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4-3 Ruling Backs Online Retailers Who Collect Cardholder Data
SAN FRANCISCO By a single vote, Apple and numerous other online retailers have escaped potentially millions in statutory damages for claims under a California consumer privacy law.
The California Supreme Court ruled 4-3 Monday that the Legislature never intended to apply the Song-Beverly Credit Card Act of 1971 to e-commerce, meaning that retailers can take addresses and telephone numbers when conducting remote credit card transactions.
"While the Legislature indeed sought to protect consumer privacy, it did not intend to do so at the cost of creating an undue risk of credit card fraud," wrote Justice Goodwin Liu in Apple v. Superior Court (Krescent).
In so ruling, the court stepped back somewhat from its 2011 decision Pineda v. Williams-Sonoma Stores, which strictly construed the Song-Beverly Act against brick-and-mortar retailers who recorded customer ZIP codes with credit card transactions, exposing them to as much as $1,000 per violation. Plaintiff attorneys had argued Pineda should apply to companies like Apple, Ticketmaster and eHarmony that do much of their sales online and no longer even need a shipping address to complete many transactions.
Justices Joyce Kennard and Marvin Baxter issued separate dissents. "Unlike the majority, I conclude that the statute means just what it says and contains no exemption, express or implied, for online sales of downloadable products," Kennard wrote. The robust consumer protection the court guaranteed in Pineda "is now largely relegated to the dust heap," Kennard added, because online sellers will collect and share personal information with all manner of retailers.
The voting lineup was unusual, with Liu the court's only Democratic appointee invoking U.S. Supreme Court Justice Antonin Scalia while taking the business-friendly point of view, and Baxter, arguably the court's most conservative member, passionately going to bat for consumers' right to sue.
The heart of the brawl was about how to apply a statute in light of technological advances the Legislature could not have anticipated.
To Baxter and Kennard, that did not justify deviating from the plain language of Song-Beverly, which forbids retailers from collecting personal identification information in a credit card transaction "form."
"Applying [Song-Beverly] to online retailers flows logically from the plain meaning of the statute, is not absurd, and fully promotes the legislative objective to protect the personal identification information of credit card users against exploitation by retailers," Baxter wrote.
But Liu rejected what he described as "wooden construction" of outmoded statutes. "In 1990, the idea of computerized transactions involving the sale and purchase of virtual products was beyond any legislator's imagination. Such technology was not even a twinkle in Steve Jobs's eye," he wrote.
Liu went on to quote Scalia and Bryan Garner's new book: "Drafters of every era know that technological advances will proceed apace and that the rules they create will one day apply to all sorts of circumstances they could not possibly envision."
Therefore, the court has to look beyond the plain language, Liu wrote, and consider other expressions of intent. For example, Song-Beverly permits store clerks to personally examine the credit card holder's signature and driver's license. "The Legislature has thus decided that the information on the credit card is not necessarily sufficient by itself to protect consumers and retailers against fraud," Liu wrote.
But inspecting a driver's license or signature isn't possible online. "Because we cannot make a square peg fit a round hole, we must conclude that online transactions involving electronically downloadable products fall outside the coverage of the statute," Liu concluded.
Chief Justice Tani Cantil-Sakauye and Justices Kathryn Mickle Werdegar and Carol Corrigan concurred.
Kennard was unconvinced. "Under that reasoning, the civil rights protections of the Unruh Civil Rights Act ... would not apply to online businesses because that act does not refer to those businesses expressly," she wrote. "Similarly, under the majority's reasoning the Commercial Code would not apply to online businesses because the code does not mention those businesses expressly."
Baxter and Kennard joined each other's dissent, and First District Court of Appeal Justice Barbara Jones, sitting pro tem in place of Justice Ming Chin, joined both dissents.
Gibson Dunn & Crutcher partner Daniel Kolkey argued the case for Apple. Eric Schreiber of Encino's Schreiber & Schreiber argued for the plaintiffs.