On June 4, 2007, the U.S. Supreme Court issued its decision in Safeco Ins. Co. v. Burr and Geico Gen. Ins. Co. v. Edo, Nos. 06-84 and 06-100, construing a provision of the Fair Credit Reporting Act (“FCRA”) which provides a plaintiff with statutory damages of between $100 and $1,000 per violation where the defendant “willfully fails to comply with any requirement imposed” under the FCRA. 15 U.S.C. §1681n. This decision impacts FCRA class actions filed across the United States, including hundreds of class actions recently filed against retailers, restaurants, and other merchants in which plaintiff class action attorneys are seeking statutory damages for alleged willful violations of the FCRA provisions restricting the information that is permitted on electronically generated customer credit and debit card receipts.
Court Holds “Willfully” Encompasses Violations Committed in Reckless Disregard of FCRA
A unanimous Supreme Court held that a “violation committed in reckless disregard” of the FCRA requirements is sufficient to constitute a willful violation. In so doing, the court rejected the defendants’ arguments that willfulness applies only to “acts known to violate the Act.”
The Supreme Court further clarified that recklessness is an objective standard that involves action entailing “an unjustifiably high risk of harm that is either known or so obvious that it should be known.” Thus, in order to establish a reckless violation, plaintiffs will need to demonstrate not only that a “reasonable reading of the statute’s terms” indicates a violation, but also that the defendant “ran a risk of violating the law substantially greater than the risk associated with a reading that was merely careless.”
Decision Impacts Hundreds of Class Actions Against Restaurants, Retailers, and Other Merchants
This decision impacts hundreds of FCRA class action cases filed across the United States in which the plaintiff class action bar is seeking to rely upon the availability of statutory damages under Section 1681n of the FCRA for willful violations of the Act to amass huge class damages awards or to use the threat of such damage awards to extract significant settlements.
Since December 2006, the plaintiff class action bar has been filing cases across the United States under a provision of the FCRA that recently went into affect as part of the Fair and Accurate Credit Transactions Act (“FACTA”), which amended the FCRA to prohibit a business from printing more than the last five digits of a consumer’s credit or debit card number or the expiration date of the card on electronically printed receipts issued to the consumer at the point of sale. 15 U.S.C. §1681c(g). This provision of the FCRA became effective generally as of December 4, 2006. Since that date, the plaintiff class action bar has filed hundreds of cases across the country alleging that businesses impermissibly printed more than the last five digits of the consumer’s card number and/or the card expiration date on the receipt issued to the consumer.
The plaintiffs in the vast majority of these cases are not alleging any actual damages; in some cases they have even gone so far as to affirmatively disavow any claim for actual damages. Instead, plaintiffs are alleging that defendants willfully violated Section 1681c(g) and seek to recover the statutory damages of between $100 and $1,000 per violation provided under Section 1681n of the FCRA. Under this theory of liability every 1,000 receipts issued in violation of Section 1681c(g) creates exposure of between $100,000 and $1 million.
These cases were originally brought in California, presumably in an effort to take advantage of the Ninth Circuit’s more lax interpretation of the “willfulness” standard which required proof that the defendant intentionally engaged in an act that was either known to violate the FCRA or was performed with reckless disregard of the FCRA’s requirements. More recently, however, the plaintiffs’ class action bar has filed similar FACTA class actions in jurisdictions that have applied a more stringent “willfulness” standard, which did not recognize reckless disregard.
The Supreme Court’s decision resolves the conflict among the Circuits by finding that reckless disregard can be the basis for an FCRA violation. While this decision provides hope to the plaintiffs’ class action bar in that they need only meet the relatively lower recklessness burden on one element of the willfulness test, the Supreme Court’s decision also makes clear that recklessness remains a high burden in and of itself that is to be measured objectively. The court’s focus on the risk of harm may also be helpful to FACTA defendants since the violations alleged to date are highly unlikely to have created any material risk of harm to consumers. Moreover, the fact that the court disposed of the claims against Safeco based on the summary judgment record strongly supports the defendants’ efforts to dispose of these cases by motion practice.