Wednesday, May 15, 2019

FYI: 11th Cir Splits from Other Circuits on Spokeo Standing

The U.S. Court of Appeals for the Eleventh Circuit ("Eleventh Circuit") sua sponte issued a new opinion to vacate and replace its prior opinion affirming approval of a class action settlement against a retailer for alleged violation of the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") for printing more digits of his credit card number on a receipt than permitted under the Act.


Departing from contrary opinions by other federal appellate courts, the Eleventh Circuit's new opinion offers an updated analysis of the plaintiff-appellee consumer's standing to bring the action under Spokeo, holding that the risk of identity theft the consumer suffered was sufficiently concrete to confer Article III standing, and also bears a close enough relationship to the common law tort of breach of confidence to make the consumer's injury concrete.


A copy of the opinion is available at:  Link to Opinion


A consumer ("Consumer") filed suit in the U.S. District Court for the Southern District of Florida against a prominent chocolate retailer ("Merchant") alleging that the store issued him a receipt that showed his credit card number's first six and last four digits after he made a purchase at one of the Merchant's stores.  The Consumer's Complaint sought relief on behalf of himself, and a class of customers under the Fair and Accurate Credit Transactions Act, 15 U.S.C. 1681, et seq. ("FACTA") as a result of the Merchant's allegedly willful violation, which purportedly exposed him and the proposed class "to an elevated risk of identity theft."


As you may recall, FACTA prohibits merchants from printing "more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction" (15 U.S.C. § 1681c(g)(1)), and allows for recovery of statutory damages even if the customer received and kept the defective receipt and submits no evidence of identity theft or negative impact to their credit. 15 U.S.C. § 1681n(a); Engel v. Scully & Scully, Inc., 279 F.R.D. 117, 125–26 (S.D.N.Y. 2011).


After the Merchant's motion to dismiss was denied, a preliminary class-wide settlement was reached, which included a $6.3 million settlement fund (providing each class member an estimated $235 as its pro-rata share), a one-third contingency fee of $2.1 million to class counsel, and a $10,000 incentive award to the Consumer as class representative.  The Consumer's motion for preliminary approval addressed potential risks favoring pre-trial settlement, including potential challenges to the class members' Article III standing to pursue their FACTA claims dependent upon the outcome of Spokeo, Inc. v. Robins, 578 U.S. ___, 136 S. Ct. 1540 (2016), then-pending before the Supreme Court. 


The motion for preliminary approval and proposed form notice were granted, and a scheduling order for the class members to file claims, objections or opt-outs was set approximately two-and-a-half weeks prior to the Consumer's deadline to move for final settlement approval, including the requested attorney's fees and incentive award.


Of the 318,000 class members who received notice of the settlement, over 47,000 submitted claim forms.  Only fifteen members opted out, including five who objected to the settlement.  Two class members (the "Objecting Class Members") objected to the proposed class-wide settlement, arguing that (i) the Consumer's $10,000 incentive award was not warranted, (ii) the proposed attorney's fee award should be subject to a lodestar analysis, and (iii) notice of the fee motion was inadequate under Rule 23(h).  See Fed. R. Civ. P. 23(h)(1) ("[n]otice of the motion [for attorney's fees and nontaxable costs] must be served on all parties and, for motions by class counsel, directed to class members in a reasonable manner."). 


The Consumer subsequently filed the motion for final approval of settlement along with a separate motion for attorneys' fees at the court's direction, and four days later—before the Objecting Class Members field their opposition briefs—the magistrate issued a report and recommendation ("R&R") to approve the class settlement and full attorneys' fees  and incentive awards as proposed.  The Objecting Class Members proceeded with filing their opposition briefs and objections to the magistrate's R&R, which were considered at a fairness hearing before the court, wherein counsel for one of the Objecting Class Members raised a new objection concerning the Consumer's standing under Article III. 


Over the Objecting Class Members' objections, the trial court approved the settlement, including the requested attorneys' fees and incentive award, rejecting the Objecting Class Members' argument that notice of the fee motion was not adequate because it had "permitted objections to be filed both before and after" it was filed, and also considered the R&R objections in reaching its conclusion that the fee and incentive awards were reasonable.


The Objecting Class Members appealed the final approval of settlement and one of the two appellants further challenged the Consumer's Article III standing to pursue a claim against the Merchant under FACTA on appeal. 


The Eleventh Circuit first addressed the Consumer's standing to bring the action under Article III.  This discussion is the court's self-declared "major change" from its previous opinion. 


As you may recall, Article III standing to invoke federal subject matter jurisdiction requires plaintiffs to show they suffered an injury in fact traceable to the defendant's conduct and redressable by a favorable judicial decision. Spokeo, Inc. v. Robins, 578 U.S. __, 136 S. Ct. 1540, 1547.  "To establish injury in fact, a plaintiff must show that he or she suffered 'an invasion of a legally protected interest' that is 'concrete and particularized' and 'actual or imminent, not conjectural or hypothetical.'"  Id. at 1548 (internal quotation omitted). 


Whether the Consumer's alleged injury was "particularized" was not at dispute because the heightened risk of identity theft affected him "in a personal and individual way"— it was his credit card number that appeared on the receipt. 


Instead, the Objecting Class Member's argument relied upon Spokeo's holding which reaffirmed a "'concrete' injury must be 'de facto'; that is, it must actually exist," (Id. at 1548) to argue that the Consumer lacked standing because the injury was not sufficiently "concrete" to confer standing.  The Consumer argued that his injury was also concrete because he suffered a heightened risk of identity theft when the Merchant printed more digits of his credit card number than allowed under FACTA. 


As the Eleventh Circuit pointed out, in cases like this, a plaintiff may show injury in fact by alleging "the violation of a procedural right granted by statute" poses a "risk of real harm" to a concrete interest. Id. at 1549. 


Here, the Consumer alleged that he suffered a heightened risk of identity theft as a result of the Merchant's FACTA violation—the very interest that Congress sought to protect with FACTA.  A consumer undoubtedly has a concrete interest in preventing his identity from actually being stolen.  See Attias v. Carefirst, Inc., 865 F.3d 620, 627 (D.C. Cir. 2017) ("Nobody doubts that identity theft, should it befall one of these plaintiffs, would constitute a concrete and particularized injury.").  Accepting these allegations as true, the Eleventh Circuit concluded that the Consumer established a risk of real harm to a concrete interest sufficient to establish standing under Spokeo.


The re-issued opinion acknowledges that its declines to follow the Third Circuit's recent ruling in Kamal v. J. Crew Grp., Inc., 918 F.3d 102, 114 (3d Cir. 2019), which rejected a consumer's FACTA claims for the same purported violations as the case at bar for not alleging a concrete article for Article III standing. 


However, the Eleventh Circuit contended that its holding here is not inconsistent with other circuits which found no standing in similar claims under FACTA pertaining to inclusion of a credit card expiration date on receipts, and is distinguishable because those opinions rely on Congress's finding in The Credit and Debit Card Receipt Clarification Act of 2007 (the "Clarification Act"), that "a receipt with a credit card expiration date does not raise a material risk of identity theft."  See Bassett v. ABM Parking Servs., Inc., 883 F.3d 776 (9th Cir. 2018); CruparWeinmann v. Paris Baguette Am., Inc., 861 F.3d 76 (2d Cir. 2017); Meyers v. Nicolet Rest. of De Pere, LLC, 843 F.3d 724 (7th Cir. 2016). 


The Eleventh Circuit reasoned that the legislative history of the Clarification Act reflects Congress's view that printing more than the last five digits of a credit card number contributes to the problem of identity theft because the Act left only limited liability for printing expiration dates in drafting the Clarification Act, and specifically found that FACTA's truncation requirement "prevents a potential fraudster from perpetrating identity theft or credit card fraud."  For these reasons, the Eleventh Circuit held that Congress judged the risk of identity theft suffered by the Consumer to be sufficiently concrete to confer standing to raise his FACTA claims.


Separately, the Court held, the Consumer could show standing based on the similarity between the alleged harm and the common law tort of breach of confidence.  Spokeo at 1549 (describing it as "instructive to consider whether an alleged intangible harm has a close relationship to a harm that has traditionally been regarded as providing a basis for a lawsuit in English or American courts"). 


A common law breach of confidence involves the offer a person's private information to a third party in confidence who reveals that information, and occurs when the plaintiff's trust in the breaching party is violated, whether or not the breach has other consequences (citations omitted). 


Here, because the Merchant printed more numbers of the Consumer's credit card than allowed under statute, it created a heightened risk that information the Consumer entrusted to it would become disclosed to the public — a risk the Eleventh Circuit concluded bears a close enough relationship to the disclosure of confidential information actionable at common law for breach of confidence to satisfy Article III under Spokeo. 


Although the Third Circuit's opinion in Kamal 918 F.3d at 114 rejected this case's original opinion that breach of confidence is sufficiently analogous to give rise to standing, the Eleventh Circuit noted that it has consistently read Spokeo to mean that, where the common law allowed a cause of action to remedy an injury, Congress can create a statutory cause of action to remedy the risk of such an injury.  Accordingly, it concluded that the Consumer suffered a concrete injury, and has standing to bring this action.


Lastly, in addressing the Objecting Class Members' remaining arguments concerning approval of the class settlement, the Eleventh Circuit held that although the trial court erred by setting an objection deadline before a filed motion for attorney's fees, the Objecting Class Members were not prejudiced because their arguments were adequately considered by the magistrate and the court.  


Moreover, the Eleventh Circuit held that the trial court did not abuse its discretion in its attorney's fees and incentive awards because (i) a lodestar analysis was not appropriate because the attorneys' fees were sought from a common fund, rather than a fee-shifting statute, and the above-benchmark award properly assessed risks faced by the class and its counsel, and; (ii) the incentive award was supported by the district court's record, which stated that the Consumer subjected himself to inconvenience and delays that did not materialize, but were a possibility when he was appointed to represent the class.


Accordingly, the trial court's approval of the class-action settlement was affirmed.





Ralph T. Wutscher
Maurice Wutscher LLP
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