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Archive for February 14th, 2011

Over the weekend, John Papianou, class action defense lawyer and Partner at Montgomery, McCracken, Walker & Rhoads, sent me a copy of Long v. Tommy Hilfiger U.S.A. Inc., No. 09-1701 (W.D. Pa., February 11, 2011) (link courtesy of www.justia.com), an interesting decision involving the Fair and Accurate Transactions Act of 2003 (“FACTA”), 15 U.S.C. §§ 1681c(g), 1681n(a)(1)(A).

FACTA contains provisions requiring that account numbers on credit card receipts be truncated to no more than the last five digits and that receipts not display the card’s expiration date.  It is a popular subject of class actions because it provides for statutory penalties for willful violations of its truncation requirements, which potentially alleviates the need to prove individual injury.

FACTA class actions can pose an extreme risk to companies because, when they are aggregated, the per-violation statutory penalties of $100 to $1000 can far outweigh the potential harm caused by the disclosure of credit card information.  Moreover, in the case of smaller companies, the potential liability can dwarf the net worth of the company itself.  The potential for “annihilating” liability has led several courts to hold that class actions are not a superior method of adjudicating actions for statutory penalties under FACTA.  See, e.g., Leysoto v. Mama Mia I, Inc., 255 F.R.D. 693, 697-98 (S.D. Fla. 2009) (link courtesy of Class Action Defense Blog), see also Stillmock v. Weiss Markets, Inc., No. 09-1632 (4th Cir. July 1, 2010) (unpublished) (Wilkinson, J., concurring specially).  However, the Ninth Circuit Court of Appeals recently held that the prospect of liability that is vastly disproportionate to the actual harm suffered by a prospective class was not a sufficient basis to reject class certification on superiority grounds. Bateman v. American Multi-Cinema, Inc., — F.3d — (9th Cir. Sept. 27, 2010), reversing Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647 (C.D. Cal. 2008) (link courtesy of Class Action Defense Blog).

In Long, the defendant had complied with the five-digit truncation requirement.  It had printed the expiration month, but not the year, on the receipt.  The court interpreted the words “expiration date” as requiring both the month and the year of expiration, and found that the defendant had not been in violation of the prohibition against printing the expiration date on a credit card receipt.  Alternatively, the court held that even if printing the month had been a technical violation, it could not be a wilful violation sufficient to trigger statutory penalties.  In reaching this conclusion, the court followed the reasoning of the Seventh Circuit Court of appeals in Shlahtichman v. 1-800 Contacts, Inc., 615 F. 3d 794 (7th Cir. 2010) (link courtesy of www.findlaw.com) that the standard for assessing whether a wilful violation has occurred is an objective one, whether a reasonable person in the position of the defendant could have believed that it was a violation.  The decision to apply an objective rather than a subjective standard is important, as Papianou pointed out to me, because it renders unnecessary any factual analysis (and discovery) of what the defendant actually believed.

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