Privacy & Information Security Law Blog

As the number of security breach incidents and privacy violations continues to increase, so too has the volume of lawsuits—particularly class action lawsuits—seeking damages for actual and future harms resulting from unauthorized disclosures of personal information. Affected companies have looked to their traditional insurance coverage to defray costs associated with responding to these incidents and lawsuits, but standardized commercial general liability policies may not provide adequate coverage.

On March 11, 2013, in Tyler v. Michaels Stores, Inc., the Massachusetts Supreme Judicial Court effectively reinstated the suit against the retailer by answering favorably for the plaintiff three certified questions from the United States District Court for the District of Massachusetts regarding Massachusetts General Laws Chapter 93, Section 105(a) entitled “Consumer Privacy in Commercial Transactions” (“Section 105(a)”). The court ruled that (1) a ZIP code constitutes personal identification information under the Massachusetts law; (2) a plaintiff may bring an action for a violation of the Massachusetts law absent identity fraud; and (3) the term “credit card transaction form” refers equally to electronic and paper transaction forms. The Massachusetts court’s determination that a ZIP code constitutes personal identification information is similar to the determination in Pineda v. Williams-Sonoma Stores, Inc., in which the California Supreme Court held that ZIP codes are “personal identification information” under California’s Song-Beverly Credit Card Act. More than 15 states, including Massachusetts and California, have statutes limiting the type of information that retailers can collect from customers.

As reported in BNA’s Privacy & Security Law Report, on December 14, 2012, a federal district court in California ruled that a retail store’s policy of collecting personal information only after providing customers with receipts does not violate the Song-Beverly Credit Card Act (“Song-Beverly”). Under Section 1747.08(a)(2) of Song-Beverly, a retailer that accepts credit cards for the transaction of business may not “[r]equest, or require as a condition to accepting the credit card as payment … the cardholder to provide personal identification information,” which the entity accepting the credit card then “writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise.”

As reported in BNA’s Privacy & Security Law Report,on June 25, 2012, a federal district court in California ruled that the California Supreme Court’s 2011 Pineda decision, which held that requesting and recording zip codes during credit card transactions violates the state’s Song-Beverly Credit Card Act, applies retrospectively to OfficeMax’s collection of zip codes from its customers. The Plaintiffs in Dardarian v. OfficeMax had filed a class action lawsuit against OfficeMax over the company’s collection of ZIP code information from customers at the point of sale, a practice that OfficeMax ended the day the Pineda decision was handed down.

As reported in BNA’s Privacy & Security Law Report, on May 4, 2012, the United States District Court for the Southern District of California granted plaintiffs’ motion for class certification in an action against IKEA U.S. West, Inc. (“IKEA”) under the Song-Beverly Credit Card Act of 1971 (the “Song-Beverly Act”). The suit alleges that IKEA violated the Song-Beverly Act by requesting that cardholders provide their ZIP codes during credit card transactions, and then recording that information in an electronic database. The Court found that the class definition was not overbroad and that IKEA’s practice of requesting ZIP codes demonstrated common questions of law best resolved through a class action.

On January 6, 2012, the United States District Court for the District of Massachusetts granted Michaels Stores, Inc.’s (“Michaels”) a motion to dismiss against a customer-plaintiff who alleged that Michaels’ in-store information collection practices violated Massachusetts law. Although the court ruled in Michaels’ favor, it found that customer ZIP codes do constitute personal information under Massachusetts state law when collected in the context of a credit card transaction. The plaintiff’s class action complaint alleged that “Michaels illegally requested customers’ ZIP codes when processing their credit card transactions in violation of” Massachusetts General Laws Chapter 93, Section 105(a) (“Section 105(a)”). Specifically, Section 105(a) states that “[n]o person, firm, partnership, corporation or other business entity that accepts a credit card for a business transaction shall write, cause to be written or require that a credit card holder write personal identification information, not required by the credit card issuer, on the credit card transaction form.”