California Supreme Court Decision Imposes Massive Potential Liability on Retailers

February 16th, 2011
By: J. Gregory Dyer, Stephens Friedland LLP
and Todd G. Friedland, Stephens Friedland LLP

On February 10, 2010, the California Supreme Court handed down its decision in Pineda v. Williams-Sonoma Stores, Inc., — Cal. Rptr. 3d —, 2011 WL 446921 (Cal. Feb. 10, 2011).  The decision is of interest to every retailer in California and every California consumer who uses a credit card to make purchases.

The Pineda decision held that merchants who request a consumer’s  zip code to complete a retail credit card transaction have violated California’s Song-Beverly Credit Card Act (“SBCCA”).  The SBCCA contains a provision that prohibits merchants from requesting and recording “personal identification information” about the cardholder.  Penalties for violating the SBCCA range from a maximum of $250 for the first violation to $1,000 for each subsequent violation.  Needless to say, the potential damages for a retailer who routinely processes hundreds or thousands of credit card transactions per day could be astronomical.

Ms. Pineda (“Plaintiff”) sued Williams-Sonoma after Williams-Sonoma’s cashier asked Plaintiff for her zip code to complete the credit card transaction.  Plaintiff provide the information to the cashier and the cashier recorded the information.  Plaintiff alleged that Williams-Sonoma requested and recorded this information as part of an institutionalized “Information Capture Policy” at Williams-Sonoma.  Plaintiff alleged that Williams-Sonoma later used customized computer databases to find out Plaintiff’s home address.  Plaintiff’s original complaint alleged three causes of action:  (1) Violation of California Civil Code section 1747.08 (i.e. SBCCA);  (2) Unfair Competition Under Business and Professions Code section 17200; and (3) Invasion of Privacy.

The California Supreme Court ruled that a cardholder’s zip code, without more, constitutes personal identification information within the meaning of the SBCCA.  It noted that the California Legislature had amended the statute in 1990 to specifically address the misuse of personal identification information for marketing purposes.  It also noted that the Legislature amended the SBCCA in 1991 to prevent businesses from “making an end-run around the law by claiming the customer furnished personal identification data ‘voluntarily.’”

The Supreme Court also brushed aside arguments from the Defendant that the interpretation sought by Plaintiff: (1) was unconstitutionally oppressive because the damages would be so massive that they would amount to a forfeiture of the business; and (2) should only be applied to future violations because it was unconstitutionally vague.  The Supreme Court held that the statute was not unconstitutionally oppressive because a trial court has the discretion to set the penalty at a penny if it felt that figure was an appropriate measure of damages.  The Supreme Court also held that the statute was not unconstitutionally vague and could be applied retroactively because the statute provided “constitutionally adequate notice” of the illegal conduct.

This ruling appears to have sparked a flood of class-action lawsuits against California retailers.  Retailers like Williams-Sonoma who request and record zip codes from the customers should cease doing so immediately.  Retailers would also be well-served to review and abandon any information capture policies that may run afoul of the SBCCA.  Consumers should expect to not be bothered with requests for their credit card information at point-of-sale transactions and should be on the alert for retailers who continue to request and record such information in the future.

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