Whether FACTA Class Action Violates Due Process Because Statutory Damages are Grossly Disproportionate to Actual Harm Suffered must be Challenged by Defense at Motion to Certify Class Action Rather than by Defense Motion to Dismiss California Federal Court Holds
Plaintiff filed a class action in California federal court against Adidas alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA) for failing to remove credit card expiration dates from receipts given customers following credit card purchases. Arcilla v. Adidas Promotional Retail Operations, Inc., 488 F.Supp.2d 965, 967-68 (C.D. Cal. 2007). Defense attorneys moved to dismiss the class action complaint or to strike the prayer for punitive damages, id., at 968. The district court rejected the defense challenges to the class action complaint.
FACTA is part of the Fair Credit Reporting Act (FCRA), and provides in part, “[N]o person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” 15 U.S.C. § 1681c(g). The statute became effective December 4, 2006, and since that time literally hundreds of putative class action complaints have been filed alleging violations of FACTA; indeed, the district court noted that the putative class action before it was “one of as many as 70” FACTA class action lawsuits filed in the Ninth Circuit alone. Arcilla, at 967. The class action allegations in the instant class action complaint “resemble those in the others”: the putative class action alleges that plaintiff purchased merchandise from defendant and received a credit card receipt that disclosed the expiration date of his credit card, id. The class action alleged that defendant provided similar receipts to other customers, and alleged further that some of those receipt included “more than the last five digits of the card numbers,” id., at 968. The class action complaint prayed for statutory damages, punitive damages, and attorney fees, and alleges that defendant’s conduct resulted in an “increased risk of identify theft.” Id.
The district court summarized the defense arguments at page 968 as follows: “(1) it could not have willfully violated the FACTA because the statute is vague and ambiguous; (2) the Complaint seeks statutory damages that would be constitutionally excessive and thus violate due process because no actual harm has been suffered; (3) the statutory damages would violate ‘principles of tort law’ because Plaintiff and the potential class members have suffered no actual harm; (4) the request for punitive damages is improper because any such damages would be excessive absent an allegation of actual harm.” The district court disagreed, concluding that the allegations of the class action complaint were sufficient to survive the defense motions, and that certain challenges to the class action had to be brought in response to a motion to certify the litigation as a class action.
The federal court first addressed the defense motion to dismiss. First, the district court rejected defense challenges to the constitutionality of FACTA, holding that the statute was not unconstitutionally vague. Arcilla, at 969-71. We do not here summarize the “void-for-vagueness” doctrine or the court’s application of the doctrine to this case; we note only that the central issue was “whether § 1681c(g) is sufficiently clear that its prohibitions would be understood by an ordinary person operating a profit-driven business,” id., at 970, and the district court’s conclusion that the statute “easily meets this standard,” id., and its note that “[o]ther courts to consider the issue have uniformly agreed,” id., at 971 (citations omitted).
Next, the district court rejected defense arguments that the class action complaint failed to allege “willful” conduct, rejecting defense reliance on specific-intent criminal cases. Arcilla, at 971-72. Put simply, Ninth Circuit authority (and recent Supreme Court authority) holds that “willful” includes “reckless disregard” for purposes of the FCRA and, thus, for purposes of FACTA. Id., at 972 (citation omitted). Because the class action complaint alleged that defendant acted in reckless disregard of its customers’ rights, “it cannot be said that as a matter of law Adidas did not act ‘willfully.’” Id.
Defense attorneys next argued that the class action complaint’s prayer for statutory damages violated due process because they would be “grossly excessive” given that members of the putative class had “suffered no actual damages.” Arcilla, at 972. The district court rejected this argument because (1) the class action complaint did allege “actual harm” in the form of “an increased risk of identity theft” thus resulting in “an ‘actual loss’ that is ‘small and hard to quantify,’” id.; (2) the statutory damages are not excessive “at the level of a single violation,” id., and evidence that it would be excessive if “tens of thousands of $1000 fines” were imposed is “premature” – that argument “would be appropriate at the earliest in opposition to an eventual class certification motion,” id., at 973.
Finally, the district court rejected defense claims that the class action complaint’s “request for statutory damages is impermissible because, without an accompanying allegation of action harm, it violates ‘general principles of tort law.’” Arcilla, at 973. Congressional intent is clear from the “plain language of the statute,” id., at 974, and the statute allows for the recovery of statutory damages without evidence of actual harm, id.
With respect to the defense motion to strike the class action complaint’s prayer for punitive damages, the “sole basis” for the defense motion was that “the lack of an allegation of actual harm means that any amount of punitive damages would violate due process,” Arcilla, at 974. The district court rejected this argument, noting that it, too, was premised on the incorrect assumption that the class action complaint failed to allege “actual harm.” Id. Rather, the class action allegations “merely disclaim actual damages as too difficult to prove, and allege harm in the form of increased risk of identity theft,” id. At bottom, the federal court denied the motion to strike because “the Court cannot hold that punitive damages are beyond all possibility.” Id., at 975.