A recent proposed settlement in Massachusetts may signal readiness on the part of retailers to end so-called “ZIP code” litigation.  In 2011, customers of the arts and crafts retailer Michaels Stores Inc. filed a proposed class action in Massachusetts federal district court stemming from the company’s collection of customers’ ZIP codes during point of sale transactions.  The complaint alleged that Michaels used the ZIP codes that it collected to acquire customers’ addresses and telephone numbers and then used that information for direct marketing purposes.

Last year, after the plaintiffs had filed their complaint, the Massachusetts Supreme Judicial Court held that under a 1991 Massachusetts law, ZIP codes are considered “personal identification information” and retailers are prohibited from collecting such information during credit card transactions.  The court also gave plaintiffs an opening to overcome the sometimes difficult harm threshold for consumer class actions: it found that a retailer’s subsequent use of personal identification information for direct marketing purposes constituted sufficient harm to the consumer to subject the retailer to liability.  The court’s holding left Michaels with few defenses under the statute, which states that merchants accepting credit cards shall not “write, cause to be written or require that a credit card holder write personal information, not required by the credit card issuer, on the credit card transaction form.”

The district court recently gave preliminary approval to a settlement of the claims against Michaels. The proposed settlement, totaling nearly $875,000, covers all customers from whom Michaels requested and recorded personal identification information in conjunction with a credit card or debit card transaction in a Massachusetts retail store after May 23, 2007.  The settlement divides customers into two subclasses depending on how Michaels used the information it collected.  The first sub-class includes approximately 15,000 customers for whom Michaels was able to obtain a mailing address using the ZIP codes collected.  The second subclass, numbering approximately 4,300, includes customers whose addresses Michaels obtained using a source other than the collected ZIP codes.

Under the settlement, members of the two subclasses are to receive vouchers of $25 and $10, respectively, for total payments to the class of approximately $418,000.  The proposed settlement also calls for Michaels to pay attorneys’ fees of up to $425,000.  A final fairness hearing is set for May 20.

Whether the Michaels settlement will have an effect on other class action litigation is an open question.  The language of the Massachusetts statute differs in key respects from similar laws of other states.  For example, California’s Beverly Song Credit Card Act imposes liability only where the merchant requests or requires personal identification information “as a condition of accepting credit card payment.”  This language in the California law has been used to defeat class certification on the basis that the customers’ beliefs as to whether providing personal identification information was a condition of using a credit card was a necessary element of liability that could not be decided on a class wide basis.  It is unclear a similar argument could prevail under the [...]

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