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11th Cir. Upholds Approval of FACTA Class Settlement Despite Non-Lodestar Class Counsel Fees, Other Issues

The U.S. Court of Appeals for the Eleventh Circuit recently affirmed a class settlement where the defendant allegedly violated the federal Fair and Accurate Credit Transactions Act (FACTA) by printing point-of-sale credit card receipts that included more than the last five digits of the card number.

In so ruling, and over the objections of two class members, the Eleventh Circuit held that :

  1.  Consistent with similar prior rulings from other federal appellate courts, the named plaintiff had Spokeo standing to pursue the claims, because the FACTA claims were similar to the common law tort of breach of confidence; and
  1. Class counsel’s untimely attorney’s fees motion — filed two weeks after the deadline for class members to object had passed — did not warrant reversal because four other class members objected after receiving notice of the preliminary approval of class settlement; and
  1. A lodestar analysis was not required for class counsel’s fees, because the compensation secured by class counsel and risk of litigation justified an award of one-third of the settlement fund for attorney’s fees and a $10,000 incentive to the class representative.

A copy of the opinion in Muransky v. Godiva Chocolatier, Inc. is available at:  Link to Opinion.

A consumer filed a class action alleging that a retail merchant violated FACTA,  15 U.S.C. § 1601 et seq., by printing a receipt that showed his credit card number’s first six and last four digits.

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).

FACTA provides for a combination of actual and statutory damages.  15 U.S.C. § 1681n(a).  For statutory damages, FACTA provides for an award of $100 to $1,000 for each willful violation.  15 U.S.C. § 1681n(a)(1)(A).

The parties agreed to settle on a classwide basis and proposed a settlement fund of $6.3 million from which all fees, costs, and class members would be paid.

Class members who submitted a timely claim form would receive approximately $235 as their pro-rata share of the settlement fund.  None of the money would revert to the merchant.  Class counsel would receive an award of attorney’s fees of up to one-third of the settlement fund, which would be $2.1 million.  The consumer would receive an incentive award of $10,000.

The trial court granted the motion for preliminary approval, certified the class under Rule 23(b)(3), and approved the form of notice.  Under the preliminary approval order, class members who wanted to be excluded from the settlement were required to give written notice of exclusion to the claims administrator.

Two class members objected to the settlement, arguing that class counsel’s fee motion was inadequate under Rule 23(h), that the court should subject any attorney’s fee award to a lodestar analysis, and a $10,000 incentive award was not warranted.

After a fairness hearing, the trial court approved the settlement and awarded the incentive award and attorney’s fees to the consumer and class counsel respectively.

The objectors appealed.

The Eleventh Circuit began its analysis by reviewing the consumer’s standing to pursue a FACTA claim against the merchant.

The objectors argued that the named plaintiff did not allege a concrete injury to confer Article III standing under the Supreme Court’s decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016).  Instead, the consumer merely alleged that the merchant willfully violated its duty not to print more than five digits of its credit card number on a receipt.

The Eleventh Circuit disagreed, noting that FACTA was “aimed at protecting consumers from identity theft” and imposed a duty on merchants not to “print 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).

The Eleventh Circuit compared the merchant’s disclosure of the consumer’s credit card number to the common law tort of breach of confidence.  Typical breach of confidence cases, as the Eleventh Circuit explained, involve a customer entrusting information or items to trusted persons, who would without permission disclose those items to other people for personal gain.  An important difference between the breach of confidence tort and privacy torts was the identification of harm.

The Eleventh Circuit explained that in privacy cases, the harm was usually construed in terms of exposure “with an emphasis on publication as the cause of the harm.”  But in breach of confidence cases, the harm happens when the plaintiff’s trust in the breaching party is violated.  Applying this view, the Eleventh Circuit found that when the consumer used his credit card, he entrusted the merchant with his credit card number and his trust was violated when that card number was not kept confidential.

The Eleventh Circuit observed that FACTA established a duty of care for merchants that print receipts and defined that duty as requiring printing no more than five digits of customers’ credit card numbers.  The FACTA also made willful violations of that duty actionable.

The Eleventh Circuit also observed that because the consumer received the receipt from the merchant, the consumer had to shoulder the cost of protecting or destroying the untruncated receipt.

Thus, the Eleventh Circuit concluded that the consumer suffered a concrete harm when the merchant provided an untruncated receipt.

Moreover, the Eleventh Circuit reasoned that its holding was consistent with the decisions of the Second, Seventh, and Ninth Circuits “where customers alleged that they suffered a risk of identity theft because the receipts included their credit card expiration date, which was a violation of FACTA, 15 U.S.C. § 1681c(g).  See Bassett v. ABM Parking Servs., Inc., 883 F.3d 776 (9th Cir. 2018); Crupar-Weinmann 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).

Next, the Eleventh Circuit examined the objectors’ challenge to the sufficiency of the notice of the attorney’s fees motion.

As you may recall, Rule 23(h)(1) requires that notice of the motion for attorney’s fees be served on all parties “in a reasonable manner.”  Although the statute does not define “reasonable manner,” courts interpreting Rule 23(h) have observed that the right to object to the fee motion under Rule 23(h)(2) necessarily means that courts must give notice of the attorney’s fee motion itself.

The objectors argued that the untimely attorney’s fees motion — filed two weeks after the deadline for class members to object had passed — deprived class members of the notice they needed to assess the fee request and violated Rule 23(h).

The Eleventh Circuit explained that the trial court erred by requiring class members to object before they could assess the attorney’s fee motion, but held that the error did not warrant reversal because four class members objected after receiving notice of the preliminary approval of class settlement.

Two class members made detailed arguments in opposition to the requested attorney’s fee and incentive award, which the trial court considered.  In the Eleventh Circuit’s view, there was no reason to think other unnamed class members would have made arguments besides those made by the objectors.

Thus, the Eleventh Circuit determined that the trial court did not abuse its discretion by awarding attorney’s fees, despite the Rule 23(h) violation.

The objectors also argued that the trial court applied the wrong legal test to evaluate class counsel’s fee request.

The objectors argued that the trial court should have applied a lodestar analysis as required by Perdue v. Kenny A. ex rel. Winn, 559 U.S. 542 (2010).  In Perdue, the Supreme Court allowed the award of attorney’s fees under a fee-shifting statute to be enhanced above the lodestar amount, but only in “rare” and “exceptional” cases.  Perdue, 559 U.S. at 554.

However, the Eleventh Circuit noted that class counsel sought attorney’s fees from a common fund, rather than under a fee-shifting statute.  The Eleventh Circuit also noted that the common-fund doctrine applied to class settlements that result in a common fund even when class counsel could have pursued attorney’s fees under a federal fee-shifting statute.

The Eleventh Circuit acknowledged that the award of attorney’s fees was bigger than some award in other suits, and a prior panel observed that the “majority of common fund fee awards fall between 20% and 30% of the fund.”

In the Eleventh Circuit’s view, the trial court justified the above-benchmark award of attorney’s fees.  The trial court emphasized that the results obtained conferred substantial benefits on the class members who submitted claims, and discussed the significant legal hurdles class counsel faced with regard to establishing standing based on risk of identity theft.  The trial court also explained the difficulty of proving willfulness.

Lastly, the Eleventh Circuit explained that the $10,000 incentive award to the class representative was not an abuse of discretion.

To support its reasoning, the Eleventh Circuit noted that the trial court awarded the class representative the incentive award “for his efforts in this case” and found that the class settlement conferred “substantial benefits” on the class member.

Accordingly, the Eleventh Circuit affirmed the order approving the settlement.

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Eric Tsai practices in Maurice Wutscher’s Commercial Litigation and Consumer Credit Litigation groups, and in its Regulatory Compliance group. He concentrates his practice primarily on the defense of consumer and commercial financial services companies, including mortgage lenders and servicers, mortgage loan investors, third party debt collectors, and other financial services providers. He also counsels clients on regulatory compliance, licensing, and other consumer protection matters. Eric earned his undergraduate degree from the University of California, Irvine. Prior to attending law school, he worked as a loan officer for national direct lenders. He earned his Juris Doctor from California Western School of Law and thereafter obtained a Master of Laws (LLM) in Taxation from the University of San Diego School of Law. Eric publishes extensively on various issues affecting consumer lending and litigation, including both federal and California-specific developments. He is licensed to practice law in California, Nevada, and Oregon, and is admitted in all United States District Courts in the State of California, the United States District Court for the District of Oregon, the United States District Court for the District of Nevada, the U.S. Tax Court, and the Ninth Circuit Court of Appeals. He is also a licensed real estate broker in the State of California.

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