FACTA Class Action Defense Cases–Bateman v. American Multi-Cinema: California Federal Court Denies Class Action Certification Motion Holding Putative FACTA Class Action Failed Superiority Test Because Of Risk Of Excessive Damage Award

Dec 2, 2008 | By: Michael J. Hassen

Putative Class Action Alleging Violations of FACTA not Entitled to Class Action Treatment because Rule 23(b)(3)’s Superiority Requirement for Class Action Certification not Met California Federal Court Holds

Plaintiff filed a putative class action against American Multi-Cinema for violating the federal Fair and Accurate Credit Transactions Act (FACTA); specifically, the class action complaint alleged that defendant printed not only the last four digits of a consumer’s credit or debit card on the customer’s receipt, but the first four digits as well. Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647, 648 (C.D. Cal. 2008). Notably, the class action complaint did not allege that plaintiff, or any putative member of the class action, suffered any harm as a result of the violation. Id. Defendant corrected its sales practices within two weeks of the filing the class action, id. Plaintiff moved the district court to certify the litigation as a class action; the district court denied the motion on the grounds that Rule 23(b)(3)’s superiority requirement had not been met: “The Court found that if certified, the potential statutory damages to be awarded could be enormous and completely out of proportion to any harm suffered by Plaintiff.” Id. (A copy of the district court order denying plaintiff’s initial motion for class action treatment may be found here.) However, the district court denied class action treatment without prejudice pending the Ninth Circuit’s decision in Soualian v. Int’l Coffee & Tea LLC, CV 07-502-RGK (JCx), 2007 WL 4877902 (C.D. Cal. filed June 11, 2007). Soualian, however, was settled so the Ninth Circuit dismissed the appeal. Id. The district court permitted plaintiff to renew his motion for class action certification, and again denied the motion.

After summarizing the legal standard for class action certification under Rule 23, see Bateman, at 648-49, the district court summarized the legislative history of FACTA and the statutory penalties provided for FACTA violations, see id., at 649. The federal court also discussed the 2007 Congressional amendment to FACTA, which clarified that the statute was not intended to provide for private rights of action based solely on the failure of a merchant to include the expiration date of the credit/debit card on the customer’s receipt. See id., at 649-50. The amendment, however, “does not provide Defendant with a safe-harbor for truncating its credit card receipts to eight (8) digits rather than five (5).” Id., at 650. Plaintiff argued that class action treatment was warranted because Congress essentially reaffirmed that the failure to truncate the credit or debit card account numbers supported such lawsuits. Id. But the district court observed that the purpose of the statute was to prevent identity theft, and that “the congressional record also supports an inference that members of Congress were primarily concerned with credit card receipts displaying the entire credit card account number.” Id. Accordingly, the federal court concluded that “it is far from clear whether Congress intended to approve class actions for printing eight (8) digits rather than five (5).” Id. However, the court found persuasive the purpose of the statute – viz., “The purpose of this Act is to ensure that consumers suffering from any actual harm to their credit or identity are protected while simultaneously limiting abusive lawsuits that do not protect consumers but only result in increased cost to business and potentially increased prices to consumers.” Id. (quoting Pub.L. 110-241, § 2(b), 122 Stat. 1565 (June 3, 2008)). Because no one suffered any harm as a result of the technical violation of the statute, the court denied class action treatment. Id.

The district court also addressed the “excessive damages” sought by plaintiff, which in this case would range from $29 to $290 million. See Bateman, at 650-51. Plaintiff argued that it was likely the putative class action would settle and, based on settlements reached in other FACTA class actions, would not result in an excessive award, id., at 650-51. Those cases, however, involved a consideration of class action certification for settlement purposes only; in such cases, the concern that the potential damage award would be vastly disproportionate to any injury suffered by the putative class is ameliorated. Id., at 651. In this case, no proposed class action settlement had been negotiated, so “Plaintiff’s argument that damages resulting from class certification will not be excessive or disproportionate is premature and speculative.” Id. Additionally, the district court found that the increased risk of identity theft caused by defendant’s printing of the first four digits of the credit/debit card was insufficient to “constitute actual harm.” Id. According to the defense expert, the mathematical odds of determining the remaining numbers ranged from 10,000,000:1 to 100,000,000:1; on the other hand, “the odds of correctly picking all the numbers in California’s Mega Millions Lottery game is 3,904,701:1.” Id.

Finally, the district court rejected the “bundle of cases” cited by plaintiff that granted class action treatment of FACTA claims, noting that the majority were from the Seventh Circuit which “declined to adopt the Ninth Circuit’s decision to refrain from certifying class actions where damages are disproportionate to the actual harm suffered.” Bateman, at 651-52 (citing Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953-54 (7th Cir.2006)). In short, the federal court found these cases unpersuasive, id., at 652. Accordingly, the federal court denied plaintiff’s motion for class action certification. Id.

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