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Hillson v. Kelly Services, Inc.

United States District Court, E.D. Michigan, Southern Division

January 23, 2017

LASANDRA HILLSON, STEVEN BOHLER, and ASHLEY SCHMIDT, individually and as proposed representatives of a class, Plaintiffs,
v.
KELLY SERVICES INC., Defendant.

          Anthony P. Patti, Magistrate Judge

          OPINION AND ORDER PRELIMINARILY APPROVING SETTLEMENT AGREEMENT AND PRELIMINARILY CERTIFYING SETTLEMENT CLASS

          LAURIE J. MICHELSON U.S. DISTRICT JUDGE

         Plaintiffs Lasandra Hillson, Steven Bohler, and Ashley Schmidt claim that Defendant Kelly Services, Inc. violated the Fair Credit Reporting Act. When Plaintiffs applied for jobs Kelly offered, they received a form disclosing that Kelly might run a background check to assess their employability. But, say Plaintiffs, this form included additional information that violated the FCRA's requirement that the disclosure be in a stand-alone document. Plaintiffs also maintain that there are about 220, 000 individuals who received a virtually identical disclosure form when they applied for Kelly jobs. Plaintiffs seek to represent this class of individuals.

         Following some formal discovery, two mediation sessions (with two retired federal judges), and additional negotiations, Plaintiffs and Kelly have settled their dispute. As the parties' settlement would bind not only them but any of the 220, 000 individuals who do not opt out, the law requires this Court to both certify the proposed class and determine that the settlement is fair to the class. As a first step, Plaintiffs ask this Court to preliminarily certify the class for settlement purposes and to preliminarily approve the settlement. (R. 37.) Kelly does not oppose Plaintiffs' motion. (See R. 37.) Having studied the briefing and associated law, and having heard oral argument, the Court preliminarily finds that the parties' settlement is fair and preliminarily certifies Plaintiffs' proposed class.

         I.

         A.

         In 2012 and 2013, Plaintiffs Hillson, Bohler, and Schmidt each applied for a job offered by Defendant Kelly Services. (R. 2, PID 22-24.) Their application packets included a document titled “Background Screening Notice, Disclosure, and Authorization.” (R. 2, PID 23.)

         As its name suggests, the form included a disclosure and sought the applicant's authorization. Regarding the disclosure, the form read in part, “Kelly may request consumer reports and/or investigative consumer reports (collectively ‘consumer reports') in connection with my application for employment or at any time during my employment in accordance with all applicable laws. These reports may include information bearing on my character, general reputation, personal characteristics or mode of living.” (R. 2, PID 32.) As for the authorization, the form stated: “I have read this Background Screening Notice, Disclosure, and Authorization, I understand it, and I agree to its terms.” (See R. 2, PID 32.)

         Although the disclosure and authorization comprised the bulk of the one-page form, the form included two additional sentences. (See R. 2, PID 32.) One was a waiver: “To the fullest extent permitted by law, I release Kelly, its employees, agents, successor and assigns, from any and all claims, actions or liability whatsoever that are in any way related to the procurement of a consumer report about me, or any subsequent investigation(s) of my background or personal history.” (R. 2, PID 32.) The other was a disclaimer: “I understand that this Authorization is not a contract for continued employment and does not alter the at-will nature of my employment or offered employment.” (Id.)

         Hillson, Bohler, and Schmidt claim that the inclusion of the waiver and disclaimer on the disclosure form violated the following provision of the Fair Credit Reporting Act:

[A] person may not procure a consumer report, or cause a consumer report to be procured, for employment purposes with respect to any consumer, unless . . . a clear and conspicuous disclosure has been made in writing to the consumer at any time before the report is procured or caused to be procured, in a document that consists solely of the disclosure, that a consumer report may be obtained for employment purposes . . . .

15 U.S.C. § 1681b(b)(2)(A)(i) (emphasis added). The emphasized language is commonly known as the “stand-alone disclosure” requirement. It is Plaintiffs' position that while both the notice and authorization could be included in the same document, see § 1681b(b)(2)(A)(ii), the standalone disclosure requirement prohibited the inclusion of the waiver and disclaimer. (R. 2, PID 23-24, 28.)

         Accordingly, Plaintiffs filed this lawsuit on behalf of themselves and about 220, 000 others asserting a claim that Kelly violated § 1681b(b)(2)(A)(i). (See R. 2, PID 23, 28.)

         Since that time, the parties have worked toward settlement. And in June 2016, Plaintiffs filed an unopposed motion for this Court to (1) preliminarily approve the parties' settlement and to (2) preliminarily certify their proposed class for settlement purposes. (R. 37.)

         B.

         Although Plaintiffs' proposed class and the parties' settlement agreement will be discussed in detail below, a brief outline is useful at this point.

         Plaintiffs seek to represent a class of about 220, 000 individuals who were hired when Kelly was using a disclosure form that included a waiver and for whom, between July 18, 2012 and January 23, 2014, Kelly obtained a consumer report. (See R. 37, PID 519.) Although the parties do not propose subclasses, their settlement effectively divides members of this class into two groups. For approximately 180, 000 potential class members, Kelly ran a background check and assigned the potential member a “favorable” rating. (See R. 37, PID 514.) But for the remaining 40, 000 (or so) potential class members, Kelly assigned a rating other than favorable. (Id.) The parties' settlement agreement contemplates awarding these “Adjudicated Ineligible” class members three times as much as the favorably rated class members. (R. 37, PID 521.)

         Under the settlement agreement, Kelly will provide Plaintiffs and the proposed class with several benefits. The primary one is that Kelly will create a settlement fund of $6, 749, 000, none of which will revert to Kelly. (R. 37, PID 520, 522.) Of this fund, it is contemplated that up to 33% (approximately $2, 250, 000) will go to class counsel for fees. (See R. 37, PID 521.) Administrative expenses (about $330, 000) and incentive awards to Plaintiffs ($2, 500 each) will also be deducted from the fund. (See R. 37, PID 522.)[1] After all these deductions, the payout, assuming all 220, 000 potential class members make a claim, will be about $41 for an Adjudicated Ineligible class member and about $14 for those who received a favorable rating. In addition, Kelly has agreed to remove the waiver and disclaimer language from its disclosure forms for a period of five years and to provide, upon request, each class member (and Kelly temporary employees) a copy of the consumer report that Kelly obtained. (R. 37, PID 520.)

         In exchange for these benefits, Kelly will receive a release of claims. In particular, the parties propose that those class members who do not opt out of the settlement will forever release any and all claims “arising out of or relating directly or indirectly in any manner whatsoever to the facts alleged or asserted in the Complaint and Amended Complaint and which relate directly or indirectly in any manner whatsoever to Defendant's procurement of consumer reports, including but not limited to any and all claims under 15 U.S.C. §§ 1681b(b)(1), 1681b(b)(2) and 1681b(f) of the Fair Credit Reporting Act and any analogous state law claims.” (R. 49, PID 776- 77.)

         II.

         Before addressing whether the settlement is fair and whether the proposed class should be certified, the Court must decide whether it has subject-matter jurisdiction over the claim Plaintiffs assert. Following the Supreme Court's recent decision in Spokeo, Inc. v. Robins, __U.S.__, 136 S.Ct. 1540, 194 L.Ed.2d 635 (2016), this is a close question.

         Article III of the U.S. Constitution limits the jurisdiction of the federal courts to “cases” and “controversies.” For there to be a constitutional case or controversy, it must be that the plaintiff has standing to sue. See Spokeo, 136 S.Ct. at 1547. And for a plaintiff to have standing, it must be that she suffered an “injury in fact.” Id. That jurisdictional requirement in turn requires that her injury be “particularized” and-as relevant here-“concrete.” Id.

         In Spokeo, the Supreme Court provided guidance on what types of injuries are “concrete” enough to give rise to an Article III controversy. There, Spokeo, Inc. operated a website that allowed “users to search for information about other individuals.” Id. at 1546. At some point, a user ran a search on Thomas Robins and the website returned inaccurate (but arguably positive) information about Robins. Id. Robins sued, claiming, among other things, that Spokeo violated a provision of the FCRA that required consumer reporting agencies (like Spokeo) to provide certain notices to users of its information about the users' responsibilities under the FCRA. Id. at 1545 (citing 15 U.S.C. § 1681e(d)).

         In addressing whether Robins had alleged “concrete” injury, the Supreme Court explained that a concrete injury need not be tangible. Id. at 1549. It further provided that both the historic role of the courts and the judgment of Congress play a role in deciding whether intangible injury is “concrete.” Id. Regarding the former, the Court explained that “it is instructive to consider 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.” Id. And Congress' judgment is relevant, stated the Court, because “Congress may elevate to the status of legally cognizable injuries concrete, de facto injuries that were previously inadequate in law.” Id. (internal quotation marks and alteration omitted). Still, the Court noted, deference to congressional judgment cannot be complete, for Congress might define a harm that is insufficient to give rise to an Article III controversy. Id. Thus, in remanding the concrete-injury issue to the Ninth Circuit, the Supreme Court concluded, “Robins cannot satisfy the demands of Article III by alleging a bare procedural violation. A violation of one of the FCRA's procedural requirements may result in no harm. For example, even if a consumer reporting agency fails to provide the required notice to a user of the agency's consumer information, that information regardless may be entirely accurate.” Id. at 1550.

         Given the guidance in Spokeo, the Court is concerned about whether Plaintiffs (and the class they seek to represent) have suffered a “concrete” injury. (Indeed, this case was at one point stayed pending the Supreme Court's decision in Spokeo.) As noted, Plaintiffs here allege that Kelly violated 15 U.S.C. § 1681b(b)(2)(A) by including both a waiver and disclaimer in a form that should have only disclosed that Kelly would procure a consumer report for employment purposes and sought authorization to do so. (R. 1, PID 23, 28.) Plaintiffs' claim, however, is not that Kelly's inclusion of the waiver and disclaimer in the form caused them to not understand the disclosure. Nor do they claim that, in signing the form, they did not understand that they were authorizing Kelly to obtain their consumer report. Indeed, in their motion for preliminary approval, Plaintiffs acknowledge that there is no “indication, or any plausible scenario, in which members of the Settlement Class suffered actual damages based upon the wording of Defendant's forms.” (R. 37, PID 481 (emphasis added).)

         So the jurisdictional question before the Court reduces to this: under circumstances where Plaintiffs were not (by their own admission) actually damaged, is an alleged violation of the stand-alone disclosure requirement of § 1681b(b)(2)(A) a claim of a “bare procedural violation” that is not “concrete” enough under Spokeo? Or does it constitute concrete, intangible harm? The Sixth Circuit has not answered this question and the courts are divided.

         In Thomas v. FTS USA, LLC, the court rejected the defendants' assertion that the plaintiff's FCRA claim amounted to a claim of bare procedural injury. See No. 3:13-CV-825, 2016 WL 3653878, at *8-11 (E.D. Va. June 30, 2016). The plaintiff had alleged (among other things) that the defendants did not comply with both the stand-alone disclosure and the “clear and conspicuous” requirements of § 1681b(b)(2)(A). Id. at *1. In answering the “concrete” injury question, the court in Thomas analogized to three cases where the Supreme Court had found that deprivation of information amounted to a constitutional injury in fact. Id. at *9. In Havens Realty Corp. v. Coleman, 455 U.S. 363, 373-74 (1982), the Supreme Court found that, despite having no intent to buy or rent, a “tester” plaintiff had standing to assert a violation of a statute that made it unlawful “[t]o represent to any person because of race . . . that any dwelling is not available . . . when such dwelling is in fact so available”; the Court reasoned that the statute “establishe[d] an enforceable right to truthful information concerning the availability of housing.” In Public Citizen v. U.S. Dep't of Justice, 491 U.S. 440, 449 (1989), the Supreme Court found that an organization had standing to seek information that would have allowed it to monitor the ABA's “workings and participate more effectively in the judicial selection process.” And in Federal Election Comm'n v. Akins, 524 U.S. 11, 21 (1998), the Supreme Court concluded that a group of voters suffered constitutional “injury in fact” where they were unable to obtain information about an organization's contributions and donors that would have helped them evaluate candidates for public office. “In the wake of Havens, Akins, and Public Citizen, ” reasoned the Thomas court, “it is well-settled that Congress may create a legally cognizable right to information, the deprivation of which will constitute a concrete injury.” Id. at *9. Returning to § 1681b(b)(2)(A), the Thomas court concluded that by requiring the disclosure to be “clear, ” “conspicuous, ” and “in a document consisting solely of the disclosure, ” Congress had created a legally cognizable right to information. Thus, the failure to comply with § 1681b(b)(2)(A)-the failure to provide the disclosure without the encumbrance of any extraneous information- amounted to concrete, informational injury.

         The court in Thomas also found that the alleged violation of § 1681b(b)(2)(A) gave rise to a second concrete injury. When a disclosure does not comply with that provision of the FCRA, the Thomas court reasoned, the consumer has not been given the proper disclosure, and so any authorization based on that disclosure is invalid. See Id. at *10. It followed that the defendants' procurement of a consumer report violated the consumer's “statutory right of privacy.” Id. Apparently addressing the historic-role-of-courts consideration identified in Spokeo, the court in Thomas noted that the “common law ha[d] long recognized a right to personal privacy, and both the common law and the literal understandings of privacy encompass the individual's control of information concerning his or her person.” Id. Accordingly, the court concluded that the defendants' violation of § 1681b(b)(2)(A) also amounted to a concrete, invasion-of-privacy injury. Id. at *11; see also Syed v. M-I, LLC, __F.3d __, No. 114CV00742, 2017 WL 242559 (9th Cir. Jan. 20, 2017) (citing Thomas with approval and finding that § 1681b(b)(2)(A) creates rights to information and privacy the violation of which gives rise to concrete injury).

         Faced with facts similar to those in Thomas, the court in Shoots v. iQor Holdings U.S. Inc., reached a different conclusion regarding the concreteness of the plaintiff's injury. No. 15-CV-563, 2016 WL 6090723 (D. Minn. Oct. 18, 2016). Shoots claimed that iQor had violated § 1681b(b)(2)(A) by including extraneous information in a disclosure form. Id. at *1. Although acknowledging the Supreme Court's decisions in Havens, Akins, and Public Citizen, the court found unpersuasive Shoots' claim that he had suffered informational or privacy injury sufficient for Article III standing. See Id. at *6-7 & n.2. Regarding the claimed privacy injury, the court explained that had Shoots alleged that the extraneous information in the form “confused him in some way, ” or that the background check “had directly harmed” him, “a case could be made that an invasion of privacy actually occurred.” Id. at *5. But Shoots had not alleged either of those things. Id. And regarding Shoots' claim of informational injury, the court ruled, “If Shoots had contended somehow that iQor's failure to provide him with a stand-alone disclosure had amounted to a constructive deprivation of information-such as by impeding his ability to understand what he was signing, or by hiding important information in a thicket of legalese-this might well be a different case. But without such allegations, Shoots's injury-even if styled an ‘informational' one-is nothing more than technical, and insufficient to meet the requirements either of [Braitberg v. Charter Commc'ns, Inc., No. 14-1737, 2016 WL 4698283 (8th Cir. Sept. 8, 2016)] or Spokeo.” Id. at *8.

         For several reasons, the Court declines to fully weigh in on this split in authority. First, the “concrete” injury question has not been presented to this Court in an adversarial setting. To be sure, the Court has a duty to police its own subject-matter jurisdiction. But that task is made difficult where, at oral argument, both Plaintiffs and Kelly urged the court to follow Thomas. Second, the Court believes it can answer the concrete-injury question based on the unique facts of this case. Here, in addition to disclosing that Kelly would procure a consumer report to assess employability, the disclosure form included a waiver that read, “To the fullest extent permitted by law, I release Kelly, its employees, agents, successor and assigns, from any and all claims, actions or liability whatsoever that are in any way related to the procurement of a consumer report about me, or any subsequent investigation(s) of my background or personal history.” (R. 2, PID 32.) Thus, in signing the disclosure form, a job applicant could have thought she was merely agreeing not to sue Kelly if it ran a background check (the waiver)-not that she was granting Kelly permission to run a background check (the disclosure). Or perhaps the consumer could have thought the reverse. As this is not implausible, there is a risk of harm alleged in this case. And in Spokeo, the Court provided that “the risk of real harm” could satisfy the requirement of concreteness. 136 S.Ct. at 1549. Thus, given the manner in which this issue has been presented, the Court finds that Plaintiffs have suffered a “concrete” injury sufficient for this litigation to present an Article III case or controversy.[2]

         III.

         Jurisdiction having been established, the Court turns to the terms of the parties' settlement agreement and whether, on preliminary review, they are fair and reasonable.

         “[B]y way of background, class-action settlements affect not only the interests of the parties and counsel who negotiate them, but also the interests of unnamed class members who by definition are not present during the negotiations.” Shane Grp., Inc. v. Blue Cross Blue Shield of Michigan, 825 F.3d 299, 309 (6th Cir. 2016). As such, “there is always the danger that the parties and counsel will bargain away the interests of unnamed class members in order to maximize their own.” Id. While this is “not an indictment of any parties or counsel in particular; it is merely a recognition of the adverse incentives at work in class-action settlements.” Id. Thus, it is this Court's responsibility to “carefully scrutinize whether the named plaintiffs and counsel have met their fiduciary obligations to the class, and whether the settlement itself is ‘fair, reasonable, and adequate.'” Id. (quoting Fed.R.Civ.P. 23(e)(2)).

         At the preliminary approval stage, the Court does not finally decide whether the settlement is fair and reasonable. See In re Inter-Op Hip Prosthesis Liab. Litig., 204 F.R.D. 330, 337 (N.D. Ohio 2001) (explaining that preliminary approval “is only the first step in an extensive and searching judicial process, which may or may not result in final approval of a settlement”). The question now before the Court is simply whether the settlement is fair enough that it is worthwhile to expend the effort and costs associated with sending potential class members notice and processing opt-outs and objections. See Newberg on Class Actions § 13:10 (5th ed.).

         The fairness of a class-action settlement can be assessed by separately examining procedural and substantive aspects of the agreement. The Court starts with procedural fairness.

         A.

         “The primary procedural factor courts consider in determining whether to preliminarily approve a proposed [class-action] settlement is whether the agreement arose out of arms-length, noncollusive negotiations. . . . Where the proposed settlement was preceded by a lengthy period of adversarial litigation involving substantial discovery, a court is likely to conclude that settlement negotiations occurred at arms-length.” Newberg on Class Actions § 13:14 (5th ed.).

         The procedural history of this case reflects arms-length, noncollusive negotiations. First, the parties engaged in both informal and formal written discovery. (R. 37, PID 508.) This indicates that they attempted to understand the evidentiary support for their own and the opposition's legal positions. Second, the parties engaged in two mediation sessions. The first was before Retired United States District Judge Layne Phillips in February 2015, the second before Retired United States District Judge Wayne Anderson in January 2016. (R. 37, PID 507-08.) In both mediations, the parties submitted mediation briefs. The mediations and associated briefing indicate that the parties have a deep understanding of the strength and weakness of their cases, and the use of neutral, experienced mediators is an indication that the parties' agreement is noncollusive. In re Penthouse Exec. Club Comp. Litig., No. 10 CIV. 1145 KMW, 2013 WL 1828598, at *2 (S.D.N.Y. Apr. 30, 2013) (“The assistance of two experienced mediators . . . reinforces that the Settlement Agreement is non-collusive. A settlement like this one, reached with the help of third-party neutrals enjoys a presumption that the settlement achieved meets the requirements of due process.” (internal quotation marks omitted)). Further, both the named plaintiffs' incentive fees and attorneys' fees ...


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