Tuesday, June 22, 2010

FYI: 3rd Cir Reverses Lower Court's Decision to Vacate Class Settlement in FACTA Truncation Case

In a FACTA credit card receipt truncation case, the U.S. Court of Appeals for the Third Circuit recently reversed a district court’s decision to vacate an order approving a class action settlement agreement based on the Credit and Debit Card Receipt Clarification Act of 2007, holding that: (1) a class action settlement can be binding on the parties even before final judicial approval; (2) a strong public policy exists in class action suits favoring settlement of disputes; and (3) changes in the law after a settlement is reached do not provide ground for rescission of a settlement.  A copy of the opinion is attached.

Plaintiffs filed a class action lawsuit against Verizon Wireless (“Verizon”), claiming that it violated FACTA by printing receipts that displayed more than the last five digits of a buyer’s credit or debit card and/or the expiration date of the credit or debit card.  The parties completed mediation and reached a settlement, and the district court entered a preliminary order approving the settlement.  Shortly thereafter, Congress passed the Credit and Debit Card Receipt Clarification Act of 2007 (the “Clarification Act”), which amended FACTA and eliminated the plaintiffs’ cause of action.  The district court then granted a motion by Verizon to vacate the order approving the settlement and entered judgment on the pleadings in favor of Verizon.  This appeal followed.

In a 2-1 decision reversing the district court, the 3rd Circuit focused on the following reasoning:

First, the Court explained that under Federal Rule of Civil Procedure 23(e), a district court acts as a fiduciary, protecting the unnamed members of the class, but the requirement that a district court approve a class action settlement does not affect the binding nature of the parties’ underlying agreement, and in this matter the settlement reached was a binding and enforceable contract, regardless of district court approval. 

Second, the Court found that the district court’s decision “ran afoul of the strong presumption in favor of voluntary settlement agreements,” explaining that there is a “strong judicial policy in favor of class action settlement.” 

Finally, the Court found that the Clarification Act did not moot the settlement agreement of the parties, holding that “changes in the law after settlement do not affect the validity of the agreement.”  In so holding, the court reasoned that “[l]ike a decision to forgo an appeal, the decision to settle a case is a considered one,” and that a court’s role is not to “relieve a party of that decision because hindsight reveals that its decision was, given later changes in the law, probably wrong.”  The majority thus disagreed with the dissent’s opinion that the Clarification Act rendered the settlement agreement moot.

Let me know if you have any questions.  Thanks.


Ralph T. Wutscher

Kahrl Wutscher LLP

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Chicago, Illinois  60602
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