District Court Erred in Dismissing FACTA Class Action Complaints on Grounds that Statutory Damages Awardable under FCRA were Unconstitutional Facially and As-Applied because As-Applied Challenge not Ripe and because Statute not Unconstitutional on its Face in part because Members of Class Actions may have Suffered Actual Damages Eleventh Circuit Holds
Two separate class action lawsuits were filed, one against Mexican Specialty Foods and one against Rave Motion Pictures, alleging violations of the federal Fair and Accurate Credit Transactions Act (FACTA), which is part of the Fair Credit Reporting Act (FCRA); specifically, the class action complaints asserted that defendants willfully violated FACTA by including more than the last 5 digits of a customer’s credit or debit card number and/or its expiration date on customer receipts, and sought both statutory damages and punitive damages. Harris v. Mexican Specialty Foods, Inc., ___ F.3d ___ (11th Cir. April 9, 2009) [Slip Opn., at 5-6]. Defense attorneys in each class action moved for summary judgment on the ground that the statutory damages provision of the FCRA is unconstitutional; the federal government intervened as a party-plaintiff “to defend the constitutionality of the statute.” Id., at 6. By way of background, and in overly broad terms, the FCRA seeks in part to protect consumer privacy by requiring that merchants safeguard credit information. Id., at 3. Toward that end, Congress enacted FACTA, “which is aimed at protecting consumers from identity theft” and which requires that merchants truncate credit/debit numbers on receipts provided to customers at point of sale, id., at 3-4 (citing 15 U.S.C. § 1681c(g)(1)). The statutory scheme authorizes private rights of actions for willful violations of the FCRA, including statutory damages of “not less than $100 and not more than $1,000.” Id., at 4 (quoting 15 U.S.C. § 1681n(a)(1)(A)). In a single order covering both class actions, the district court held that the statutory damage provision of the FCRA was “unconstitutionally vague on its face and unconstitutionally excessive on its face and as applied to the defendants, in violation of the Fifth Amendment Due Process Clause.” Id., at 6. Accordingly, it dismissed the class action complaints with prejudice, id. The plaintiffs in each class action appealed and the Eleventh Circuit consolidated the class actions, id., at 6-7. The Circuit Court reversed the dismissal of the class action complaints and remanded the class actions to the district court.
After noting that the district court’s ruling on the constitutionality of the FCRA’s statutory damage provision is subject to de novo review, see id., at 7, the Eleventh Circuit turned to whether the case was ripe for adjudication, and it noted that analysis of this issue in facial challenges is different than in as-applied challenges, id., at 8. The Circuit Court readily found that “defendants’ facial challenges to the FCRA are sufficiently ripe for adjudication.” Id., at 9. However, it found the question of whether the as-applied challenge was ripe to be “more problematic.” Id. In connection with its as-applied analysis, the district court assumed that if the class actions succeeded on the merits, then “the plaintiffs would be entitled to monetary awards that would be grossly disproportionate to the harm caused, and that the award would likely bankrupt the defendants.” Id., at 10-11. In the district court’s view, the FCRA mandated a statutory award of $100-$1000 “thus stripping courts of discretion to reduce the verdict below $100 per violation”; as applied, then, the court found that the statutory damage provision of the FCRA would “impose an unconstitutionally excessive penalty” as applied against defendants. Id., at 11. In reversing this finding, the Eleventh Circuit found that the district court assumptions were unwarranted. First, the Court found a dispute existed as to whether defendants would contest class action treatment of the actions. Id. Second, “at this early stage in the proceedings” it was unclear whether putative class members had suffered actual damages, id., at 11-12. And third, it was unclear whether defendants’ violation of FACTA was “willful” within the meaning of the FCRA, which is a prerequisite to an award of statutory damages, id., at 12-13. Accordingly, contrary to the district court’s conclusion, the as-applied challenge to the FCRA was not ripe for adjudication, id., at 13. The Eleventh Circuit therefore limited its review of the district court order to whether the statute was facially unconstitutional. Id.
Turning to whether the FCRA’s statutory damage provision was unconstitutionally vague, the Eleventh Circuit explained that the district court based its decision on its belief that “it is impossible for a judge to adequately charge a jury on where an award should fall within the $100 to $1,000 range” because the statute provides no criteria to be followed in determining the damages to be awarded. Harris, at 13-14. The Circuit Court began its analysis by noting that several federal laws provide for statutory damages within a certain range, see id., at 15-16. Contrary to defendants’ arguments, the statute did not violate defendants’ due process rights by failing to provide the criteria to be used in determining the appropriate statutory penalty; because the FCRA puts merchants on notice that they will face penalties of $100 to $1000 for violations of FACTA, the requirements of due process were satisfied. Id., at 16-17. The Circuit Court further held that the FCRA statutory damage provision does not give juries such broad discretion so as to render their damage award arbitrary. Id., at 17-18. Accordingly, the Court held that the statute was not unconstitutionally vague on its face. Id., at 18. Nor are the damages awardable under the FCRA excess on the face of the statute, see id., at 18-19. The Eleventh Circuit explained at page 19, “Because the FCRA already contains a punitive damages provision and specifies that statutory damages may only be awarded in lieu of actual damages, the district court erred in concluding that the statutory damages provision is tantamount to a punitive damages provision.” Moreover, in light of the fact that certain class members may have suffered actual damages, the damages awardable under the statute were not excessive on their face, id., at 19-20.
In sum, the Eleventh Circuit “conclude[d] that the district court erred in considering the merits of the as applied excessiveness challenge before it was ripe and also in holding that the statute is unconstitutionally vague and excessive on its face.” Harris, at 20. It therefore reversed the order dismissing the class action complaints and remanded the class actions to the district court for further proceedings. Id.
NOTE: Congress amended FACTA in the Credit and Debit Card Receipt Clarification Act of 2007, 15 U.S.C. § 1681n(d)), signed into law on June 3, 2008, which retroactively precluded recovery for FACTA violations premised solely on the printing of a credit card’s expiration dates on customer receipts.