Wednesday, September 29, 2010

Ninth Circuit Reverses Order Denying FACTA Class Certification Grounded on Concerns Penalty Liability Was Too Large: Bateman v. American Cinema, Inc.

On September 27, 2010, the Ninth Circuit reversed a district court order denying certification of a Fair and Accurate Credit Transactions Act (“FACTA”) claim in Bateman v. American Cinema, Inc., __ F.3d __ (2010). The district court couched its denial on a failure to meet the element of superiority due to concerns that FACTA’s statutory damages provision, which allows a consumer to recover damages between $100 and $1,000, would impose undue liability on the defendant. The Ninth Circuit deemed this to be an abuse of discretion:
The district court refused to certify the class because it concluded that the proposed class failed to meet Rule 23(b)(3)’s superiority requirement. See Bateman, 252 F.R.D. at 650-51. At the heart of its ruling, the district court determined that class treatment would render the magnitude of the defendant’s potential liability “enormous and completely out of proportion to any harm suffered by Plaintiff.” Id. at 651. In its first order denying class certification without prejudice, the court also considered significant AMC’s good faith efforts to bring its machines into compliance with FACTA shortly after the lawsuit was filed. We conclude that none of these three grounds —the disproportionality between the potential liability and the actual harm suffered, the enormity of the potential damages, or AMC’s good faith—justified the denial of class certification and hold that the district court abused its discretion in relying on them.
Slip Opinion, at 16365-66.

As reasoned by the Court, Rule 23(b)(3) does not permit consideration of a comparison of actual harm relative to the aggregate amount of statutory liability when deciding whether to certify FACTA class case. Slip Opinion, at 16366-81.

The Court further reasoned that while a court’s decision to certify a class may put pressure on a defendant to settle “even unmerited claims”, this fact standing alone cannot provide a basis to deny certification. See id., at 16382-83 (“If the size of a defendant’s potential liability alone was a sufficient reason to deny class certification, however, the very purpose of Rule 23(b)(3) – 'to allow integration of numerous small individual claims into a single powerful unit' – would be substantially undermined.”). The issue of “whether the potential for enormous liability can justify a denial of class certification depends on congressional intent” [See id., at 16383], which in light of the record surrounding enactment of FACTA’s statutory penalty provisions, did not support denial of certification. See id., at 16383-84 (“To limit class availability merely on the basis of ‘enormous’ potential liability that Congress explicitly provided for would subvert congressional intent.”).

Finally, the Court reasoned that the district court’s consideration of the defendant’s post-complaint good faith compliance was inconsistent with congressional intent in enacting FACTA, as “Congress did not include any safe harbor or otherwise limit damages for good faith compliance with the statute after an alleged violation.” See id., at 16385. Rather, certification was required to further the purpose of deterrence underpinning FACTA’s statutory penalty scheme. See id.

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