Challenged Settlement Highlights Risk of Consumer Class Actions

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Challenged Settlement Highlights Risk of Consumer Class Actions


The Seventh Circuit Court of Appeals recently heard oral argument on a challenge to a proposed class settlement in the case of Michael Rosman v. Radio Shack Corporation.  The lawsuit alleged that Radio Shack had violated the Fair and Accurate Credit Transactions Act (“FACT”), 15 U.S.C. §1681c(g), by printing the expiration date of the customer’s credit or debit card on their receipts.  It was not alleged that any class member suffered any financial damages as a result of the violation, but Radio Shack reached a settlement with lead counsel for the class, under which class counsel were awarded $1 million in fees, while class members were entitled to a coupon worth $10 if redeemed at Radio Shack for merchandise within 6 months.  Some members of the class challenged the settlement as unfair and in violation of the Class Action Fairness Act (“CAFA”).

At oral argument, the plaintiffs’ attorneys were subject to tough questioning by Judge Richard Posner, who questioned the fairness of a settlement that awarded more to plaintiffs’ attorneys than the entire amount claimed by class members (83,000 coupons were claimed, and many of these will not be redeemed).  The case is illustrative of the ongoing debate about the class action mechanism in general.  Intended to provide, in the words of the preamble to CAFA, “fair and efficient resolution of legitimate claims of numerous parties,” class actions too often result in costly settlements, driven by the threat of crippling liability, that provide little benefit to the class members, even as they enrich a handful of lawyers.

From a retailer’s perspective, the case also serves as a chilling reminder of the ways that laws incorporating statutory damages may be particularly tempting targets for enterprising class action lawyers.  The Radio Shack case dealt with an alleged violation of FACTA, a law that includes statutory damages of $100 per violation ($1,000 if willful).  That means that Radio Shack could potentially have been required to pay $100 dollars or more for every receipt from its point of sale terminals across the country over the period of more than a year – the class may have included as many as 16 million individuals.  Against this backdrop, Radio Shack had clear incentives to pursue a settlement.

In addition to FACTA, which, among other things, prohibits both the printing of a card’s expiration date and the printing of more than the final five digits of a customer’s card number on the receipt, a number of other state and federal laws that include per violation statutory damages are of particular relevance to retailers and marketers.  The Telephone Consumer Protection Act, 47 U.S.C. §227, et seq., (“TCPA”) prohibits the use of automated technology to send unsolicited calls or texts without prior express consent.  And numerous state laws, most prominently Massachusetts and California, ban the collection or recording of personal information (including zip codes) in connection with credit card transactions beyond the information printed on the card itself.  We have blogged about these laws here, here and here.  As always, we encourage readers to take steps to avoid becoming an easy target for class action litigation.

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