STILLMOCK v. WEIS MARKETS, INCORPORATEDNo. 09-1632.
PATRICK STILLMOCK; JEANNE STILLMOCK; JENNY BARNSTEIN; LEONID OPACIC, individually and on behalf of a class of all those similarly situated, Plaintiffs-Appellants,
WEIS MARKETS, INCORPORATED, Defendant-Appellee.
WEIS MARKETS, INCORPORATED, Defendant-Appellee.
United States Court of Appeals, Fourth Circuit.
Argued: March 23, 2010.
Decided: July 1, 2010.
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.
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Vacated and remanded by unpublished opinion.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.
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 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
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.
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) (
The matters pertinent to these findings include:
"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."
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.
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."
Plaintiffs' motion for class certification proposed that the district court certify a class consisting of the following individuals:
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." Fed. R. Civ. P. 23(a)(1). With respect to the first criterion, the district court found:
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:
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 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."
Interpreting FCRA's provision concerning a defendant's civil liability, in general, for willful noncompliance with a FCRA requirement,
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.
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 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."
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."
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
Critically, Rule 23(b)(3)'s commonality-predominance test is qualitative rather than quantitative.
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,
We agree with Plaintiffs that the district court erred in its superiority-of-method determination. As the well-respected treatise
7AA Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane,
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 by Plaintiffs. The totality of the district court's analysis on this issue is as follows:
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 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.
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 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.
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.
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).
I worry that the exponential expansion of statutory damages through the aggressive use of the class action device is a real 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.
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 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."
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.
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
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.
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 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,"
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.
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."
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
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."
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."
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.
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
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 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 17,600 individuals work for the company in either a full- or part-time capacity.
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.
Nor is the problem of annihilating liability by any means limited to the present case. District courts across the country are struggling with what one court termed a "veritable onslaught" of class action litigation under FACTA, subjecting companies small and large to extraordinary claims.
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.
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.
In addition to the risk of bankrupting entire companies for violations in which no identity theft resulted, there is an 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."
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
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.
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
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."
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