9th Circuit Rescuscitates California Privacy Law
The Ninth Circuit has partially revived a part of California's erstwhile Financial Information Privacy Law. In American Bankers Association v. Lockyer, the Court held California Financial Code §4053(b)(1) has non-preempted applications and reformed that section to sever its preempted portions.
American Bankers v. Lockyer is a preemption dispute that is as old as the 2003 California Financial Information Privacy Act, California Financial Code §4050 et seq., commonly known as SB1. In American Bankers Association v. Gould, 412 F.3d 1081 (9th Circuit 2005), plaintiffs alleged that the federal Fair Credit Reporting Act ("FCRA") preempted SB1's regulation of information sharing between financial institutions and their affiliates. The Ninth Circuit held that the regulation of nonpublic personal information in 15 U.S.C. 1681t(b)(2) preempted any application to consumer report information in section 4053(b)(1).
The Court remanded for a determination whether any portion of SB1's affiliate sharing regulations in section 4053(b)(1) survived preemption and whether any preempted section was severable. On remand, the district court held that no portion of section 4053(b)(1) survived preemption and that the preempted applications were not severable. Defendants appealed.
The Ninth Circuit reversed, holding that California Financial Code section 4053(b)(1) has non-preempted applications and that the preempted portions are severable.
The Court rejected the argument that 4053(b)(1) was preempted in its entirety because no "physically distinct" section of the statute "applies to information that falls outside the FCRA preemption clause." The Court noted that SB1 has non-preempted applications, meaning some part of the statute could be saved if it were reformed to sever the regulation of consumer report information from the affiliate sharing regulations.
The Court turned to an analysis of the California legislature's intent and held that: (1) a narrowing of section 4053(b)(1) would effect the legislative intent; and (2) the California legislature would have preferred a narrowed statute to no statute at all. Significantly, the Court severed the preempted application even though the statute's severability clause makes no mention of severing a preempted application. The Court's reformation of section 4053(b)(1) narrowed that section to exclude the regulation of consumer report information as defined by FCRA.
