A Victory Receipt

An Ambiguous Law Yields an Unambiguous Success

Posted May 30, 2008 at 5:43pm

In a contentious and drawn-out presidential election year, the odds are against any bill making it through Congress and landing on the president’s desk.

So imagine the prospects of a measure that would provide retroactive immunity to companies such Wal-Mart and Outback Steakhouse that faced lawsuits for violating an identity protection law.

No chance, you might say.

You’d be wrong.

In an unlikely tale from the 110th Congress, a small band of lobbyists took a few clients’ legal problems and turned them into a successful legislative effort.

The narrative of how this bill, the Credit and Debit Card Receipt Clarification Act of 2007, is making its way into law is a far cry from the “Schoolhouse Rock” version. To hear it from a foursome of lobbyists who say they just happened on the issue one by one, it was part serendipity mixed with plenty of behind-the-scenes maneuvering.

“Given the enormity of the agenda, this was a problem that could be solved without a huge amount of process,” said Larry Sidman, a Paul Hastings partner who worked on the legislation. “It was an opportunity for young Members looking to take leadership of an issue and to show we can enact legislation on a bipartisan basis that will help the economy.”

The bill, which unanimously passed the House on May 13 and cruised through the Senate the following week, clarifies an ambiguous sentence in the 2003 Fair and Accurate Credit Transactions Act. President Bush, who has not expressed any opposition to the bill, has until June 4 to sign it into law.

The intent of that one particular sentence in the original law was to prohibit merchants from printing all but the last five digits of a customer’s credit card number on receipts and to stop them from displaying a credit card’s expiration date.

But the original bill says that no person “… shall print more than the last five digits of the card number or the expiration date upon any receipt provided to the cardholder …”

The “or” makes the phrase ambiguous — leaving open the interpretation that businesses could legitimately print the expiration date as long as they had truncated all but the last five digits of the credit card number.

By printing the expiration date, however, hundreds of companies suddenly found themselves defending class-action lawsuits for violating the 2003 law.

‘The Stuff of First-Year Law School’

Sidman, chairman of his firm’s government affairs practice, and Paul Hastings associate Jason Rosenstock first learned of the issue in April 2007 after receiving a call from Joshua Hamilton, a senior litigation associate in their firm’s Los Angeles office.

Hamilton had a client who was defending one of these suits, and he wanted to know whether there might be a legislative solution. Companies like his client could be on the hook for up to $1,000 per transaction in damages. That could mean potentially millions of dollars for large retailers.

“Jason and I took a look at the statute, FACTA, and the enormous potential for statutory damages,” Sidman said.

The bill’s problematic language, Sidman said, “is the stuff of first-year law school or high school English. ‘And’ usually means and, and ‘or’ usually means or.”

Around the same time, lobbyists Khalil Saliba, who runs Saliba Action Strategies, and Vincent Reusing of VPR Associates were on retainer for Outback Steakhouse, and they started looking into the matter after an Outback lawyer alerted of the problem.

Outback had truncated all but the last five digits of patrons’ credit card numbers but, like scores of other merchants who thought they were abiding by the 2003 law, had left the expiration date on their receipts.

Reusing, a Democrat who once worked for then-Sen. Joe Clark (D-Pa.), said he has had a longtime rapport with House Financial Services Chairman Barney Frank (D-Mass.), whom he bumped into in the Capitol complex.

“I was going down the hall, and I ran into him,” Reusing said. He brought up the law, and he said Frank told him that he had heard of the issue and to get in touch with his committee’s staff director, Jeanne Roslanowick.

Saliba and Reusing set up a meeting in April 2007 with Roslanowick, who put them in touch with committee staffer Ric Delfin.

“We walked out of that meeting feeling pretty good,” Saliba said.

They ran the issue by staffers for the committee’s ranking member, Spencer Bachus (R-Ala.), who said the Republicans were on board.

Through connections at the National Restaurant Association, Rosenstock got in touch with Saliba and Reusing. Along with Sidman, they started plotting strategy. By June of last year, the lobbyists came up with plausible language for the bill.

They had visions of putting together a large coalition of the businesses affected by the lawsuits, but they decided that first they would need to find a bill sponsor.

Searching for a Sponsor

Saliba, a former political coordinator with the Republican National Committee and the only GOPer of the four, knew the chief of staff for freshman Democratic Rep. Tim Mahoney of Florida.

Saliba had a brief meeting with Charles Halloran, Mahoney’s top aide, and they next set up a meeting with executives from Outback, a Florida-based company. An Outback attorney declined to comment.

Mahoney, in a recent interview, said Outback first brought the issue to his attention. “Then we did a little digging,” Mahoney said, “and found out that lots of groups were concerned in Florida, including small retailers. These are bad economic times, and these companies are struggling.”

Mahoney said his team researched whether any customers had actually had their identities stolen because a retailer had left the expiration date on a receipt that had otherwise properly redacted all but the last five digits of a credit card number. They found none. “We just felt that wasn’t how the law was intended,” he said.

“It wasn’t some heavy-duty lobbying thing where I was being pressured,” Mahoney added. But because of his business background, companies see him as a “user-friendly, business-friendly Democrat who’s a results-oriented person,” he said.

Mahoney wasn’t the only Member who the lobbyists reached out to, either directly or through a less obvious method of urging contacts in Members’ districts to bring the issue to their Congressman’s attention.

In one example, Rosenstock said he contacted the office of Rep. Melissa Bean (D-Ill.), an original co-sponsor, and asked to talk to her financial services person. They chose her office because Bean’s district was home to defendants in the FACTA lawsuits.

“We had a list of defendants, and we matched it up with Members’ districts,” Sidman said. “These were logical constituent issues.”

While the lobbyists were working to get Mahoney on board and drum up other sponsors from both sides of the aisle, they also had to make certain that two key lobbying groups — consumer advocacy groups and trial lawyers — would stay neutral. “I was most worried about the trial lawyers,” Reusing said.

And with good reason. The trial lawyer lobby, the American Association for Justice, usually doesn’t look the other way when big corporations are asking Congress for retroactive immunity from ongoing lawsuits. And the group holds enormous sway in the Democratic party.

“In general we tend to be against provisions like this,” said one AAJ source who did not want to be named. “It tends to be ammunition for folks when they want to expand immunity.” Mahoney’s legislative director, Patrick Givens, was tasked with reaching out to AAJ, while Mahoney said he consulted with trial lawyer friends in Florida.

In the end, AAJ concluded that it wasn’t a large enough issue and didn’t affect enough of its members to take an official position on the matter. However, some individual lawyers, who are members of AAJ, did work to fight the bill.

When it came to consumer advocates, Sidman called up an old contact at the Consumer Federation of America, Steve Brobeck, who put him in touch with Travis Plunkett, a CFA lobbyist who confirmed that the CFA and other consumer groups had agreed not to oppose the bill.

“We made a decision that the only way this was going to get through was if we did not incur the ire of the consumer advocacy organizations or the broad-scale ire of the trial lawyers,” Sidman said.

An Underfunded Effort

While some K Streeters put a generation of children through expensive private schools based on the fees collected from long-running coalitions, the four lobbyists said they worked themselves out of a job in less than six months.

“Before we formed the coalition, we knew this is an election year coming up, we needed to get a bill introduced,” Saliba said. “We had to have a noncontroversial bill. It had to be characterized as a technical correction.”

When the bill was introduced on Oct. 30, 2007, the four lobbyists huddled together and decided they needed a critical mass of grass-roots support.

They got the help of the National Restaurant Association, the Retail Industry Leaders Association, the National Association of Convenience Stores and the Chamber of Commerce, among others. But these weren’t paying clients.

The FACTA Reform Coalition that they put together ultimately found 10 dues-paying members, including Wal-Mart, Overstock.com, Ross, Longs Drug Stores, Super Value, Vitamin Shoppe, Food Marketing Institute, Penske, Jones New York and Boscov’s Department Store.

“We thought we’d get 20, 25 companies,” said Saliba, who regularly pitched defendants in the lawsuits, mostly to no avail.

But the foursome was a picky bunch. It limited coalition members only to companies that had properly truncated the credit card numbers but had left the expiration date on the receipt.

Some other companies had left entire credit card numbers and expiration dates, while others left additional numbers. “We made a judgment on this,” Reusing said. “There was no way we could include them.”

The retroactive immunity would apply only to those companies that had tried to follow the 2003 law but had gotten caught up in the and/or misinterpretation.

After the president signs the bill into the law, the immunity will end and any companies that continue to print the expiration date can be sued. In addition, any person whose identity was stolen as a result of the expiration dates can still sue.

Unfortunately for the lobbyists, not enough firms who met their strict criteria came knocking to make it a boon.

“This was a very small effort,” Rosenstock said. “I wouldn’t want to use the word ‘underfunded.’”

But Sidman quickly added, “I would.”

Sidman said that there were 500 named defendants and that he and the other lobbyists have communicated to many of those companies since the bill passed and asked them to pay after the fact — an unlikely prospect — in recognition of the savings they had on potentially whopping legal bills.

The fact that the legislation moved so quickly has hurt the lobbyists’ bottom lines, they said. For example, one company that the lobbyists would not name actually sent a retainer letter the week the bill passed the House, but then quickly retracted it after the measure passed the Senate.

“It was a smashing legislative success and a very dubious business venture,” said Sidman, whose firm reported earning $110,000 in total fees from the FACTA Reform Coalition for the end of last year and the first quarter of this year.

Still, Saliba called it a rare success story with bipartisan comity. “Not many people in my business get a victory like that,” he said. “The average bill takes five, six years to get passed. And most times they don’t get passed at all.”