01.11.2012

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Updates

On January 6, 2012, the U.S. District Court for the Central District of California dismissed with prejudice Mehrens v. Redbox Automated Retail, LLC,[1] a putative class action against Redbox alleging that Redbox violated California's Song-Beverly Credit Card Act ("the Act") by requesting ZIP codes and email addresses in connection with credit card transactions.  The court found that just as the Act does not apply to online credit card transactions, it also does not apply to credit card transactions at unmanned, automated Redbox kiosks.  In fact, on the same day as the Mehrens decision, the district court also dismissed Salmonson v. Microsoft Corporation, holding the Act did not apply to online transactions and following an earlier federal district court decision in Saulic v. Symantec Corporation.[2].

The Mehrens class action was filed early last year in the aftermath of the California Supreme Court decision in Pineda v. Williams-Sonoma, which broadened the scope of the Act to include ZIP codes as personal identification information that could not be collected in conjunction with a consumer credit card transaction.  The plaintiffs alleged that when using Redbox's self-service kiosks to rent DVDs and paying with a credit card, Redbox requested and recorded their ZIP code and e-mail addresses.  While many brick-and-mortar retailers have been sued under the Act, whether the Act applied to Redbox—a business that operates through unmanned, automated, self-service kiosks—was one of first impression.

Redbox, represented by Perkins Coie, moved to dismiss the complaint, arguing that the plain reading of the statutory language, the Act's legislative history and case precedent demonstrated that the Act governs only brick-and-mortar retailers and that Redbox's unmanned, automated kiosks could not be classified as brick-and-mortar retail establishments.  The motion cited an earlier decision from the same court, Saulic v. Symantec Corporation, 596 F. Supp. 2d 1323 (C.D. Cal. 2006), which held that online transactions were not covered by the Act.

In its decision, the court held that:

    • The statute's plain language "suggests that 'pen and paper' transactions are contemplated, rather than electronic entry of numbers on a keypad or touchscreen, and the Act makes no specific reference to online or kiosk transactions."  Quoting from Saulic, the court stated that "the act was specifically passed with a brick-and-mortar merchant environment in mind." 

    • Because of the unique fraud concerns presented by online and unattended kiosk transactions, "[c]ollection of personal identification in an online or unattended kiosk transaction may be the only means of verifying a customer's identity in order to prevent credit card fraud."  Thus, "[g]iven the Act's focus on preventing unnecessary use of personal identification information, the language cannot reasonably be read to encompass online transactions, where recording such information is necessary for a legitimate purpose."  

In light of its order granting the motion to dismiss, the Mehrens court denied plaintiffs' motion for class certification as moot.  This decision highlights the benefits of considering an early dismissal strategy before class certification can be decided and indicates that California federal courts may be a preferable forum for online or automated retailers adjudicating claims under the Act.  

Perkins Coie has a pre-eminent Retail & Consumer Products group.  Its lawyers regularly advise retail clients on compliance with e-commerce and privacy related issues.  In addition, Perkins Coie's Class Action Defense group regularly defends retailers and others who sell products or services in California in a variety of consumer class actions.  Perkins Coie's Privacy & Security group provides clients with practical legal advice and effective tools to comply with U.S. and international data protection laws.

You can find additional information on the Act in our previous Updates where we discuss the Pineda decisioninsurance coverage related to causes of action under Song-Beverly and tips for compliance.


[1] No. 2:11-cv-02936-JHN-Ex (C.D. Cal. Jan 6, 2012)

[2] 596 F. Supp. 2d 1323 (C.D. Cal. 2009)

© 2012 Perkins Coie LLP


 

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