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Ninth Circuit Holds that Courts May Not Impose Limits on FACTA Class Certification Based on Disproportionality or the Potential for Huge Statutory Damages

05 October 2010

This post was prepared by Neil O'Hanlon and Robert Hawk of Hogan Lovells' Los Angeles and Silicon Valley offices, respectively.

Bateman v. American Multi-Cinema, Inc.


Executive Summary


The Ninth Circuit Court of Appeals in a class action seeking a substantial award of statutory damages under the Fair and Accurate Credit Transactions Act (FACTA) reversed the denial of class certification, holding that the lower court had abused its discretion in finding that a class action was not a superior method for adjudicating claims.




The plaintiff alleged that the defendant had violated FACTA by printing more than the last five digits of consumers' credit or debit card numbers on electronically printed receipts, and the plaintiff sought to recover on behalf of himself and other putative class members statutory damages ranging from $100 to $1,000 for each willful (knowing or reckless) violation of FACTA. The district court in Los Angeles denied class certification, finding that a class action was not the superior method of litigating the case on three grounds: (1) the disproportionality between the potential liability and the actual harm suffered, (2) the enormity of the potential damages (ranging from $29,000,000 to $290,000,000), and (3) the defendant's good faith compliance with FACTA requirements within a few weeks following the filing of the lawsuit.


Ninth Circuit's Decision


In determining that the district court had abused its discretion in denying class certification, the Ninth Circuit noted that since at least 1972 many courts had denied class certification for "proportionality" reasons, on the basis that a class action was not a superior method of adjudicating claims when the defendant's potential liability would be completely out of proportion to any harm suffered by the plaintiff. The opinion noted that this reasoning has prevailed in the vast majority of district courts within the Ninth Circuit in cases where plaintiffs sought to certify classes in FACTA lawsuits.


The Ninth Circuit distinguished contrary authority by examining congressional intent in enacting the statutory damages provision in FACTA. In particular, it determined that the statute clearly provided for an award of statutory damages upon proof of a willful violation, without any cap on such damages in the case of class actions. The Ninth Circuit presumed that statutory damages serve a compensatory function, noting that FACTA also authorized an award of punitive damages in addition to any actual or statutory damages. Apart from compensating victims, statutory damages were also found to serve as a deterrent. Most importantly, the Court found that Congress had determined that the range of $100 to $1,000 per violation was appropriate compensation, and that a district court had no discretion to depart from the specified range. In tying the hands of the district court, the Ninth Circuit noted that although Congress had amended FACTA in other respects, it did nothing to limit the availability of class relief or the amount of aggregate damages. Furthermore, the Court noted that if district courts were permitted in their discretion to decide whether a potential award would be so disproportionate to the actual harm that a class action would not be the superior method of adjudication, such "unguided discretion" would result in non-uniform decisions about class certification.


Having disposed of the disproportionality argument, the Ninth Circuit made quick work of the district court's other two grounds for denying class certification. It concluded that although certification might result in an enormous potential liability for defendant, with the consequent pressure to settle and avoid the risk of potentially ruinous liability, this factor could not be properly considered in determining whether to certify a class in a FACTA action, in the absence of any supporting congressional intent. Furthermore, the Ninth Circuit dismissed the argument against certification that the defendant had quickly complied with the requirements of FACTA after being sued, since Congress did not include any safe harbor or otherwise limit damages on account of belated compliance.




District courts in the Ninth Circuit will no longer be able to deny class certification in FACTA suits on the basis of disproportionality between potential liability and actual harm, or because of the enormity of potential damages. Instead of having the flexibility to consider factors which many courts have determined to be appropriate when deciding whether a class action was a superior method of litigating the case, they will instead have to be guided by what the Ninth Circuit found to be clear congressional intent that the specified statutory damages are what they are and that class actions seeking their recovery are permitted. Since Congress did not impose any limits on class certification based on disproportionality or the potential for huge damages, neither should the courts, according to the opinion. While the Ninth Circuit noted that other factors need to be considered in connection with class certification, including whether a showing of "ruinous liability" would warrant denial of class certification in a FACTA or similar action, defendants have lost a powerful weapon, based on principles of fairness, that they previously could employ (and often did, with success) in resisting class certification. Furthermore, defendants in non-FACTA class actions involving statutory damages prescribed by Congress (without any cap and without any indication of judicial discretion) may be hampered in their ability to argue that a class action is not a superior method for adjudicating such claims.

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