May 2008

Schiff Hardin Retail Alert

California Court Of Appeal Holds That Retailers May Request Consumers' Personal Information As Part Of A Return Transaction

On May 22, 2008, in The TJX Companies, Inc. v. Superior Court, — Cal. Rptr. 3d —, 2008 WL 2131325, the California Court of Appeal issued an important opinion that Civil Code section 1747.08, which prohibits retailers from requesting consumers' "personal identification information"¹ as part of credit card transactions, does not apply to return transactions. Furthermore, the TJX Companies court held that a one-year statute of limitations applies to claims brought under Civil Code section 1747.08.

A. The Court's Holding That Civil Code Section 1747.08 Does Not Apply To Return Transactions.

A substantial number of lawsuits were recently filed against retailers alleging that their return transaction forms violate Civil Code section 1747.08(a) (the Song-Beverly Act) by containing preprinted spaces seeking consumers' personal information. In these lawsuits, plaintiffs have sought to profit from confusion over the ambiguous language contained within the Song-Beverly Act. Specifically, Civil Code section 1747.08(a) provides as follows:

Except as provided in subdivision (c),² no person, firm, partnership, association, or corporation that accepts credit cards for the transaction of business shall do any of the following:

(1) Request or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to write any personal identification information upon the credit card transaction form or otherwise,

(2) Request or require as a condition to accepting the credit card as payment in full or in part for goods or services, the card holder to provide any personal identification information, which the person, firm, partnership, association, or corporation accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise,

(3) Utilize in any credit card transaction, a credit card form which contains preprinted spaces specifically designated for filing in any personal identification information of the cardholder.   (emphasis added)

While the first two subsections of 1747.08(a) on their face only apply to purchase transactions, a number of lawsuits have been brought by plaintiffs alleging that the "any credit card transaction" language in subsection three includes return transactions.

In TJX Companies, the plaintiff filed a complaint alleging violations of Civil Code section 1748.08 against a retailer defendant who purportedly sought consumers' personal information in connection with both purchase and return credit card transactions. Furthermore, the plaintiff sought to define the class to include credit card users at the defendant's stores within the last three years. The defendant filed a demurrer as to the return transaction allegations and a motion to strike the allegations seeking to define the class as users of credit cards within the last three years. The trial court overruled the demurrer and denied the motion to strike. The defendant then filed petitions for extraordinary writs challenging those rulings.

The court of appeal granted the petitions for extraordinary writs and held that Civil Code section 1747.08(a) does not apply to return transactions. See TJX Companies, supra, 2008 WL 2131325 at 4-5. The court noted that, "[a] plain language reading of subdivision (3) without considering its context supports [the plaintiff's assertion that it applies to return transactions]. However, when we read the three paragraphs together we come to a different conclusion." Id. at 5. In reaching its holding, the court recognized that in return transactions "there are substantial opportunities for fraud and it behooves the merchant to identify the person who returns merchandise, which subsequent examination may disclose to have been used, damaged, or even stolen." Id.

The TJX Companies opinion is consistent with an earlier district court decision, Romeo v. The Home Depot USA, Inc., 2007 WL 3047105 (S.D. Cal. October 16, 2007), which likewise held that Civil Code section 1747.08 does not apply to return transactions. Id. at 5-7. However, in Romeo, unlike TJX Companies, the district court found the meaning of Civil Code section 1747.08 to be ambiguous. Accordingly, the Romeo court looked at the legislative history and found that purchase transactions were the Legislature's exclusive concern behind the enactment of section 1747.08. Id. at 6.

B. The One-Year Statute Of Limitations Applies To Claims Under Civil Code Section 1747.08.

The second important holding in the TJX Companies opinion is that the one-year statute of limitations set forth in Code of Civil Procedure section 340 applies to claims under Civil Code section 1747.08. Civil Code section 1747.08(e) provides that:

Any person who violates this section shall be subject to a civil penalty not to exceed two hundred and fifty dollars ($250) for the first violation and ($1,000) for each subsequent violation, to be assessed and collected in a civil action brought by the person paying with the credit card, by the Attorney General, or by the district attorney or city in which the violation occurred. However, no civil penalty shall be assessed for a violation of this section if the defendant shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error made notwithstanding the defendant's maintenance of procedures reasonably adopted to avoid that error. . .

The issue decided by the court was whether this penalty is considered mandatory, in which case the one-year statute of limitations set forth in Code of Civil Procedure section 340 would apply, or discretionary, in which case the three-year statute of limitations in Code of Civil Procedure section 338 would apply. See TJX Companies, supra, 2008 WL 2131325 at 2. The court found the language in section 1747.08(e) "shall be subject to" denotes a mandatory and not a discretionary penalty and therefore the one-year statute of limitations set forth in Code of Civil Procedure section 340 applies. Id. at 3. The TJX Companies court further held that the fact that the court has broad discretion in determining the amount of the penalty does not negate the fact that a penalty is mandatory. Id.

Conclusion.

The TJX Companies opinion is important for retailers because it establishes that they have legal justification and a legitimate need for seeking consumers' personal information as part of return credit card transactions. The opinion will allow retailers to enact policies to better track and limit return fraud. Furthermore, the opinion limits the exposure for past errors in compliance with Civil Code section 1747.08.

Questions regarding the cases and statutes discussed in this article may be addressed to Brian D. Henri at 415.901.8743 or bhenri@schiffhardin.com.

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¹ For the purposes of Civil Code section 1747.08 the term "personal identification information" means "information concerning the cardholder, other than information set forth on the credit card, and including, but not limited to, the cardholder's address and telephone number." Civ. Code § 1747.08(b).

² The exceptions to Civil Code section 1747.08(a) include, among other things, when the information is "...related to shipping, delivery, servicing, or installation of the purchased merchandise..." Civ. Code § 1747(c)(4).

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Schiff Hardin LLP