Redman v. RadioShack Corp., s. 14–1470

• Decision Date: 19 September 2014
• Docket Number: 14–1471,14–1658,14–1320.,Nos. 14–1470,s. 14–1470
• Citation: 768 F.3d 622
• Parties: Scott D.H. REDMAN, individually and on behalf of all others similarly situated, et al., Plaintiffs–Appellees, v. RADIOSHACK CORPORATION, Defendant–Appellee. Appeal of Michael Rosman, et al., Objectors. Sulejman Nicaj, Plaintiff–Appellant, v. Shoe Carnival, Incorporated, Defendant–Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

768 F.3d 622

Scott D.H. REDMAN, individually and on behalf of all others similarly situated, et al., Plaintiffs–Appellees

v.RADIOSHACK CORPORATION, Defendant–Appellee.

Appeal of Michael Rosman, et al., Objectors.

Sulejman Nicaj, Plaintiff–Appellant

v.Shoe Carnival, Incorporated, Defendant–Appellee.

Nos. 14–1470

14–1471

14–1658

14–1320.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 8, 2014.

Decided Sept. 19, 2014.

Thomas A. Zimmerman, Jr., Attorney, Zimmerman Law Offices, P.C., Karl Leinberger, Attorney, Paul F. Markoff, Attorney, Markoff Leinberger, James R. Daly, III, Attorney, Chicago, IL, for appellee.

Theodore H. Frank, Attorney, Melissa Ann Holyoak, Attorney, Center for Class Action Fairness, Washington, DC, for appellant.

Before WOOD, Chief Judge, and POSNER and HAMILTON, Circuit Judges.

Opinion

POSNER, Circuit Judge.

We have consolidated for decision appeals in two class actions filed under the Fair and Accurate Credit Transactions Act (“FACTA”), 15 U.S.C. § 1681c(g). The Act provides, so far as relates to these cases, that “no person that accepts credit cards or debit cards for the transaction of business shall print [electronically, as distinct from by handwriting or by an imprint or copy of the card] 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.” §§ 1681c(g)(1), (2) (emphasis added). The present cases concern the expiration date. The idea behind requiring its deletion is that, should the cardholder happen to lose the receipt of a transaction, the less information the receipt contains the less likely is an identity thief who happens to come upon the receipt to be able to figure out the cardholder's full account information and thus be able to make purchases that the seller will think were made by the legitimate cardholder.

A typical credit card has 16 digits and an expiration date that is the last day of a designated month and year. Even if the identity thief has all 16 digits, without the expiration date he may be unable to use the card. He can of course guess at the expiration date—the date is unlikely to be more than a few years in the future and there are only 12 months in a year; so if he guesses 60 times he's very likely to hit the jackpot. But if he guesses wrong the first few times that he places an order, the card issuer may well get suspicious and refuse to authorize his next order. See, e.g., D. Lee, “Nine Reasons Your Credit Card Was Declined,” Fox Business, May 21, 2013, www. foxbusiness.com/personal-finance/2013/05/21/nine-reasons-your-credit-card-was-declined/ (visited Sept. 12, 2014, as were the other websites cited in this opinion). It's common in telephone and internet transactions for the consumer to be asked for an expiration date, and most systems will not allow the would-be customer to keep guessing at the date, as the guessing suggests that he may be an identity thief.

Additional reasons for requiring deletion of the expiration date include that “expiration dates combined with the last four or five digits of an account number can be used to bolster the credibility of a criminal who is making pretext calls to a card holder in order to learn other personal confidential financial information. Expiration dates are solicited by criminals in many e-mail phishing scams ..., are one of the personal confidential financial information items trafficked in by criminals ..., are described by Visa as a special security feature ..., [and] are one of the items contained in the magnetic stripe of a credit card, so it is useful to a criminal when creating a phony duplicate card.” Don Coker, “Credit Card Expiration Dates and FACTA,” HGExperts.com, www.hgexperts.com/article.asp?id=6665.

If a violation of the statute is willful, a consumer whose receipt contains as a result of the violation data that should have been deleted, but who sustains no harm because no one stole his identity as a result of the violation, is nevertheless entitled to “statutory damages,” as distinct from compensatory or punitive damages, of between $100 and $1000. 15 U.S.C. § 1681n(a)(1)(A). (Statutory damages are in effect bounties—means of inducing private persons to enforce a regulatory law.) In contrast, a consumer harmed by the violation of the statute can obtain actual damages by showing that the violation was the result of negligence, § 1681o ; he need not prove willfulness.

To act “willfully” is, for purposes of civil law, to engage in conduct that creates “an unjustifiably high risk of harm that is either known or so obvious that it should be known,” Farmer v. Brennan, 511 U.S. 825, 836, 114 S.Ct. 1970, 128 L.Ed.2d 811 (1994) -reckless conduct, in other words, as held in Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 56–60, 127 S.Ct. 2201, 167 L.Ed.2d 1045 (2007), but reckless conduct in the civil sense. Criminal recklessness is generally held to require “knowledge of a serious risk to another person, coupled with failure to avert the risk though it could easily have been averted,” Slade v. Board of School Directors, 702 F.3d 1027, 1029 (7th Cir.2012) ; see also Black's Law Dictionary 1298–99 (Bryan A. Garner ed., 8th ed.2004), “whereas in civil cases at common law it is enough that the risk, besides being serious and eminently avoidable, is obvious; it need not be known to the defendant.” Slade v. Board of School Directors, supra, 702 F.3d at 1029.

The known or obvious risk in this case would be failing to delete the expiration date on the consumer's credit-card or debit-card purchase receipt, whereas to be guilty merely of negligence it would be enough that a reasonable person would have deleted it. See Wassell v. Adams, 865 F.2d 849, 855 (7th Cir.1989).

Willfulness is an issue in both our cases. But it is a peripheral issue in the RadioShack case, while it is the primary issue in our other case, the Shoe Carnival case. Although both are class action suits, the district court in Shoe Carnival dismissed the suit with prejudice before certifying a class; there are no issues in that case concerning class action procedure. (The defendant could have sought class certification in order to prevent future similar suits by other class members, but did not.) RadioShack, in contrast, is centrally about class action procedure. The parties settled and the district court approved the settlement, and the appeal is by class members who objected to the approval. We begin with that case but defer discussion of the willfulness issue in it to later, when we take up the appeal in Shoe Carnival.

RadioShack Corporation is a large, well-known retail purveyor mainly of consumer electronics, cell phones, and related consumer products such as batteries, see “RadioShack,” Wikipedia, http://en.wikipedia.org/wiki/Radio Shack, sold mainly in RadioShack's thousands of stores rather than online. The class action suit was filed on behalf of consumers who bought products at RadioShack stores, paid with credit or debit cards, and received electronically printed receipts that contained the card's expiration date. The suit was filed in September 2011. In May 2013, before any substantive motions had been decided, the named plaintiffs (realistically, class counsel) agreed with RadioShack on terms of settlement. The essential term was that each class member who responded positively to the notice of the proposed settlement would receive a $10 coupon that it could use at any RadioShack store. The class member could use it to buy an item costing $10 or less (but he would receive no change if the item cost less than $10), or as part payment for an item costing more. He could stack up to three coupons (if he had them) and thus obtain a $30 item, or a $30 credit against a more expensive item. He could also sell his coupon or coupons, but the coupons had to be used within six months of receipt because they would expire at the end of that period.

With regard to three-coupon stacking, the only way a member of the class could obtain more than a single coupon would be to buy one or more coupons from another class member, because the settlement allows only one coupon per customer no matter how many of his or her RadioShack purchases involved the erroneous receipts (in itself an arbitrary restriction on the value of the settlement to class members). But coupons may be difficult to buy. The owner would be reluctant to sell it for less than $10, as that would mean selling at a loss, but no sane person would pay more because a $10 coupon is worth only $10. Doubtless some owners, however, will sell because they don't plan to use the coupon or have no interest in a product that doesn't cost less than $10. Those owners are potential sellers. Nevertheless the secondary market in coupons is bound to be thin because of the paucity of coupons, the short expiration date, the limit to three per transaction (so people who want big-ticket items won't find the secondary market attractive as a source of coupons), and the bother of going online to buy $10 coupons at small discounts.

Although the class was assumed to contain 16 million members, notice of the proposed settlement was sent to fewer than 5 million. Actually no one can be sure whether the 16 million transactions involved 8 million different consumers, 12 million, or any other number, because of the one-coupon-per-person restriction. This may be a reason why the settlement administrator notified only about 5 million RadioShack consumers, though cost may have been the primary reason.

Of those potential class members who received notice of the proposed settlement, some 83,000 (we'll assume for simplicity that it was exactly 83,000)—a little more than one half of one percent of the entire class, assuming the entire class really did consist of 16 million different consumers—submitted claims for the coupon in response. The magistrate judge's statement that “the fact that the vast majority of class members—over 99.99%— have...