal Jurisdiction and Improper Venue, or, Alternatively, to Transfer Venue (the "Motion to Dismiss"), (ECF No. 26); and, (2) Plaintiffs Felix Gillison, Jr. and Dawn Mays-Johnson's (the "Plaintiffs") Motion for Permission to Take Jurisdiction-Related Discovery, (ECF No. 31). As the basis for the Motion to Dismiss, the Defendants invoke Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(3).[1] The Plaintiffs bring the Motion for Permission to Take Jurisdiction-Related Discovery pursuant to case law that permits limited discovery in response to Rule 12(b)(2) motions. The Plaintiffs have responded to the Motion to Dismiss, (ECF No. 30), and the Defendants have replied, (ECF No. 35). The Defendants have responded to the Motion for Permission to Take Jurisdiction-Related Discovery, (ECF No. 36), and the Plaintiffs have replied, (ECF No. 39).

         The Court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. Accordingly, the matters are ripe for disposition. The Court exercises jurisdiction pursuant to 28U.S.C. §1331.[2] For the reasons that follow, the Court will: (1) grant the Motion to Dismiss; and, (2) deny the Motion for Permission to Take Jurisdiction-Related Discovery without prejudice.[3]

         I. Procedural and Factual Background A. Procedural Background

         The Plaintiffs assert two related class claims against the Defendants: (1) a violation of 15 U.S.C. § 1681b(f) ("Count One");[4] and, (2) a violation of 15 U.S.C. § 1681q ("Count Two").[5] The Plaintiffs allege that the Defendants' violations entitle each consumer to statutory damages under § 1681n(a) between $100 and $1, 000.[6]

         After the Plaintiffs filed their Second Amended Complaint, the Defendants moved to dismiss it under three separate theories: (1) lack of subject-matter jurisdiction because the Plaintiffs do not have standing to bring this lawsuit; (2) lack of personal jurisdiction; and, (3) improper venue. Alternatively, the Defendants request that the Court transfer venue to the United States District Court for the Central District of California.

         Before briefing on the Motion to Dismiss concluded, the Plaintiffs filed the Motion for Permission to Take Jurisdiction-Related Discovery. The Plaintiffs request that, in the event the Court finds that the Plaintiffs have not established personal jurisdiction, the Court permit the parties to conduct discovery for 90 days. The Plaintiffs have responded to the Motion to Dismiss, and the Defendants have responded to the Motion for Permission to Take Jurisdiction-Related Discovery. Both parties have filed their respective reply briefs.

         B. Factual Background[7]

         This case arises out of a purported "sham business operation" orchestrated by Lead Express and its principal and alter ego, Takehisa Naito.[8] (Second Am. Compl. ¶¶ 2, 40.) Lead Express obtains millions of consumer reports on consumers with whom it has no relationship. According to the Plaintiffs, because Lead Express has no relationship with these consumers, it obtains reports without a permissible purpose, in violation of 15 U.S.C. § 1681b(f).[9] The Plaintiffs also assert that Lead Express obtained the consumer reports under false pretenses, by alleging that it was the "end user" of the reports. (Id. ¶ 16.)

         The Plaintiffs represent some of the thousands of consumers whose consumer reports Lead Express obtained from Clarity Service, Inc. ("Clarity"), "a nontraditional consumer-reporting agency that specializes in assembling subprime consumer data." (Id. ¶ 12.) "Unlike traditional consumer-reporting agencies, most of Clarity's major customers did not buy its data to determine if a loan applicant would pay his or her bills." (Id. ¶ 13.) Rather, companies like Lead Express secretly purchase Clarity's consumer reports for the purpose of targeting vulnerable customers who may have interest in high-interest loans. By using Clarity, the Defendants could bypass Experian's more stringent credentialing and conceal the role of La Posta Tribal Lending Enterprise ("La Posta Lending")[10] in offering these loans. Such practices also make it more difficult for consumers to know who obtained their report.

         The Plaintiffs allege that Clarity obtained their consumer reports from Experian and sold them to Lead Express, who would "purportedly" utilize the information to evaluate consumers for loans. (Id. ¶ 15.) In accordance with this practice, Lead Express executed an "end user" agreement with Clarity, in which Lead Express represented that it constituted the "end user" of the consumer reports.[11] (Id. ¶ 16.) Lead Express then obtained consumer reports from Clarity, including more than 30, 000 consumer reports on Virginia consumers during a five-year period. The purpose of obtaining these reports was to target Virginia consumers for high-interest loans. Lead Express obtained Gillison's consumer report on January 17, 2014, and Mays-Johnson's report on May 8, 2015, in order to market high-interest loans to them.

         In spite of Lead Express's certification that it was the "end user" of the consumer reports, Lead Express never provided a "firm offer of credit" to the Plaintiffs, and the Plaintiffs never applied for credit with Lead Express or authorized Lead Express to pull their reports.[12] (Id. ¶ 23.) Rather, Lead Express purchased the consumer data "in order to obtain leads on potential consumers who may be interested in high-interest loans"-data an affiliate company would use to offer loans to consumers. (Id. ¶¶ 25-26.) Accordingly, the Plaintiffs contend, Lead Express "lacked a permissible purpose to obtain [the] Plaintiffs' consumer reports." (Id. ¶¶ 23, 27.)

         II. Analysis: Motion to Dismiss

         The Defendants bring the Motion to Dismiss under three theories: (1) the Plaintiffs lack standing to bring this lawsuit following the Supreme Court of the United States' decision in Spokeo; (2) the Court lacks personal jurisdiction over the Defendants; and, (3) venue in this Court is improper. Alternatively, the Defendants request that the Court transfer venue to the United States District Court for the Central District of California. In the event the Court finds dismissal appropriate for lack of personal jurisdiction, the Plaintiffs have asked that the Court permit the parties to conduct discovery for 90 days. For the reasons that follow, the Court will grant the Motion to Dismiss for lack of personal jurisdiction. The Court will deny the Motion for Permission to Take Jurisdiction-Related Discovery without prejudice, and order the parties to submit supplemental briefing regarding the jurisdictional discovery request.

         A. The Court Will Deny the Motion to Dismiss for Lack of Standing

         The Defendants anchor their subject-matter jurisdiction argument in the contention that the Plaintiffs lack standing under Article III of the Constitution of the United States.[13] In Spokeo, the Supreme Court discussed the manner in which a plaintiff must allege "injury in fact" in order to establish standing for what courts call a "statutory violation" resulting in an "informational injury." Relying on Spokeo, the Defendants contend that the Plaintiffs' allegations in the Second Amended Complaint fail to set forth any "concrete" injury in fact caused by the alleged statutory violation. The Plaintiffs dispute that assertion, arguing that, even after Spokeo, an "informational injury" may be both particularized and concrete.

         The Court offers background regarding Article III standing, and what could constitute an injury in fact under Spokeo, to explain why it finds that the Plaintiffs have standing to bring this suit.

         1. The Three-Part Test Used to Evaluate Article III Standing

         Federal district courts are courts of limited subject-matter jurisdiction. United States ex ret Vuyyuru v. Jadhav, 555 F.3d 337, 347 (4th Cir. 2009) (citing Exxon Mobile Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005)). This Court must, as a result, determine whether it has jurisdiction over the claims at issue. See Steel Co. v. Citizens for a Better Env 't, 523 U.S. 83, 94-95 (1998) ("The requirement that jurisdiction be established as a threshold matter 'spring[s] from the nature and limits of the judicial power of the United States' and is 'inflexible and without exception.'") (quoting Mansfield, C. & L.M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884)). "The objection that a federal court lacks subject-matter jurisdiction ... may be raised by a party, or by a court on its own initiative, at any stage in the litigation" Arbaugh v. Y&H Corp., 546 U.S. 500, 506 (2006) (citing Fed.R.Civ.P. 12(b)(1)).

         The United States Constitution limits federal court jurisdiction to "Cases" and "Controversies." U.S. Const, art. Ill. § 2, cl. 1. As the Supreme Court has explained, an "essential and unchanging part of the case-or-controversy requirement" is that a plaintiff must establish Article III standing to sue. Lujan, 504 U.S. at 560. In Spokeo, the Supreme Court reiterated that, in order to establish standing, a plaintiff must have: "(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant;[14] and[J (3) that is likely to be redressed by a favorable judicial decision.[15]" 136 S.Ct. at 1547 (citing Lujan, 504 U.S. at 560-61).

         As the party invoking federal jurisdiction, the Plaintiffs bear the burden of properly alleging standing. Lujan, 504 U.S. at 560; see also Balzer & Assoc, Inc. v. Union Bank & Trust, 3:09cv273, 2009 WL 1675707, at *2 (E.D. Va. June 15, 2009) ("On a motion to dismiss pursuant to Rule 12(b)(1), the party asserting jurisdiction has the burden of proving subject matter jurisdiction." (citing Richmond, Fredericksburg & Potomac R.R. v. United States, 945 F.2d 764, 768 (4th Cir. 1991)). "Where, as here, a case is at the pleading stage, the plaintiff must 'clearly ... allege facts demonstrating' each element." Spokeo, 136 S.Ct. at 1547 (quoting Worth v. Seldin, 422 U.S. 490, 518 (1975)).

         On the issue of subject-matter jurisdiction, the parties here dispute only whether, post-Spokeo, the Plaintiffs allege an injury in fact. In a different context, this Court already has found that Spokeo refined, but did not redefine, the injury-in-fact analysis. See, e.g., Clark v. Trans Union, LLC, No. 3:15cv391, 2016 WL 7197391 (E.D. Va. Dec. 9, 2016) (finding that plaintiff alleged standing on 15 U.S.C. § 1681g(a)(2) claim).[16] The Plaintiffs present an even stronger argument for establishing standing on their §§ 1681b(f) and 1681 q claims. As other courts in the Eastern District of Virginia have explained, not only has Congress defined the invasion of one's privacy as an injury in fact, but courts traditionally have recognized statutory violations rooted in privacy invasions as a basis for suit. See, e.g., Thomas v. FTS USA, LLC, 193 F.Supp.3d. 623, 637 (E.D. Va. 2016) (finding that plaintiff asserted standing under §§ 1681b(b)(2) and 1681b(b)(3));[17] see also Gambles v. SterlingInfosystems, Inc., No. 15 CIV. 9746, 2017 WL 589130, at *10 (S.D.N.Y. Feb. 13, 2017) (finding that plaintiff asserted standing under 15 U.S.C. §§ 1681c(a) & 1681e(b)).[18] Thus, the Plaintiffs' claims survive Spokeo.

         2. Standard to Demonstrate an Injury in Fact Yost-Spokeo

In Spokeo, the plaintiff, Thomas Robins, brought suit under the FCRA against Spokeo, a company that operates a people search engine. 136 S.Ct. at 1544, 1554. Robins invoked 15 U.S.C. § 1681(e), alleging that Spokeo failed to "follow reasonable procedures to assure maximum accuracy of consumer reports" when, while he was out of work, it incorrectly profiled his age, marital status, education degree, and employment status. Id While ruling, the Supreme Court confirmed that, in order to establish an injury in fact, a plaintiff must demonstrate that he or she suffered "'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical."' Id. at 1548 (quoting Lujan, 504 U.S. at 560). The Supreme Court found that the United States Court of Appeals for the Ninth Circuit improperly "elided" the concreteness requirement. Id Because the Ninth Circuit addressed only the "particularization" aspect of the test, the Supreme Court remanded the case for further proceedings. Id. at 1550. In so finding, the Spokeo court defined both terms with specificity.

         First, for an injury to be "particularized, " the Court found that it "'must affect the plaintiff in a personal and individual way."' Id. at 1548 (citing Lujan, 504 U.S. at 560 n.1). Thus, an "undifferentiated, generalized grievance" that all citizens share would not qualify as particularized. Lance v. Coffinan, 549 U.S. 437, 442 (2007). "[T]he fact that an injury may be suffered by a large number of people, " however, "does not of itself make that injury a nonjusticiable generalized grievance." Spokeo, 136 S.Ct. at 1548 n.7. The proper inquiry is whether "each individual suffers a particularized harm." Id

         Second, the Spokeo Court stated that for an injury to be "concrete, " it must be "de facto, " meaning that it must be "real, " and not "abstract." Spokeo, 136 S.Ct. at 1548. That said, an injury need not be "tangible" in order to be "concrete." Id. at 1549. An intangible injury may qualify as an injury in fact. Id. In evaluating whether an intangible injury satisfies the "concreteness" requirement, the Supreme Court reiterated two important considerations: (1) history, which may reveal "whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts"; and, (2) the judgment of Congress, which "'has the power to define injuries and articulate chains of causation that will give rise to a case or controversy where none existed before.'"[19] Id. (quoting Lujan, 504 U.S. at 580 (Kennedy, J., concurring in part and concurring in judgment)).

         3. Yost-Spokeo, the Plaintiffs Retain Standing to Pursue Their Claims Under 15 U.S.C. §§ 1681b(f) and 1681q

         Here, the Court must determine whether, by alleging violations of 15 U.S.C. §§ 1681b(f) and 1681q, the Plaintiffs demonstrate an "invasion of a legally and protected interest' that is 'concrete and particularized."' Spokeo, 136 S.Ct. at 1548 (quoting Lujan, 504 U.S. at 560). At the core of the Plaintiffs' claims lies an invasion of privacy caused by an impermissible procurement of their consumer reports. Guided by Spokeo*s refined injury-in-fact requirement, the Court must consider: (1) the history of this alleged harm to determine if it has a close relationship to a harm that has traditionally provided a basis for suit; and, (2) the judgment of Congress. Applying either of the two considerations set forth in Spokeo, this Court concludes that the Plaintiffs have standing.

         The Plaintiffs can establish standing on Spokeo's first inquiry, which asks whether they allege a harm closely related to a harm that has traditionally provided a basis for suit. A significant history exists, including at common law, of lawsuits based on the unauthorized disclosure of a person's private information. The Supreme Court has described private information as information not freely available to the public or information that is intended for or restricted to particular people. See U.S. Dep 't of Justice v. Reporters Comm. for Freedom of Press, 489 U.S. 749, 763 (1989). The Supreme Court has noted that the "common law and literal understandings of privacy encompass" protection of a person's private information. Id.

         As explained in this District, "it has long been the case that an unauthorized dissemination of one's personal information, even without a showing of actual damages, is an invasion of one's privacy that constitutes a concrete injury sufficient to confer standing to sue." Thomas, 193 F.Supp.3d at 636 (citing Samuel D. Warren & Louis D. Brandeis, The Right to Privacy, 4 Harv. L. Rev. 193 (1890)). As a result, "it is well-settled that Congress may create a statutory right to privacy in certain information that strengthens or replaces the common law, and citizens whose statutory right to informational privacy has been invaded may bring suit under the statute to vindicate that right." Id. (citing 18 U.S.C. § 2707(c) (authorizing statutory damages for violations of the Electronic Communications Privacy Act of 1986)); 12 U.S.C. § 3417 (statutory damages available under the Right to Financial Privacy Act); 18 U.S.C. § 2710(c)(1) (establishing a private right of action under the Video Privacy Protection Act)); see also Gambles, 2017 WL 589130, at *9 (same).

         Here, the Plaintiffs allege that the Defendants invaded their statutory right to the confidentiality of their personal information by obtaining their consumer reports without authorization, see 15 U.S.C. § 1681b(f), and under false pretenses, see Id. § 1681q. Such unauthorized acquisitions of personal information would constitute invasions of privacy that qualify as concrete injuries sufficient to confer Article III standing. See Thomas, 193 F.Supp.3d. at 637; Gambles, 2017 WL 589130, at *10.

         In addition to the history of claims rooted in the invasion of privacy, the Plaintiffs can establish standing on Spokeo's second consideration, which requires courts to turn to the judgment of Congress. The purpose of the FCRA indicates that Congress intended to identify and permit relief at law for the harms that the Plaintiffs allege. This Court looked to the underlying purpose of the FCRA when finding standing in Clark, as did the Honorable Robert E. Payne, United States District Judge, in Thomas. "Congress enacted FCRA in 1970 out of concerns about abuses in the consumer reporting industry." Dalton v. Capital Associated Indus., Inc., 257 F.3d 409, 414 (4th Cir. 2001). Specifically, Congress intended to address developments in "computer technology [that] facilitated the storage and interchange of information" and "open[ed] the possibility of a nationwide data bank covering every citizen." S. Rep. No. 517, 91st Cong., 1st Sess. 2 (1969) ("Senate Report"). As remarked by one member of Congress, "with the trend toward ... the establishment of all sorts of computerized data banks, the individual is in great danger of having his life and character reduced to impersonal 'blips' and key-punch holes in a stolid and unthinking machine which can literally ruin his [or her] reputation without cause, and make him [or her] unemployable." 116 Cong. Rec. 36570 (1970).

         Because of these "computerized data banks, " Congress "found that in too many instances agencies were reporting inaccurate information that was adversely affecting the ability of individuals to obtain employment." Dalton, 257 F.3d at 414. Congress, in turn, sought "to prevent consumers from being unjustly damaged because of inaccurate or arbitrary information, " and "to prevent an undue invasion of the individual's right of privacy in the collection and dissemination of credit information." Senate Report at 1 (emphasis added). Ultimately, the FCRA reflects congressional recognition of the "need to insure that consumer reporting agencies exercise their grave responsibilities with fairness, impartiality, and a respect for the consumer's right to privacy" 15 U.S.C. § 1681(a)(4) (emphasis added); see also Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 52 (2007) ("Congress enacted FCRA in 1970 to ensure fair and accurate credit reporting ... and protect consumer privacy." (emphasis added)).

         In the FCRA, Congress has specifically provided that a consumer has protection from the unauthorized acquisition of his or her consumer report by another. 15 U.S.C. § 1681b(f). Congress has also prohibited the gathering of information about a consumer under false pretenses. Id. § 1681 q. As such, in Congress's legislative judgment, where consumer information is obtained in an unauthorized manner, especially under false pretenses, the consumer suffers the violation of his or her right to privacy. See Spokeo, 136 S.Ct. at 1549 (noting the importance of legislative judgment to the standing analysis); Havens Realty Corp. v. Coleman, 455 U.S. 363, 373 (1982) (same).[20] Accordingly, a consumer who alleges that a defendant has obtained his or her personal information without authorization, like the Plaintiffs here, has alleged a concrete informational injury.[21] Having found that the Plaintiffs have standing, the Court turns to the Defendants' personal-jurisdiction challenge.

         B. The Court Will Grant the Motion to Dismiss for Lack of Personal Jurisdiction

         The Court will grant the Motion to Dismiss because the Plaintiffs cannot make a prima facie showing of personal jurisdiction. The Plaintiffs allege that this Court has personal jurisdiction over the Defendants because, by obtaining more than 30, 000 consumer reports of Virginia residents without authorization, the Defendants purposefully availed themselves of the privilege of conducting activities in Virginia. The Court cannot find that such contacts, even construed in the light most favorable to the Plaintiffs, suffice to establish specific personal jurisdiction.[22]

         1. The Plaintiffs Bear the Burden of Proving ...

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