FACTA Class Action Defense Cases–Harris v. Mexican Specialty: Eleventh Circuit Reverses Dismissal Of FACTA Class Actions Holding FCRA’s Statutory-Damages Provision Not Unconstitutional

May 6, 2009 | By: Michael J. Hassen

District Court Erred in Dismissing FACTA Class Actions based on Conclusion that FCRA’s Statutory-Damages Provision was Unconstitutional Facially and As-Applied, Requiring Reversal of Court Order and Reinstatement of Class Actions Eleventh Circuit Holds

Plaintiffs filed two separate class action complaints against Mexican Specialty Foods and Rave Motion Pictures alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA), which is part of the federal Fair Credit Reporting Act (FCRA); the class action complaints asserted that the defendants willfully violated FACTA by providing customers with “electronically-generated receipt[s] [that] included more than the last five digits of the customer’s card number and/or its expiration date.” Harris v. Mexican Specialty Foods, Inc., 564 F.3d 1301, 2009 WL 944201, *1-*2 (11th Cir. 2009). FACTA provides, in pertinent part, that “no 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.” Id., at *1 (quoting 15 U.S.C. § 1681c(g)(1)). Each class action sought statutory damages, punitive damages and attorney fees and costs, pursuant to 15 U.S.C. § 1681n(a). Id., at *2. Defense attorneys in each class action moved for summary judgment on the grounds that the FCRA’s statutory-damages provision was unconstitutional, id.; the motion was directed toward that provision of the FCRA which authorizes the recovery of statutory damages “of not less than $100 and not more than $1,000.” Id., at *1 (quoting 15 U.S.C. § 1681n(a)(1)(A)). The federal government intervened as a party-plaintiff to argue in favor of the statute’s constitutionality. Id., at *2. The district court issued a single order covering both class actions: the court order “declar[ed] the FCRA’s statutory-damages provision unconstitutionally vague on its face and unconstitutionally excessive on its face and as applied to the defendants, in violation of the Fifth Amendment Due Process Clause.” Id. The district court therefore dismissed both class actions with prejudice, id. The plaintiffs in each class action appealed; the Eleventh Circuit consolidated the cases for purposes of appeal and reversed.

Reviewing the district court’s order de novo, the Eleventh Circuit first addressed whether the case “is ripe for adjudication,” that is, whether there is an actual case and controversy. Harris, at *3. This analysis required a determination of whether the district court found the statutory-damage provision unconstitutional on its face or as-applied, id. The Circuit Court held that the matter was ripe as to a facial challenge to the statute’s constitutionality, because the district court held that “the statute provides no guidance for juries in determining whether to award damages at the upper or lower end of the $100 to $1,000 statutory-damages range” thus leaving the amount of damages to be awarded “to the whim of the jury” creating the potential of inconsistent “willy nilly” verdicts. Id. However, the Eleventh Circuit held that the matter was not ripe for adjudication as to an as-applied challenge “[b]ecause such a challenge asserts that a statute cannot be constitutionally applied in particular circumstances, it necessarily requires the development of a factual record for the court to consider.” Id. (citation omitted). The district court’s ruling in this regard had been premised on a number of assumptions that the Circuit Court found to be unwarranted “because many of the court’s assumptions required the resolution of issues which are directly disputed.” Id., at *4. The Court therefore concluded that an as-applied challenge was not ripe for adjudication, id., at *5.

Turning to whether the FCRA’s statutory damage provision was unconstitutional on its face, the Eleventh Circuit rejected the district court’s concerns regarding lack of guidance for juries. See Harris, at *6 et seq. The Court recognized that statutes are impermissibly vague if they “fail to put potential violators on notice that certain conduct is prohibited, inform them of the potential penalties that accompany noncompliance, and provide explicit standards for those who apply the law.” Id., at *6 (citation omitted). However, numerous statutes provide “ranges” for statutory damages, id., and the FCRA “does not provide so much discretion to juries as to render their verdicts ‘arbitrary,’” id., at *7. Moreover, the statute clearly places merchants on notice of the conduct prohibited thereunder, id. Accordingly, the Circuit Court held that the statutory-damage provision of the FRCA was not unconstitutionally vague on its face. Id. And the Court held further that the statutory-damages provision was not “unconstitutionally excessive,” rejecting the district court’s conclusion that the statutory awards are “expressly not compensatory in nature” and therefore punitive, because (1) the Circuit Court’s interpretation of the statute led it to conclude that the statutory-damages provision was not punitive and, (2) even if punitive, the statute would not “always yields unconstitutionally excessive verdicts.” Id., at *8.

In sum, the Eleventh Circuit “conclude[d] that: (1) the merits of the as-applied excessiveness challenge are not ripe for adjudication; (2) the statute is not unconstitutionally vague on its face; and (3) the statute is not unconstitutionally excessive on its face.” Harris, at *2. Accordingly, the Circuit Court vacated the district court order dismissing the class actions and remanded the class actions for further proceedings. Id., at *8.

NOTE: Congress amended FACTA in 2007 with the passage of the Credit and Debit Card Receipt Clarification Act of 2007, which exempts merchants from liability under the FCRA where the merchant printed credit card expiration dates on customer receipts but “otherwise complied” with FACTA. The Clarification Act applies retroactively to all cases pending as of the time of its enactment. Accordingly, damages are only recoverable if the customer can prove that the merchant printed more than the last five digits of the customer’s card number on an electronically-generated receipt.

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