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Lee v. Buth-Na-Bodhaige, Inc.

Court of Appeals of Illinois, Fifth District

September 6, 2019

HENRY LEE, on Behalf of Himself and All Others Similarly Situated, Plaintiff-Appellee,
v.
BUTH-NA-BODHAIGE, INC., a Delaware Corporation, d/b/a The Body Shop, and DOES 1-10, Defendants-Appellees (Jenna Dickenson, Objector-Appellant).

          Appeal from the Circuit Court of St. Clair County. No. 17-L-604. Honorable Vincent J. Lopinot, Judge, presiding.

          Attorneys for Appellant Natalie T. Lorenz, Laura E. Schrick, Mathis, Marifian & Richter, Ltd., Eric A. Isaacson (pro hac vice), Law Office of Eric Alan Isaacson

          Attorneys for Appellees Christopher M. Murphy, McDermott, Will & Emery LLP, Kerry A. Scanlon, Jeremy M. White, McDermott, Will & Emery LLP, (for Buth-Na-Bodhaige, Inc.)

          Joshua C. Dickinson, Thomas W. Hayde, Spencer Fane LLP, Robert L. Lash, Hur & Lash, LLP, (for Henry Lee)

          JUSTICE CATES delivered the judgment of the court, with opinion. Justices Moore and Barberis concurred in the judgment and opinion.

          OPINION

          CATES JUSTICE.

         ¶ 1 Objector, Jenna Dickenson, appeals from a judgment granting "Final Approval of a Settlement Agreement" in a class action lawsuit brought by plaintiff, Henry Lee, against defendant, Buth-Na-Bodhaige, Inc., d/b/a The Body Shop (The Body Shop), for alleged willful violations of the federal Fair and Accurate Credit Transactions Act of 2003 (FACTA) (15 U.S.C. § 1681c(g)(1) (2012)). Dickenson challenges, among other things, the ability of Lee to adequately represent the settlement class, the adequacy of the notice to members of the settlement class, and the fairness, reasonableness, and adequacy of the "coupon settlement." For reasons that follow, we vacate the judgment and remand this case for further proceedings consistent with this opinion.

         ¶ 2 I. BACKGROUND

         ¶ 3 A. The Fair and Accurate Credit Transactions Act

         ¶ 4 Lee filed a putative class action suit against defendant, The Body Shop, to recover statutory damages for alleged willful noncompliance with FACTA. Passed in 2003, FACTA amended the Fair Credit Reporting Act (FCRA) (15 U.S.C. § 1681 (2012)). The FCRA was enacted for the purposes of ensuring fair and accurate credit reporting, promoting efficiency in the banking system, and protecting consumer privacy. See 15 U.S.C. § 1681 (2012). The FACTA amendments were intended to thwart identity theft and credit and debit card fraud. See 15 U.S.C. § 1681c(g) (2012). Section 1681c(g)(1) of Title 15 provides:

"Except as otherwise provided in this subsection, no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction." 15 U.S.C. § 1681c(g)(1) (2012).

         ¶ 5 Persons engaged in either willful or negligent noncompliance with FACTA's requirements are subject to civil liability. See 15 U.S.C. §§ 1681n, 1681o (2012). In a case of willful noncompliance, a merchant is liable to the affected consumer for actual damages resulting from the violation or statutory damages ranging from $100 to $1000. 15 U.S.C. § 1681n(a)(1)(A) (2012). A willful violator may also be liable for punitive damages as allowed by the court, costs of the action, and reasonable attorney fees as determined by the court. 15 U.S.C. § 1681n(a)(2), (3) (2012). In the case of negligent noncompliance, a merchant is liable to the consumer for actual damages, as well as costs of the action and reasonable attorney fees as determined by the court. 15 U.S.C. § 1681o (2012).

         ¶ 6 The foregoing penalties for willful violations of FACTA are the result of a 2008 amendment that modified the definition of willful noncompliance. See Credit and Debit Card Receipt Clarification Act of 2007 (Clarification Act) (15 U.S.C. § 1681n(d) (2012)). The legislation was enacted in response to a waterfall of lawsuits alleging a willful violation of FACTA under circumstances where a cardholder's account number was properly truncated, but the expiration date was displayed on the printed receipt. See Clarification Act, Pub. L. No. 110-241, § 2, 122 Stat. 1565. Under section 1681n(d) of Title 15, any person who printed an expiration date on any receipt provided to a cardholder at a point of sale or transaction between December 4, 2004, and June 3, 2008, but otherwise complied with section 1681c(g), would not be held in willful noncompliance by reason of printing the expiration date on the receipt. 15 U.S.C. § 1681n(d).

         ¶ 7 B. The Federal Court Action

         ¶ 8 On December 7, 2015, Lee used his American Express credit card to make a purchase at one of defendant's retail stores located on Lexington Avenue in New York, New York. The purchase amount was $19.60. Upon completion of the purchase, Lee received a computer-generated sales receipt. The receipt contained the first six and last four digits of Lee's 16-digit credit card account number.

         ¶ 9 On February 12, 2016, Lee filed a putative class action complaint in the United States District Court for the Southern District of New York (Federal Court Action) and alleged that The Body Shop failed to truncate credit card and debit card account numbers on electronically printed receipts in willful violation of FACTA. Lee v. Buth-Na-Bodhaige, Inc., No. 1:16-cv-01104-LTS, 2017 WL 2693795 (S.D.N.Y. Jan. 24, 2017) (verdict and settlement summary).

         ¶ 10 In January 2017, the parties reached a tentative settlement that covered a nationwide class of plaintiffs. In March 2017, the federal court in New York granted an "Order of Preliminary Approval of the Settlement" (Federal Approval Order). Subsequent to the issuance of notice, five objectors challenged the Federal Approval Order. In response to certain challenges raised by the objectors, including Dickenson, the federal court issued orders in August and September 2017, directing Lee to show cause why the Federal Court Action should not be dismissed for lack of standing under article III of the United States Constitution for failure to plead a "concrete" injury resulting from the alleged FACTA violation. On October 16, 2017, Lee requested that the federal court voluntarily dismiss the Federal Court Action, without prejudice. On October 18, 2017, the Federal Court Action was dismissed, without prejudice. Lee v. Buth-Na-Bodhaige, Inc., No. 1:16-cv-01104-LTS (S.D.N.Y. Oct. 18, 2017), https://ecf.nysd.uscourts.gov/doc1/127121191611 [https://perma.cc/U4TR-WKHV].

         ¶ 11 C. The St. Clair County Action

         ¶ 12 On October 17, 2017, just one day after requesting dismissal of the Federal Court Action, Lee filed a putative class action complaint against The Body Shop in the circuit court of St. Clair County, Illinois. The allegations in the St. Clair County complaint were essentially identical to those made in the Federal Court Action. In the St. Clair County complaint, Lee alleged that The Body Shop operated hundreds of stores throughout the United States, including four retail locations in Illinois; that defendant's stores accepted credit cards and debit cards for the transaction of its business within the meaning of FACTA; that FACTA was enacted by Congress to curb identity theft; and that merchants such as The Body Shop were given three years to comply with the requirements of the federal statute. Lee further alleged that he had used his American Express card to make a purchase at one of defendant's stores located on Lexington Avenue in New York City, New York, and that, upon completion of the purchase, the Body Shop provided him with an electronic sales receipt containing the first 6 digits and the last 4 digits of his credit card number, for a total of 10 digits.

         ¶ 13 Lee asserted that The Body Shop's failure to truncate the credit card account number on his receipt was a willful violation of the requirements set forth in FACTA. He averred, upon information and belief, that The Body Shop had failed to comply with FACTA's truncation requirements at other retail locations throughout the relevant class period, and that The Body Shop continued to act in willful disregard of FACTA's requirements. Lee claimed that The Body Shop either recklessly failed to review its own compliance with FACTA or intentionally opted to save money by not bringing its stores into compliance with FACTA. On behalf of himself and all others similarly situated, Lee sought statutory damages, punitive damages, attorney fees and costs, and prejudgment and postjudgment interest. Lee did not seek actual damages on behalf of himself or any members of the putative class.

         ¶ 14 The proposed class identified in the St. Clair County complaint[1] was exactly the same as that proposed in the Federal Court Action:

"All persons who used either a Visa, MasterCard, or Discover debit or credit card, and/or American Express credit card at any of Defendant's locations where Defendant provided an electronically-printed receipt at the point of sale or transaction that displayed the expiration date of that person's credit or debit card or more than the last five digits of that person's credit or debit card for a time period beginning five years prior to the filing of this lawsuit until the date the class is certified."

         According to the complaint, at least 7282 residents of Illinois, including 44 residents of St. Clair County, were members of the putative class, although Lee did not name a putative class member from St. Clair County, or Illinois, generally.

         ¶ 15 D. Motion for Preliminary Approval

         ¶ 16 On October 18, 2017, one day after filing his state court complaint, Lee filed "Plaintiffs Unopposed Motion For Preliminary Approval of Class Action Settlement Agreement" (Plaintiffs Unopposed Motion), pursuant to section 2-801 of the Code of Civil Procedure (Code) (735 ILCS 5/2-801 et seq. (West 2016)). Lee requested that the circuit court grant preliminary approval of the class action settlement agreement (Settlement Agreement), issue an order of conditional certification of a class for settlement purposes, appoint Lee as the class representative and Lee's counsel as class counsel, and grant approval of the notice to the class. Lee indicated that The Body Shop did not oppose the Plaintiffs Unopposed Motion, provided the motion was for settlement only.

         ¶ 17 In a lengthy introduction to Plaintiffs Unopposed Motion, Lee explained the purpose of FACTA and set forth the language of the statute for the court. Lee further indicated that on February 12, 2016, he had originally filed a class action complaint against The Body Shop in the United States District Court for the Southern District of New York. Lee then offered his account of the work that had been done in the Federal Court Action. According to Lee's account, the parties had engaged in extensive discovery, and he and his counsel had engaged in mediation of the dispute at the request of the federal court in New York. He maintained that the parties had spent six months negotiating a settlement with the assistance of a nationally-known mediator, during which time they engaged in additional discovery related to the settlement, discussed the strengths of the claims and the defenses, and considered the applicable case law and its potential impact on each party's position. As a result of that mediation, Lee and his counsel received discovery that revealed the total number of transactions at The Body Shop's stores from April 23, 2014, through January 9, 2016. The Body Shop also disclosed the number of stores potentially involved in FACTA violations and the reason for its failure to truncate the credit card or debit card numbers as required by FACTA. Lee indicated that through the efforts between opposing counsel, the parties had agreed to a tentative settlement. Lee attached a copy of the Settlement Agreement, marked as Exhibit 2, along with other exhibits in support of Plaintiffs Unopposed Motion. Notably, Lee did not attach any of the discovery documents, materials, or data supporting his contentions regarding the extensive discovery. He did not provide any statements from the mediator, progress reports, or other documentation or evidence regarding the mediation process.

         ¶ 18 E. The Settlement Agreement

         ¶ 19 The Settlement Agreement attached to Plaintiffs Unopposed Motion was the same Settlement Agreement that had been preliminarily approved in the Federal Court Action. The Settlement Agreement contained a remedial injunctive provision that required The Body Shop to comply with the FACTA requirements at all of its stores throughout the United States. Additionally, each member of the settlement class was entitled to receive a $12 gift card (Settlement Benefit).[2] The Settlement Benefit could be used for any purchase at one of defendant's stores, or online. The gift card, however, had to be activated within six months of being received, or the Settlement Benefit expired. Once activated, the $12 gift card had no expiration date. In his pleadings, Lee informed the court that The Body Shop had indicated that the average purchase at one of their retail locations was $8. Therefore, with a $12 gift card, a settlement class member, on average, could purchase an item at one of defendant's stores without spending any additional money out-of-pocket.

         ¶ 20 The proposed Settlement Agreement was the same in both the Federal Court Action and the St. Clair County circuit court. The putative class identified in the Settlement Agreement was significantly different than the proposed class definition set forth in plaintiffs federal and state complaints. The Settlement Agreement amended plaintiffs original class definition as follows:

"All persons who used either a debit or credit card at any of The Body Shop's retail locations in the United States where an electronically-printed receipt was received at POS or in a transaction that displayed more than the last five digits of that person's debit or credit card number during the period beginning February 12, 2011, to the date the class is certified for settlement purposes. Notwithstanding the foregoing, all persons who are or have been enrolled in The Body Shop's 'Love Your Body' Loyalty Program' for whom The Body Shop has an e-mail or physical address, and who made a debit or credit card transaction at any of The Body Shop's retail locations in the United States between April 23, 2014 and January 9, 2016, shall be included in the Settlement Class and hereinafter referred to as the 'Direct Notice Settlement Class Members.

         ¶ 21 The Settlement Agreement thus provided that each member of The Body Shop's "Love Your BodyTM Loyalty Program" (Loyalty Program Members) who had provided an active e-mail address or physical address, and who had made a transaction between April 23, 2014, and January 9, 2016, would be included in the settlement class and would receive direct notice of the settlement. In fact, these Loyalty Program Members were specially designated as the "Direct Notice Settlement Class Members."

         ¶ 22 Under the terms of the settlement, the Loyalty Program Members were not required to submit a claim form in order to receive the $12 gift card. Settlement class members who were unknown to the defendant would receive notice through publication in a national newspaper and a dedicated website created by the settlement administrator. The unknown settlement class members were required to submit a claim form attesting to their membership in the settlement class but would not need to produce a receipt. The settlement administrator was responsible for verifying the validity of the claim submitted by the putative member of the settlement class.

         ¶ 23 The Settlement Agreement also included an "opt-out" provision. Under this provision, any settlement class member who wanted to be excluded from the settlement was required to mail a clear written request for exclusion to the settlement administrator within 10 days of the "opt-out date." The "opt-out date" was declared to be 45 days from the initial notice. Those settlement class members who opted-out were not eligible for the Settlement Benefit.

         ¶ 24 In further support of Plaintiffs Unopposed Motion, Lee asserted that the judge in the Federal Court Action had reviewed the Settlement and had ordered revisions to the initially proposed method for providing notice to potential settlement class members. Lee further asserted that the federal judge had required the parties to revise the language of the release originally incorporated in the Settlement Agreement, and required changes to the form of direct notice, the publication notice, and the proposed Federal Approval Order. Lee indicated that all of the modifications ordered by the federal court were adopted. In support of these assertions, Lee attached the Federal Approval Order entered on March 21, 2017, along with the notices, claim forms, and opt-out forms previously approved by the federal court.

         ¶ 25 The March 21, 2017, Federal Approval Order attached to Plaintiffs Unopposed Motion provided the St. Clair County circuit court with an order that granted preliminary approval of the terms set forth in the Settlement Agreement[3]; preliminarily certified the settlement class; appointed Lee as class representative; and appointed plaintiffs counsel as class counsel. The Federal Approval Order also directed that notice be given to settlement class members as specified in the amended Settlement Agreement. There is, however, nothing in the record indicating that Lee provided the circuit court with a transcript of the federal preliminary approval hearings or bystander's report memorializing what had occurred during the preliminary approval proceedings in the Federal Court Action. Thus, the circuit court was without a meaningful record of the presentation made by the parties to the federal court, and any concerns voiced by the federal court with respect to the Settlement Agreement.

         ¶ 26 In further support of his request for preliminary approval, Lee attached a declaration from the settlement administrator, Nancy Baker, that had been filed in the Federal Court Action. Through this declaration, dated July 21, 2017, Lee shed some light on what had transpired since the entry of the March 21, 2017, Federal Approval Order. Therein, Baker stated that The Body Shop had provided mail and e-mail addresses for 392, 000 customers, that some of the addresses were no longer valid, that direct notice was provided to 349, 640 settlement class members, and that two separate notices had appeared by publication in the newspaper USA Today. Baker further stated that a dedicated website had been established with a telephone line available to respond to questions regarding the settlement. According to Baker's declaration, the website also contained information regarding the settlement, such as deadlines, the long form notice, the claim form, and an opt-out form. Baker reported that the website had been visited over 46, 000 times, and that 20, 438 claims had been filed as of July 21, 2017. Of those claims filed, 14, 714 were found to be valid. Baker also reported that she had received 29 opt-out requests.

         ¶ 27 In Plaintiffs Unopposed Motion, Lee claimed that The Body Shop had estimated there were 3, 656, 931 credit and debit card transactions between April 23, 2014, and January 9, 2016.[4]The notice process had cost nearly $200, 000 to implement. Lee further averred that only five settlement class members had filed objections to the settlement in the Federal Court Action. Lee did not, however, attach any of those objections to his pleadings in the St. Clair County action.

         ¶ 28 F. Requirements Under the Illinois Class Action Statute

         ¶ 29 In Plaintiffs Unopposed Motion, Lee next argued that the requirements for certifying a class pursuant to section 2-801 of the Code (735 ILCS 5/2-801 (West 2016)) had been satisfied and that the circuit court should grant class certification. Specifically, Lee claimed that the numerosity requirement had been met, as there were over 300, 000 settlement class members, and therefore, the class was so numerous that joinder of all settlement class members was impracticable. Lee further asserted that the commonality requirement was satisfied, as there were questions of fact and law that predominated over any questions affecting individual class members. In support of this argument, Lee focused on the defendant's conduct in violating FACTA, as well as the receipts received by thousands of settlement class members containing more than the last five digits of their credit or debit cards. Further, for settlement purposes, Lee claimed that a judgment in favor of the settlement class members "would decisively settle the entire controversy, and all that should remain is for other members of the class to file proof of their claim," thus satisfying the predominance inquiry. Lee also argued that his claim was typical of the claims of other settlement class members and claimed that "Plaintiff seeks exactly the same statutory damages that each member of the class would likewise seek."[5] Lee's arguments in support of "typicality" were repetitive of prior arguments and need not be repeated here.

         ¶ 30 In addressing the requirement of section 2-801(3) of the Code, Lee asserted that he, as class representative, would fairly and adequately protect the interests of the settlement class. Lee further asserted that his claim was "identical with other members of the Class." Therefore, he had no conflict of interest. Lee indicated that he had made himself available throughout the entire litigation, including responding to discovery, engaging with his counsel, and participating in the mediation process. Lee also asserted that his attorneys were well-qualified to represent the settlement class and their class interests, noting his attorneys had experience with class action cases, generally, and, with FACTA litigation in particular. Lee requested that he be appointed as the class representative, and that his attorneys be appointed as class counsel.

         ¶ 31 With regard to the final requirement of section 2-801(4), Lee pointed out that while Federal Rule of Civil Procedure 23(b)(3) requires that a class action be superior to other available methods of adjudication, the Illinois statute required that the trial court find that the class action is an appropriate method of litigating the controversy. Lee claimed that a class action settlement was an "appropriate" method for concluding this litigation, as the settlement could best secure the economies of time, effort and expense, and promote a uniformity of decision, and could accomplish the equity and justice that class actions seek to obtain. In support of his argument, Lee reiterated many of his prior arguments and concluded that where the first three requirements of the Illinois statute are satisfied, it is evident that the "appropriateness" requirement is fulfilled.

         ¶ 32 With regard to the issue of the notice previously sent to members of the settlement class, Lee suggested that even though the judicial forum had changed, the terms of the Settlement Agreement submitted for approval in the state court were identical to those terms approved in the Federal Court Action. Therefore, the notice that had already been issued contained the terms of the Settlement Agreement and had already been sent to the direct notice settlement class members. Lee further indicated that the notice had been published twice in USA Today, and that copies of all forms of the notice were available on the dedicated website. Lee argued that sending another notice to the settlement class would be a significant and unnecessary expense. Given the fact that only five settlement class members had filed objections after notice had been sent in the Federal Court Action, Lee proposed that the dedicated website maintained by the settlement administrator be used to notify the settlement class that the federal case had been dismissed and the lawsuit refiled in St. Clair County, Illinois. Additionally, Lee proposed that the settlement class members be notified of Plaintiff s Unopposed Motion for approval of the settlement by posting information on the website, which could be updated to add any relevant documents and hearing dates, or deadlines set in the St. Clair County action. Lee further suggested that the five class members who had submitted objections in the Federal Court Action should be notified, by certified mail, of the filing of Plaintiff s Unopposed Motion in the state court and that the objectors should be provided with the date of the final approval hearing. Finally, Lee indicated that plaintiffs counsel would provide the circuit court with a copy of the five objections submitted in the Federal Court Action and a list of the 29 individuals who had chosen to opt out of the settlement.

         ¶ 33 On October 30, 2017, Lee notified The Body Shop that Plaintiffs Unopposed Motion would be called for hearing on November 7, 2017. There is no indication that the settlement class members and the objectors were given any notice of the date of the preliminary approval hearing.

         ¶ 34 G. The Class Settlement Approval Proceedings

         ¶ 35 On November 7, 2017, the circuit court entered an order granting "Plaintiffs Unopposed Motion for Preliminary Approval of Class Action Settlement Agreement" (Preliminary Approval Order). In its order, the court granted preliminary approval of the class settlement, finding that for purposes of preliminary approval, the terms of the Settlement Agreement appeared to be fair, reasonable, and adequate, and within the range of reasonableness for a class settlement. In light of these findings, the circuit court conditionally certified a class for settlement purposes only. The settlement class was defined as:

"All persons who used a debit or credit card at any of The Body Shop's retail locations in the United States where an electronically-printed receipt was received at POS or in a transaction that displayed more than the last five digits of that person's debit or credit card number during the period beginning February 12, 2011, to date the class is certified for settlement purposes. Notwithstanding the foregoing, all persons who are or have been enrolled in The Body Shop's 'Love Your Body' Loyalty Program' for whom The Body Shop has an e-mail or physical address, and who made a debit or credit card transaction at any of The Body Shop's retail locations in the United States between April 23, 2014 and January 9, 2016, shall be included in the Settlement Class and hereinafter referred to as the 'Direct Notice Settlement Class Members.' "

         ¶ 36 The circuit court also appointed Lee as the class representative, and plaintiffs attorneys were appointed as class counsel. The court determined that "adequate notice has been previously given to the Settlement Class" during the pendency of the matter in the Federal Court Action in "the form of Direct Notice, Publication Notice, and Website Notice" for purposes of section 2-803 (735 ILCS 5/2-803 (West 2016)). The circuit court "adopt[ed] that notice process herein as though ordered by this Court." The court found the requirements of section 2-803 had been met, subject to the following:

"(a) The Court Orders that the class action website previously established be updated to reflect that the class action settlement has been re-filed before this Court. That website shall include a copy of the Complaint filed in this action, as well as a copy of this Order, and the Settlement Agreement.
(b) In addition, the Court Orders Counsel for Plaintiff, within ten (10) days of the date of this order, to provide notice, by certified mail, return-receipt requested, to any Settlement Class Member or that Settlement Class Member's counsel, who has entered an appearance or otherwise submitted an objection in the Federal Court Action, of the existence of this lawsuit and of the Final Approval Hearing.
(c) The Administrator will file with the Court and serve upon Class Counsel and Settling Defendant's counsel, no later than ten (10) days prior to the Final Approval Hearing, an affidavit or declaration stating that the dedicated settlement website has been created in accordance with the terms of this Preliminary Approval Order."

         The court determined that the above procedures were the "best notice practicable under the circumstances," that they constituted due and sufficient notice to all persons entitled to ...


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