EAST ST. LOUIS – North Carolina software provider Center Edge settled a biometric privacy suit for an amount beyond its insurance coverage in anticipation of a Supreme Court decision that has made the position of biometric defendants even worse, and the Illinois Supreme Court denied a rehearing on the issue.
Center Edge agreed in January to pay $1,175,000 for resolution of claims that it violated the Biometric Privacy Act at the Sky Zone children’s attraction in Fairview Heights.
In February, justices Elizabath Rochford, Scott Neville, Joy Cunningham, and Mary O’Brien ruled that a violation occurs every time an employee touches a time clock.
Violations of the Act cost $1,000 if negligent and $5,000 if reckless or intentional.
The decision put about $17 billion of pressure on White Castle, which lost the case at the Supreme Court, and built pressure on other employers and secondary defendants like Center Edge.
White Castle moved for rehearing and 16 associations jointly filed a brief in support.
The four justices denied the request for a rehearing last month.
Justices David Overstreet, Mary Jane Theis, and Lisa Holder White, who dissented in February, dissented again from denial of a rehearing.
Overstreet wrote, “The legislature never intended the Act to be a mechanism to impose extraordinary damages on businesses or a vehicle for litigants to leverage the exposure of exorbitant statutory damages to extract massive settlements.”
He wrote that for the majority’s construction to prevail, “it must be presumed that legislators resolutely passed the Act for the purpose of establishing a statutory land mine.”
Center Edge found its way out of the mine field.
It specializes in software for entertainment venues.
One online source says it has 51 to 200 employees and another says 100 to 250.
That would place the settlement in a range from about $5,000 per employee to about $23,000.
In 2016, Center Edge sold software to owners of Sky Zone in Fairview Heights for $25,178.
In 2019, Madysin Stauffer of Madison County sued the owners at St. Clair County circuit court.
She worked for them for four months in 2018.
She amended the complaint to add Center Edge.
Sky Zone and Center Edge removed the lawsuit to U.S. district court, claiming the national Class Action Fairness Act required federal jurisdiction for controversies exceeding $5 million.
In 2020, Center Edge filed a counter claim against Sky Zone.
Stauffer amended her complaint to pursue statewide relief against a Sky Zone franchise group and Center Edge.
This January, Stauffer’s counsel Kevin Green of Goldenberg Heller in Edwardsville filed notice of settlement with Center Edge.
Green stated the parties would draft a complete agreement and related documents including a motion for approval.
He moved for approval in June, stating class members would receive $230 to $330.
He noted that 2,177 known class members would receive payments unless they opted out.
Green added that 1,331 potential class members from Sky Zones in Aurora, Elmhurst, and Joliet could submit a simple form to verify that they qualify.
He stated the size of the fund in relation to Center Edge’s size supported a finding of adequacy.
“The settlement fund significantly exceeds the amount of Center Edge’s available insurance, which would have only been further depleted if used to pay Center Edge’s counsel to continue to litigate the case,” he wrote.
“That insurance was exceeded, along with Center Edge’s representation of its limited financial resources, can be considered by this Court,” he added.
Green wrote that Stauffer could litigate for years and secure a higher judgment following trial but that was unlikely to leave the class in a better position, “given the likelihood insurance would be depleted and Center Edge may be unable to pay such a judgment.”
Sixteen associations and three Justices warned about the power of the pressure.
Overstreet’s dissent predicted that results would vastly exceed reasonable ratios between damages and offenses.
He wrote that damages under the Act are the greater of actual or liquidated damages.
“Arguably, this consideration is indicative of the fact that liquidated damages were intended to be awarded where actual damages were too small and difficult to prove, not as a multiplier by thousands for each time technology is used,” he wrote.
“It does not withstand reason to believe the legislature intended this absurd result,” he added.
Overstreet wrote that damages might exceed $7 million for an employee who has not alleged a data breach or any costs or damages from identity theft or data compromises.
“The excessive nature of plaintiff’s potential damages is exacerbated in the class action context,” he wrote.
Overstreet argued that hundreds of pending cases involve similarly gigantic claims that could toll a death knell even for large and successful businesses.
He wrote that an employer of 100 employees who secures consent from 95 before using a biometric clock could face liquidated damages of $100,000 if the other five use the clock for a week before the employer secures their consent.
“Multiplied over five years, potential exposure would be $500,000 for an employer who is working diligently to ensure compliance with the Act while also juggling staffing issues and high turnover during a volatile labor market,” he wrote.
Overstreet argued that the risk of harm the Act was enacted to prevent has not materialized.
“In more than 1,700 cases filed since 2019, no case involved a plaintiff alleging that his or her biometric data has been subject to a data breach or led to identity theft,” he wrote.
Overstreet wrote that the majority acknowledged that the consequences were harsh, unjust, and absurd.
He wrote that they acknowledged no language in the Act suggested intent to authorize damages that would destroy a business.
He added that they stated damages appeared to be discretionary.
“No guidance or criteria remain for who pays nothing and who suffers annihilative liability,” he wrote.
Overstreet argued that although courts might award less than astronomical damages, the majority provided no standards for making this determination.