Litigation Law Alert: Ninth Circuit Opens Door Wide to Fair Credit Class Actions Seeking to Aggregate Minimum Statutory Damages

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On September 27, 2010, a panel of the U.S. Court of Appeals for the Ninth Circuit issued a decision that may have broad implications for certification of class actions under the Fair Credit Reporting Act (the "FCRA"), the Fair and Accurate Credit Transactions Act (the "FACTA"), and other consumer statutes in which aggregated statutory damages are sought. Joining the Seventh Circuit's decision in Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006), the Ninth Circuit in Bateman v. American Multi-Cinema, Inc., 623 F.3d 708 (9th Cir. 2010), held that the district court abused its discretion in denying class certification on the grounds that the plaintiff sought "enormous" aggregated statutory damages ($29 million to $290 million) for a technical violation of the FACTA "out of proportion" to any harm suffered by the class. The panel held that Rule 23(b) did not permit the district court to consider the proportionality between any actual harm suffered by a class and the aggregated statutory damages sought by the class in deciding whether to certify a class. The panel also held that a district court could not consider the potential "magnitude" of a defendant's liability in determining whether class certification was appropriate, or the defendant's good faith efforts to comply with the law.

Bateman is the latest case in a series of class actions filed after the FACTA amendments to the FCRA in 2003. Under the FACTA, businesses are required to redact credit card and debit card numbers from receipts. 15 U.S.C. § 1681c(g). Consumers who claim their statutory rights have been violated may file suit and recover actual damages, or statutory damages ranging from $100 to $1,000 if they prove a "willful" violation of the statute. 15 U.S.C. § 1681n. Unlike most other consumer protection statutes, however, the FCRA and FACTA do not "cap" statutory damages in the case of a class action. As a result, these statutes have become class action magnets; class action attorneys allege that a business has failed to redact credit card numbers from receipts or otherwise violated the statute with respect to a broad class of consumers and seek to aggregate $100 to $1,000 awards across hundreds of thousands (or in some cases, millions) of consumers. In many cases, this amounts to plaintiffs' seeking $100 to $1,000 for each improperly printed receipt.

Businesses faced with millions, or even hundreds of millions, of dollars in statutory damages exposure have challenged whether such "gotcha" class actions should be certified when class plaintiffs seek to recover annihilating statutory damages awards for violations of technical statutes out of proportion with any actual harm. They found support for this argument in the seminal district court opinion on the topic, Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y. 1972). In Ratner, the plaintiffs sought to certify a class of 130,000 persons who alleged "technical" violations of the Truth in Lending Act, and sought a minimum of $100 in statutory damages for each person. The court denied class certification on the grounds that class actions in such circumstances did not meet Rule 23(b)'s "superiority" requirement. "[T]he allowance of thousands of minimum recoveries like plaintiff's would carry to an absurd and stultifying extreme the specific and essentially inconsistent remedy Congress prescribed as a means of private enforcement." Id. at 414. Numerous district courts around the country have followed Ratner to deny class certification in FACTA cases.

In Bateman, however, the Ninth Circuit rejected Ratner, and held that a district court could not deny class certification under FACTA based on the enormity of aggregated statutory damages, or on the disproportion between actual damages and statutory damages. The Ninth Circuit pointed out that such considerations were found nowhere in Rule 23 or its advisory notes or history. The Ninth Circuit also concluded that there was no evidence that Congress intended to preclude class actions under FACTA or FCRA, and that it was therefore inappropriate for a district court to do so. The panel pointed out that Congress enacted statutory damages under FACTA and FCRA to compensate individuals when the amount of actual damages may be small or hard to quantify, and provided no cap on such damages. The panel further noted that in other contexts Congress has acted to curb aggregated statutory damages class actions, but had not expressly done so here indicating an intention to allow such cases to go forward as class actions.

Despite its broad conclusion, the Ninth Circuit left open the possibility that a defendant faced with "bankruptcy" or "ruinous liability" due to an aggregated statutory damages class action may have a basis to seek denial of class certification. The court also left open whether a district court, post-verdict, could reduce an aggregated statutory damages award as unconstitutionally excessive. But these narrow exceptions are cold comfort to a business facing millions of dollars in aggregated statutory damages in a no-injury, technical-violation case.

In sum, the Bateman decision paves the way for more class actions seeking millions of dollars in aggregated statutory damages for technical violations of the FCRA and FACTA. Companies are well-advised to redouble efforts to ensure to-the-letter compliance with FCRA and FACTA. Any misstep is likely to lead to significant class action exposure absent congressional action to cap or otherwise limit compounding of statutory damages across broad classes of consumers.

The full Bateman decision can be read here.

If you have questions about FCRA or FACTA compliance, class action litigation, or this update, please contact Timothy Snider or your Stoel Rives attorney.

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Timothy W. Snider
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