The Second Circuit's Sept. 19, 2017 decision in Katz v. The Donna Karan Company, LLC, et al., Dkt. No. 15-464, has potentially provided a new road map to defeating class actions alleging statutory damages for bare procedural violations. The case arose under the Fair and Accurate Credit Transactions Act (FACTA). Passed in 2003, FACTA prohibits merchants from showing certain personally identifying information, including more than five digits of the customer's payment card number, on a printed receipt. Here, the plaintiff purchased items from the defendants' retail stores and received receipts allegedly displaying the first six digits of his card number. He sued, individually and on behalf of a national class, claiming this alleged act "raised a material risk of the harm of identity theft and thus constitutes a concrete injury sufficient to establish Article III standing" under Spokeo.
In a case decided earlier this year, Crupar-Weinmann v. Paris Baguette Am. Inc., 861 F.3d 76 (2d Cir. 2017), the Second Circuit held that the standard for whether a plaintiff has standing to pursue a claim for a bare procedural violation of FACTA is whether the violation increased "the risk of material harm of identity theft" to the plaintiff. Id. at 81. In that case, the court held that printing a plaintiff's credit card expiration date on her receipt did not increase her risk.
In Katz, the defendants moved to dismiss under Rule 12(b)(1), arguing that the plaintiff lacked standing because he had alleged nothing more than a bare procedural violation of FACTA that did not raise a material risk of identity theft. The defendants based this challenge on an argument that the first six digits of the card number – called the issuer identification number (IIN) – identified only the account issuer and not the plaintiff's account, and therefore did not raise a material risk of identity theft. The district court agreed and dismissed the complaint.
The Second Circuit affirmed. Addressing a matter of apparent first impression in the Second Circuit, the court held that at the Rule 12(b)(1) motion-to-dismiss stage, the question of whether a procedural violation presents a material risk of harm to a concrete interest is a mixed question of law and fact. If a defendant raises a fact-based challenge (i.e., proffers evidence outside the pleadings), the plaintiff must either produce evidence showing jurisdiction or rest on the complaint if the defendant's evidence is immaterial. When the district court rules, it must make findings of fact (which are reviewed under a clear-error standard).
Here, the court found that the district court did not clearly err in finding that printing the IIN on the plaintiff's receipt did not materially increase the plaintiff's risk of identity theft. The district court, relying on other district court findings and publicly available information on the internet, concluded that printing the IIN was no different than printing the name of the issuing institution – information that FACTA does not require be omitted from receipts. The Second Circuit commented that in resolving factual disputes under Rule 12(b)(1), district courts are permitted to consider affidavits and allow limited jurisdictional discovery and may hold a "fact-finding hearing with expert witness testimony" in appropriate cases.
Katz may provide a useful road map to practitioners confronted with jurisdictional defenses that rely on material outside the complaint. The defendants raised their Spokeo challenge via a Rule 12(b)(1) motion rather than through class certification briefing. The motion afforded the defendants a vehicle to allow the district court to decide a key issue – whether the first six digits of the card number identified only the card issuer and therefore did not materially increase the risk of identity theft – without the expense and time associated with class certification discovery and briefing.
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