California Court Seems to Favor Online Retailers in Suit Over Personal Data

Scott Graham

The Recorder

2012-11-09 00:00:00.0

Retailers were stunned two years ago when the California Supreme Court ruled they broke a 1971 privacy law by requiring consumer ZIP codes to process credit card transactions.

On Wednesday, three e-commerce giants rushed into court, urging the court to clarify that the same law doesn't apply to online credit card transactions, too. If e-tailers can't use personal information to verify credit card user identity, "it will bring an end to online commerce," Gibson, Dunn & Crutcher partner Daniel Kolkey told the justices.

Fortunately for Kolkey and his clients, the court seemed in a less expansive mood this time around.

The Song-Beverly Credit Card Act "doesn't fit [Internet transactions], does it?" Chief Justice Tani Cantil-Sakauye asked Kolkey's opponent, Encino attorney Eric Schreiber. "It had a different world in mind."

"No, it doesn't," Schreiber agreed, a concession that Justice Goodwin Liu called "basically fatal to your position."

But the vote in Apple v. Superior Court (Krescent) could be close, as two other justices sounded sympathetic to the plaintiffs, and several justices acknowledged the court could be hamstrung by the undeveloped record in the case.

"That is your assertion," Justice Joyce Kennard told Kolkey, a former appellate judge, when Kolkey swore that Apple Inc. doesn't use personal identifying information for marketing purposes. "Is that in the record?"

Song-Beverly forbids the conditioning of credit card transactions on the provision of personal identifying information, including addresses and telephone numbers, unless necessary for shipping purposes. Retailers can ask to see photo ID, but no personal information may be "written, or otherwise record[ed] upon the credit card transaction form or otherwise."

In 2011's Pineda v. Williams-Sonoma Stores, the high court chose to read the law broadly to include ZIP codes in order to further its goal of consumer protection.

Within a few months, Schreiber & Schreiber of Encino filed putative class actions against Apple, Ticketmaster and eHarmony Inc., saying the law should apply to them, too. A trial judge agreed and the three petitioned to the Supreme Court, joined by Wal-Mart Stores Inc. and eBay Inc. as amicus curiae.

Song-Beverly "wasn't written for the online world," Kolkey argued Wednesday. "Everything in the online world is recorded," and preprinted transaction forms are a thing of the past.

Kennard sounded skeptical of Kolkey's position. Legislators would have been aware, even in 1971, that consumers sometimes made credit card purchases by telephone, she said, and there was no exception there.

But telephone purchases involved human interaction, Kolkey argued, and typically involved physical merchandise that was shipped or installed, which permitted obtaining an address.

First District Court of Appeal Justice Barbara Jones — sitting in for Justice Ming Chin, who was recused — noted that the Legislature amended Song-Beverly in 2011 to exempt gas stations, but not online retailers. If there's no similar exception, "then where are we?" she asked.

When Schreiber took the podium, he emphasized that the primary goal of the law is protecting privacy. "That's why the Song-Beverly Act exists," he said.

But Schreiber quickly came under fire from Liu, who said the law was designed to deter fraud as well, and that Schreiber's interpretation would "eviscerate" those provisions.

Schreiber disagreed, saying the legislative intent was clear from the 2011 gas station amendment. That caused Liu to wince.

"You're saying that what a legislator said in 2011 had a bearing on what the Legislature thought in 1971?" Liu asked.

But, Schreiber protested, "we didn't have the Internet in 1971."

"Isn't that precisely the point?" Justice Carol Corrigan countered.

Cantil-Sakauye suggested the gas station amendment cut against Schreiber. Gas is similar to e-commerce products, she said, because it's "immediately downloadable. You're not gonna ship it, you're not gonna deliver it, you're not gonna service it."

And Liu asked Schreiber if it wasn't "a little weird" that despite all of Apple's sophisticated lobbyists and lawyers, "only gas stations were able to carve out exceptions to the law. All the others are just sort of asleep at the switch." The better explanation, he implied, is that the Legislature never intended to apply the law to e-commerce.

The court seemed to strain at times from being limited to the plaintiff's allegations.

At one point Justice Marvin Baxter said that "according to my research" credit card companies reimburse merchants for fraudulent purchases only if they can provide the card holder's personal information. "Counsel," Liu asked Schreiber, "do we have any information in the record on who bears the loss? I didn't see any."

Kolkey tried to make the same point on rebuttal by pointing to detailed information in eBay's amicus brief.

"All of which we may not refer to," Justice Jones replied. "We cannot indulge our curiosity."

This article originally appeared in The Recorder.