May 28, 2013 Top Story

Zip Codes Are Private

Ruling fuels class actions against retailers following similar California suits

Andrew J. Kennedy

Retailers, who have faced a wave of class action lawsuits in California for collecting ZIP code information in connection with credit card sales, now face similar suits in Massachusetts. The Massachusetts Supreme Judicial Court—answering questions certified to it by a U.S. District Court—held that requiring customers to provide their ZIP code when making credit card purchases may be an unfair trade practice. Tyler v. Michaels Stores, Inc. [PDF]. That decision is already fueling multiple putative class actions against retailers for collecting ZIP codes, and some observers believe it may spark similar suits in other states.

Putative Class Action Filed in Court

Melissa Tyler, a consumer, filed a putative class action alleging that Michaels Stores had required customers to provide ZIP codes when making credit card purchases in violation of Massachusetts consumer protection law and that the improper conduct constituted a compensable injury in itself. The retailer moved to dismiss the complaint, arguing that a ZIP code is not personally identifiable information, and that the collection of ZIP code information itself, without any identity theft, is not a sufficient to constitute a cognizable injury.

The U.S. District Court for the District of Massachusetts analyzed the policy behind the state’s consumer protection law. It found [PDF] that the main concern of the law was to protect consumers from identity fraud by prohibiting retailers from using personally identifiable information for credit card purchases that were not required to process the transaction. That is, it found that ZIP codes were protected private information.

Court Certifies Question after Initially Dismissing Complaint

The district court then dismissed the complaint, finding that the mere collection of ZIP codes, while violating the statute, did not constitute a “redressable injury.” The court also suggested that collecting protected information, without economic injury, would not be enough harm to establish standing under Article III of the U.S. Constitution. The plaintiff then moved for the district court to certify the state law questions to the Massachusetts Supreme Judicial Court. The district court granted that motion.

The Massachusetts high court found that the purpose of the law was both to prevent identify fraud and to protect consumer privacy. The court found that ZIP codes are personal information because the law was intended to protect consumers who use credit cards from receiving unwanted commercial solicitations from merchants with access to their identifying information. The court found that ZIP codes were private information protected under the statute. It agreed with the district court that proof that the retailer collected the ZIP code—without more—was not enough to establish a claim for damages under state law. But the court found that a consumer could establish an injury even in the absence of monetary loss or identity theft in two ways: (1) if the consumer actually received unwanted marketing material, or (2) if the merchant sold the personally identifiable information. The high court held that receiving unwanted marketing materials was an invasion of privacy, and, therefore, “the consumer is entitled to the minimum statutory damage award of twenty-five dollars.”

A Wave of Class Actions?    

Two weeks after the Supreme Judicial Court entered its decision, Tyler filed a nearly identical case against another retailer. That case is also pending in the U.S. District Court for the District of Massachusetts.

Some observers think this case will spur more litigation. “Tyler will only embolden plaintiff’s lawyers to bring similar lawsuits in other states,” predicts Austin V. Schwing, San Francisco, cochair of the Consumer Law Subcommittee of the ABA Section of Litigation’s Class Actions and Derivative Suits Committee. He says that hundreds of similar suits were brought in California, which likewise bars retailers from collecting “personal identifiable information” in credit card transactions. He observes that “the stakes just went up because of the [$25] minimum damages that the Massachusetts statute allows.”

“Even though the harm of a person receiving junk mail is impossible to quantify, retailers are potentially on the hook for many millions of dollars,” he says. That, Schwing says, is not fair “because the punishment does not fit the crime.”

Others foresee far less impact. “Most state UDAP statutes require that the consumer show a loss of money or property, so that the invasion of privacy without more would not be enough to permit statutory damages,” explains Michael D. Donovan, Philadelphia, cochair of the Consumer Law Subcommittee of the Section of Litigation’s Class Actions and Derivative Suits Committee. Because of that difference in statutory language, Donovan does not believe the decision will have much impact in other states that do not share Massachusetts's language.

A procedural defense may prove to be a silver lining for retailers, notes Schwing. In its original decision, the district court suggested that the level of “injury” suffered by the plaintiffs was not enough to confer Article III jurisdiction—regardless of what the state high court found. That standing argument, says Schwing, may allow retailers to dismiss putative class actions filed against them in federal court where there is no monetary loss.

Whether this defense affects other putative class actions involving ZIP code collection remains to be seen. In Tyler, the Massachusetts Supreme Judicial Court sent the case back to the U.S. District Court, which reopened it and consolidated it with another class action against the same retailer that was filed earlier this year.

Andrew J. Kennedy is a contributing editor for Litigation News.

Keywords: identity theft, consumer privacy, class actions, consumer protection, ZIP code, Article III standing

Related Resources

  • Tyler v. Michaels Stores, Inc. [PDF], 464 Mass. 492, 2013 Mass. LEXIS 40 (Mass. March 11, 2013).
  • Tyler v. Michaels Stores, Inc., 840 F.Supp.2d. 438 (D. Mass. 2012).
  • Pineda v. Williams-Sonoma Stores, Inc., 51 Cal. 4th 524, 246 P.3d 612, 120 Cal. Rptr. 3d 531 (Ca. 2011).

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