Stillmock v. Weis Markets, Inc.

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 09-1632
PATRICK STILLMOCK; JEANNE STILLMOCK; JENNY BARNSTEIN; LEONID
OPACIC, individually and on behalf of a class of all those
similarly situated,
Plaintiffs - Appellants,
v.
WEIS MARKETS, INCORPORATED,
Defendant - Appellee.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. Marvin J. Garbis, Senior District
Judge. (1:07-cv-01342-MJG)
Argued: March 23, 2010 Decided: July 1, 2010
Before TRAXLER, Chief Judge, WILKINSON, Circuit Judge, and
HAMILTON, Senior Circuit Judge.
Vacated and remanded by unpublished opinion. Senior Judge
Hamilton wrote the opinion, in which Chief Judge Traxler joined.
Judge Wilkinson wrote a separate opinion concurring specially.
ARGUED: Martin Eugene Wolf, QUINN, GORDON & WOLF, CHTD, Towson,
Maryland, for Appellants. Charles Mikell Hart, DUANE MORRIS,
LLP, Cherry Hill, New Jersey, for Appellee. ON BRIEF: Richard
S. Gordon, Benjamin H. Carney, QUINN, GORDON & WOLF, CHTD,
Towson, Maryland; Cory L. Zajdel, Z LAW, LLC, Towson, Maryland;
Katherine B. Bornstein, BARROWAY, TOPAZ, KESSLER, MELTZER &
CHECK, Radnor, Pennsylvania; David A. Searles, DONOVAN SEARLES,
LLC, Philadelphia, Pennsylvania, for Appellants. Dana B.
Klinges, Robert M. Palumbos, DUANE MORRIS, LLP, Philadelphia,
Pennsylvania, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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HAMILTON, Senior Circuit Judge:
In an effort to curb identity theft, Congress enacted the
Fair and Accurate Credit Transactions Act of 2003 (FACTA),
thereby amending the Fair Credit Reporting Act (FCRA), 15 U.S.C.
§§ 1681 - 1681x, to provide that “no person that accepts credit
cards or debit cards for the transaction of business shall
[electronically] print more than the last 5 digits of the card
number . . . upon any receipt provided to the cardholder at the
point of the sale or transaction.” 15 U.S.C. § 1681c(g)(1).
This statutory provision is commonly known as FACTA’s truncation
requirement. “Any person who willfully fails to comply with”
FACTA’s truncation requirement “with respect to any consumer is
liable to that consumer in an amount equal to the sum of . . .
any actual damages sustained by the consumer as a result of the
failure or [statutory] damages of not less than $100 and not
more than $1,000,” id. § 1681n(a)(1)(A), plus “such amount of
punitive damages as the court may allow,” id. § 1681n(a)(2),
and, “in the case of any successful action to enforce any
liability under this section, the costs of the action together
with reasonable attorney’s fees as determined by the court,” id.
§ 1681n(a)(3). 1
1
FCRA also imposes liability for negligent violations of
FACTA’s truncation requirement, 15 U.S.C. § 1681o(a), but such
provision is not at issue in the present appeal.
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In this interlocutory appeal, plaintiff-appellants Patrick
Stillmock, Jeanne Stillmock, Jenny Barnstein, and Leonid Opacic
(collectively Plaintiffs) challenge the district court’s denial
of their motion for class action certification on behalf of
themselves and all other customers of retail stores owned and
operated by Weis Markets, Inc. (Weis Markets), which customers
received credit card and debit card receipts printed in
violation of FACTA’s truncation requirement. 2 The putative class
expressly excluded customers of Weis Markets’ stores who
suffered actual damages due to identity theft and any persons
who had ever been executives of Weis Markets. For reasons that
follow, we vacate the district court’s denial of Plaintiffs’
motion for class certification and remand for further
proceedings. 3
2
Originally, Patrick Stillmock and Jeanne Stillmock filed
their own separate action seeking class action certification,
Jenny Barnstein filed her own seeking the same, as well did
Leonid Opacic. The district court subsequently dismissed the
actions filed by Jenny Barnstein and Leonid Opacic and added
them as plaintiffs in the action filed by the Stillmocks.
Stillmock v. Weis Markets, Inc., 2009 WL 595642 *1 (D. Md. March
5, 2009).
3
On June 3, 2009, we granted Plaintiffs’ petition for
permission to file this interlocutory appeal.
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I.
Federal Rule of Civil Procedure 23 “states that ‘[a] class
action may be maintained’ if two conditions are met: The suit
must satisfy the criteria set forth in subdivision (a) (i.e.,
numerousity, commonality, typicality, and adequacy of
representation), and it also must fit into one of the three
categories described in subdivision (b).” Shady Grove
Orthopedic Assocs., P.A. v. Allstate Ins. Co., 130 S. Ct. 1431,
1437 (2010) (quoting Fed. R. Civ. P. 23). The only category
described in subdivision (b) at issue in the present appeal is
subdivision (b)(3), which is satisfied if “the court finds that
the questions of law or fact common to class members predominate
over any questions affecting only individual members, and that a
class action is superior to other available methods for fairly
and efficiently adjudicating the controversy.” Fed. R. Civ. P.
23(b)(3). The same subdivision further provides:
The matters pertinent to these findings include:
(A) the class members’ interests in individually
controlling the prosecution or defense of separate
actions;
(B) the extent and nature of any litigation
concerning the controversy already begun by or against
class members;
(C) the desirability or undesirability of
concentrating the litigation of the claims in the
particular forum; and
(D) the likely difficulties in managing a class
action.
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Id. Notably, “‘[c]ertification is only concerned with the
commonality (not the apparent merit) of the claims and the
existence of a sufficiently numerous group of persons who may
assert those claims.’” Brown v. Nucor Corp., 576 F.3d 149, 152
(4th Cir. 2009) (quoting Lilly v. Harris-Teeter Supermarket, 720
F.2d 326, 332-33 (4th Cir. 1983)), cert. denied, Nucor Corp. v.
Brown, 130 S. Ct. 1720 (2010).
“When deciding a motion for class certification, a district
court does not accept the plaintiff’s allegations in the
complaint as true; rather, an evidentiary hearing is typically
held on the certification issue.” Monroe v. City of
Charlottesville, Va., 579 F.3d 380, 384 (4th Cir. 2009), cert.
denied, 130 S. Ct. 1740 (2010). Here, the district court
accepted materials submitted by the parties in regard to
Plaintiffs’ motion for class action certification and held an
evidentiary hearing thereon. Unless otherwise specified, we
rely upon the factual findings made by the district court in
ruling on Plaintiffs’ motion for class certification in our
analysis of the issues on appeal.
Patrick and Jeanne Stillmock, husband and wife, and Jenny
Barnstein all reside in Maryland, while Leonid Opacic resides in
Pennsylvania. Weis Markets is a Pennsylvania corporation, which
owns and operates grocery stores throughout Maryland,
Pennsylvania, New Jersey, West Virginia, and New York.
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Despite being enacted on December 3, 2003, FACTA gave
merchants who accept credit cards and/or debit cards either one
or three years to comply, depending upon when the “cash register
or other machine or device that electronically prints receipts
for credit card or debit card transactions” was first put to
use. 15 U.S.C. § 1681c(g)(3). For purposes of considering
Plaintiffs’ motion for class certification, the district court
assumed January 1, 2005 constituted FACTA’s effective date with
respect to Weis Markets. Based upon that assumption, the
district court found that, starting no later than January 1,
2005, and continuing until about June 2007, Weis Markets
provided to its customers, paying either by credit or debit
card, receipts that had printed thereon a total of ten digits of
their respective card numbers (the first six and the last four).
The district court next found that “[w]hile the record does not
permit a more precise estimate, it appears that at least a
million of such receipts were provided to a hundred thousand or
more individual customers.” 4 Stillmock, 2009 WL 595642 at *1.
Notably, FCRA defines the term “consumer” as “an individual.”
15 U.S.C. § 1681a(c).
4
Weis Markets estimates that it printed 14,578,600 FACTA
violative receipts between December 4, 2006 and June 7, 2007
(the date on which Weis Markets adjusted all of its point-of-
sale electronic receipt systems to print no more than the last
four digits of a customer’s credit or debit card number).
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Plaintiffs’ motion for class certification proposed that
the district court certify a class consisting of the following
individuals:
“All persons in the United States to whom, or after
the effective and applicable dates for FACTA
compliance and continuing through resolution of this
case, received from Defendant at any of its retail
locations, an electronically printed receipt at the
point of sale or transaction which contained more than
the last five digits of the person’s credit or debit
card number.”
Stillmock, 2009 WL 595642 at *1. In addition to persons who
have ever been executives of Weis Markets, “[e]xcluded from the
[putative] Class are those individuals who have suffered actual
damages due to identity theft caused by Defendant’s FACTA
violations.” Id. at *2.
The district court first held that Plaintiffs’ purported
class action satisfied each of Rule 23(a)’s four criteria.
Notably, Weis Markets does not argue on appeal that the district
court erred in so holding. However, because the district
court’s findings with respect to Rule 23(a)’s four criteria
provide context for our discussion of the Rule 23(b)(3) issues
on appeal, we take time to set forth such findings at this
point.
The first criterion is satisfied if the putative class is
“so numerous that joinder of all members is impracticable.”
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Fed. R. Civ. P. 23(a)(1). With respect to the first criterion,
the district court found:
All the members of the proposed class--consisting
of a substantial percentage of those persons who made
at least one credit or debit card purchase at a Weis
store during a period alleged to be almost 18 months--
could not practicably be joined as party Plaintiffs
herein.
Stillmock, 2009 WL 595642 at *2.
The second criterion is satisfied if there are “questions
of law or fact common to the class.” Fed. R. Civ. P. 23(a)(2).
With respect to the second criterion, the district court found:
There is no doubt that the claims of all the
putative class members present common questions of
fact and law regarding Weis’ liability. At the heart
of each class members’ claims are the undisputed fact
that Weis failed to comply with Section 1681c(g) and
the highly disputed question of whether Weis’ failure
to comply was willful. While there may be some issues
not common to all putative class members, for example
whether a particular claimant was a “consumer” under
the statute, there is no doubt that there are
questions of law and fact pertinent to liability that
are common to . . . all members of the proposed class.
Stillmock, 2009 WL 595642 at *2 (footnotes omitted). Notably,
the Supreme Court has interpreted the phrase “willfully fails to
comply,” in the preamble sentence of 15 U.S.C. § 1681n(a), as
reaching not only knowing violations of FCRA, but reckless ones
as well, Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 57 (2007),
and has defined a reckless violation for purposes of § 1681n(a)
as one “entailing an unjustifiably high risk of harm that is
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either known or so obvious that it should be known,” id. at 68
(internal quotation marks omitted).
The third criterion is satisfied if “the claims or defenses
of the representative parties are typical of the claims or
defenses of the class . . . .” Fed. R. Civ. P. 23(a)(3). In
finding this criterion satisfied, the district court credited
Plaintiffs’ claims that each is a typical customer of Weis
Markets and relied upon the fact that Weis Markets agreed that
its pertinent intent was the same with respect to all receipts
that it had issued in violation of FACTA’s truncation
requirement.
The fourth criterion is satisfied if “the representative
parties will fairly and adequately protect the interests of the
class.” Fed. R. Civ. P. 23(a)(4). With respect to this fourth
criterion, the district court found Plaintiffs and their counsel
would fairly and adequately protect the interests of the
putative class members, which members all have the same interest
in establishing willfulness on the part of Weis Markets.
Turning to the district court’s Rule 23(b)(3) analysis, the
district court first determined that although there would be an
individualized question as to each putative class member’s
status as a consumer, in view of the simplicity of the consumer
status questions, it would assume the common question of Weis
Markets’ willfulness predominated over the individualized
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questions of consumer status. 15 U.S.C. § 1681n(a)(1)(A). The
district court next assumed “that Plaintiffs could propose
methods satisfactorily to solve with the myriad of practical
problems created by certifying the class that they seek.”
Stillmock, 2009 WL 595642 at *4. In this regard, the district
court “assume[d] that the requested class would include only
‘consumers’ who received violative receipts and would not have,
or at least would agree not to claim, more than $100 in actual
damages.” Id.Interpreting FCRA’s provision concerning a defendant’s
civil liability, in general, for willful noncompliance with a
FCRA requirement, 5 see 15 U.S.C. § 1681n(a)(1)(A), the district
court next rejected Plaintiffs’ contention that a jury could
decide that every class member should receive the same amount of
statutory damages by considering only matters pertaining to Weis
Markets and common to each and every class member. According to
the district court, “a jury could properly consider, in deciding
the discretionary amount between $100 and $1,000 to award a
given class member, the number of times that [a] class member
was issued a non-compliant slip,” reasoning that a one-time
customer who received a single noncompliant receipt should
5
Remember that FACTA’s truncation requirement is one of
FCRA’s requirements.
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receive a lesser amount of statutory damages than a repetitive
customer who received dozens of noncompliant receipts over an
extended period of time. Stillmock, 2009 WL 595642 at *4. The
district court applied the same reasoning in concluding that
individualized factors could come into play in the jury’s award
of punitive damages per class member.
The district court next held that “there would be a slight
predominance of common questions” of liability over
individualized questions of liability, given the relative
complexity of the willfulness issue and the relative simplicity
of the consumer status issue with respect to each putative class
member. 6 Stillmock, 2009 WL 595642 at *5.
Nonetheless, the district court denied class certification
on two grounds. First, the district court denied class
certification on the ground that determining the quantum of
damages with respect to each class member would be too
individualized for class-wide treatment under Rule 23(b)(3).
Second, the district court denied class certification on the
ground that a class action as requested by Plaintiffs “would not
be superior and, indeed, would be inferior to having the
6
In order to invoke consumer status under FCRA, each
putative class member would merely need to show that he or she
was an “individual,” 15 U.S.C. § 1681a(c), as opposed to a
partnership, corporation, etc., id., § 1681a(b).
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Plaintiffs herein proceed on their individual claims and, if
they prevail, having them obtain whatever statutory and punitive
damages might be awarded together with their costs, including
reasonable legal fees.” Stillmock, 2009 WL 595642 at *6. In
this regard, the district court continued:
Should these Plaintiffs prevail on their willfulness
claim, other similarly situated Weis customers would
have the opportunity to file their own actions -- for
many, if not most, in a court that may be more
convenient for them than the District of Maryland.
Moreover, it appears likely that Weis would be
collaterally estopped from denying willfulness. See
Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322(1979).
Id. This appeal followed.
II.
On appeal, Plaintiffs challenge the district court’s denial
of their motion for class action certification. We review a
district court’s denial of class action certification for abuse
of discretion, “recognizing, of course, that this discretion
must be exercised within the framework of Rule 23.” Gunnells v.
Healthplan Servs., Inc., 348 F.3d 417, 424 (4th Cir. 2003)
(internal quotation marks omitted).
A. Rule 23(b)(3)’s Commonality-Predominance Requirement.
Plaintiffs first contend that a consumer is entitled to
statutory damages pursuant to 15 U.S.C. § 1681n(a)(1)(A) on a
per violation basis, as opposed to a per consumer basis as
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implicitly held by the district court, and therefore, the
district court’s concern that the quantum of statutory damages
to be awarded with respect to each class member would be too
individualized for class-wide treatment was unfounded. While we
agree with the district court’s implicit holding that statutory
damages under § 1681n(a)(1)(A) are to be awarded on a per
consumer basis, we also agree with Plaintiffs that the district
court erred in concluding that individual issues of damages
would predominate over issues common to the class.
Critically, Rule 23(b)(3)’s commonality-predominance test
is qualitative rather than quantitative. Gunnells, 348 F.3d at
429. Thus, while courts have properly denied class
certification where individual damages issues are especially
complex or burdensome, see, e.g., Pastor v. State Farm Mut.
Auto. Ins. Co., 487 F.3d 1042, 1047 (7th Cir. 2007), where, as
here, the qualitatively overarching issue by far is the
liability issue of the defendant’s willfulness, and the
purported class members were exposed to the same risk of harm
every time the defendant violated the statute in the identical
manner, the individual statutory damages issues are insufficient
to defeat class certification under Rule 23(b)(3). See Murray
v. GMAC Mortg. Corp., 434 F.3d 948, 953 (7th Cir. 2006)
(“Refusing to certify a class because the plaintiff decides not
to make the sort of person-specific arguments that render class
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treatment infeasible would throw away the benefits of
consolidated treatment. Unless a district court finds that
personal injuries are large in relation to statutory damages, a
representative plaintiff must be allowed to forego claims for
compensatory damages in order to achieve class certification.”);
Smilow v. Southwestern Bell Mobile Systems, Inc., 323 F.3d 32,
40 (1st Cir. 2003) (“The individuation of damages in consumer
class actions is rarely determinative under Rule 23(b)(3).
Where . . . common questions predominate regarding liability,
then courts generally find the predominance requirement to be
satisfied even if individual damages issues remain.”). Here,
the putative class members were exposed to the identical risk of
identity theft in the identical manner by the repeated identical
conduct of the same defendant, and none suffered actual damages
from identity theft. Under these circumstances, it strains
credulity to conclude that the individual damages issues
presented by the purported class which Plaintiffs seek to
certify would be anything other than simple and straightforward.
Pragmatically, the only substantive difference between putative
class members for purposes of affixing the statutory damages
figure within the statutory damages range of $100 to $1,000 or
in awarding punitive damages is the number of receipts received
by a single class member during the approximately eighteen
months at issue. And indeed, this difference does not
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complicate matters very much at all given that the class can be
broken down into subcategories based upon the number of
violating receipts received per putative class member. In sum,
we hold that common questions of law and fact predominate over
the individual issues presented by Plaintiffs’ purported class
action, thus satisfying Rule 23(b)(3)’s commonality-predominance
test. See Klay v. Humana, Inc., 382 F.3d 1241, 1255 (11th Cir.
2004) (“Common issues of fact and law predominate if they have a
direct impact on every class member’s effort to establish
liability and on every class member’s entitlement to injunctive
and monetary relief.”) (internal quotation marks and alteration
marks omitted).
B. Rule 23(b)(3)’s Superiority Requirement.
We now turn to consider the district court’s ruling that
Plaintiffs’ purported class action failed Rule 23(b)(3)’s second
requirement, i.e., that the purported class action be superior
to other available methods for the fair and efficient
adjudication of the controversy. Plaintiffs challenge the
district court’s superiority ruling on the basis that the
district court impermissibly looked outside of Rule 23 to find
the test-case method more to its liking, though not actually
superior to the class action. Under the test-case method, if
Plaintiffs win their individual claims against Weis Markets in a
non-class action, other similarly situated Weis Markets
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customers would have the opportunity to file their own
individual actions against Weis Markets and assert offensive
collateral estoppel on the issues of liability and willfulness.
We agree with Plaintiffs that the district court erred in
its superiority-of-method determination. As the well-respected
treatise Federal Practice and Procedure explains the relevant
considerations:
Although a determination of superiority necessarily
depends greatly on the circumstances surrounding each
case, some generalizations can be made about the kinds
of factors the courts will consider in evaluating this
portion of Rule 23(b)(3).
The rule requires the court to find that the
objectives of the class-action procedure really will
be achieved in the particular case. In determining
whether the answer to this inquiry is to be
affirmative, the court initially must consider what
other procedures, if any, exist for disposing of the
dispute before it. The court must compare the
possible alternatives to determine whether Rule 23 is
sufficiently effective to justify the expenditure of
the judicial time and energy that is necessary to
adjudicate a class action and to assume the risk of
prejudice to the rights of those who are not directly
before the court.
7AA Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane,
Federal Practice and Procedure § 1779 (3d ed. 2005).
Here, the district court held that a test case by
Plaintiffs and then future plaintiffs asserting offensive
collateral estoppel with respect to liability issues was a
superior litigation method to the class action method proposed
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by Plaintiffs. The totality of the district court’s analysis on
this issue is as follows:
[T]he Court concludes that [a class action as
requested by Plaintiffs] would not be superior and,
indeed, would be inferior to having the Plaintiffs
herein proceed on their individual claims and, if they
prevail, having them obtain whatever statutory and
punitive damages might be awarded together with their
costs, including reasonable legal fees. Should these
Plaintiffs prevail on their willfulness claim, other
similarly situated Weis customers would have the
opportunity to file their own actions -- for many, if
not most, in a court that may be more convenient for
them than the District of Maryland. Moreover, it
appears likely that Weis would be collaterally
estopped from denying willfulness.
Stillmock, 2009 WL 595642 at *6.
Other than the inconvenience of the forum consideration,
the district court’s analysis fails to explain why it believes
the class action method is inferior to the
test-case-with-future-individual-actions method. Apparently
sensing the shallowness of the district court’s analysis, Weis
Markets argues that the availability of attorney’s fees and
punitive damages under FCRA makes individual lawsuits feasible.
Weis Markets’ argument is without merit. First, the low
amount of statutory damages available means no big punitive
damages award on the horizon, thus making an individual action
unattractive from a plaintiff’s perspective. Second, there is
no reasoned basis to conclude that the fact that an individual
plaintiff can recover attorney’s fees in addition to statutory
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damages of up to $1,000 will result in enforcement of FCRA by
individual actions of a scale comparable to the potential
enforcement by way of class action. See Bertulli v. Independent
Ass’n of Continental Pilots, 242 F.3d 290, 299 (5th Cir. 2001)
(Rule 23(b)(3)’s superiority requirement was met by class of
pilots bringing action under Labor-Management Reporting and
Disclosure Act (LMRDA) and Railway Labor Act alleging they
suffered loss of seniority as result of restoration of seniority
of 11 strike participants; any relief received by vast majority
of class members would be primarily injunctive, feasibility of
individual actions due to availability of attorney’s fees under
LMRDA did not undercut conclusion that class device was
superior, and, although some damages calculations might be
burdensome, economies weighed in favor of class treatment);
Tchoboian v. Parking Concepts, Inc., 2009 WL 2169883 at *9 (C.D.
Cal. July 16, 2009) (“The Court is not convinced that the fact
that an individual plaintiff can recover attorney’s fees in
addition to statutory damages of up to $1,000 will result in
enforcement of the FCRA by individual actions of a scale
comparable to the potential enforcement by way of class
action.”).
Other factors also cut definitively in favor of concluding
that the class action which Plaintiffs propose is superior to
individual cases. First, there is no indication in this case
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that class members would have a strong interest in individual
litigation. Second, class certification promotes consistency of
results, giving Weis Markets the benefit of finality and repose.
Gunnells, 348 F.3d at 429 (in contrast to class action
proceeding, individual actions make a defendant vulnerable to
the asymmetry of collateral estoppel, thus, class certification
promotes consistency of results, giving defendant benefit of
finality and repose).
III.
In sum, we hold the grounds upon which the district court
relied to deny class action certification in this case are
untenable, and therefore, the district court abused its
discretion in denying class certification on such grounds. See
Murray, 434 F.3d at 954 (reversing denial of class certification
in action for statutory damages under FCRA). Accordingly, we
vacate and remand for further proceedings. Finally, while we
express no opinion regarding Weis Markets’ additional arguments
against class certification which the district court expressly
did not address below, see Stillmock, 2009 WL 595642 at *6, we
instruct the district court to consider them on remand in the
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first instance. 7 Singleton v. Wulff, 428 U.S. 106, 120 (1976)
(“It is the general rule, of course, that a federal appellate
court does not consider an issue not passed upon below.”).
VACATED AND REMANDED
7
We also leave it to the district court’s discretion
whether to revisit Weis Markets’ argument that class treatment
would not be manageable because Plaintiffs cannot send adequate
notice to the purported class members. The district court
appeared to assume without deciding that Plaintiffs could send
adequate notice to purported class members. We express no
opinion on this issue.
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WILKINSON, Circuit Judge, concurring specially:
There is much in the court’s opinion with which I agree. I
am pleased that the court adopts a per-consumer rather than a
per-receipt interpretation of 15 U.S.C. § 1681n(a). *
Additionally, I agree with the court that the district court on
remand should consider other factors that bear upon the issue of
class certification. Specifically, neither this court nor the
district court has yet addressed the real possibility that the
suggested class could bankrupt an entire chain of supermarkets,
and the district court retains wide discretion in deciding
whether to certify a class in light of that problem.
I worry that the exponential expansion of statutory damages
through the aggressive use of the class action device is a real
*
Section 1681n provides that any person who willfully
violates the statute “with respect to any consumer is liable to
that consumer” for, among other things, actual or statutory
damages. 15 U.S.C. § 1681n(a) (emphasis added). The statute’s
emphasis on the consumer reflects a per-consumer rather than a
per-receipt approach to damages. This interpretation draws
additional support from Safeco Insurance Company of America v.
Burr, 551 U.S. 47 (2007), where the Supreme Court read the
statute to provide that “the consumer may have actual damages,
or statutory damages . . ., and even punitive damages.” Id. at
53 (emphasis added). Moreover, were we to adopt a per-receipt
approach, FACTA would be transformed from a shield for
protecting consumer privacy into a sword for dismembering
businesses. Opportunistic cardholders could intentionally make
hundreds, if not thousands, of purchases, hoard their receipts,
and stream into federal court to collect statutory damages on
each one. The potential for such abuse counsels against the
plaintiffs’ preferred per-receipt interpretation.
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jobs killer that Congress has not sanctioned. To certify in
cases where no plaintiff has suffered any actual harm from
identity theft and where innocent employees may suffer the
catastrophic fallout could not have been Congress’s intent.
Indeed, the relatively modest range of statutory damages chosen
by Congress suggests that bankrupting entire businesses over
somewhat technical violations was not among Congress’s
objectives.
It is undeniable that Congress passed FACTA to protect
consumers from the real threat of identity theft. It is clear
as well that Congress did not intend willful repeat violators of
FACTA to emerge from litigation with nothing more than a wrist
slap. It is understandable too that this court and many others
have struggled with the interaction of FACTA and Federal Rule of
Civil Procedure 23. I see nothing in the statute, however, that
mandates class action treatment of FACTA claims or precludes a
district court from considering the prospect of annihilative
liability in the certification calculus.
I.
Certainly nothing in 15 U.S.C. § 1681n(a)(1) would lead us
to believe that Congress intended the modest range of statutory
damages to be transformed into corporate death by a thousand
cuts through Rule 23. “A claim of this sort creates a tension
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between the statutory provisions for minimum damages and the
Rule 23 provisions for class actions that probably was not
within the contemplation of those who promulgated either the
statute or the rule.” Parker v. Time Warner Entertainment Co.,
331 F.3d 13, 26 (2d Cir. 2003) (Newman, J., concurring). Simply
put, the present case is a perfect storm in which two
independent provisions combine to create commercial wreckage far
greater than either could alone. As Judge Newman explained in a
similar situation involving statutory damages for cable
subscribers, “I do not believe that in specifying a $1,000
minimum payment for . . . violations, Congress intended to
expose [violators] to liability for billions of dollars.” Id.
at 27. The same statement applies with equal force to FACTA’s
$100 to $1,000 statutory damages range.
A.
The statute itself affords reason to believe that Congress
did not insist on adopting the class mechanism at all costs.
Regardless of whether common liability issues in this case
predominate over individualized damage determinations, it
remains true that Congress did provide for individualized damage
determinations in FACTA. This fact cuts against the argument
that Congress wished to compel consolidated suits through class
certification.
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There are several indications in FACTA that damages are
individualized. First, statutory damages are not fixed;
instead, Congress provided that they may range anywhere from
$100 to $1,000. 15 U.S.C. § 1681n(a)(1)(A). The statute does
not specify what factors a jury should consider when selecting a
number within this range. But because statutory damages are
intended to address harms that are small or difficult to
quantify, evidence about particular class members is highly
relevant to a jury charged with this task. Had Congress adopted
a set figure for statutory damages rather than a range dependent
on variable evidence, the case for class certification would
have been fortified.
Second, the compensatory nature of FACTA statutory damages
suggests class certification is not congressionally mandated.
The most powerful indication that Congress intended statutory
damages to be compensatory comes from the structure of FACTA’s
remedial provisions. Notably, Congress provided that a consumer
subject to a willful violation of the statute could recover
either actual or statutory damages, but not both. 15 U.S.C.
§ 1681n(a)(1)(A). The fact that statutory damages are available
in lieu of actual damages suggests that they too serve to
compensate individual consumers for their injuries. See In re
Trans Union Corp. Privacy Litig., 211 F.R.D. 328, 342 (N.D. Ill.
2002) (“[Section] 1681n(a)(1)(A) clearly and unambiguously
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allows for actual or statutory damages as the measure of
compensatory damages.”) (second emphasis added). Congress also
provided for punitive damages in addition to any actual or
statutory damages. 15 U.S.C. § 1681n(a)(2). That Congress did
so highlights the fact that statutory damages serve a
compensatory, rather than punitive, function in FACTA’s remedial
scheme.
It is not difficult to discern why Congress would allow
consumers to select statutory damages rather than actual damages
as a measure of compensation. While some violations of FACTA
will lead to easily quantifiable harms, other violations may
lead to less tangible ones, such as a loss of privacy,
heightened risk and anxiety over identity theft, or increased
time spent monitoring one’s financial security. In order to
help a jury place a value on these intangible harms, FACTA
provides for statutory damages between $100 and $1,000. It is
still up to a jury, however, to select a figure within this
range, and the individualized nature of this determination is
strong evidence that class treatment may not be the required
course under FACTA.
B.
That the court notes (correctly, in my view) that statutory
damages are available on a per-consumer rather than per-receipt
basis further underscores the point that Congress did not demand
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class certification in FACTA. The per-consumer perspective
places the focus on the characteristics of individual class
members, rather than on the defendant’s conduct that is common
to the entire class. To protect “the right of the defendant to
present facts or raise defenses that are particular to
individual class members,” Thorn v. Jefferson-Pilot Life Ins.
Co., 445 F.3d 311, 318 (4th Cir. 2006), businesses deserve at
least the opportunity to argue that certain individuals should
receive statutory damages at the low end of the range. Weis
Markets, for example, might do so by putting on evidence that
some class members were issued very few noncompliant receipts,
rarely if ever checked their credit reports, or experienced no
heightened apprehension of identity theft. While the class here
excludes those who suffered actual damages due to identity
theft, it surely includes members who experienced varying levels
of less quantifiable harms. Assessing these harms clearly “does
not lend itself to . . . a mechanical calculation.” Windham v.
Am. Brands, Inc., 565 F.2d 59, 68 (4th Cir. 1977) (en banc).
All of these facts suggest that Congress did not contemplate a
class action as the exclusive route for FACTA suits.
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II.
Congress acts, of course, against the backdrop of the
Federal Rules, and we must assume it knows not only of Rule 23’s
utility, but also that the Rule is not an end unto itself. It
is a case management device, and a flexible one at that. The
Rule is the ultimate expression of flexibility, providing a non-
exclusive list of broad factors for courts to consider. See
Fed. R. Civ. P. 23(b)(3)(A)-(D). Notably, its flexible nature
indicates that district courts have broad discretion to consider
factors that may bear on the desirability of proceeding down the
road of class treatment.
Certifying a class action that would impose annihilative
damages where there has been no actual harm from identity theft
could raise serious constitutional concerns, as plaintiffs
themselves admit. See Reply Br. at 2 n.2. Other courts have
noted that “the potential for a devastatingly large damages
award, out of all reasonable proportion to the actual harm
suffered by members of the plaintiff class, may raise due
process issues.” Parker, 331 F.3d at 22. See also Spikings v.
Cost Plus, Inc., No. CV 06-8125-JFW (AJWx), 2007 U.S. Dist.
LEXIS 44214, at *9, 13 (C.D. Cal. May 25, 2007) (same). Indeed,
this principle has some salience in the punitive damages
context, where the Supreme Court has noted that “[t]he Due
Process Clause of the Fourteenth Amendment prohibits the
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imposition of grossly excessive or arbitrary punishments on a
tortfeasor.” State Farm Mut. Auto. Ins. Co. v. Campbell, 538
U.S. 408, 416 (2003).
Rather than considering annihilative damages as they bear
on due process, however, it is preferable for a district court
to address them in the context of Rule 23(b)(3)’s superiority
requirement. Doing so gives the district court discretion to
avoid a serious constitutional problem in the best tradition of
the Brandeis concurrence in Ashwander v. Tennessee Valley
Authority, 297 U.S. 288 (1936), and permits a district court to
declare that a device is not superior when a plaintiff class
whose members suffered no identity theft of any sort still
threatens to wipe an entire company off the map.
It is fair to observe that a primary focus of Rule 23 is
upon procedural efficiencies, but that is not its sole concern.
A district court has discretion to consider other factors as
well. “Within that discretion . . . is the attaching of
determinative weight to the reality that if class action
treatment were applied in this case where the complaint contains
no indication of any actual damages in substantial or provable
amount, this aggregated relief would be oppressive in
consequence and difficult to justify.” Wilcox v. Commerce Bank
of Kansas City, 474 F.2d 336, 347 (10th Cir. 1973). See also
London v. Wal-Mart Stores, Inc., 340 F.3d 1246, 1255 n.5 (11th
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Cir. 2003) (class action may not be superior where “the
defendants’ potential liability would be enormous and completely
out of proportion to any harm suffered by the plaintiff.”);
Kline v. Coldwell, Banker & Co., 508 F.2d 226, 235 (9th Cir.
1974) (same).
Finally, the flexibility of Rule 23 is also reflected in
the generous abuse of discretion standard under which district
court certification decisions are reviewed. As we have
repeatedly explained, “[a] district court has broad discretion
in deciding whether to certify a class.” Thorn, 445 F.3d at 317(quoting Lienhart v. Dryvit Sys., Inc., 255 F.3d 138, 146 (4th
Cir. 2001)). Certification decisions “will be reversed only
upon a showing of abuse of that discretion.” Boley v. Brown, 10
F.3d 218, 223 (4th Cir. 1993); McClain v. South Carolina Nat’l
Bank, 105 F.3d 898, 902 (4th Cir. 1997) (same). We afford this
discretion to district courts for good reason. Class
certification is “a practical problem, and primarily a factual
one with which a district court generally has a greater
familiarity and expertise than does a court of appeals.”
Windham, 565 F.2d at 65 (citation omitted). Given this, I would
urge caution in requiring district courts to adopt a procedural
device that cuts against the grain of practical justice as the
trial courts conceive it.
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III.
A.
In light of the broad flexibility embodied in Rule 23, I am
pleased that the court instructs the district court on remand to
consider alternative reasons that bear upon class certification.
See Maj. Op. at 20-21. Specifically, the district court
previously reserved ruling on “the contention that the
possibility of ‘annihilating results’ disproportionate to any
harm renders class certification inappropriate.” Stillmock v.
Weis Markets, Inc., 2009 WL 595642, No. MJG-07-1342 at *6 (D.
Md. March 5, 2009). The court rightly permits the district
court to undertake that inquiry.
The risk of financial ruin as a result of class
certification is far from illusory. Weis Markets estimates that
it printed 14,578,600 receipts with improperly truncated account
numbers between the time FACTA became effective on December 4,
2006 and the time the company brought its systems into
compliance on June 7, 2007. Because FACTA establishes statutory
damages between $100 and $1,000, under plaintiffs’ per-receipt
approach, Weis Markets would thus be subject to a massive payout
of between $1.4 and $14 billion.
The court’s per-consumer calculation, while less
astronomical, is no less annihilating to Weis Markets. Both
plaintiffs and Weis Markets have estimated that “there are
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potentially over one million Class members.” Multiplying that
estimate by the statutory damages range results in total
liability of between $100 million and $1 billion dollars,
without even accounting for the possibility of punitive damages,
attorney’s fees, and costs, 15 U.S.C. § 1681n(a)(2), (a)(3).
It is no exaggeration to say that a judgment within this
range would devastate Weis Markets. As counsel for Weis Markets
put it, “a hundred million dollars sinks my client.” The
company is traded on the New York Stock Exchange, and its market
capitalization at current prices is just over $900 million
dollars. In other words, this case is not just the proverbial
bet-the-company suit; a class action, if successful, will
shatter the entire company into hundreds of thousands of $100 to
$1,000 bits. The plaintiffs here might as well seek to
distribute every one of Weis Markets’ 26.9 million shares a few
apiece to each receipt holder.
Nor is the destruction of Weis Markets a loss only to
shareholders. If plaintiffs are successful, a substantial
number of people will be left unemployed in one of the toughest
job markets in generations. Weis Markets currently owns and
operates one hundred sixty-four retail grocery stores in
Pennsylvania, Maryland, New York, New Jersey, and West Virginia
as well as twenty-five pet supply stores. Weis Markets, Inc.,
Annual Report (Form 10-K), at 1 (Mar. 11, 2010). Approximately
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17,600 individuals work for the company in either a full- or
part-time capacity. Id. at 2. It is doubtful that Congress
intended to cause these thousands of innocent employees to lose
their jobs and paychecks by bankrupting their employer, in a
situation where no plaintiff suffered identity theft.
None of this is to condone the actions of Weis Markets.
Without prejudging the matter of willfulness, there are
preliminary indications that the company acted very badly.
There is no dispute that Weis Markets printed over 14 million
receipts that violated FACTA; the outstanding liability issues
in this case hinge on whether it did so willfully or merely
negligently. Moreover, compliance with FACTA did not involve
untangling a complex regulatory scheme, but merely issuing
receipts to cardholders revealing no more than the last five
digits of their card number. Still, it must count for something
that this class, by definition, consists of individuals who can
claim only statutory damages. It staggers the imagination to
believe that Congress intended to impose annihilating damages on
an entire company and the people who work for it for lapses of a
somewhat technical nature and in a case where not a single class
member suffered actual harm due to identity theft.
B.
Nor is the problem of annihilating liability by any means
limited to the present case. District courts across the country
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are struggling with what one court termed a “veritable
onslaught” of class action litigation under FACTA, subjecting
companies small and large to extraordinary claims. Palamara v.
Kings Family Restaurants, No. 07-317, 2008 WL 1818453, at *3
(W.D. Pa. Apr. 22, 2008). Ordinarily, a company that violates
FACTA will do so not once or twice, but instead thousands or
even millions of times, owing to the fact that it has not
properly updated its equipment. And because FACTA provides for
statutory damages of at least $100, such suits almost by
definition expose companies to liability that is orders of
magnitude beyond their income or net worth, regardless of the
size of the corporation. “FACTA class actions threaten
businesses of every size with devastating classwide liability
for what may be harmless statutory violations.” 1 McLaughlin on
Class Actions § 2:38 (6th ed.).
On one end of the spectrum, such suits jeopardize “mom and
pop” stores, such as the local restaurant with a mere $40,000 in
net assets that last year faced a $4.6 to $46 million FACTA suit
in which none of the putative class members suffered any actual
injuries as a result of identity theft. Leysoto v. Mama Mia I,
Inc., 255 F.R.D. 693, 697-98 (S.D. Fla. 2009). A similar suit
went a step further, seeking FACTA statutory damages “between
$3.3 million and $33 million” from a company “whose consolidated
financial statements . . . show[ed] a net loss of $5.5 million
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and a total negative net worth of $8.1 million.” Price v. Lucky
Strike Entertainment, Inc., No. CV 07-960-ODW (MANx), 2007 WL
4812281 at *5 (C.D. Cal. Aug. 31, 2007) (emphasis added).
And small or struggling companies are not the only ones
threatened by claims far out of proportion to their ability to
satisfy them. One defendant with net income of just over $68
million recently faced a putative class action seeking between
$198 million and $1.98 billion. Blanco v. CEC Entm’t Concepts
L.P., No. CV 07-0559 GPS (JWJx), 2008 WL 239658, at *2 (C.D.
Cal. Jan. 10, 2008). Other corporations have faced similarly
astronomical claims relative to their size. See, e.g., Spikings
v. Cost Plus, Inc., No. CV 06-8125-JFW (AJWx), 2007 U.S. Dist.
LEXIS 44214, at *12 (C.D. Cal. May 29, 2007) (company with net
worth of $316 million faced FACTA class seeking $340 million to
$3.4 billion); Lopez v. KB Toys Retail, Inc., No. CV 07-144-JFW
(CWx), 2007 U.S. Dist. LEXIS 82025, at *14 (C.D. Cal. July 17,
2007) (even $100 per violation in proposed FACTA class was 600%
of defendant’s net worth). I suppose it can be assumed that
shareholders and creditors bear such litigation risks. But
employees? These liabilities will fall hardest on those who are
laid off because of them.
C.
In addition to the risk of bankrupting entire companies for
violations in which no identity theft resulted, there is an
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additional problem with combining statutory damages and class
certification. Companies may be forced to settle in the face of
such annihilating liability, even if they have a strong defense.
In such an event, the substantial costs associated with
settlement will inevitably be passed on to consumers -- the very
ones whom Congress sought to protect.
As the Seventh Circuit explained, there is a serious
concern with forcing these “defendants to stake their companies
on the outcome of a single jury trial, or be forced by fear of
the risk of bankruptcy to settle even if they have no legal
liability.” Matter of Rhone-Poulenc Rorer Inc., 51 F.3d 1293,
1299 (7th Cir. 1995). Indeed, “[t]he risk of facing an all-or-
nothing verdict presents too high a risk, even when the
probability of an adverse judgment is low.” Castano v. Am.
Tobacco Co., 84 F.3d 734, 746 (5th Cir. 1996); see also Coopers
& Lybrand v. Livesay, 437 U.S. 463, 476 (1978) (same). “[O]nce
a class is certified, a statutory damages defendant faces a bet-
the-company proposition and likely will settle rather than risk
shareholder reaction to theoretical billions in exposure even if
the company believes the claim lacks merit.” Sheila B.
Scheuerman, Due Process Forgotten: The Problem of Statutory
Damages and Class Actions, 74 Mo. L. Rev. 103, 104 (2009). At
least the plaintiffs in Rhone-Poulenc and Castano alleged
substantial actual damages; here we face the risk of forcing a
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defendant to settle in the face of billions in liability for
actions that resulted in not a single instance of identity
theft.
Nor does the possibility of appellate review eliminate the
problem of uneconomic settlement. “The reason that an appeal
will come too late to provide effective relief for these
defendants is the sheer magnitude of the risk to which the class
action, in contrast to the individual actions pending or likely,
exposes them.” Rhone-Poulenc, 51 F.3d at 1297 (emphasis in
original). Weis Markets and similar companies could hardly be
blamed if they took a safe route and settled in such
circumstances. “If they settle, the class certification -- the
ruling that will have forced them to settle -- will never be
reviewed.” Id. at 1298. To effectively allow certification to
deprive a party of a defense cannot be what the adversary
process is about.
IV.
Is there a solution -- one that gives the statute its
proper meaning and effect without visiting consequences far in
excess of what Congress intended? Judge Newman, when addressing
a similar statute, has suggested two solutions to the problem.
One is to award class members statutory damages below the amount
authorized by Congress. Parker, 331 F.3d at 27 (Newman, J.
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concurring). But as he acknowledges, that suggestion suffers a
prohibitive drawback because it “cannot be reconciled with the
terms of the statute.” Id. His second suggestion of allowing a
district judge to determine “that a class will be certified only
up to some reasonable aggregate amount of [statutory] damages,”
id. at 28, fares little better because unlike similar exercises
of judicial discretion, remittitur for example, the judiciary
here would simply be adding a capping provision to a federal
statute which Congress in its wisdom did not see fit to include.
Congress of course remains free to adopt such a cap, as it has
done for instance in limiting class action recoveries under the
Truth In Lending Act to the lesser of $500,000 or 1 percent of a
creditor’s net worth, 15 U.S.C. § 1640(a)(2)(B), but it has not
done so here.
The question, then, is whether the denial of class action
treatment will allow proven violators of a statute to escape
largely untouched. I do not believe that we are faced with a
choice of class certification and its potentially lethal
consequences or the denial of such certification and the
prospect of impunity for the non-compliant.
There is no shortage of incentives for consumers to bring
individual suits under FACTA. The act provides plaintiffs with
both costs and reasonable attorney’s fees “in the case of any
successful action” establishing willful or negligent violations.
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15 U.S.C. §§ 1681n(a)(3), 1681o(a)(2) (emphasis added). These
suits are, therefore, “essentially costless” to winning
plaintiffs. Anderson v. Capital One Bank, 224 F.R.D. 444, 453
(W.D. Wis. 2004). They are potentially quite rewarding as well.
For one thing, actual damages remain available in any case of
identity theft. 15 U.S.C. § 1681n(a)(1)(A). For another, the
possibility of punitive damages exists in cases where their
imposition is needed for appropriate punishment and deterrence.
15 U.S.C. § 1681n(a)(2). For a third, the possibility of
offensive collateral estoppel with regard to liability exists
for prospective plaintiffs, of whom in this case there are many.
See Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979).
Thus I am not convinced that the denial of class
certification with its possibilities of annihilative
consequences would allow companies who violate the statute to
emerge laughing and unscathed. FACTA “provides sufficient
motivation for adversely affected individuals to bring suit and
for attorneys to represent them.” Campos v. ChoicePoint, Inc.,
237 F.R.D. 478, 490 (N.D. Ga. 2006). This is especially so
since the costs of compliance with the statute remain minor in
comparison to the costs of dealing with litigation, in whatever
form it may assume. For the above reasons, I believe it well
within a district court’s discretion to consider the magnitude
of the costs upon the company and its employees that class
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certification may impose. Allowing such consideration will not
leave the statute toothless, nor fly in the face of any
congressional mandate, nor court the constitutional problems
associated with constraining district court discretion provided
by Federal Rule of Civil Procedure 23. Because I do not
understand the court’s judgment to preclude the exercise of
discretion in this manner upon remand, I respectfully offer this
special concurrence.
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