May 03, 2019 Feature

    Courts Split on Whether Receipts Confer Article III Standing

    When statutory violation may be enough to meet the concrete injury requirement

    By Kelso L. Anderson

    A plaintiff who suffers only a statutory violation of the Fair and Accurate Credit Transactions Act (FACTA), but no tangible harm, may nonetheless meet Article III standing requirements to file suit in federal court, which requires an injury in fact.

    The decision in Muransky v. Godiva Chocolatier, Inc. construes Spokeo, Inc. v. Robins, in which the U.S. Supreme Court reasoned that “a bare procedural violation, divorced from any concrete harm, will not constitute an injury-in-fact as demanded by Article III.” Muransky departs from the decisions of other federal appellate courts on when and whether a FACTA violation meets Article III’s injury-in-fact requirement. ABA Section of Litigation leaders are likewise divided both as to whether Muransky properly interpreted Spokeo and whether other circuits will follow Muransky.

    Genesis of a Constitutional Claim

    The plaintiff in Muransky filed a class action lawsuit against the defendant, Godiva Chocolatier, Inc., alleging violation of FACTA—an amendment to the Fair Credit Reporting Act (FCRA). To reduce or eliminate identity theft, FACTA prohibits companies that accept credit or debit cards from printing “more than the last 5 digits of the card number or expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.”

    The plaintiff’s receipt showed the first six and last four digits of his credit card. The plaintiff then filed a class action on behalf of himself and others whose receipts from Godiva showed more credit or debit card numbers than FACTA allows. The plaintiff contended that the defendant willfully violated FACTA, entitling the class to statutory and punitive damages, and attorney fees and costs. Statutory damages range from $100 to $1,000 for willful violations—regardless of whether the plaintiff can establish identity theft or other impact to his or her credit. Only actual damages are available for negligent violations.

    Following merits discovery and mediation, the district court granted the plaintiff’s motion for preliminary approval of the class settlement reached at mediation. The parties had agreed to a settlement fund of $6.3 million for payment of the class members’ recovery, attorney fees, and costs. Each class member was to receive an estimated $235, and class counsel would receive up to $2.1 million. There was to be no reversion to Godiva.

    Two class members objected, however. They asserted, among other things, that the plaintiff lacked Article III standing to pursue the claims against the defendant on behalf of the class under Spokeo, which requires a concrete injury in fact. The district court approved the settlement over those objections, and the objectors appealed to the U.S. Court of Appeals for the Eleventh Circuit.

    Spokeo and the Contours of an Injury-in-Fact Claim

    The Eleventh Circuit confirmed the district court’s ruling on appeal. Though the plaintiff had not suffered identity theft or any actual damages, the appellate court concluded that the FACTA violation in itself was a concrete injury sufficient to confer Article III standing. It also held that the disclosure of the additional account digits constituted a concrete harm because customers would then need to “use their time (and wallet space) to safely dispose of or keep the untruncated receipt so as to avoid someone finding their credit card number on their receipt.”

    To first determine whether the FACTA violation alone satisfied Article III’s concrete injury requirement, the Muransky court looked to whether the intangible harm resulting from the violation bore a close relationship to the types of harms traditionally recognized at common law and Congress’s intent. The Eleventh Circuit analogized the intangible harm from a FACTA violation to those implicated by common-law claims of breach of confidence and breach of implied bailment—a breach of the consumer’s trust in the merchant and a breach of the merchant’s duty to protect the customer’s property, respectively. The Muransky court found a “close relationship” between those torts and FACTA, which was enacted to protect consumers from identity theft and fraud by imposing a duty of care on merchants and creating a private cause of action even in the absence of actual damages. The Muransky court noted that “Congress has the power to define injuries and articulate chains of causation that will give rise to a case or controversy” and inferred that Congress used that power to define “the harm as happening when the merchant provides the customer with an untruncated receipt.”

    Muransky departs from decisions issued by the Second, Seventh, and Ninth Circuits, which had held that plaintiffs alleging FACTA violations lacked a concrete injury and, therefore, lacked Article III standing. In the foregoing three circuit cases, the appellate courts concluded the plaintiffs did not suffer concrete harm simply by virtue of those merchants’ issuance of credit card receipts that exposed the cards’ full expiration dates.

    Muransky distinguished its decision from those circuits by noting those courts had considered a different aspect of FACTA, as those plaintiffs’ alleged violations arose out of improper disclosure of their credit card expiration dates only and not over-disclosure of account numbers. According to Muransky, Congress had amended FACTA by enacting the Credit & Debit Card Receipt Clarification Act to curb the spate of FACTA lawsuits in which plaintiffs alleged only that their credit card expiration dates were disclosed. Muransky observed that, under the Clarification Act, the proper truncation of the consumer’s credit card number, “regardless of the inclusion of the credit card expiration date,” is the key to preventing identity theft and fraud of consumers. Although FACTA prohibits merchants from disclosing consumers’ credit and debit card expiration dates, the Muransky court noted in dicta that such disclosure is not a concrete injury for standing, in part because analogous common-law claims do not exist, and the Clarification Act expressly prevents such injury from being actionable.

    Moreover, Muransky also cautioned against adopting “a bright-line no standing rule” in FACTA cases. More recently, in Kamal v. J. Crew, Inc. et al., the Third Circuit rejected Muransky’s rationale for finding a concrete injury in fact by analogizing common-law torts with the alleged injury suffered by the Muransky plaintiffs. Instead, the Third Circuit reasoned that, in the absence of third-party disclosure, no “close relationship” exists between the common-law torts analogized in Muransky and the alleged injury-in-fact suffered by the Muransky plaintiffs.

    This may turn out to be a Pyrrhic victory for plaintiffs if, as this decision suggests, they are required to litigate the minutiae of their wallet space resources and other specific harms in order to establish standing in future FACTA cases.

    Mark E. Rooney, Washington, DC

    Cochair, FDCPA & TCPA Subcommittee, Consumer Litigation Committee

    “This is a very narrow decision, both factually and legally,” concludes Mark E. Rooney, Washington, DC, cochair of the FDCPA & TCPA Subcommittee of the Section of Litigation’s Consumer Litigation Committee. “This may turn out to be a Pyrrhic victory for plaintiffs if, as this decision suggests, they are required to litigate the minutiae of their wallet space resources and other specific harms in order to establish standing in future FACTA cases,” Rooney opines. Another Section leader was even more critical about Muransky’s authority. “I think the decision does not accurately apply Spokeo to the facts before it,” urges Bradford S. Babbitt, Hartford, CT, cochair of the Section’s Commercial & Business Litigation Committee. “By concluding that the violation of the statute constituted a concrete injury, the court did not honor the standing requirement of Article III,” Bradford emphasizes.

    Mixed Views on Persuasive Authority of Muransky

    Section leaders disagree as to whether Muransky correctly applied the Spokeo framework to the facts therein; that disagreement is the source of divergent views by Section leaders as to whether Muranksy will be followed outside of its circuit. “I believe the Muransky court got right what other courts got wrong,” says Rudy R. Perrino, Los Angeles, CA, cochair of the Section’s Products Liability Litigation Committee. “The principles of statutory interpretation and standing embraced by the Muransky court are broadly applicable and could be extended to other statutes,” Perrino believes.

    Another Section leader agrees that Muransky might have persuasive authority beyond its circuit, but thinks the court misapplied Spokeo. “Muransky misses the mark on Spokeo,” says Mary-Christine “MC” Sungaila, Costa Mesa, CA, cochair of the Section’s Appellate Practice Committee. “Muransky is potentially more far-reaching because it establishes a framework for analyzing concreteness: (1) Is there a common law tort theory that relates in some manner to the bare procedural violation? And (2) was there some infinitesimal change in conduct by the plaintiff? District courts are likely to leverage this framework beyond FACTA into any situation involving a bare procedural violation,” Sungaila concludes.

     

    Kelso L. Anderson is an associate editor for Litigation News.

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