In a decision filed September 27, 2010, the U.S. Court of Appeals for the Ninth Circuit reversed a California district court’s refusal to certify a class action alleging violations of the Fair and Accurate Credit Transactions Act (“FACTA”) because, among other things, the defendant’s potential liability for statutory damages was out of proportion to any harm suffered by the plaintiff. In a complete rejection of the lower court’s decision, the Ninth Circuit ruled that none of the three grounds advanced below – the disproportionality between the potential liability and the actual harm suffered, the enormity of the potential damages, or the defendant’s good faith compliance with FACTA after being sued – justified denying class certification on superiority grounds. The Ninth Circuit’s decision narrows, if not eliminates, the potential for disagreement among district courts on an issue that has for some time been a fly in the ointment for class action plaintiffs (and their attorneys) hoping for big paydays on account of harmless technical violations of FACTA.
In Bateman v. Am. Multi-Cinema, Inc., the plaintiff filed a class action complaint alleging that from December 2006 to January 2007 AMC issued approximately 290,000 credit and debit card receipts from its automated box office machines that included both the first four and last four digits of customers’ payment card account numbers. The U.S. District Court for the Central District of California denied Bateman’s motion for class certification because Bateman failed to show that a class action would be the superior method of adjudicating his claim, as required by Federal Rule of Civil Procedure 23(b)(3). In the court’s view, class treatment might result in an enormous statutory damages award “completely out of proportion to any harm suffered by the plaintiff.” Moreover, the court cited AMC’s good-faith efforts to comply with FACTA shortly after the plaintiff filed his complaint to support its conclusion that class treatment would not further the purpose and policy of FACTA.
On appeal, despite acknowledging that the trial court must be given “wide discretion” to consider the most appropriate procedure in each case, including Rule 23(b)(3)’s superiority requirement, the Ninth Circuit held that the lower court abused this discretion by denying class certification to Bateman. Specifically, the Ninth Circuit concluded that FACTA did not give judges discretion to depart from the $100 to $1,000 per violation range of statutory damages where they find that such damages are disproportionate to the actual harm suffered. In addition, the Ninth Circuit found it inappropriate to consider the size of any damages award at the class certification stage, particularly since Congress did not see fit to impose a cap on potentially enormous statutory damage awards under FACTA despite several clear chances to do so. Finally, the Ninth Circuit concluded that denying class certification on account of AMC’s good-faith compliance (post-complaint) “undermines the deterrent effect of FACTA itself.” For these reasons, the appeals court reversed the lower court’s decision and remanded the case back to the lower court for further review.
While the Ninth Circuit’s Bateman decision should not substantively changes companies’ approaches to compliance with FACTA, the case makes clear that companies cannot rely on discretionary factors to stamp out potentially excessive statutory damages awards that are otherwise available for even harmless miscues.