Case: Safeco Ins. Co. of America v. Burr, No. 06-84 (Sup. Ct. 6/4/07)

The One Sentence Summary: The Supreme Court’s holding that “willful” violations of the Fair Credit Reporting Act include reckless conduct is relevant to pending lawsuits in California and elsewhere alleging that retailers violated 15 U.S.C. section 1681c(g), enabling consumers to seek statutory damages if electronic receipts for credit or debit card transactions disclose the card’s expiration date or more than the last five digits of the card number.

What They Were Fighting About: In Safeco and companion case GEICO General Ins. Co. v. Edo, at issue were the Fair Credit Reporting Act’s (FCRA) requirements of sending notification to a consumer when adverse action is taken based on information contained in a consumer credit report. The Supreme Court granted certiorari to resolve a conflict in the federal circuit courts of appeal on whether the FCRA provision, 15 U.S.C. section 1681n(a), permitting statutory damages ranging from $100 to $1,000 against anyone who “willfully fails to comply” with the FCRA reached reckless disregard of FCRA obligations.

Court Holdings:

  • The Supreme Court held that reckless disregard of a requirement of FCRA would qualify as a willful violation within section 1681n(a), the statutory damages provision.
  • Recklessness is defined as it is understood in the common law: conduct entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known. The Court stated: “It is this high risk of harm, objectively assessed, that is the essence of recklessness at common law.”
  • The Court distinguished reckless disregard from mere negligence or carelessness, for which the FCRA requires proof of actual damage per 15 U.S.C. section 1681o(a): “Thus, a company subject to FCRA does not act in reckless disregard of it unless the action is not only a violation under a reasonable reading of the statute’s terms, but shows that the company ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.”
  • The Court’s decision will impact cases pending against retailers for alleged violations of section 1681c(g) of FCRA, which is known as the Fair and Accurate Credit Transactions Act (FACTA) of 2003. FACTA went into effect on December 4, 2006 as to any cash registers already in use before January 1, 2005. FACTA provides 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.” This prohibition only applies to electronically printed receipts, and “shall not apply to transactions in which the sole means of recording a credit card or debit card account number is by handwriting or by an imprint or copy of the card.”
  • Given that retailers had three years to prepare existing cash registers for compliance with FACTA, plaintiffs may be able to prove “reckless disregard” of the law against printing electronic receipts containing more than a credit or debit card number’s last 5 digits or the card’s expiration date.
  • However, a recent decision by a federal district court in California suggests that retailers may be able to defeat class certification for FACTA claims, particularly when the alleged violation involves only the printing of a card’s expiration date. In Soualian v. International Coffee & Tea LLC, Judge R. Gary Klausner of the Central District of California denied class certification on FACTA claims in a June 11, 2007 ruling. The court held that a class action was not “superior to other available methods for fair and efficient adjudication of the controversy” under Rule 23(b)(3) of the Federal Rules of Civil Procedure, reasoning that “massive damage awards would be disproportionate to any actual damage caused by the alleged violations.”
  • In Soualian and another recent decision by the Central District of California, Spikings v. Cost Plus, Inc., the retailers allegedly violated FACTA by including customer credit card or debit card expiration dates on electronically printed receipts. Both decisions found that disclosure of a card’s expiration date by itself would be highly unlikely to result in identity theft. Given the availability of statutory damages of $100 to $1,000 for each violation, the courts deemed it inappropriate to certify class actions where damages would be potentially disastrous to the retailer’s business and where no harm was actually suffered by the putative class of customers.
  • Even if a retailer’s violation of FACTA might be deemed “reckless” under Safeco and subject the retailer to statutory damages under FCRA, defeating class certification as in Soualian would seriously disable a lawsuit. Plaintiffs’ attorneys will not want to litigate individual claims for statutory damages of $100 to $1,000 on a case-by-case basis.