A federal judge dismissed a class action suit against Overstock.com that alleged the online retailer violated the Fair Credit Reporting Act (FCRA) by including the last four digits of customers' credit cards and their expiration dates.
United States District Judge J. Phil Gilbert entered his order on Dec. 27.
Shandie Deaton filed the suit Sept. 18, 2007, one month after she made a purchase on Overstock.com. She alleged her receipt violated FCRA.
The act was passed in 2003 and provides that anyone accepting credit or debit cards may not print more than the last five digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of sale or transaction.
Credit card machines put into use after Jan. 1, 2005, required immediate compliance with FCRA. Machines in use before Jan. 1, 2005, were required to be in compliance by Dec. 4, 2006.
Deaton claimed Overstock.com violated FCRA by printing the expiration date and/or printed more than the last five digits of class members' credit card or debit card numbers on the receipts provided at the point of a sale or transaction between Overstock.com and the class members.
"Overstock.com' violations were not the product of an accident or an isolated oversight," the complaint stated. "Rather, Overstock.com knowingly and intentionally continued to use Devices which were not programmed to, or otherwise did not, comply..."
Deaton claimed she and each of the class members were entitled to monetary relief under 15 U.S.C. §1681n of not less than $100 and not more than $1,000 for each violation and also claimed she and the class were exposed to an increased risk of identity theft.
After the case was filed, Overstock filed a motion to dismiss the suit arguing the case is a dispute governed by the mandatory arbitration clause to which Deaton had contractually agreed when she made her purchase.
According to Overstock, customers can freely access their website, however when placing an order, they must agree to the website's terms and conditions before they can continue.
"Any dispute relating in any way to your visit to the Site or to products you purchase through the Site shall be submitted to confidential arbitration in Salt Lake City, Utah," a portion of Overstock's terms and conditions reads.
"To the fullest extent permitted by applicable law, no Arbitration under this agreement shall be joined to an arbitration involving any other party subject to this Agreement, whether through class arbitration proceedings or otherwise."
Represented by John Patchett of Marion, Deaton argued that the mandatory arbitration clause is unenforceable because arbitration would be so expensive as to effectively preclude her from vindicating her federal rights under the FCRA.
She also argued that the mandatory arbitration clause is unenforceable because it unconscionably prevents consumers from joining together in a class action, which may be their only effective way of protecting their FCRA rights.
In his order Gilbert wrote, "To support her assertion that arbitration is prohibitively expensive, Deaton filed an affidavit with the Court asserting that, if she were compelled to travel to Salt Lake City, Utah for a three-day in-person arbitration, she would incur expenses for lost business, air fare, hotel stays and arbitration fees well in excess of the $1,000 statutory cap on her recovery. Thus, she concludes, the mandatory arbitration clause effectively precludes her from vindicating her statutory rights."
"This argument fails for several reasons," Gilbert added.
Gilbert said Deaton gave no evidentiary foundation for her purported travel expenses, ignored the fact that litigation also has attendant costs because she will also be unable to work during a trial and also that the arbitration could take place by telephone.
Gilbert also said that the American Arbitration Association (AAA) provides pro bono arbitrations for individuals who cannot afford it and notes that Overstock has agreed to pay Deaton's portion of the arbitration costs, thereby making her expenses close to nothing.
"Accordingly, the Court cannot conclude that arbitration of this action is prohibitively expensive," Gilbert wrote. "Therefore, the Court will not invalidate the mandatory arbitration clause based on the theory that forcing Deaton to submit to arbitration would prevent her from vindicating her rights."
Gilbert also said Deaton's argument that the arbitration clause is unenforceable because it effectively shields Overstock from any liability under the FCRA on class action also fails because the Seventh Circuit has never held that class actions bars in arbitration agreements are unconscionable.
He also ruled that while the clause at issue clearly calls for arbitration in Salt Lake City, he has no authority to order arbitration outside of the Southern District of Illinois.
"Therefore, while the Court could stay the instant proceedings, it cannot compel the parties to proceed in the arbitration forum," Gilbert wrote.
Given that fact, it is unclear what purpose a stay of the instant action would serve," Gilbert added. "Accordingly, the Court will exercise its discretion to dismiss, rather than stay, the instant proceedings."