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In re Payless Shoesource

September 11, 2009


The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge


This matter is before the court on plaintiffs Michael Swaney and Jessica R. Clark's (collectively "plaintiffs") and defendant Payless ShoeSource, Inc.'s ("Payless" or "defendant") briefs regarding the proper issues to be tried before a jury. On June 25, 2009, plaintiffs filed a consolidated class action complaint for civil penalties, damages, and injunctive relief arising out of alleged violations of the Song-Beverly Credit Card Act of 1971, California Civil Code § 1747.08, and invasion of privacy in violation of the California Constitution. Plaintiffs contend that they are entitled to try both of these claims before a jury. Defendant contends that plaintiffs are not entitled to a jury trial on their cause of action for alleged violations of § 1747.08 because the statute and the civil penalties sought are equitable, not compensatory, in nature.*fn1


Plaintiffs allege that they respectively went to different Payless stores in California, where they each selected a product to purchase and proceeded to the cash register. (Consolidated Complaint [Docket #6], filed June 25, 2009, ¶¶ 13-15, 20-22.) Plaintiffs allege that the employee at the register informed them of the amount due for the products they wanted to purchase, they swiped their credit cards into a credit card processing device, and then the store employee requested personal identification information from plaintiffs in the form of their telephone numbers. (Id. ¶¶ 16-17, 23-24.) Plaintiffs further allege that the store employee then entered their telephone numbers into an electronic cash register. (Id. ¶¶ 18, 25.)

Plaintiffs aver that they each provided their telephone numbers because they believed providing a telephone number was required to complete the credit card purchase transaction. Id. Additionally, plaintiffs allege that Payless subsequently engaged in a "reverse search" to determine plaintiffs' home addresses. (Id. ¶ 43.)


The Seventh Amendment to the United States Constitution protects a party's right to a jury trial "[i]n Suits at common law, where the value in controversy shall exceed twenty dollars." U.S. Const., amend. VII. "The phrase 'Suits at common law' refers to 'suits in which legal rights [are] to be ascertained and determined, in contradistinction to those where equitable rights alone [are] recognized, and equitable remedies [are] administered.'" Chauffeurs, Teamsters & Helpers, Local No. 391 v. Terry, 494 U.S. 558, 564-65 (1990) (citations omitted; emphasis in original). "The Seventh Amendment question depends on the nature of the issue to be tried rather than the character of the overall action." Ross v. Bernhard, 396 U.S. 531, 538 (1970).

A two-pronged test governs whether the right of trial by jury attaches to a given cause of action. MedImmune, Inc. v. Genentech, Inc., 535 F. Supp. 2d 1020, 1022 (C.D. Cal. 2008). Under the first prong, courts compare the statutory action to 18th-century actions brought in the courts of England, inquiring whether the statutory action is more similar to actions that were tried in courts of law as opposed to courts of equity. Id. (citing Tegal Corp. v. Tokyo Electron Am.,Inc., 257 F.3d 1331, 1339 (Fed. Cir. 2001)). Under the second prong, courts examine whether the remedy sought is legal or equitable in nature. Id. The second prong is more important and given more weight than the first. Id.; see also Hynix Semiconductor, Inc. v. Rambus, Inc., 527 F. Supp. 2d 1084, 1087 (N.D. Cal. 2007) ("This second inquiry is the more important of the two.").

In diversity cases, whether issues are to be tried before a jury is to be determined as a matter of federal law. Simler v. Conner, 372 U.S. 221, 222 (1963). "[T]he substantive dimension of the claim asserted finds its source in state law, but the characterization of that state-created claim as legal or equitable for purposes of whether a right to jury trial is indicated must be made by recourse to federal law." Id. Accordingly, a federal court first looks to state law to determine the elements of the cause of action and remedies sought, and then looks to federal law to characterize the action and remedies as either legal or equitable. Gallagher v. Wilton Enters., Inc., 962 F.2d 120, 122 (1st Cir. 1992).


Generally, § 1747.08 prohibits businesses that accept credit cards from requesting or requiring and recording "personal identification information" of a cardholder "as a condition to accepting the credit card as payment" and from using a credit card form that facilitates the obtaining of such information. Cal. Civ. Code § 1747.08(a); TJX Cos., Inc. v. Super. Ct., 163 Cal. App. 4th 80, 87-88 (4th Dist. 2008). The statute's purpose is "to allow lawful and appropriate use of credit cards in the marketplace, while protecting credit card holders from unauthorized privacy violations." Parity City Corp. v. Superior Court, 169 Cal. App. 4th 497, 508-09, 520 (4th Dist. 2008) The statute authorizes an action for mandatory civil penalties by a cardholder that can range up to the maximum amounts authorized by the statute, which are $250 for the first violation and $1,000 for subsequent violations. TJX Cos., Inc., 163 Cal. App. 4th at 85; Cal. Civ. Code § 1747.08(e).

An award of money damages is not necessarily "legal" relief. Curtis v. Loether, 415 U.S. 189, 196 (1974). Rather, monetary relief can be characterized as "equitable" where payment is an integral part of an equitable remedy, such as restitution. Id. at 197.

The Supreme Court has held that the Seventh Amendment requires a jury trial where civil penalties assessed were legal in nature. Tull v. United States, 481 U.S. 412 (1987). In Tull, the Court considered whether the Seventh Amendment guaranteed a jury trial right for an action by the Government for civil liability under the Clean Water Act. The legislative history and plain language of the Clean Water Act expressly enumerated numerous factors for courts to consider in determining the amount of the civil penalties. Tull, 481 U.S. at 422-23. In concluding that the civil penalties in that case were legal in nature, the Supreme Court found it significant that courts were to consider numerous factors that were not equitable in nature in calculating the amount of the civil penalties imposed, such as punishment and need for retribution. Id. The Supreme Court held that the punitive nature of the relief sought was traditionally available only in a court of law. Id. Therefore, the parties were entitled to a jury right on demand as to the determination of liability. Id. at 423;*fn2 see also Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998) (holding that an action involving statutory damages gives rise to a constitutional jury trial right with respect to the determination of liability as well as to the amount of damages); United States v. Nordbrock, 941 F.2d 947, 949 (9th Cir. 1991) (holding that the Seventh Amendment guaranteed a jury trial right in a Government action seeking civil penalties).

However, California courts have determined that statutory civil penalties are not legal in nature where the statute is "informational and preventative rather than compensatory in its nature." Dipirro v. Bondo Corp., 153 Cal. App. 4th 150, 182 (1st Dist. 2007); Mendoza v. Ruesga, 169 Cal. App. 4th 270, 285 n.9 (4th Dist. 2008). In DiPirro, the court addressed whether plaintiff was entitled to a jury trial on an affirmative defense raised under the California Safe Drinking Water and Toxic Enforcement Act of 1986. The purpose of the statute is "to facilitate the notification of the public of potentially harmful substances, so informed decisions made be made by consumers on the basis of disclosure." Id. at 183. The court noted that the remedies sought were equitable in nature, in part because they are highly discretionary, considering numerous factors "that do not primarily take into account any harm suffered by plaintiff." Id. at 182. Indeed, the civil penalties sought were "designed to deter misconduct and harm, not to compensate the plaintiff for actual damages sustained." Id. at 183. Thus, the court concluded that the civil penalties afforded by the statute were "not damages at law, ...

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