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Supreme Court Holds Privacy Act Recovery Only Available When There is Economic Loss

28 March 2012

Today, the U.S. Supreme Court in FAA v. Cooper held in a 5-3 decision that the “actual damages” clause in the Privacy Act is not sufficiently clear to authorize the recovery of non-pecuniary damages, such as for mental or emotional distress. While the Court acknowledged that the term “actual damages” is “sometimes understood to include nonpecuniary harm” and that such a reading is not “inconceivable,” it concluded that the term was not sufficient to overcome the sovereign immunity canon of statutory construction, which requires “an unmistakable statutory expression of congressional intent to waive the Government’s immunity.” 

The decision is narrowly decided and appears unique to the Privacy Act or perhaps other statutes that provide for private rights of action against the Government. The decision is not particularly instructive as to statutory schemes that authorize the recovery of “actual damages” in private party litigation, such as the Fair Credit Reporting Act  (FCRA).  Under FCRA and other statutory regimes, lower courts have interpreted the term “actual damages” to include nonpecuniary harm.  As Justice Alito, writing for the majority explained:

Because the term ‘actual damages’ has this chameleon-like quality, we cannot rely on any all-purpose definition but must consider the particular context in which the term appears.

It was not disputed that the Government's underlying conduct had violated the Privacy Act.  But, the majority found it significant that the respondent-plaintiff did not allege any pecuniary or economic loss in the suit.  The Court looked back at its 2004 Doe v. Chao decision, where it had held that to recover damages under the Privacy Act, a Plaintiff must establish not only the Government's breach of the statute, but actual damages (without deciding the meaning of actual damages).  In Doe, the Court had analogized the remedial provisions of the Privacy Act to common law torts of slander and libel per quod. Under those claims, plaintiffs must first prove “special damages” i.e., actual pecuniary loss, before they can recover “general damages,” which encompass noneconomic harms such as harm to reputation and emotional distress. The Court found this: 

suggests the possibility that Congress intended the term “actual damages” … to mean “special damages. The basic idea is that Privacy Act victims, like victims of libel per quod or slander, are barred from any recovery unless they can first show actual – that is, pecuniary or material – harm. Upon showing some pecuniary harm they can recover the statutory minimum of $1,000, presumably for any unproven harm. 

The Court found support for the "plausibility" of this interpretation in Congress’ express refusal to authorize “general damages” in the Privacy Act (an uncodified section of the Privacy Act established a Commission to consider whether Congress should be liable for general damages, something the Commission recommended, but Congress did not act upon). As to Respondent’s argument that the Act’s exclusion of general damages meant only that Congress meant to exclude damages that could not be proved, the Court stated that in defamation and privacy cases, 

the affront to the plaintiff’s dignity and the emotional harm done are called general damages to distinguish them from proof of actual economic harm which is called special damages.  Therefore the converse of general damages is special damages, not all proven damages as respondent would have it. 

Justice Sotomayor, writing for the dissent, argued that the majority placed too much weight on the sovereign immunity canon of construction. In her view the plain meaning of the term "actual damages" was enough to nullify that canon.  Both the majority opinion and Justice Sotomayor utilized the Black’s Dictionary definition of “actual damages."  Unlike the majority opinion, however, which referred to the definition as circular, Justice Sotomayor stated that there was nothing unclear about the definition and that it covers injury alleged and proved.

 

Justice Sotomayor went further and agreed with the majority that context is relevant. Given the Privacy Act was expressly designed to create safeguards to protect against breaches that could result in “substantial harm, embarrassment, inconvenience, or unfairness” to individuals and because mental or emotional distress is “the primary, and often only, damages sustained as a result of an invasion of privacy,” Justice Sotomayor found the context of the Privacy Act supported a more expansive reading of actual damages. As she further explained, if Congress wanted to limit recovery to situations involving only economic loss, it could have used the term “special damages” in the statute. As to the Privacy Act’s exclusion of general damages, Justice Sotomayor cited to the Court’s opinion in Doe v. Chao for support that the exclusion was intended to address unproven damages only.

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