Publications

4 Mar 2011

California Supreme Court decision brings wave of class actions against California retailers

Litigation Alert

Eduardo G. Roy
Michael O'Neil
Luanne Sacks

Dozens of class action lawsuits have been filed against California retailers in the wake of a recent California Supreme Court decision which expanded the state’s statutory prohibition on requesting information from credit card customers. 

In Pineda v. Williams-Sonoma Stores, Inc., ---Cal. Rptr. 3d ---, 2011 WL 446921 (Cal. Feb. 10, 2011), the state’s highest court effectively overruled an earlier California court decision which excluded a consumer’s ZIP code from the scope of the state statute.  Therefore, retailers who routinely ask consumers for their ZIP code in connection with their credit card transactions may be subject to the harsh civil penalty provisions of the California law.

The Song-Beverly Credit Card Act generally prohibits a retailer from requesting, or requiring as a condition to accepting a credit card payment, the cardholder to provide “personal identification information” which the retailer records in any way.  Cal. Civ. Code. § 1747.08(a)(2).  The Act has been held to apply even where the retailer’s request for information occurs before the manner of payment is even made known.  See Florez v. Linens’n Things, Inc., 108 Cal. App. 4th 447 (2003) (request for telephone number).  A 2008 California appellate court decision held that a consumer’s ZIP code did not fall within the statute’s definition of “personal identification information” and, therefore, requesting a ZIP code did not violate the Act.  Party City Corp. v. Superior Court, 169 Cal. App. 4th 497 (2008).  However, by its February 2011 decision, the California Supreme Court overruled the Party City decision.

The plaintiff in the Pineda v. Williams-Sonoma case alleged that a cashier at one of the defendant’s California stores asked for her ZIP code in connection with a purchase and that the consumer believed the information was required to complete the credit card transaction.  The plaintiff alleged that Williams-Sonoma later “used customized computer software to perform reverse searches from databases” to obtain the plaintiff’s full address and maintained the data in a database to market to customers and to sell the information to other businesses.  2011 WL 446921, at * 1. 

Adopting the rationale set forth in Party City, both the trial court and the intermediate California appellate court held that the claim under the Song-Beverly Credit Card Act should be dismissed because ZIP code data is not subject to the statutory prohibition.  The California Supreme Court reversed.  Noting that “courts should literally construe remedial statutes in favor of their protective purpose,” the Court disapproved of the Party City ruling and found that the statute as a whole, as well as its legislative history, “demonstrates the Legislature intended to provide robust consumer protections by prohibiting retailers from soliciting and recording information about the cardholder that is unnecessary to the credit card transaction.”  Id. at * 4, 6.

The impact of the decision may be exacerbated by its rejection of the retailer’s argument that the Court’s interpretation should only apply prospectively and not retroactively.  The Court ruled that “the statute provides constitutionally adequate notice of proscribed conduct,” and rejected the argument that the Party City decision “could provide a basis to depart from the assumption of retrospective operation.”  Id. at 7.  This aspect of the ruling, however, may be distinguishable by defendants in other lawsuits.  The Court questioned defendant’s implied argument that it relied on the Party City decision in setting its policy, given that the retailer’s conduct predated the Party City decision.  Retailers facing lawsuits premised upon practices that post-date the Party City decision may be able to defend their actions on this basis.

The significance of the recent decision is magnified by the civil remedies available under the Song-Beverly Credit Card Act.  The law does not provide for an award of actual damages designed to compensate a consumer for any harm resulting from a violation of the California statute.  (Such a remedial scheme would not threaten a non-compliant retailer with significant liability, given the likelihood that no real harm, such as identity theft, could often result from a retailer asking for a ZIP code.)  Rather, the statute provides for the award to the consumer of “a civil penalty not to exceed two hundred fifty dollars ($250) for the first violation and one thousand dollars ($1,000) for each subsequent violation.”  Cal. Civ. Code § 1747.08(e).

This language has been read as requiring that a civil penalty be imposed where § 1747.08 has been violated, “although the amount of the penalty is within the discretion of the court, as long as it does not exceed the statutory maximums.”  The TJX Companies, Inc. v. Superior Court, 163 Cal. App. 4th 80, 86 (2008).  However, even with a nominal per-consumer civil penalty award, a finding of liability in a certified class action brought on behalf of every consumer using a credit card at a retailer during the class period could result in a significant total award.

Since the Pineda decision came down, plaintiffs’ counsel have filed putative class actions in California state and federal courts alleging that requests for ZIP codes from credit card customers violate the Song-Beverly Credit Card Act.  Some lawsuits have also alleged that such conduct violates the California Unfair Competition Law, Calif. Bus. and Profession Code, §17200 et seq.

Despite the recent ruling, significant defenses to the resulting lawsuits remain.  For example, not all requests for ZIP code information violate the California statute.  The prohibition on requesting information from a credit card customer does not apply in certain transactions, e.g., when a credit card is used as a deposit to secure payment, or in a cash advance transaction.  Cal. Civ. Code § 1747.08(c)(1), (2).  Obtaining personal information is also permitted for delivery or installation purposes, or where the retailer or other business is contractually or legally obligated to obtain the information.  Id. § 1747.08(c)(3), (4).  The statute also expressly allows a business to demand a driver’s license or other form of identification, as long as the information contained within it is not recorded.  Id.  § 1747.08(d).

Additionally, a civil penalty may not be awarded if “the violation was not intentional and resulted from a bona fide error made notwithstanding the defendant’s maintenance of procedures reasonably adopted to avoid that error.”  Cal. Civ. Code § 1747.08(e).  The remedial scheme of the Song-Beverly Credit Card Act is also subject to constitutional challenges.  The imposition of a non-compensatory civil penalty to punish accurate speech that caused no real harm is circumscribed by First Amendment and due process protections.

Also, given the statutory limits on individual civil penalty awards, only certification of a plaintiff class can threaten a retailer or other business with significant liability.  Without class certification, only the named plaintiff could recover civil penalties of up to $250 for the first violation and up to $1,000 for each additional violation.  Therefore, a successful defense of the recent lawsuits will also involve challenges to class certification.  For example, the need for individualized inquiries into each transaction involving a class member may serve to defeat class certification.

For more information about the recent California Supreme Court decision, or a strategy for defense of the related lawsuits, please contact Eduardo Roy, Luanne Sacks and Michael O’Neil.