A unanimous panel of the U.S. Court of Appeals recently reversed a trial court holding that the statutory damages provision of the Fair Credit Reporting Act (FCRA) violates the Fifth Amendment. Harris v. Mexican Specialty Foods, Inc., 11th Cir. Nos. 08-13510, 08-13616 (April 9, 2009). In so doing, the Eleventh Circuit cleared the way for the district court to consider whether a class action should be certified in credit card numbers cases brought under the Fair and Accurate Credit Transactions Act (FACTA) and dealt a serious blow to businesses that had hoped early constitutional attacks on the statutory damages language might provide a shield against highly threatening FACTA class action litigation.

Case Background

The cases producing this appeal were among the large number brought in 2007 charging willful violation of the then newly effective FACTA requirement that a business issuing electronically printed receipts in credit or debit card transactions must not show "more than the last 5 digits of the card number or the expiration date." (15 U.S.C. §1681c(g).) Many such actions, including the ones at issue here, were proposed class actions. Congress responded to pleas that the statute was ambiguous and threatened excessive liability by enacting the Credit and Debit Card Receipt Clarification Act of 2007, P.L. No. 110-241 (June 3, 2008), which effectively eliminated relief in pre-enactment cases where the violation consisted solely of printing a card's effective date. That legislation ended many cases, but not these, because they alleged willful violations consisting of failure to properly truncate card numbers on receipts.

The two consolidated cases involved in the Eleventh Circuit appeal were brought against Birmingham merchants in the U.S. District Court for the Northern District of Alabama and assigned to Senior District Judge William M. Acker, Jr. Prior to ruling on whether a class action could be certified and before any determination of the facts, Judge Acker invited summary judgment motions challenging the constitutionality of the statutory provision authorizing a consumer to recover "any actual damages sustained . . . or damages of not less than $100 and not more than $1,000." (15 U.S.C. § 1681n.) The Department of Justice then intervened pursuant to its institutional role as defender of the constitutionality of federal statutes, and extensive briefing followed.

Judge Acker's Decision

On May 28, 2008, Judge Acker granted summary judgment to the defendants on the ground that the statutory damages provision is unconstitutional under the due process clause of the Fifth Amendment. Grimes v. Rave Motion Pictures Birmingham, L.L.C., 552 F. Supp. 2d 1302 (N.D. Ala., 2008). The statutory damages provision was not merely part of FACTA. Rather, it was pre-existing language in the Fair Credit Reporting Act that FACTA incorporated. If it were unconstitutional, then the capacity to redress other types of FCRA violations by private actions for damages would be substantially reduced.

The trial judge ruled that the FCRA statutory damages language was both "void for vagueness" and necessarily would impose excessive punishment.

Court of Appeals Analysis

Judge Acker's opinion was not explicit concerning whether he found the statute unconstitutional on its face, or as applied to these two defendants, or both. The Court of Appeals decision, authored by Circuit Judge Phyllis A. Kravitch, and joined by Chief Judge J.L. Edmondson and Circuit Judge Joel F. Dubina, found that Judge Acker had ruled that (1) the statute imposed excessive awards as applied in these cases, (2) the statute is unconstitutionally vague on its face, and (3) the statute is unconstitutionally excessive of its face.

It then concluded that all three rulings were erroneous.

As-Applied Challenge "Unripe"

On appeal, the government and the defendants argued that all of Judge Acker's rulings were premature and should be vacated for that reason alone. Judge Kravitch accepted that view as to the "as-applied" challenge but not the other two. She observed that Judge Acker had based his conclusion that the statute imposed excessive awards as applied to these defendants on several "assumptions" about what would happen in the case, rather than waiting until there actually had been a jury award. These assumptions included that "the defendants would not oppose class certification," "none of the plaintiffs suffered any actual harm," and "the plaintiffs would prove that the defendants willfully violated the FCRA and would thus each be entitled to at least $100 in statutory damages."

Judge Kravitch found, however, that the record showed the defendants actually did oppose class certification, it was too early to conclude that "none of the proposed class members had suffered any actual damages," and the defendants "dispute whether the violations were committed willfully" (i.e., "with knowledge or reckless disregard for the law"). In that context, the Court of Appeals ruled that Judge Acker had erred because his "assumptions required the resolution of issues that were disputed." When these "assumptions are removed, the as-applied excessiveness challenge is not ripe" and, consequently, the district court lacked subject matter jurisdiction to rule on the issue.

Statute Not Vague on Its Face

That "not ripe" defect, the court found, did not apply to the two facial rulings, because a facial challenge will succeed only if the statute "could never be applied in a constitutional manner." Here Judge Acker had found that the "words 'not less than $100 and not more than $1,000' constitute an almost perfect illustration of the concept 'void for vagueness,'" because the language "provides no guidance for deciding between $100 and $1,000, leaving it to the whim of the jury" unless "the court violates the doctrine of separation of powers and assumes the role of legislator as the only way to make sense of the present nonsensical language."

The Eleventh Circuit agreed that a statute denies due process "if it is so vague and standardless" that it "leaves the judges and jurors free to decide, without any legally fixed standards, what is prohibited and what is not prohibited in each particular case." Here the conduct prohibited (i.e., printing more than five digits of a card number) was clear; the question was whether the statute "results in arbitrarily-assessed damages awards."

Judge Kravitch did not find that the FCRA language contains standards guiding the jury's selection of an award between $100 and $1000; rather, she found that such statutory guidance was not constitutionally necessary. She found the issue was controlled by the U.S. Supreme Court's decision in F.W. Woolworth Co. v. Contemporary Arts, Inc., 344 U.S. 228, 232 (1952), a decision on the statutory damages provision of an earlier version of the Copyright Act, "concluding that a verdict is acceptable so long as it is 'within the prescribed limitations, that is to say, neither more than the maximum nor less than the minimum.'" Judge Kravitch reasoned that to be "unconstitutionally vague," a statute "must go beyond simply granting some discretion" to the jury and delegate "basic policy matters." Here the statute "clearly limits juries' discretion by mandating that statutory damages must reside between $100 and $1000." The "mere potential for disuniform verdicts is not enough to create a constitutional infirmity." Thus, the Eleventh Circuit has ruled that giving the jury discretion to choose the statutory damages award within a range set by Congress does not facially deny due process.

Not Facially Excessive

The district judge had found facial excessiveness based on the premise that the statutory damages provision is "expressly not compensatory in nature," in that a plaintiff can recover statutory damages even where no actual damages have been suffered. This led Judge Acker to conclude that the provision was "punitive." Viewed as punitive damages, he reasoned that even $100 would be excessive when compared to actual harm of zero dollars. He also was concerned that the FCRA additionally authorizes explicit punitive damages, and, in his view, making the defendant pay two types of punitive damages would constitute "double punishment." He reasoned that due process "does not tolerate a defendant's being punished twice for the same conduct."

The Eleventh Circuit rejected such arguments by rejecting the premise that FCRA statutory damages always are "punitive in nature." Judge Kravitch reasoned that because "statutory damages can only be awarded in lieu of actual damages," it was an error to conclude the statutory damages provision is "tantamount to a punitive damages provision." Moreover, if statutory damages were assumed to be punitive, Judge Kravitch reasoned that even "if none of the plaintiffs in the instant case were actually harmed, it is conceivable that in the future a party with actual harm that is difficult to compute will bring a case seeking statutory damages." In that circumstance, "the actual harm might be very close to the statutory damages." That "mere possibility of a constitutional application is enough to defeat a facial challenge to the statute."

So Where Are We?

This decision is a win for proponents of the use of statutory damages class actions. The decision rejects the use of an as-applied challenge in the early stages of litigation (unless, perhaps, it could be fully supported by assumptions not disputed in the record) and upholds the statute against two types of facial challenge.

If followed by other circuits, this decision will essentially prevent pre-certification defenses to statutory damages class actions modeled on Judge Acker's constitutional rulings here. That result would require FACTA statutory damages defendants in putative class actions to place considerable reliance on opposing certification of a class. As illustrated in other FACTA litigation, such classes often have been rejected on the ground that the resulting massive exposure renders a class action not "superior" to other types of litigation, but that has not always been the case.