The Ninth Circuit Court of Appeals has recently held that, where plaintiffs bring a putative class action alleging violations of the Fair and Accurate Credit Transactions Act (FACTA), class action certification should not be denied simply because a disproportional relationship exists between the defendant’s potential statutory liability and the actual harm suffered by plaintiffs. In addition, the court found that the district court erred in denying class certification on the basis of defendant’s post-complaint FACTA compliance. Bateman v. American Multi- Cinema, Inc., 2010 WL 373355 (9th Cir. Sept. 27, 2010).

The Facts

In an effort to protect against identity theft, the FACTA, 15 U.S.C. § 1681c(g), prohibits businesses that accept credit or debit cards from printing more than the last five digits of account numbers on receipts. The statute incorporates the Fair Credit Reporting Act’s statutory damages provision, which allows a consumer to recover damages “ranging from $100 to $1,000 for each willful violation of FACTA,” without having to prove actual damages.

Michael Bateman, the named plaintiff in this action, filed a putative class action suit on behalf of himself and those individuals similarly situated against defendant American Multi- Cinema, Inc. (AMC). The suit alleged that from December 2006 to January 2007, the company issued noncompliant receipts from its automated box offices. An internal AMC investigation, conducted after the lawsuit was filed, allegedly revealed that “more than 290,000 receipts had been printed in violation of the FACTA during the relevant time period.” With over 290,000 potential violations, the defendant’s statutory damage exposure of $100 to $1,000 per violation could total between $29 million and $290 million.

Bateman sought class certification pursuant to Federal Rules of Civil Procedure 23(b)(3), which provides, in part, that where “the questions of law or fact common to class members predominate over any questions affecting only individual members . . . a class action is superior to other available methods for fairly and efficiently adjudicating the controversy.” The district court denied class certification, finding that plaintiff “had failed to demonstrate that a class action would be superior to other available methods” for adjudication. The district court reasoned that because AMC’s statutory liability “could result in enormous liability” that was “completely out of proportion to any harm suffered by the plaintiff,” class certification was not “superior to other available methods.”

The Ninth Circuit’s Ruling

On appeal, the Ninth Circuit began its analysis by noting that Rule 23 is noticeably silent on what constitutes “superiority” in determining whether to certify a class. The court pointed out that, while “[t]he rule provides a non-exhaustive list of factors relevant to the superiority inquiry . . . [n]one of these enumerated factors appear to authorize a court to consider whether certifying a class would result in disproportionate damages.”

The court wrote that a number of district courts have struggled with this superiority issue, in part because the statute (1) does not place a cap on these damages in the case of class actions, (2) does not indicate a threshold at which courts are free to award less than minimum statutory damages, and (3) does not limit the number of individuals that can be certified in a class or the number of individual actions that can be brought against a single merchant. Notwithstanding this lack of guidance, the court noted that Congress amended the FACTA in 2008 and seemingly made the decision at that time not to limit the availability of class relief or the amount of aggregate damages reasonable. As such, the Ninth Circuit concluded that the district court’s denial of class certification based on the disproportional relationship between the large potential award and any actual damages was in error.

The court made use of the same logic in determining that the district court had erred in relying on the sheer size of the potential award as grounds for denying class certification. The court wrote: “In the absence of such affirmative steps to limit liability, we must assume that Congress intended FACTA’s remedial scheme to operate as it was written.” To that end, “[t]o limit class certification availability merely on the basis of ‘enormous’ potential liability that Congress explicitly provided for would” in effect subvert Congressional intent.

With respect to issues of proportionality, the court noted that AMC’s reliance on Kline v. Coldwell as an example of the Ninth Circuit denying class certification for disproportionality was misplaced. The court explained that Kline was distinguishable because it involved 2,000 defendant class members facing not only joint and several liability, but treble damages under both the Clayton and Sherman Acts, for a potential total of $750 million in damages. In that case, the court held that class adjudication could subject the individual defendants to “vicarious liability by the coincidence of a class action for the staggering damages of the multitude,” a result that Congress could never have intended.

Finally, the court held that the district court should not have found that, because AMC “demonstrated good faith by complying with FACTA within a few weeks of the filing of Plaintiff’s Complaint,” the deterrent effect of the class action was limited. The court wrote that where Congress chose not to include any safe harbor provisions or limitations on damages for good faith compliance, to deny class certification on good faith grounds “would communicate to other potential violators that, as long as they comply with FACTA after a complaint is filed, they may avoid liability for widespread violations.”

Conclusion

The Ninth Circuit’s holding in Bateman v. American Multi- Cinema, Inc. stands for the proposition that a disproportionate relationship between potential liability and actual harm suffered or the enormity of potential damages should not be a material factor when determining whether, under FRCP Rule 23(b)(3), a class action is superior to individual cases under the FACTA. Moreover, this decision supports the notion that postcomplaint good faith compliance is not an appropriate basis to deny class certification under the FACTA, as that would undermine the deterrent effect of the FACTA.