shutterstock.com

In recent years, the Supreme Court has continued to clamp down on Article III standing. As a consequence, federal question cases that would otherwise be brought in federal court are being filed in state court. Baskin v. P.C. Richard & Son, Docket No. OCN-L-911-18, decided last month by the Ocean County Superior Court, is one such case.

At issue in Baskin was whether to certify a class action made up of consumers seeking statutory damages under federal law. Based on an Appellate Division case, Local Baking Products v. Kosher Bagel Munch, 421 N.J. Super. 268 (App. Div. 2011), the Baskin court rejected class certification. This article examines Local Baking and Baskin’s approach to class actions, raises questions about that approach, and ultimately finds it wanting.

The Facts of 'Baskin'

The Fair and Accurate Credit Transaction Act of 2003 (FACTA) prohibits retailers from printing a credit card’s expiration date on receipts. 15 U.S.C. §1681c(g)(1). Willful violations carry statutory damages that range from $100 to $1,000. 15 U.S.C. §1681n(a)(1).

New York residents Kathleen O’Shea and Sandeep Trisal made card purchases at P.C. Richard in New York. Their receipts contained their cards’ expiration dates. O’Shea and Trisal then filed a class action suit in the Southern District of New York seeking statutory damages under FACTA. O’Shea v. P.C. Richard & Son, No. 1:15-cv-09069-KPF (S.D.N.Y.). They argued that P.C. Richard’s FACTA violation put them at an increased risk for credit card fraud and identity theft. The O’Shea court held that this was not enough to confer Article III standing, and it dismissed the case.

O’Shea and Trisal then joined with a New Jersey resident, Ellen Baskin, who made a card purchase at a P.C. Richard in New Jersey. The three individuals brought suit in Superior Court, where they were not subject to federal standing requirements.

Superior Court held that it lacked personal jurisdiction over O’Shea and Trisal, neither of whom had ties to New Jersey. The court also rejected class certification under New Jersey Court Rule 4:32-1(b)(3). Under that rule, courts will certify a class action if it is, among other things, “superior to other available methods for the fair and efficient adjudication of the controversy.” In assessing superiority, the Baskin court relied heavily on the Appellate Division’s 2011 decision in Local Baking.

The Reasoning of 'Local Baking'

Like Baskin, the plaintiffs in Local Baking filed a class action complaint seeking statutory damages under federal law. The law at issue in Local Baking was the Telephone Consumer Protection Act (TCPA), 47 U.S.C. §227, which prohibits certain unsolicited faxes and phone calls.

The Local Baking court rejected class certification. It explained that the TCPA’s drafters included a private right of action for statutory damages in order to “motivate private redress of a consumer’s grievance through a relatively simple small claims court proceeding, without an attorney.” Based on this legislative history, the court concluded that multiple small claims cases would be superior to a single class action.

It is notable that Local Baking looks to federal legislative history to decide whether a class action is “superior” under New Jersey law. Putting aside, for the moment, the propriety of that move, one might ask whether Local Baking’s interpretation of the legislative history makes sense. If the TCPA’s drafters believed that certain practices were sufficiently problematic to warrant federal relief, and if the drafters wanted to make that relief easy to get, why wouldn’t the drafters approve of a class action? It is even easier to recover as an absent class member than it is to recover as a plaintiff in small claims court.

Local Baking also rejected class certification because TCPA cases are not negative value cases. A case has “negative value” when the potential recovery is less than the cost of prosecuting the case. But the term “negative value” does not appear in the relevant class action rule, Rule 4:32-1. On the contrary, the rule considers, among other things, whether class members have an “interest … in individually controlling” their case, and the “difficulties likely to be encountered in the management of a class action.” Local Baking did not consider these factors.

The Reasoning of 'Baskin'

Baskin uses Local Baking as a roadmap to reject class certification. It explains that under the “prevailing law in New Jersey,” individual small claims cases are “superior” to a class action where a “statutory damage award incentivizes a party to act in his or her own interest.” Regardless of whether this is correct as a descriptive matter, does it make sense as a normative matter? And does it make sense in a FACTA case in particular?

For statutory damages to issue under FACTA, a plaintiff needs to prove that the defendant acted willfully. Acting willfully means acting knowingly or recklessly. Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007). Proving knowledge or recklessness is often not so simple. Because it implicates a company’s state of mind—which generally is not known to consumers—willfulness often requires a good deal of discovery. That discovery can be expensive. It is easy to see how the cost of willfulness discovery could exceed FACTA’s statutory damages. So Baskin’s assumption that FACTA cases are not negative value cases is not necessarily correct.

Another problem with Baskin is that it decides certification without considering the needs of the judicial system as a whole. Baskin recognizes that “Rule 4:32-1 not only requires consideration of the interests of the class, but also the effect on efficient judicial management.” How difficult would it be to manage a single FACTA class action seeking statutory damages? And why would the court system prefer hundreds if not thousands of small claims cases when it could resolve all of those cases in a single action?

Baskin’s additional reasons for rejecting class certification are unconvincing. The court says that the plaintiffs “have not alleged a potential class number.” There can’t be any serious doubt that the number of people who make card purchases at P.C. Richard is large.

Baskin adds that the plaintiffs did not allege “that they were victims of identity theft, credit or debit card fraud, or that any third party ever came into possession of the sales receipts or the credit card information contained on the receipts.” Those victims, the court reasons, would have individualized facts that would need to be analyzed on an individualized basis. That is hardly the magic bullet Baskin thinks it is.

First, the consumers who did not suffer what the court refers to as “demonstrable damages” will only be seeking statutory damages. They will not need individual treatment. Second, the people who did suffer “demonstrable damages” will not be forced to participate in a class action. They will have every right to opt out of the class action and pursue their own case if they want. And if they prefer to remain in the case and seek the statutory damages instead of “demonstrable damages,” that is their prerogative. Baskin is wrong that a FACTA class action will necessarily present individualized issues.

Conclusion

Early in its decision, the Baskin the court points to the Credit and Debit Card Receipt Clarification Act of 2007, Pub L. 110-241, which was passed four years after FACTA. The Clarification Act states that FACTA’s purpose was to “ensure that consumers suffering from any actual harm to their credit or identity are protected while simultaneously limiting abusive lawsuits that do not protect consumers but only result in increased cost to business and potentially increased prices to consumers.” That statement notwithstanding, the Clarification Act did not repeal FACTA’s statutory damages provision (though it did cut off relief for a certain period). As such, the statement of purpose conflicts with the law as written. That law does not require consumers to plead “actual harm.” New Jersey’s class action rule does not require consumers to plead actual harm, either.

One can understand why Baskin looked to FACTA’s legislative history in assessing superiority: it is exactly what Local Baking did. But Rule 4:32-1 does not refer to legislative history or Congressional statements of purpose. Just because a bill’s sponsor might have had a conception of class action superiority—and that is a big “if”—it hardly follows that New Jersey courts need to adopt that same conception for purposes of New Jersey class action law.

People will argue about whether FACTA is a good law or a bad law. The question in Baskin was different. The question in Baskin was whether to certify a FACTA statutory damages class action. Baskin’s approach to that question is not convincing.

 

Michael H. Reed practices at Klafter Olsen & Lesser, where he focuses on complex litigation with an emphasis on wage-and-hour class and collective actions.