Editor: Please give our readers some information about your respective backgrounds and practice areas.
Stock: Starting my career in the Cook County, IL, State's Attorney Office in 1977 doing criminal work, I led the criminal prosecution division when now Chicago Mayor Richard M. Daley was the State's Attorney. In 1988 I went to the DuPage County, IL, State's Attorney Office, where I supervised both the civil and criminal divisions. I later became the Chief Deputy and Chief of Staff to the Illinois Attorney General, handling a number of major cases, including multistate attorney general cases involving class actions and whistleblower qui tam cases. In 2003 I came to Gardner Carton & Douglas, which in January of this year merged with Drinker Biddle & Reath. As a litigator, I have represented a number of large clients on tax-related issues as well as the pharmaceutical industry and major health care institutions.
Berrones: Upon graduation from DePaul University College of Law in Chicago, I became an assistant state's attorney in Lake County, IL. I spent four years there as a criminal prosecutor and joined Gardner Carton & Douglas in January 1987, becoming a partner in 1994. I have spent my entire private career at the firm until its merger with Drinker Biddle & Reath in January 2007. My practice is focused on products liability, medical device and pharmaceutical litigation as well as commercial litigation. I have represented clients in class actions and served as national counsel in multidistrict litigation. I have tried a number of cases to verdict as a prosecutor and in private practice.
Editor: Why has the Truncation Provision of the Fair Credit Reporting Act become the subject of news articles?
Stock: The Fair & Accurate Transactions Act (FACTA) was signed into law by President Bush on December 4, 2003. The statute, which amended the Fair Credit Reporting Act (FCRA), was enacted as 15 U.S.C. 1681. There was a three-year window to comply with all the provisions of the statute.
Under 15 U.S.C. 1681c(g), companies that accept credit cards or debit cards cannot print more than the last five digits of the card or the expiration date of the card on the receipt. This provision applies to electronically generated receipts and excludes handwritten or imprinted credit card information. Receipts cannot contain both identifying numbers. Because the statutory window closed in December 2006, a significant number of civil cases have been brought as claims under the FCRA and as purported class actions in federal court.
Berrones: In amending the FCRA, the new FACTA law had two different provisions: one applying to machines in use before January 1, 2005, and one applying to machines put into use after January 1, 2005. There was a three-year grace period from December 4, 2003, for machines being used before January 2005, and there was a one-year grace period for machines put into use after January 1, 2005. Because the grace periods have expired, lawsuits are being filed against merchants who still use noncompliant machines. If the consumer looks at his receipt and sees that there are more than five digits of their credit card number or the expiration date is printed on the receipt, he can bring a civil suit against the retailer. The statute applies only to electronically printed receipts.
Under 15 U.S.C. 1681n, any company that "willfully" fails to comply with the statutory requirements may be liable to consumers for statutory damages ranging from $100 to $1,000 per violation. In addition, courts have the discretion to award punitive damages and attorney's fees. Therefore, a retailer who willfully violates the FCRA and who has thousands of sales a day may be looking at hundreds of thousands of dollars of potential damages per diem. The magnitude of these potential statutory damages may have a substantial impact on any size retailer or merchant.
Editor: Who would be the plaintiff in these cases?
Stock: The consumers would be the ones who are the initial named plaintiffs. Ultimately, their aggregated cases become class actions.
Editor: Is there a safe harbor for the retailers?
Stock: The U.S. Supreme Court case involving Geico v. Edo is a case that we hope will reconcile the conflict among the various federal circuits. Two of the circuits interpret this statute more liberally than other circuits. We are looking to the court to resolve the jurisdictional conflict regarding the mens rea required to establish whether or not there is a willful violation.
In January 2007 the court heard oral arguments in GEICO v. Edo and Safeco Insurance Co. v. Burr, two cases that were consolidated. Both cases involve consumers who filed suit against two different insurance companies for violating the FCRA. While these provisions are different from the provisions governing the truncation aspects of the FCRA, the ruling on this case will have an impact on the ability of plaintiffs to recover in cases involving companies that provide noncompliant credit card receipts. Essentially, the court was asked to determine whether a "willful" violation of the FCRA includes a "reckless disregard" of the law, making a company liable for statutory damages under 15 U.S.C. 1681n.
The Ninth and Third Circuits have taken the position that "willful" includes a "conscious disregard" of the law including either knowing that actions undertaken by a company are contrary to the law or committed in "reckless disregard" of whether those actions are contrary to the law. See Reynolds v. Hartford Financial Services Group, Inc., 435 F.3d 1081, 1098 (9th Cir. 2006); Cushman v. Trans Union Corp., 115 F.3d 220, 227 (3rd Cir. 1997). If the Supreme Court agrees with this interpretation of the law, there will likely be an increase in the number of cases filed because plaintiffs will have to meet a lower mens rea threshold in order to recover statutory damages.
On the other hand, the Eighth and Sixth Circuits have taken the position that "willful" violations of the FCRA require "actual knowledge" that conduct is in violation of the law. See Phillips v. Grendahl, 312 F.3d 357, 370 (8th Cir. 2002); Duncan v. Handmaker, 149 F.3d 424, 429 (6th Cir. 1998). This approach would require plaintiffs to demonstrate that companies knew that their conduct was contrary to the law.
Editor: Have there been any cases where harm has been done to a plaintiff?
Berrones: Of the cases we have looked at, it appears that the plaintiffs are only seeking statutory damages. That would lead us to believe that these plaintiffs have not suffered any actual harm because of the information that was left on their credit card receipts.
Editor: The Fair Credit Reporting Act was intended to prevent this kind of data theft. Could you give us some background on the Act?
Stock: As mentioned, the Act has a three-year window which closed at the end of last year. One of the groups that was involved in terms of disclosure requirements was the Securities Standards Council. The Securities Standards Council is a consortium of major credit card companies. They have informed companies over the past three years of the requirements under the FCRA legislation. There are a number of companies that have complied with the statute and still others that have not. With the latter group, there are a number of cases being pursued across the country, particularly in California and Illinois.
Editor: What are the interest groups that are filing these cases?
Stock: Class action counsel have been developing cases on behalf of individuals against particular defendant retail companies. They have all been brought by individual consumers and they all are now seeking certification of a putative class. There are some cases where the motion to dismiss will be decided and appealed.
Editor: Would you comment on the willful requirement of the statute?
Berrones: In order to recover statutory damages, a plaintiff has to prove that the merchant willfully failed to comply with the requirements imposed by the FCRA. There is a split of authority as to how "willfully" is defined under the FCRA. The Ninth and Third Circuits apply a reckless disregard standard, while other courts apply a more rigorous standard. Currently, the Geico case is pending before the U.S. Supreme Court, where the court is expected to interpret the term "willfully" as it is used in the FCRA.
Editor: When is the Supreme Court expected to issue a decision?
Stock: Most likely by the end of the year.
Editor: Have you worked on any cases on this issue?
Berrones: We currently are providing counsel to several clients on this issue. We have also been in communication with various retailers and other merchants to discuss the requirements under the FCRA. Any company that accepts credit cards and issues a receipt for transactions involving them that is also printed electronically is likely affected by these requirements and needs to pay close attention to them.
Published June 1, 2007.