Vicarious Liability May Be Used to State a FACTA Claim
Vicarious liability may be used to state a claim under the FACTA provision prohibiting a retailer from printing a credit card expiration date on a receipt. See Keith v. Back Yard Burgers of Nebraska, Inc., No. 8:11-CV-135 (D. Neb. Apr. 13, 2012). According to the court, only one other unreported decision had addressed a franchisor’s vicarious liability under FACTA. Below, we discuss some considerations for retailers and franchisors arising from this ruling.
In Keith, a franchisee Back Yard Burgers restaurant printed credit and debit card expiration dates on its cash register receipts. The plaintiff sued both the franchisee restaurant and the franchisor for a violation of the Fair and Accurate Credit Transaction Act of 2003 (“FACTA”), 15 U.S.C. § 1681c(g)(1), which prohibits this practice. The plaintiff alleged that the franchisor was vicariously liable because it exercised significant and actual control over the franchisee’s business activities, including point of sale policies and procedures. The franchisor answered and moved for judgment on the pleadings, arguing, in essence, that it had no liability because it was not the entity that accepted Plaintiff’s debit card and handed him a receipt, nor was it vicariously liable for the acts of its franchisee.
The court denied the franchisor’s motion and concluded that vicarious liability is a viable basis to state a claim for a FACTA violation. In so doing, the court relied on an unreported opinion from the Western District of Pennsylvania, which applied common law agency principles to conclude that vicarious liability may exist under FACTA if a franchisor exercises control sufficient to establish a master-servant relationship. See Patterson v. Denny’s Corp., No. 07-1161, 2008 WL 250552, *2 (W.D. Penn. Jan. 30, 2008). Because the Keith order only resolved a motion for judgment for the pleadings, the court was required to read the pleadings in the light most favorable to the plaintiff, and the court therefore denied the franchisor’s motion.
Given that vicarious liability is possible under FACTA under Keith, retailers and franchisors should consider the following:
- The law has prohibited retailers from printing expiration dates on receipts since 2003 when FACTA was enacted.
- Franchisors should be careful to provide sufficient guidance to their franchisees regarding proper point of sale procedures, but not provide so much oversight that they establish a master-servant relationship with their franchisee. If the proper guidance is followed, it may help prevent lawsuits in the first instance. And if the advice is not followed, a franchisor may have a defense against ultimate liability – even if it cannot eliminate a plaintiff’s claims against it at an early stage in the litigation.
- Franchisors may consider including indemnity provisions in their franchise agreements that plainly apply to privacy-related claims, especially ones that arise from guidance that was provided, but not followed. Although an indemnity provision will not prevent a lawsuit, it may provide a franchisor with a valuable counterclaim against its franchisee if the plaintiff ultimately prevails.