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Empty suits

25 November 2011 By Reynolds Holding

The legal concept of “no harm, no foul” is worth preserving. Privacy laws and other statutes enable consumers to sue companies without claiming actual injury. That only encourages dubious claims against corporate America and upends constitutional logic. The U.S. Supreme Court gets a chance on Monday to start coming to the same conclusion.

The case involves a homeowner suing an insurance company, but the issue arises in dozens of contexts. Infringing copyrights, secretly tracking website visits or making prerecorded calls to cell phones can all prompt lawsuits, even without inflicting any obvious damage. That’s because a law prohibiting the behavior also creates a right to sue.

This seeming windfall for undamaged “victims” may help deter wrongdoing. But it flies in the face of the U.S. Constitution’s implicit requirement that litigants have, in effect, skin in the game and suffer a loss. Plenty of courts agree, especially in the privacy area.

In 2005, for example, a federal court said JetBlue passengers couldn’t sue the airline for violating its own privacy policy by passing their names to the U.S. government – because they couldn’t prove any damage. Suits against Disney, Microsoft and McDonald’s for snooping around websites with electronic cookies failed for similar reasons. And earlier this month, LinkedIn customers lost a challenge against the company for leaking their user IDs, again because they couldn’t satisfy the loss test.

In the case now before the high court, however, a homeowner was allowed to file a class-action suit against her title insurer for allegedly paying kickbacks to get business. She didn’t complain about high prices or bad service but merely the violation of her right to a graft-free transaction.

Real injuries can be hard to detect. Illegal payoffs may create conflicts of interest that skew deals in hidden ways. Allowing suits without clear damages, however, also invites the infliction of serious and undue harm.

Risk-taking industries like technology inevitably make mistakes that need to be promptly fixed. But punishing companies with dubious class-action litigation smacks of overkill. The Constitution strikes a useful balance, as the Supreme Court would do well to remind everyone concerned.


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