May 29, 2008

Grimes v. Rave Motion Pictures: District Court Holds FACTA Punitive Damages Provision Unconstitutional

The Fair and Accurate Credit Transactions Act (FACTA), 15 U.S.C. sections 1681c(g) and 1681n, prohibits anyone who accepts credit cards for a business transaction from printing more than the last 5 digits of the credit card number or the expiration date of the credit card on any receipt provided to the cardholder. FACTA also provides that any person who "willfully fails to comply" with the act is subject either to actual damages suffered or strict liability damages of not less than $100 and not more than $1000, and such amount of punitive damages as the court may allow. This act has spawned numerous class action lawsuits across the country. The Northern District of Alabama ruled that those provisions of FACTA as applied in that case are unconstitutional under the Due Process Clause. The court first found that the strict liability provision standing alone was unconstitutional because there is no criteria for determining whether the strict liability award should be $100 or $1000 or any amount in between. To the extent the higher award was given as a form of punishment, that would run into difficulties if punitive damages were also given in that the defendant would be punished twice for the same conduct.

The court went on to find that the statute's allowance of punitive damages where there are no actual damages (i.e., strict liability awards between $100 and $1000) is independently unconstitutional because "to impose punitive damages without the suffering of any harm is inherently disproportionate" and thus suspect under State Farm v. Campbell. The court distinguishes these damages from nominal damages, which in some cases are a substitute for actual damages. But, here, the damages "are by statute expressly not compensatory in nature."

The reasoning in this opinion, especially if affirmed on appeal, could have an important impact on a host of similar statutes.

Hat Tip: Overlawyered.