Federal Judges Backing Retailers In Credit Card Receipt Cases

Making it unanimous thus far, two federal judges have denied key motions in the lawsuits against retailers accused of violating federal law by printing prohibited information on credit card receipts. This is on top of a third federal judge making a similar ruling earlier this month.

Unless the U.S, Court of Appeals for the Ninth Circuit intervenes early next year, retailers who have been sued for printing federally-prohibited information on consumer credit card receipts will almost certainly get off the hook. This is because of decisions from two federal judges this week rejecting a critical class-action certification request from the consumers suing the retailers.

Those two federal judges are in addition to a third federal judge who recently ruled in an almost identical manner.

In the initial lawsuits filed early this year, some 50 of the nation's top retailers?including Rite Aid, Harry & David, Ikea, KB Toys, Disney, Regal Cinemas and AMC Theaters?were accused of printing full credit numbers and expiration dates on printed customer receipts, violating a provision of the Fair and Accurate Credit Transactions Act (FACTA) that makes it illegal for a retailer to print more than the last five digits or a credit/debit card number and it also forbids printing the card's expiration data on that receipt. This is known as masking or truncation. The rule took effect in phases, but by December 2006, the latest of its phases kicked in.

More recently, at least two of those defendants have filed lawsuits against their POS vendors, saying that the POS firms should have protected the retailers when writing their POS software.

The decisions this week?as well as the other recent federal judge ruling?was not supposed to be on the merits of the cases, but rather on a technical ruling whether the lawsuits can be certified as class-actions. In other words, whether many consumers can sue one retailer at once, as opposed to suing individually. With the FACTA masking cases, the decisions on whether they can tried as class-action cases is crucial because the nature of the plaintiffs is such that it would almost certainly not be financially possible to proceed individually. In effect, then, a ruling preventing class-action status?if not overturned--is almost as damaging to the plaintiff's case as a dismissal of the claims.

Three of this week's decisions came from cases in front of U.S. District Court Judge R. Gary Klausner. Klausner?ruling in Taline Soualian Vs. International Coffee and Tea, Frida Najarian Vs. Charlotte Russe and Fredrick Najarian Vs. Avis Rent-A-Car?said that the retailers involved couldn't afford to pay the fines involved in the case if it were certified to proceed as a class-action.

"A finding of willful violation would create liability of up to $1.66 billion in the absence of actual harm," Klausner wrote in the Avis decision. "The potential statutory damages would be particularly excessive here, since Plaintiff alleges no actual injury on behalf of himself or any class member, admits he has suffered no actual damages and expert analysis shows that it is impossible for there to be any injury."

In his Charlotte Russe decision, Klausner also said that the retailer changed its procedures after being sued, which showed good faith. "As soon as defendant became aware of the FACTA violation, it promptly began the process of removing the expiration date from its receipts. Within a month and a half, defednat had implemented a company-wide fix that deleted the expiration data from all credit card receipts."

Plaintiff attorneys argued that a retailer's conduct after the federal law was broken can't undo the illegal act.

Another federal judge this week?U.S. District Court Judge George H. Wu, ruling in the case of Hagop Parseghian Vs. Bally North America ?denied the class-action request much more narrowly, leaving open the possibility that he might approve the certification if the plaintiff revised the description of the class. But for now, he denied the request.

One of the plaintiff attorneys in the cases?J. Mark Moore?has already started work on an appeal to the Ninth Circuit, which he said he expects to be decided no sooner than early next year.

"Apparently, some of the judges think our cases are too good to be certified. We?ll see what the Ninth Circuit thinks about this sort of legislating from the bench," Moore said. "The Ninth Circuit is going to have to decide whether judges can deny class certification because they don?t like the laws passed by Congress."

Moore said that he is optimistic the federal judges will be told to reconsider their rulings. "I?m pretty confident that I know what the answer is going to be. These rulings have turned class certification law upside down in a number of ways," he said. "I believe the Ninth Circuit will understand that.?