Court Opinion

ID: 6500107
Source: CourtListenerOpinion
Date Created: 2022-07-14 21:00:38.954532+00
Date Added: 2024-06-11T09:15:34.842475
License: Public Domain

In the

     United States Court of Appeals
                   for the Seventh Circuit
                       ____________________
No. 20-1698
BRIAN FLYNN, et al., individually
and on behalf of all others
similarly situated,
                                                  Plaintiffs-Appellants,

                                   v.

FCA US LLC and HARMAN
INTERNATIONAL INDUSTRIES, INC.,
                                                 Defendants-Appellees.
                       ____________________

             Appeal from the United States District Court
                  for the Southern District of Illinois.
             No. 15-cv-855-SMY — Staci M. Yandle, Judge.
                       ____________________

      ARGUED OCTOBER 27, 2020 — DECIDED JULY 14, 2022
                 ____________________

   Before SYKES, Chief Judge, and KANNE* and ST. EVE, Circuit
Judges.

* Circuit Judge Kanne died on June 16, 2022, and did not participate in
the decision of this case, which is being resolved under 28 U.S.C. § 46(d)
by a quorum of the panel.
2                                                  No. 20-1698

    SYKES, Chief Judge. This class-action lawsuit arises from an
alleged defect in the infotainment system in certain model
year 2013–2015 Chrysler cars and trucks. The catalyst for the
suit was a 2015 article in Wired magazine describing a con-
trolled hack of a Jeep Cherokee driven by one of the maga-
zine’s journalists. A team of cybersecurity researchers
exploited a vulnerability in the Jeep’s “uConnect” infotain-
ment system, designed by Harman International Industries,
Inc., for installation in vehicles manufactured by FCA US
LLC (formerly known as Chrysler). In the magazine’s exper-
iment, the researchers were able to access the vehicle’s
computer system and take control of many of its functions.
    FCA immediately issued a recall and provided a free
software update to patch the vulnerability the magazine’s
experiment had identified. Federal regulators supervising
the recall determined that the patch eliminated the vulnera-
bility. Other than the Jeep in the Wired test, no other Chrysler
vehicle has been successfully hacked.
   About two weeks after the magazine article appeared,
four plaintiffs—Brian Flynn, Michael Keith, and George and
Kelly Brown—sued FCA and Harman International on
behalf of every consumer who had purchased or leased a
model year 2013–2015 Chrysler vehicle equipped with the
uConnect infotainment system. They asserted claims under
federal and state warranty and consumer-fraud laws based
on allegations that the vehicles were vulnerable to cyberat-
tacks.
   Article III standing has been a point of contention
throughout the litigation. The plaintiffs’ theory is that alt-
hough the alleged cybersecurity defect never manifested
again after the controlled Wired hack, they nevertheless
No. 20-1698                                                   3

suffered an “overpayment” injury. That is, they claim that
they paid more for their vehicles than they would have if
they had known about the cybersecurity vulnerability. The
overpayment theory survived several pleading-stage chal-
lenges. After discovery closed, however—when faced with a
factual challenge to standing—the plaintiffs failed to provide
evidence in support of their claimed overpayment injury.
The district judge dismissed the case for lack of standing.
     On the record before us, we agree with that disposition.
When litigation moves beyond the pleading stage and
Article III standing is challenged as a factual matter, a plain-
tiff can no longer rely on mere allegations of injury; he must
provide evidence of a legally cognizable injury in fact. The
plaintiffs did not do so here. In response to the defendants’
factual challenge to standing, they continued to rely on
allegations and legal argument rather than pointing to
evidence of an actual injury. Accordingly, the case was
properly dismissed. But the judge incorrectly dismissed it
with prejudice, so we modify the judgment to reflect a
dismissal for lack of subject-matter jurisdiction—without
leave to amend—and affirm the judgment as modified.
                        I. Background
    In July 2015 Wired magazine published an article describ-
ing a controlled hack of the uConnect infotainment system in
a Jeep Cherokee driven by a Wired journalist. The story and
accompanying video showed how two cybersecurity re-
searchers, working in conjunction with Wired, remotely took
command of the Jeep and controlled features from comfort
functions like air-conditioning to critical systems like the
accelerator, steering, and brakes.
4                                                  No. 20-1698

    Within days of the article’s publication, FCA, the manu-
facturer of the Jeep, issued a recall for the affected vehicles—
model year 2013–2015 Chrysler cars and trucks—and pro-
vided customers with a free software update to patch the
vulnerability in the uConnect infotainment system identified
in the Wired article. The National Transportation Safety
Administration monitored the recall and determined that the
software patch corrected the vulnerability. Except for the
Jeep in the Wired experiment, no FCA vehicle has ever been
successfully hacked.
    About two weeks after the article appeared, the four
plaintiffs named here filed this class-action suit against FCA
and Harman International, which designed and sold the
uConnect system to FCA for installation in its vehicles. The
suit alleged that design defects in the hardware and software
of the affected vehicles made them susceptible to hacking,
and a successful hack could be exceptionally dangerous. The
complaint asserted claims under federal and state warranty
law, state consumer-protection statutes, and the common
law.
    The plaintiffs sought certification of a nationwide class of
all persons who purchased or leased a model year 2013–2015
FCA vehicle equipped with the uConnect infotainment
system, with statewide subclasses for Illinois, Michigan, and
Missouri. Judge Reagan, who was initially assigned to the
case, eventually certified the three statewide classes. Flynn v.
FCA US LLC, 327 F.R.D. 206, 227 (S.D. Ill. 2018).
    FCA and Harman challenged the plaintiffs’ Article III
standing on multiple occasions throughout the litigation.
The complaint alleged four theories of injury: (1) increased
risk of physical harm; (2) increased risk of fear and anxiety;
No. 20-1698                                                 5

(3) decreased market value of the plaintiffs’ vehicles; and
(4) “overpayment”—that is, the plaintiffs paid more for the
vehicles than they would have if they had known about the
hacking vulnerability.
   After a series of motions, the first three injury theories
dropped out. More specifically, in their first motion to
dismiss, the defendants raised a facial challenge to all four
theories of injury, and Judge Reagan granted the motion in
part. He rejected the two risk-based theories, which relied on
speculative allegations of increased risk of physical injury
and anxiety arising from the possibility of a future hack.
Those risks, the judge held, were too uncertain to support
standing to sue. But the two theories of economic injury
survived the pleadings-stage challenge. Accepting as true
the plaintiffs’ allegations of diminished value and overpay-
ment, Judge Reagan concluded that economic injuries of this
type are generally sufficient to support standing.
    The judge’s ruling applied only to Flynn and Keith be-
cause the Browns’ claims had been stayed pending arbitra-
tion. When the stay was lifted and the case moved forward
on the Browns’ claims, the defendants filed a second dismis-
sal motion, which Judge Reagan again granted in part and
denied in part on the same basis as the first.
    The defendants later moved for reconsideration of the
partial denial of their dismissal motions after the Ninth
Circuit held that the plaintiffs in a similar vehicle-hacking
case lacked Article III standing. See Cahen v. Toyota Motor
Corp., 717 F. App’x 720 (9th Cir. 2017). Judge Reagan denied
reconsideration but certified his decision for interlocutory
appeal. A motions panel of this court declined the certifica-
tion. The plaintiffs eventually abandoned their diminished-
6                                                  No. 20-1698

value theory of injury, acknowledging during a hearing on
class certification that they lacked market data to support it.
Only the alleged overpayment injury remained.
    As discovery proceeded, the plaintiffs produced reports
by two proposed damages experts. Michael Kemp, a
consumer-survey expert, designed and conducted a survey
measuring the value consumers placed on various vehicle
attributes, including cybersecurity. Michael Williams, an
economist, used the results of Kemp’s survey to calculate the
hypothetical change in supply and demand that would have
occurred if the defendants had disclosed the alleged defects.
Williams posited that the average consumer would have
paid between $5,478 to $8,701 less for his vehicle had he
known about the cybersecurity vulnerabilities.
    In the meantime, Judge Reagan retired, and the case was
reassigned to Judge Yandle. After discovery closed, the
defendants filed a flurry of motions, including a motion to
decertify the classes; a new motion to dismiss for lack of
subject-matter jurisdiction, this time raising a factual chal-
lenge to standing based on insufficient proof of injury in fact;
a motion for summary judgment; and motions to exclude the
testimony of Kemp and Williams under Daubert v. Merrell
Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993). The motion to
dismiss for lack of standing took direct aim at the alleged
overpayment injury—the only remaining theory of injury—
arguing that the plaintiffs had no competent evidence that
they paid more for their vehicles than they would have if
they had known about the claimed cybersecurity defect.
   The plaintiffs responded to the dismissal motion but did
not call the court’s attention to any evidence supporting their
overpayment theory. Instead, they pointed to Judge Reagan’s
No. 20-1698                                                     7

earlier decisions and invoked the doctrine of law of the case,
urging Judge Yandle to summarily deny the latest dismissal
motion on that procedural ground. To the extent that their
response moved beyond the law-of-the-case doctrine, the
plaintiffs fell back on the allegations in their complaint and
reprised their argument that an overpayment injury is
legally cognizable as a general matter. They did not cite any
factual support for their claimed injury.
    Judge Yandle turned first to the motion to dismiss for
lack of standing—recognizing, appropriately enough, that
jurisdictional challenges come before merits challenges.
After quickly rejecting the law-of-the-case argument, she
held that the plaintiffs failed to adequately support their
claimed overpayment injury. Other than the single
controlled-environment hack in the Wired experiment, the
cybersecurity vulnerability never manifested in any vehicle
equipped with the uConnect system, so she concluded that
the plaintiffs had received exactly what they bargained for
and had not shown any financial harm. On this reasoning
she dismissed the case for lack of standing and did not reach
the other motions. Although her ruling was clearly jurisdic-
tional, not merits-based, she dismissed the case with preju-
dice.
                         II. Discussion
   We review de novo the district court’s dismissal for lack
of Article III standing. Fox v. Dakkota Integrated Sys., LLC,
980 F.3d 1146, 1151 (7th Cir. 2020). The Constitution limits
the jurisdiction of the federal courts to “Cases” and “Con-
troversies.” U.S. CONST. art. III, § 2. Standing is an essential
component of the case-or-controversy requirement, Lujan v.
Defs. of Wildlife, 504 U.S. 555, 560 (1992), and consists of three
8                                                    No. 20-1698

familiar elements: the plaintiff must have “(1) suffered an
injury in fact, (2) that is fairly traceable to the challenged
conduct of the defendant, and (3) that is likely to be re-
dressed by a favorable judicial decision,” Spokeo, Inc. v.
Robins, 136 S. Ct. 1540, 1547 (2016).
    Standing is a core component of the plaintiff’s case, and it
must be established in the same way as any other matter on
which he bears the burden of proof. Lujan, 504 U.S. at 561.
Accordingly, “the proof required to establish standing
increases as the suit proceeds.” Davis v. FEC, 554 U.S. 724,
734 (2008). Our cases thus recognize two forms of standing
challenges, each with its own procedural and evidentiary
rules. See Silha v. ACT, Inc., 807 F.3d 169, 173 (7th Cir. 2015). A
facial challenge attacks standing on the pleadings, arguing
that the plaintiff lacks standing even if the well-pleaded
allegations in the complaint are taken as true. Id. A factual
challenge, by contrast, asserts that there is in fact no stand-
ing. See Apex Digit., Inc. v. Sears, Roebuck & Co., 572 F.3d 440,
444 (7th Cir. 2009). In response to a factual challenge, the
plaintiff can no longer rest on the allegations in the com-
plaint but must adduce specific evidence to satisfy each of the
elements necessary to establish his standing to sue. Id.
    Faced with a factual challenge to standing, the plaintiffs
failed to meet their burden here. The operative motion to
dismiss for lack of standing—filed at the close of the discov-
ery—argued both that the alleged overpayment injury was
not cognizable as a legal matter and that the plaintiffs had
no competent evidence that they suffered an overpayment
injury as a factual matter. In response to the latter challenge,
the plaintiffs could “no longer rest on … ‘mere allegations’”
but instead had the burden to “‘set forth’ by affidavit or
No. 20-1698                                                                9

other evidence ‘specific facts’” supporting their standing to
sue. Lujan, 504 U.S. at 561 (quoting FED. R. CIV. P. 56 (1992)).
    The plaintiffs clearly recognized the latest dismissal mo-
tion as a factual challenge to standing. Indeed, they conced-
ed as much at oral argument and spent much of their
appellate brief disputing the proper evidentiary standard for
addressing factual challenges to standing. Yet their response
to the motion did exactly what Lujan says is inadequate in
such circumstances. Instead of citing specific evidence in the
record and developing a factual argument demonstrating
that they suffered an overpayment injury, they relied on
mere allegations from their complaint. 1
    The plaintiffs now point to their expert reports as evi-
dence in support of an overpayment injury. But they do so
for the first time on appeal, which is far too late. We have
repeatedly reminded litigants that we will not consider
evidence and factual arguments that they did not present to
the district court. E.g., Packer v. Trs. of Ind. Univ. Sch. of Med.,
800 F.3d 843, 849 (7th Cir. 2015) (“[T]he dispositive point is
that [the plaintiff] did not cite specific parts of that record in
support of relevant factual arguments, as the rules required
her to do.”); Milligan v. Bd. of Trs. of S. Ill. Univ., 686 F.3d 378,
389 (7th Cir. 2012) (holding that the plaintiff forfeited reli-
ance on evidence not cited in a brief opposing summary
judgment). Our task is to review the district court’s decision

1 The plaintiffs cast their argument in the form of a truism: they main-
tained that consumers would pay less for an “unsafe” car than they
would a “safe” car. But it was their burden to produce evidence in
response to a factual challenge to standing. See In re Johnson & Johnson
Talcum Powder Prods. Mktg., Sales Practices & Liab. Litig., 903 F.3d 278, 288
(3d Cir. 2018).
10                                                    No. 20-1698

as the issue was presented by the litigants. Packer, 800 F.3d at
848–49.
    As a fallback argument, the plaintiffs insist that as the
nonmovant they are entitled to the benefit of the entire
record. This contention rests on Rule 56 of the Federal Rules
of Civil Procedure, which governs motions for summary
judgment, but that rule does not help them. Rule 56 permits
the court to consider uncited materials in the record when
ruling on a motion for summary judgment but requires the
court to consider “only the cited materials.” FED. R. CIV.
P. 56(c)(3). And the rule assigns to the parties the responsibil-
ity to “cit[e] to particular parts of materials in the record”
when asserting that genuine factual disputes preclude
summary judgment. Id. R. 56(c)(1)(A); see also Compania
Administradora de Recuperacion v. Titan Int’l, Inc., 533 F.3d 555,
562 (7th Cir. 2008) (citing Rule 56 in concluding that the
district court permissibly ignored evidence cited in support
of one factual dispute when considering a different issue).
This latter requirement is especially important in cases
involving a voluminous record. See Sommerfield v. City of
Chicago, 863 F.3d 645, 650 (7th Cir. 2017). This one fits the bill.
Reliance on Rule 56 is a nonstarter.
    The plaintiffs also reiterate their argument that the law-
of-the-case doctrine barred Judge Yandle from reconsidering
the question of standing because Judge Reagan had already
ruled on the issue on multiple occasions. The law-of-the-case
doctrine “posits that when a court decides upon a rule of
law, that decision should continue to govern the same issues
in subsequent stages in the same case.” Arizona v. California,
460 U.S. 605, 618 (1983). When a case is transferred between
district judges midway through litigation, the doctrine
No. 20-1698                                                     11

discourages the new judge from reconsidering rulings made
by the original judge. Gilbert v. Ill. State Bd. of Educ., 591 F.3d
896, 902 (7th Cir. 2010).
    The doctrine did not tie Judge Yandle’s hands for two
reasons. First, law of the case is a discretionary doctrine, not
a rigid bar, Pepper v. United States, 562 U.S. 476, 506 (2011),
and its force is lowest when applied to jurisdictional ques-
tions, Chi. Joe’s Tea Room, LLC v. Village of Broadview, 894 F.3d
807, 818 (7th Cir. 2018). To be sure, questions of federal
jurisdiction are not entirely exempt from the doctrine. See
Sierra Club v. Khanjee Holding (US) Inc., 655 F.3d 699, 704 (7th
Cir. 2011). When there are “no significant differences in the
legal landscape” since the prior ruling, courts may apply law
of the case and refuse to reconsider the precise jurisdictional
issue previously decided. Id. at 705. But a federal court’s
ongoing obligation to assure itself of its jurisdiction means
that revisiting such matters is almost always on the table. See
18B CHARLES ALAN WRIGHT ET AL., FEDERAL PRACTICE AND
PROCEDURE § 4478.5 (3d ed. 2019).
    Second, law of the case does not apply at all where the
precise issue presented differs from the one decided earlier.
Gilbert, 591 F.3d at 903. As the plaintiffs acknowledge, Judge
Yandle was presented with a factual challenge to standing,
while Judge Reagan ruled only on facial challenges. That is,
the defendants sought a standing ruling as a factual matter
after the close of discovery. They had every right to do so.
See Chi. Joe’s Tea Room, 894 F.3d at 818 (holding that the
successor judge properly reconsidered mootness after
discovery produced a more fully developed record). Hold-
ing that the denial of a facial challenge to standing precludes
a later factual challenge to standing would contradict the
12                                                No. 20-1698

Supreme Court’s instruction that “the proof required to
establish standing increases as the suit proceeds.” Davis,
554 U.S. at 734.
    We close with a housekeeping matter. As we’ve noted,
the judge dismissed the case for lack of subject-matter
jurisdiction based on the plaintiffs’ failure to establish
Article III standing, but her order reflects a dismissal with
prejudice. That’s a contradiction: a dismissal with prejudice
is a merits disposition, but the failure of subject-matter
jurisdiction precludes consideration of the merits. Frederiksen
v. City of Lockport, 384 F.3d 437, 438 (7th Cir. 2004). When a
district court concludes that the plaintiff lacks standing—
and thus that the court lacks jurisdiction—the judge may
either dismiss without leave to amend or dismiss without
prejudice. MAO–MSO Recovery II, LLC v. State Farm Mut.
Auto. Ins. Co., 935 F.3d 573, 581 (7th Cir. 2019). The former
disposition is appropriate here. We therefore modify the
judgment to reflect a dismissal for lack of subject-matter
jurisdiction without leave to amend. As modified, the judg-
ment is
                                                    AFFIRMED.