Fullwood v. Wolfgang's Steakhouse, Inc.

Filing 41

OPINION AND ORDER re: 31 MOTION to Dismiss Plaintiff's Second Amended Complaint filed by ZMF Restaurants LLC, Wolfgang's Steakhouse, Inc.: For the reasons set forth in this Opinion, Defendants' motion to dismi ss is DENIED. Defendants are directed to file an answer no later than August 13, 2015. The parties are directed to submit a Case Management Plan, a form for which can be found on the Court's website, no later August 20, 2015. The Clerk of Court is directed to terminate the motion pending at Docket Entry 31. (Signed by Judge Katherine Polk Failla on 7/23/2015) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
CYNTHIA M. FULLWOOD,
:
:
:
Plaintiff,
:
:
v.
:
WOLFGANG’S STEAKHOUSE, INC., et al., :
:
Defendants. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: July 23, 2015
______________

13 Civ. 7174 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
Plaintiff Cynthia M. Fullwood sued Defendants Wolfgang’s Steakhouse,
Inc. (“Wolfgang’s”) and ZMF Restaurants LLC, alleging that Defendants willfully
violated the Fair and Accurate Credit Transactions Act of 2003 (“FACTA”),
Pub. L. No. 108-159, 117 Stat. 1952, by printing credit card receipts that
included the expiration date of customers’ cards. Defendants previously moved
to dismiss the Amended Complaint pursuant to Federal Rule of Civil Procedure
12(b)(6), arguing that Plaintiff had not plausibly alleged a willful violation of
FACTA. Plaintiff, in responding, included a proposed Second Amended
Complaint. The Court denied the motion without prejudice to refiling once
Plaintiff filed the Second Amended Complaint. See Fullwood v. Wolfgang’s
Steakhouse, Inc. (“Fullwood I”), No. 13 Civ. 7174 (KPF), 2014 WL 6076733, at
*1 (S.D.N.Y. Nov. 14, 2014). Defendants now move to dismiss the Second
Amended Complaint. For the reasons set forth in remainder of this Opinion,
Defendants’ motion to dismiss is denied.

BACKGROUND 1
A.

Factual Background
The Court assumes familiarity with its prior opinion, but briefly retraces

the relevant facts, particularly as Plaintiff’s Second Amended Complaint is
somewhat more specific than her Amended Complaint.
Plaintiff dined at Defendants’ Park Avenue location on October 3, 2013.
(Compl. ¶¶ 6, 15). After paying for her meal with a credit card, she received an
electronically printed receipt displaying the expiration date. (Id.). Plaintiff does
not allege that any actual damages flowed from this act, but sues for the
statutory damages available for a willful violation of FACTA, on behalf of herself
and a class of similarly situated plaintiffs. (See generally Compl.). 2
Under FACTA, and as clarified by the Credit and Debit Card Receipt
Clarification Act of 2007 (the “Clarification Act”), Pub. L. No. 110-241, 122 Stat.
1565, merchants should print neither the expiration date nor more than four
digits of customers’ credit card numbers on their receipts. Plaintiff alleges that
Defendants were or should have been aware of these requirements through a
number of avenues.
As a general matter, FACTA’s requirements were widely publicized during
its phase-in period between passage and effect. (See Compl. ¶¶ 30-36). This

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As is necessary on a motion to dismiss, the facts as set forth in the Second Amended
Complaint (“Compl.”) are accepted here as true. For convenience, Defendants’ opening
brief is referred to as “Def. Br.”; Plaintiff’s opposition brief as “Pl. Opp.”; and
Defendants’ reply brief as “Def. Reply.”

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The Court previously struck from the class those diners who fell outside FACTA’s fiveyear statute of limitations. Fullwood I, 2014 WL 6076733, at *8. Accordingly, the
putative class consists of diners at Wolfgang’s since October 10, 2008. (Compl. ¶ 9).

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publicity was only increased by the passage of the Clarification Act in 2007.
(Id. at ¶¶ 45-46).
More specific to Defendants, 3 Plaintiff alleges that Defendants had been
informed of FACTA’s requirements by numerous companies with which they
had commercial relationships, including Visa, MasterCard, American Express,
the PCI Security Standards Council (a consortium of credit card companies),
and others. (Compl. ¶ 50). Plaintiff alleges that throughout the relevant period
Defendants received the Card Acceptance Guidelines for Visa merchants (the
“Visa Rules”) and the MasterCard Security Rules and Procedures, Merchant
Edition (the “MasterCard Rules”), both of which instructed merchants
(including Defendants) not to print more than the last four digits of credit card
numbers or any expiration dates. (Id. at ¶¶ 52-60). As the Court previously
noted, neither the Complaint nor the brochures indicate that this guidance
came from FACTA rather than Visa’s or Mastercard’s own determination of best
practices. See Fullwood I, 2014 WL 6076733, at *1.
Plaintiff further alleges that Defendants received information specifically
referencing their obligations under FACTA in monthly statements from their
merchant bank, their Point of Sale (“POS”) provider or providers, and trade
associations. (Compl. ¶¶ 62-65). Critically, Plaintiff further alleges that
Defendants partially complied with FACTA by changing their credit and debit

3

Defendants point out that similar allegations have been made regarding a number of
businesses in other litigations, often by Plaintiff’s counsel. (See Def. Br. 4-5, 6-7;
Shiminoff Declaration Ex. B, C, D). Yet nothing prevents an attorney from utilizing
knowledge acquired regarding general industry practice in multiple litigations.

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card receipts to remove all but the last four digits of the card number. (Id. at
¶ 65). 4
Finally, Plaintiff alleges that on October 29, 2013, Plaintiff was advised
that Defendants’ insurance carrier was denying coverage because the governing
“Policy specifically excludes violations of the Fair and Accurate Credit
Transactions Act.” (Compl. ¶ 67). From this, Plaintiff infers that Defendants
specifically negotiated a contract that carved out an exclusion for FACTA,
suggesting knowledge of its applicability. (Id. at ¶¶ 68-69).
B.

Procedural Background
Plaintiff filed suit on October 10, 2013, and filed her Amended Complaint

on November 4, 2013. (Dkt. #1, 5). Pursuant to the Court’s Order, Defendants
moved to dismiss the Amended Complaint on January 10, 2014. (Dkt. #13).
Plaintiff included in her opposition to the motion to dismiss a proposed Second
Amended Complaint. (Dkt. #18 Ex. H). On July 17, 2014, the Court stayed
the case on consent of both parties during the pendency of a motion for
reconsideration in a highly similar case, Crupar-Weinmann v. Paris Baguette
America, Inc., No. 13 Civ. 7013 (JSR). After the Honorable Jed S. Rakoff denied
the motion for reconsideration, 2014 WL 4337978 (S.D.N.Y. Sept. 2, 2014), the
Court lifted the stay in the instant litigation on October 1, 2014. (Dkt. #25).
On November 14, 2014, finding that the proposed Second Amended Complaint

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Plaintiff also notes in the Second Amended Complaint a 2011 incident of identity theft
targeting Wolfgang’s customers. (Compl. ¶ 66). As the Court stated in its previous
Opinion, that incident — which was carried out by employees using sophisticated
electronic credit card “skimmers” — bears little relationship to Defendants’ ostensible
noncompliance with FACTA. Fullwood I, 2014 WL 6076733, at *1 n.3.

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“may or may not demonstrate that Defendants were sufficiently informed [of
FACTA’s requirements and applicability] so as to plausibly infer a willful
violation,” such that repleading would not be futile, the Court denied the
motion to dismiss without prejudice to refiling, and instructed Plaintiff to file
her Second Amended Complaint. Wolfgang I, 2014 WL 6076733, at *8.
Plaintiff did so on December 1, 2014 (Dkt. #27), and pursuant to the Court’s
Order Defendants moved to dismiss the Second Amended Complaint on
January 30, 2015 (Dkt. #31-34). Plaintiff filed her brief in opposition on
March 2, 2015 (Dkt. #36), and the briefing was complete upon submission of
Defendants’ reply brief on March 16, 2015 (Dkt. #38).
DISCUSSION
A.

Applicable Law
1.

Motions to Dismiss Under Rule 12(b)(6)

When considering a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6), a court should “draw all reasonable inferences in Plaintiff[’s]
favor, assume all well-pleaded factual allegations to be true, and determine
whether they plausibly give rise to an entitlement to relief.” Faber v. Metro. Life
Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (internal quotation marks omitted).
Thus, “[t]o survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to ‘state a claim to relief that is plausible on
its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).

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“While Twombly does not require heightened fact pleading of specifics, it
does require enough facts to ‘nudge [a plaintiff’s] claims across the line from
conceivable to plausible.’” In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d
Cir. 2007) (quoting Twombly, 550 U.S. at 570). “Where a complaint pleads
facts that are ‘merely consistent with’ a defendant’s liability, it ‘stops short of
the line between possibility and plausibility of entitlement to relief.’” Iqbal, 556
U.S. at 678 (quoting Twombly, 550 U.S. at 557). Moreover, “the tenet that a
court must accept a complaint’s allegations as true is inapplicable to
threadbare recitals of a cause of action’s elements, supported by mere
conclusory statements.” Iqbal, 556 U.S. at 663.
2.

Willful Violations of FACTA

FACTA was passed in 2003 to amend the Fair Credit Reporting Act of
1970 (the “FCRA”), Pub. L. No. 91-508, 84 Stat. 1114, and requires in part that
“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). FACTA adopts the two-tiered
system of liability set forth in the FCRA: negligent noncompliance with the
statute creates liability for actual damages and attorney’s fees, see 15 U.S.C.
§ 1681o(a), while willful noncompliance creates liability for actual damages or
statutory damages between $100 and $1,000, in addition to punitive damages
and attorney’s fees, see id. § 1681n(a).

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As the Court explained more fully in Fullwood I, there is significant
confusion over what constitutes a “willful” violation of FACTA. The Supreme
Court has explained that willfulness includes “not only knowing violations of a
standard, but reckless ones as well.” Safeco Ins. Co. of Am. v. Burr, 551 U.S.
47, 57 (2007). In the context of violations of potentially ambiguous statutory
language, the Supreme Court held that “a company subject to FCRA does not
act in reckless disregard of it unless the action is not only a violation under a
reasonable reading of the statute’s terms, but shows that the company ran a
risk of violating the law substantially greater than the risk associated with a
reading that was merely careless.” Id. at 69.
Safeco’s holding, however, has limited applicability to situations in which
the statutory language — as here — is unambiguous, and the question is
simply whether a defendant violated FACTA negligently or willfully. The Court
in Fullwood I explained that district courts have divided over the proper
application of FACTA to situations such as the instant case: some have held
that the only defense to a willful violation is unclear statutory language; others
have held that a plaintiff must plead only the defendant’s awareness of
FACTA’s requirements to plausibly allege a willful violations; and yet others
have held that a plaintiff must plead both knowledge of FACTA’s requirements
and an intentional or deliberate violation of those requirements. See Fullwood
I, 2014 WL 6076733, at *6 (collecting cases).
The Court found, surveying these cases and referencing other statutory
schemes incorporating a similar two-tiered liability system, that “a willful
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violation does not require merely that a defendant know of FACTA’s
requirements and violate them, but also that the defendant have knowledge of
or recklessness as to the fact that its behavior violates the statute.” Fullwood I,
2014 WL 6076733, at *3. Plaintiff has objected to this formulation, arguing
that the Court has imposed a requirement of subjective knowledge of the
statute’s provisions that is not in keeping with Safeco’s understanding of civil
recklessness. (Pl. Br. 2-3 & n.4 (citing Safeco, 551 U.S. at 68 n.18)). The
Court acknowledges that its prior Opinion may have been inartfully phrased;
since virtually every Plaintiff can plausibly plead subjective knowledge of
FACTA, the Court was concerned with whether such subjective knowledge
suffices to plead a willful violation. A more precise formulation would be that a
defendant willfully violates FACTA when it knows itself to be in violation of
FACTA, or acts in a manner that entails an unjustifiably high risk of violating
FACTA that is so obvious that it should be known. Cf. Safeco, 551 U.S. at 68
(quoting Farmer v. Brennan, 511 U.S. 825, 836 (1994)).
Even under this formulation, it is not enough to show simply that there
was awareness — either general or specific — of FACTA’s requirements and a
failure to take the steps necessary to ensure compliance with those
requirements. At the same time, as the Court explained, if a plaintiff alleges a
sufficiently high degree of knowledge of the statute’s requirements on the part
of the defendant, “[i]t would be plausible to infer — indeed, implausible not to
infer — that at some point the [defendant] or its agents became aware of a
violation of FACTA’s requirements, or at least recklessly endeavored to avoid
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learning of a potential violation.” Fullwood I, 2014 WL 6076733, at *7. “The
key, then, is for a complaint to cross the line from a level of knowledge of
FACTA’s requirements from which it merely possible to infer a willful violation,
to a level from which it is plausible to infer such a violation.” Id. (citing
Twombly, 550 U.S. at 557).
B.

Plaintiff Has Plausibly Alleged a Willful Violation of FACTA
Plaintiff alleges that Defendants were specifically and repeatedly

informed of FACTA’s existence, applicability, and potential imposition of
liability. In addition to the general press coverage of FACTA and the
Clarification Act, and the industry publications that were circulated on the
subject, Plaintiff alleges that Defendants’ insurance contract specifically
excluded violations of FACTA from coverage. (Compl. ¶ 67). From this, Plaintiff
plausibly infers that Defendants specifically negotiated this provision, further
suggesting a knowledge of FACTA’s existence and potential implications.
Plaintiff also alleges that Defendants were informed not merely of
FACTA’s existence, but also its requirements, by a series of regular statements
from Defendants’ merchant bank, POS provider or providers, and trade
associations. (Compl. ¶¶ 62-64). 5 In addition, the parties place great stress

5

Defendants submit, as Exhibits A and B to the D’Amato Declaration, purported
statements from their merchant bank in the months before the incident giving rise to
the Complaint that make no mention of FACTA. Yet as this Court has repeatedly noted,
the doctrine of incorporation by reference should not be read so broadly as to allow a
defendant to claim that a document represents the entire set of materials that a broadly
phrased complaint could possibly be referring to; “the Court would have to rely on
Defendants’ assertion that the [materials] are produced in context and form the entirety
of the alleged … conduct. Such reliance would properly require the Court to convert the
motion to dismiss to a Rule 56 motion for summary judgment, and allow Plaintiff ‘a
reasonable opportunity to present all the material that is pertinent to the motion.’”

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upon Defendants’ partial compliance with FACTA by omitting all but the last
four digits of card numbers on their receipts: Defendants argue that such
partial compliance shows mere negligence in the absence of a motive to violate
FACTA, while Plaintiff argues that it shows clear knowledge of FACTA’s
requirements and thus recklessness as to a violation thereof. As the Court
found previously, Defendants’ partial compliance, standing alone, lends itself to
an “‘obvious alternative explanation’ of negligence.” Fullwood I, 2014 WL
6076733, at *7 (quoting Twombly, 550 U.S. at 567). Yet combined with
Defendants’ negotiation of insurance contract provisions specifically
highlighting FACTA, and their repeated information by multiple sources of
FACTA’s requirements, the picture looks different. Plaintiff has adequately
alleged that Defendants, knowing of FACTA’s importance and being informed of
its requirements, either read or implemented those requirements in such a
reckless, haphazard manner as to run an unjustifiably high risk of violating
FACTA. To require more at the pleading stage, prior to discovery into a
defendant’s internal communications or compliance procedures, would
effectively read FACTA’s willfulness tier out of the statute.

Catapano-Fox v. City of New York, No. 14 Civ. 8036 (KPF), 2015 WL 3630725, at *1 n.1
(S.D.N.Y. June 11, 2015) (quoting Fed. R. Civ. P. 12(d)); see also BWP Media USA, Inc. v.
Gossip Cop Media, LLC, No. 13 Civ. 7574 (KPF), 2015 WL 321863, at *3 (S.D.N.Y.
Jan. 26, 2015). Accordingly, Plaintiff’s request that the Court not consider the D’Amato
Declaration is granted. (Pl. Opp. 14).

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CONCLUSION
For the reasons set forth in this Opinion, Defendants’ motion to dismiss
is DENIED. Defendants are directed to file an answer no later than August 13,
2015. The parties are directed to submit a Case Management Plan, a form for
which can be found on the Court’s website, no later August 20, 2015.
The Clerk of Court is directed to terminate the motion pending at Docket
Entry 31.
SO ORDERED.
Dated:

July 23, 2015
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge

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