What We Have Here Is A Failure To Truncate

The Wall Street Journal's Law Blog had an update last Friday about the status of class action lawsuits filed by aggrieved consumers (in other words, by class action attorneys who've "discovered" lead plaintiffs) to punish merchants who left too much information on electronically-printed credit card receipts in violation of the Fair and Accurate Credit Transactions Act (FACTA). Oddly, the Law Blog's link to FACTA ties to a Yahoo article by Chris Kelleher ("an award-winning small-business advisor and attorney") about the disposal requirements of FACTA, not the truncation requirements. Oh well, "close" is enough in horseshoes and law blogging, right?

The latest post is an update of a post earlier in April that discussed a split in lower courts, with one trial court denying class action status partly on the basis of an "annihilation defense" (class action damages would "annihilate" the defendant), and another court declining to strike down class certification on that basis. One commenter to that post points out that the "overwhelming majority" of the 300 class action lawsuits filed involve the failure to delete the expiration date of the consumer's credit card on the receipt, not all but the last five digits of the credit card number. The commenter alleges that "[t]he expiration date is of NO benefit to an identity thief..." I'm not certain that's correct, since it's one piece of information that, taken with others, can aid an identity thief. Moreover, its elimination is technically required by FACTA, and the failure to delete it exposes these defendants to between $100 and $1,000 per class plaintiff (and, of course, the always-beneficial-to-society class action attorneys' fees), so there you have it. If the plaintiffs can prove reckless or willful disregard for the law, then the upper limit of damages is a real possibility.

A commenter to the earlier post who claims to be an attorney whose firm is defending some of these suits makes the claim that the liability should be covered by the retailer's liability insurance, and, therefore, "so as long as we can keep the settlements reasonable, it won’t spell the end of the companies (just their ability to acquire reasonably-priced insurance in the future)." That's certainly a very practical take on the problem. Once again, the insurance company pays over the short run, but everybody pays over the long run through higher premiums, although this isn't an issue that's likely to be recurring, is it?

It might be because I followed FACTA so closely for some of my clients, but I'm not sympathetic to the ignorance of retailers, especially some of the large ones, who claim ignorance of the law (never a sufficient excuse in any event). In an article in last April's WSJ, an attorney for a retailers trade group blamed credit card companies for doing a lousy job of notifying retailers. I thought that was the job of retailers trade groups.  I simply don't see the equities lying in favor of the businesses in this case. With identity theft such a high profile crime, and with the  lead time provided to businesses to comply, the stick-your-head-in-the-sand approach doesn't seem to garner much sympathy, notwithstanding the fact that, once again, it's our favorite punching bag, class action plaintiffs' attorneys, trolling town for consumers with "nontruncated" credit card receipts.

At least one commenter claimed that class action litigation caused companies to change their practices, which is undoubtedly true, and which is used a justification for class actions. Ironically, a publication from September 2007 on this topic by Jones Day offers "prompt corrective action" as a tactic for defeating class action status.

At least two federal district court judges have denied class certification for these types of cases. When comparing the plaintiffs' failure to show any actual harm against the potential harm to the defendants in the tens of millions to hundreds of millions of dollars, the court determined that class actions were not the best method to adjudicate these claims...That both defendants immediately corrected their error upon filing of the complaints served as a major consideration behind these decisions...

Maybe an indication as to how much of a non-issue this hubbub might eventually turn out to be is demonstrated by the settlement outlined in the most recent Law Blog post.

In a settlement approved on Tuesday in the Western District of Pennsylvania, Kings Family Restaurant agreed to offer the plaintiff-class one of the following four options:

• a free ‘appeteaser’ and a free mini-sundae, with a retail value of up to $ 4.68; or

• a free homemade bowl of soup and a free slice of apple or pumpkin pie, with a retail value of up to $ 4.78; or

• a free cup of soup and a free ‘appeteaser,’ with a retail value of up to $ 4.38; or

• a free dinner salad and a free single scoop of Kings Premium Ice Cream, with a retail value of up to $ 4.38.

According to the opinion, defendant has further agreed to donate 500 gift certificates for kids’ soft drinks, with a retail value of $ 0.99 per drink, to First Tee, a non-profit organization which offers underprivileged children the opportunity to play golf. Defendant also agreed to pay plaintiffs attorneys fees and costs not to exceed $75,000.

The Law Blog states that only 165 class members (less than 1% of the class) obtained "coupons" (I assume the author meant the right to obtain the free "goodies" offered by the restaurant), which meant that the attorneys fees exceeded the recovery by 100 to 1. That's a relatively sweet deal for the lawyers, but not much reward for the class members, unless you're into "appeteasers."

As a parting observation, you have to love the comment by one anonymous person, presumably a lawyer: "I say 75 k is not worth my time." No wonder so many people hate lawyers.