Court Opinion

ID: 3155907
Source: CourtListenerOpinion
Date Created: 2015-11-18 22:00:56.298235+00
Date Added: 2024-06-11T13:24:18.682810
License: Public Domain

In the

    United States Court of Appeals
                 For the Seventh Circuit
                     ____________________
No. 15-1083
CATHLENE SILHA, et al.,
                                                Plaintiffs-Appellants,

                                 v.

ACT, INC. and THE COLLEGE BOARD,
                                               Defendants-Appellees.
                     ____________________

         Appeal from the United States District Court for the
           Northern District of Illinois, Eastern Division.
              No. 14 C 0505 — Amy J. St. Eve, Judge.
                     ____________________

 ARGUED SEPTEMBER 18, 2015 — DECIDED NOVEMBER 18, 2015
                ____________________

   Before BAUER, KANNE, and ROVNER, Circuit Judges.
    KANNE, Circuit Judge. Every year, millions of high school
students take the American College Test (“ACT”) and Scho-
lastic Aptitude Test (“SAT”) with the ultimate aim of gaining
admission to a college or university. To advance this goal
and as part of the examination process, some student test-
takers authorize the relevant testing agencies to “send” or
“share” their personally identifiable information (“PII”) with
educational organizations through an information exchange
2                                                  No. 15-1083

program. Plaintiff-appellants, a group of former participants
in the information exchange programs, allege that they were
harmed because the testing agencies did not disclose that the
students’ PII was actually sold to the educational organiza-
tions for profit. We hold that plaintiff-appellants’ claims lack
standing under Article III of the Constitution and therefore
affirm the judgment of the district court.
                       I. BACKGROUND
    ACT, Inc. and The College Board (“Defendants”) are na-
tional testing agencies that administer the ACT and SAT col-
lege entrance exams, respectively, for a fee. When a student
signs up to take a test, Defendants obtain some of the stu-
dent’s PII, including name, home address, gender, birthdate,
high school, email address, and phone number, along with
other identifiers.
    In connection with the examinations, Defendants offer
optional programs to facilitate the exchange of information
between student test-takers and educational organizations,
which include colleges and universities, scholarship organi-
zations, and government agencies. ACT’s program is called
the Education Opportunity Service, and The College Board’s
program is called the Student Search Service. To participate
in ACT’s program, students must affirmatively respond
“Yes” to authorize ACT to “send” certain PII—name, ad-
dress, gender, high school, email address, racial/ethnic back-
ground, and intended college major—to participating educa-
tional organizations. Similarly, to participate in The College
Board’s program, test-takers must affirmatively respond
“Yes” to authorize The College Board to “share” or “send”
certain PII—name, address, sex, birthdate, school, grade lev-
el, ethnic group, email address, and intended college ma-
No. 15-1083                                                             3

jor—to participating educational groups. Both information
exchange programs are optional and free of charge to partic-
ipants. Both programs disclose the categories of information
released, as well as the types of educational organizations
that may receive this information.
    On January 23, 2014, a group of former information ex-
change program participants—Cathlene Silha,1 Arie Wolf,
Karoline Kamzic, and Elyse Stevens (“Plaintiffs”)—filed a
putative class action complaint against Defendants. They al-
leged that Defendants deceived them and the putative class
by concealing the sale or licensing of students’ PII under the
cover of the information exchange programs. Specifically,
Plaintiffs claimed that Defendants sold or licensed their PII
for a profit of at least $.33 per student, per buyer. Plaintiffs
relied on several theories of relief, including unfair and de-
ceptive business practices, breach of contract, invasion of
privacy, and unjust enrichment. The district court’s jurisdic-
tion (apart from the Article III standing issue to which we
will turn) was proper pursuant to 28 U.S.C. § 1332(d)(2).
    Defendants responded on March 28, 2014, by filing mo-
tions to dismiss for lack of subject matter jurisdiction under
Federal Rule of Civil Procedure 12(b)(1) and for failure to
state a claim under Rule 12(b)(6).
   On September 2, 2014, the district court granted Defend-
ants’ motions to dismiss under Rule 12(b)(1), finding that

1 We note that there is a discrepancy regarding the spelling of plaintiff
Silha’s first name. In their brief, plaintiff-appellants spell the name as
“Cathleen Silha.” In contrast, the original complaint and district court
judgment spell the name as “Cathlene Silha.” For the purposes of this
opinion, we spell this plaintiff’s name as “Cathlene Silha.”
4                                                     No. 15-1083

Plaintiffs did not fulfill their burden of establishing Article
III standing. The district court addressed each of the Plain-
tiffs’ three theories of injury: “(1) the examination fee paid to
take the ACT and SAT tests; (2) the diminished value of
Plaintiffs’ PII based on Defendants’ sale, licensing, and dis-
tribution of this information; and (3) the fees that third par-
ties paid to Defendants for Plaintiffs’ PII.” Silha, et al. v. ACT,
Inc. and The College Board, No. 14 C 0505, slip op. at 3 (N.D.
IL. Sep. 2, 2014).
     First, the district court rejected the alleged harm of exam-
ination fees because there was no “causation—a fairly trace-
able connection” between Defendants’ conduct and Plain-
tiffs’ injury. Id. The district court found that Defendants’ sale
of Plaintiffs’ PII “did not cause” Plaintiffs to pay the exami-
nation fees because Plaintiffs paid those fees to take the ex-
aminations and eventually gain admission to college. Id.
    Second, the district court rejected the claimed injury of
diminished value of PII because Plaintiffs failed to “allege
that they have the ability to sell their personal information or
that Defendants’ conduct foreclosed them from entering into
a ‘value for value transaction’ relating to their PII.” Id.
     Third, the district court rejected the alleged injury of fees
paid by third parties for Plaintiffs’ PII because “a plaintiff’s
injury must be based on the plaintiff’s loss, not the defend-
ant’s gain.” Id. at 4. The district court found that the Plain-
tiffs’ had not alleged that “they suffered an economic loss,
[only] that [Defendants] profited.” Id.
    Subsequently, on September 22, 2014, Plaintiffs moved to
alter or amend the district court’s judgment, pursuant to
Federal Rules of Civil Procedure 59(e) or 60(b)(6). At the
No. 15-1083                                                    5

same time, Plaintiffs sought leave to amend their original
complaint in response to the district court’s dismissal for lack
of injury. The proposed amended complaint included new
allegations that Plaintiffs had the opportunity to sell their
PII. Plaintiffs also sought to add a new claim under the Illi-
nois Right of Publicity Act.
    On December 15, 2014, the district court denied Plaintiffs’
motion, concluding that nothing in the proposed amended
complaint would plausibly establish injury in fact. Further-
more, the district court found that Plaintiffs’ proposed right
to publicity claim was time-barred. This appeal followed.
                         II. ANALYSIS
   We review a district court’s dismissal for lack of subject
matter jurisdiction de novo. Remijas v. Neiman Marcus Grp.,
LLC, 794 F.3d 688, 691 (7th Cir. 2015); Apex Dig., Inc. v. Sears,
Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009).
    Article III of the Constitution limits federal judicial pow-
er to certain “cases” and “controversies,” and the “irreduci-
ble constitutional minimum” of standing contains three ele-
ments. Lujan v. Defs. of Wildlife, 504 U.S. 555, 559–60 (1992)
(internal citations and quotations marks omitted).
    To establish Article III standing, “a plaintiff must show
(1) it has suffered an ‘injury in fact’ that is (a) concrete and
particularized and (b) actual or imminent, not conjectural or
hypothetical; (2) the injury is fairly traceable to the chal-
lenged action of the defendant; and (3) it is likely, as op-
posed to merely speculative, that the injury will be redressed
by a favorable decision.” Friends of the Earth, Inc. v. Laidlaw
Envtl. Servs. (TOC), Inc., 528 U.S. 167, 180–181 (2000) (citing
Lujan, 504 U.S. at 560–61). As the party invoking federal ju-
6                                                   No. 15-1083

risdiction, a plaintiff bears the burden of establishing the el-
ements of Article III standing. Lujan, 504 U.S. at 561; Remijas,
794 F.3d at 691–92.
   In evaluating a challenge to subject matter jurisdiction,
the court must first determine whether a factual or facial
challenge has been raised. Apex Dig., 572 F.3d at 443.
    A factual challenge contends that “there is in fact no sub-
ject matter jurisdiction,” even if the pleadings are formally
sufficient. Id. at 444 (emphasis in original) (internal citations
and quotation marks omitted). In reviewing a factual chal-
lenge, the court may look beyond the pleadings and view
any evidence submitted to determine if subject matter juris-
diction exists. Id.
    In contrast, a facial challenge argues that the plaintiff has
not sufficiently “alleged a basis of subject matter jurisdic-
tion.” Id. at 443 (emphasis in original). In reviewing a facial
challenge, the court must accept all well-pleaded factual al-
legations as true and draw all reasonable inferences in favor
of the plaintiff. Id. at 443–44.
   Here, Defendants’ Rule 12(b)(1) motion is properly un-
derstood as a facial challenge because they contend that
Plaintiffs’ complaint lacks sufficient factual allegations to es-
tablish standing.
    Before addressing Plaintiffs’ arguments, we take this op-
portunity to clarify the standard for facial challenges to sub-
ject matter jurisdiction under Rule 12(b)(1). The Supreme
Court has held that “each element [of standing] must be
supported in the same way as any other matter on which the
plaintiff bears the burden of proof.” E.g., Lujan, 504 U.S. at
561; see also Apex Dig., 572 F.3d at 443 (quoting Lujan, 504
No. 15-1083                                                        7

U.S. at 561). Moreover, in evaluating whether a complaint
adequately pleads the elements of standing, courts apply the
same analysis used to review whether a complaint adequate-
ly states a claim: “[C]ourts must accept as true all material
allegations of the complaint, and must construe the com-
plaint in favor of the complaining party.” Warth v. Seldin, 422
U.S. 490, 501 (1975); see also Apex Dig., 572 F.3d at 443; In re
Schering Plough Corp. Intron/Temodar Consumer Class Action,
678 F.3d 235, 243 (3rd Cir. 2012).
    The Supreme Court clarified the standard for pleading a
claim in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007)
and Ashcroft v. Iqbal, 556 U.S. 662 (2009):
       To survive a motion to dismiss, a complaint must
       contain sufficient factual matter, accepted as true,
       to state a claim to relief that is plausible on its face.
       A claim has facial plausibility when the plaintiff
       pleads factual content that allows the court to draw
       the reasonable inference that the defendant is liable
       for the misconduct alleged.
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570) (in-
ternal citations and quotations marks omitted).
    To assess whether a complaint states a plausible claim of
relief, the Court articulated a two-pronged approach in
which a court (1) first identifies the well-pleaded factual al-
legations by discarding the pleadings that are “no more than
conclusions” and (2) then determines whether the remaining
well-pleaded factual allegations “plausibly give rise to an
entitlement of relief.” Iqbal, 556 U.S. at 679.
     Because Lujan mandates that standing “must be support-
ed in the same way as any other matter on which the plain-
tiff bears the burden of proof,” it follows that the Twombly-
8                                                  No. 15-1083

Iqbal facial plausibility requirement for pleading a claim is
incorporated into the standard for pleading subject matter
jurisdiction. Lujan, 504 U.S. at 561. Therefore, we join many
of our sister circuits and hold that when evaluating a facial
challenge to subject matter jurisdiction under Rule 12(b)(1), a
court should use Twombly-Iqbal’s “plausibility” requirement,
which is the same standard used to evaluate facial challeng-
es to claims under Rule 12(b)(6). See In re Schering Plough
Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235,
243–44 (3rd Cir. 2012); Amidax Trading Grp. v. S.W.I.F.T.
SCRL, 671 F.3d 140, 145 (2d Cir. 2011); Román-Oliveras v. P. R.
Elec. Power Auth., 655 F.3d 43, 45 n.3, 49 (1st Cir. 2011); Lane
v. Halliburton, 529 F.3d 548, 557 (5th Cir. 2008); Stalley v.
Catholic Health Initiatives, 509 F.3d 517, 521 (8th Cir. 2007).
But see Maya v. Centex Corp., 658 F.3d 1060, 1067–69 (9th Cir.
2011) (declaring that “Twombly and Iqbal are ill-suited to ap-
plication in the constitutional standing context”).
    We now turn to the present case. Plaintiffs contend that
they pled standing by alleging that Defendants had “de-
ceived” them by not disclosing the sale of their PII and seek-
ing damages from the income Defendants derived from this
alleged deception.
   Applying Iqbal’s two-pronged approach, we first identify
Plaintiffs’ well-pleaded factual allegations. After stripping
away all conclusory statements of wrongdoing, we find that
Plaintiffs’ complaint contains the following well-pleaded fac-
tual allegations: Plaintiffs took tests administered by De-
fendants; Plaintiffs consented to participate in the infor-
mation exchange programs offered by Defendants; and
Plaintiffs did not know at the time of their examinations that
No. 15-1083                                                                 9

Defendants profited from these information exchange pro-
grams.

    We next determine whether these well-pleaded factual
allegations plausibly suggest a claim of subject matter juris-
diction. We find that Plaintiffs fail the second prong of Iqbal
because Plaintiffs’ well-pleaded factual allegations do not
support injury in fact sufficient for standing under Article III
of the Constitution.

    Regarding injury in fact, this court has held that “[a]
plaintiff who would have been no better off had the defend-
ant refrained from the unlawful acts of which the plaintiff is
complaining does not have standing under Article III of the
Constitution to challenge those acts in a suit in federal
court.” McNamara v. City of Chic., 138 F.3d 1219, 1221 (7th Cir.
1998) (collecting cases). It follows that a plaintiff’s claim of
injury in fact cannot be based solely on a defendant’s gain; it
must be based on a plaintiff’s loss.2 Here, Plaintiffs have not
alleged that they lost anything of value as a result of the al-
leged misconduct.
   As part of the information exchange program, Plaintiffs
consented to and affirmatively authorized Defendants to

2 Some district courts have explicitly applied this principle regarding
injury in fact. E.g. In re Google, Inc. Privacy Policy Litig., No. C-12-01382-
PSG, 2013 WL 6248499, at *5 (N.D. Cal. Dec. 3, 2013) (“[A] plaintiff must
do more than point to the dollars in a defendant’s pocket; he must suffi-
cient[ly] allege that in the process he lost dollars of his own.”); Del Vec-
chio v. Amazon.com, Inc., No. C11-366RSL, 2012 WL 1997697, at *4 (W.D.
Wash. June 1, 2012) (“It is not enough to allege only that the information
has value to Defendant; the term ‘loss’ requires that Plaintiffs suffer a
detriment.”).
10                                                 No. 15-1083

“send” or “share” certain PII with participating educational
organizations in order to receive information about colleges,
universities, scholarships, and other educational opportuni-
ties. The fact that Defendants allegedly collected a fee from
participating educational organizations and did not disclose
this sale did not make Plaintiffs worse off. In both potential
scenarios—one with a fee paid to Defendants and one with-
out a fee paid to Defendants—Plaintiffs’ PII would have
been conveyed to participating educational organizations in
an identical manner, and Plaintiffs would have received the
same benefits from the information exchange. Moreover, we
find it telling that Plaintiffs actually benefited from partici-
pation in the information exchange programs, in contrast to
their allegations of harm.
    Additionally, Plaintiffs have pled that Defendants profit-
ed from the sale of their PII, but they did not establish how
this profiteering deprived them of the economic value of this
information. Plaintiffs’ only claim of economic value associ-
ated with their PII is a portion of the value created by De-
fendants after Plaintiffs authorized the sending or sharing of
their information to educational organizations.
    In other words, Plaintiffs have claimed injury based sole-
ly on a gain to Defendants and without alleging a loss to
themselves. Thus, we hold Plaintiffs’ well-pleaded allega-
tions do not establish an injury in fact and consequently, do
not plausibly support a claim of subject matter jurisdiction.
    Plaintiffs also argue that the allegations in their com-
plaint give rise to the following reasonable inference: had
Plaintiffs been told that their PII would be sold to third par-
ties, they would have conditioned the sale on receipt of a
portion of the sale proceeds. Here, we find that Plaintiffs’ ar-
No. 15-1083                                                 11

gument cannot satisfy the first prong of Iqbal because this
inference cannot be reasonably drawn from Plaintiffs’ well-
pleaded factual allegations. Plaintiffs provide no factual
support for the necessary inferential steps for this argument,
including their desire and ability to demand, negotiate, and
receive a portion of the PII proceeds from Defendants. Be-
cause Plaintiffs do not provide the requisite factual support,
we do not have to determine whether Plaintiffs’ “condi-
tioned sale” argument gives rise to a plausible claim of sub-
ject matter jurisdiction.
                      III. CONCLUSION
    Having tested and examined Plaintiffs’ arguments, we
hold that Plaintiffs’ well-pleaded factual allegations have not
established a plausible claim of Article III standing and
therefore subject matter jurisdiction.
   For the foregoing reasons, the judgment of the district
court is AFFIRMED.