FACTA Class Action Defense Cases–Leysoto v. Mama Mia: Florida Federal Court Denies Class Action Treatment Of FACTA Class Action Because Potential Liability Vastly Disproportionate To Actual Damages Suffered By Putative Class

May 14, 2009 | By: Michael J. Hassen

FACTA Class Action Seeking $4.6 Million to $46 Million in Statutory Damages from Restaurant with Net Worth of $40,000 did not Warrant Class Action Treatment because Class Action not “Superior” Method of Resolving Dispute Florida Federal Court Holds

Plaintiff filed a putative class action in Florida state court against Mama Mia, “a local restaurant in Hollywood, Florida, with approximately $40,000 in net assets”; the class action alleged that defendant violated the Fair and Accurate Credit Transactions Act (FACTA), which requires that merchants truncate credit card and debit card numbers on electronically-printed customer receipts. Leysoto v. Mama Mia I., Inc., 255 F.R.D. 693, 694 (S.D.Fla. 2009). According to the allegations underlying the class action, the receipts defendant provided to customers “displayed both the expiration date and full number of [the customers’] credit card.” Id. (The district court noted that defendant “ceased this practice, and began truncating customer receipts to merely four (4) card numbers, no later than June 26, 2008.” Id.) The class action complaint sought “statutory and actual damages, as well as attorneys’ fees and costs,” id. Defense attorneys removed the class action to federal court, id., and plaintiff moved for class certification, arguing a Rule 23(b)(3) class action should be certified, id., at 694-95. Defense attorneys opposed class action certification on the grounds that class action treatment would expose defendant to statutory damages of $4.6 million – $46 million, even though plaintiff concedes he did not suffer any actual economic injury and even though there was no evidence that any member of the putative class suffered actual economic injury. Id., at 695 and n.5. The district court denied plaintiff’s motion.

The district court explained that the class certification motion “turns on two related questions: (1) whether potential class damages are a proper consideration at the motion to certify stage; and, if so; (2) whether the potential class damages in this matter preclude certification under Fed.R.Civ.P. 23(b)(3).” Leysoto, at 694. Of course, plaintiff bears the burden of establishing that class action treatment was warranted, id., at 695 (citations omitted). FACTA provides for recovery of actual damages or statutory damages of “not less than $100 and not more than $1,000.” Id. (citation omitted). This is important because under Eleventh Circuit authority the district court “may consider potential class damages in adjudicating Plaintiff’s Motion, and given the vast disparity between the requested statutory damages and the actual injury caused by Defendant, the class vehicle is not the superior method for fairly and efficiently adjudicating this dispute.” Id., at 694.

After summarizing the rules governing class certification under Rule 23, see Leysoto, at 695-96, and after noting that it was “invested with significant discretion in deciding whether to certify a class,” id., at 696, the court turned to the merits of the motion. Whether class certification was warranted in FACTA class actions was “a matter of first impression within this Circuit” and was not a “small issue” given that “at least 140 FACTA complaints” had been filed in the Southern District of Florida alone. Id., at 696. Further “two of these actions, the requested statutory damages exceeded $2 billion.” Id. (citations omitted). Looking to other circuits for guidance, the district court noted that the Ninth Circuit typically denies class action treatment of FACTA complaints and allows district courts to consider “the amount of potential FACTA class damages” in ruling on such motions, while the Seventh Circuit “has reasoned that while an award that would be unconstitutionally excessive may be reduced, such due process considerations are best applied after class certification.” Id., at 696-97 (citations omitted). The threshold question, then, is whether the Eleventh Circuit authorizes the district court to consider the potential class action damage award in determining whether to certify a FACTA class action. Id., at 697. Based on London v. Wal-Mart Stores, Inc., 340 F.3d 1246 (11th Cir. 2003), a case involving class certification under the Truth in Lending Act (TILA), the district court concluded that consideration of damage awards, in conjunction with the plaintiff’s actual injury, was permissible. Leysoto, at 697. This is particularly true where “the defendants’ potential liability would be enormous and completely out of proportion to any harm suffered by the plaintiff.” Id. (quoting London, at 1255 n.5) (italics added by court).

In this case, class action treatment would expose the defendant to a damage award of between $4.6 million and $46 million despite the fact that no member of the putative class had suffered actual injury, FACTA’s goal had been achieved because the lawsuit had brought defendant into compliance with FACTA, and defendant’s new worth was only $40,000. Leysoto, at 697. The federal court concluded that page 697, “Thus, given the Eleventh Circuit’s statements in London, the potentially annihilating class damages, in contrast to Plaintiff’s actual economic injury, is clearly probative of whether the class vehicle is the superior method for fair adjudication of this dispute.” And based on the consideration of these facts, the district court further concluded “a class action is not the superior method for fair adjudication of this FACTA dispute under Rule 23(b)(3).” Id., at 698. This was particularly true given that “if Plaintiff’s strategy is successful, Mama Mia would face almost certain insolvency, despite the fact that its conduct caused no actual damages.” Id. On the facts of this case, there is no benefit to potential class members as they could not recover more than $1 each, given the defendant’s net worth. Id., at 698-99. In other words, “it appears that the sole benefit of certification would be the threat of ruinous damages for purposes of settlement” while “the requisite deduction for attorneys’ fees, notice and other administrative costs will assuredly outweigh any settlement benefits to individual class members.” Id., at 699. Put another way, granting class action certification “would allow this Plaintiff, and his counsel, to dangle the Sword of Damocles over Defendant, without any showing of actual economic harm.” Id. The superiority requirement of Rule 23(b)(3) thus was not met, so the district court denied plaintiff’s motion for class certification, id.

NOTE: FACTA provides that “no person that accepts credit cards or debit cards for the transaction of business shall print more than the last 5 digits of the card number or the expiration date upon any receipt provided to the cardholder at the point of the sale or transaction.” 15 U.S.C. § 1681c(g)(1). FACTA was amended in June 2008, by means of the Credit and Debit Card Receipt Clarification Act of 2007, so as to insulate merchants from FACTA liability based on the failure to remove expiration dates from electronically-generated credit card receipts. See Pub.L. No. 110-241 (HR 4008), 122 Stat. 1565 (June 3, 2008).

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