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FINAL JUDGMENT ENTERED IN CALIFORNIA SB1 CASE

On remand from the U.S. Court of Appeals for the Ninth Circuit, the U.S. District Court for the Eastern District of California has entered a Final Judgment and Permanent Injunction in the case originally styled American Bankers Association v. Lockyer (now styled American Bankers Association v. Brown), ending over four years of litigation over the California Financial Information Privacy
Act, Cal. Fin. Code §§ 4050 et seq. (commonly known as "SB1"). The district court opinion provides no additional guidance regarding
what information sharing practices are not subject to preemption beyond what the Ninth Circuit stated in its 2005 decision. To recap:

April 2004: Case filed in Eastern District of California.

June 2004: Eastern District held SB1 not preempted by federal Fair Credit Reporting Act (FCRA) and granted summary judgment for defendants, who then included Attorney General Bill Lockyer, Department of Financial Institutions Commissioner Howard Gould, Department of Corporations Commissioner William P. Wood and Department of Insurance Commissioner John Garamendi. (See DLT Alert dated July 1, 2004.)

July 2004: Plaintiffs appeal to Ninth Circuit.

June 2005: Ninth Circuit reversed and remanded, declaring that FCRA preempts at least some part of SB1. (See DLT Alert dated June 20, 2005.)

October 2005: On remand, Eastern District (i) determined no portion of Section 4053(b)(1) survives preemption, (ii) granted declaratory judgment for plaintiffs and (iii) permanently enjoined enforcement of SB1 to extent preempted by FCRA preemption provision. (See DLT Alert dated October 5, 2005.)

November 2005: Defendants appeal to Ninth Circuit.

September 2008: Ninth Circuit held SB1 has "non-preempted applications" and California law requires court to reform the law to sever its preempted applications. (See DLT Alert dated September 11, 2008.)

The two-page Final Judgment and Permanent Injunction issued on October 27, 2008 quotes directly from the Ninth District’s 2005 opinion, American Bankers Association v. Gould, 412 F.3d 1081, 1087 (2005), and holds that:

(1) California Financial Code § 4053(b)(1) (i.e., the affiliate-sharing provision of SB1) is preempted by 15 U.S.C. § 1681t(b)(2) (i.e., the FCRA preemption provision) "insofar as it attempts to regulate the communication between affiliates of ‘information,’ as that term is used in [15 U.S.C.] § 1681a(d)(1)" of the FCRA (i.e., the definition of "consumer report"); and

(2) To the extent that Section 4053(b)(1) is preempted, Defendants (including Attorney General Edmund G. Brown Jr., Department of Financial Institutions Commissioner William S. Haraf, Department of Corporations Commissioner Preston Dufauchard and Department of
Insurance Commissioner Steve Poizner) and their successors and agents are permanently enjoined from enforcing or taking any other action under Section 4053(b)(1).

The Final Judgment does not address (i) what "non-preempted applications" Section 4053(b)(1) may have or (ii) whether and how Section 4053(b)(1) attempts to regulate the communication between affiliates of "information," as that term is used in the FCRA definition of "consumer report." Such issues may remain unresolved until tested in enforcement actions and/or litigation.

Elizabeth Anstaett