In Bateman v. American Multi-Cinema, Inc., the Ninth Circuit Court of Appeals reversed the decision of the United States District Court for the Central District of California to deny class certification on the ground that a class action would not be a superior method of litigating the case under Federal Rule of Civil Procedure 23(b)(3) on account of (1) potential liability proportionate to the actual harm, if any, to the plaintiff and class members, (2) the size of the potential damages, and (3) the defendant's good faith compliance. The Ninth Circuit held that none of those three considerations was a proper basis for the District Court to deny class certification.
The plaintiff brought a class action alleging he and some 290,000 potential class members received automated movie ticket counter receipts that violated the Fair and Accurate Credit Transactions Act ("FACTA") in that the receipts included both the first four and the last four digits of customers' credit card account numbers. FACTA provides for statutory damages of $100 to $1,000 for each willful violation of the Act.
The District Court agreed with American Multi-Cinema that class certification should be denied under Federal Rule of Civil Procedure 23(b)(3) because class litigation of the claims for statutory damages under FACTA would not be superior because the court believed "class treatment could result in enormous liability completely out of proportion to any harm suffered by the plaintiff," and, further, American Mult-Cinema "demonstrated good faith by complying with FACTA within a few weeks of the filing of" plaintiff's complaint.
The Ninth Circuit rejected the concerns of the District Court as valid bases for denying class certification even though the Ninth Circuit recognized that "[i]t is widely accepted that class certification 'may force a defendant to settle rather than incur the costs of defending a class action and run the risk of potentially ruinous liability.'"
The Ninth Circuit's reasoning would likely apply to employers defending class action lawsuits in Federal Court.
However, the court left open the possibility of defending against potentially ruinous liability on constitutional grounds. The court expressly reserved judgment about "whether a showing of 'ruinous liability' would warrant denial of class certification in a FACTA or similar action," and expressly reserved judgment about whether a District Court "may be entitled to reduce" a damages award in a class case "if it is unconstitutionally excessive."
Plaintiffs bringing class action wage and hour lawsuits now routinely include allegations that their claims fall under California's Labor Code Private Attorneys General Act of 2004 ("PAGA"), which provides for awards of very sizable penalties when aggregated to account for hundreds or even thousands of class members. PAGA provides for penalties of $100 per employee per pay period for each initial violation and of $200 per employee per pay period for each subsequent violation. We believe the possibility of potentially ruinous liability under PAGA is subject to challenge on constitutional grounds.
