Due Process Forgotten: The Problem of Statutory Damages and Class Actions
2009; University of Missouri School of Law; Volume: 74; Issue: 1 Linguagem: Inglês
ISSN
0026-6604
Autores Tópico(s)Dispute Resolution and Class Actions
ResumoI. INTRODUCTION billion here and a billion there, and pretty soon you're talking about real money. (1) In the past several years, the due process limits on punitive damages have garnered a great deal of attention from courts, (2) scholars, (3) and practitioners. (4) While punitive damages have been under the analytical microscope, statutory damages--civil penalty amounts prescribed by legislatures for violations of particular statutes (5)--have been all but forgotten. When combined with the procedural device of the class action, aggregated statutory damages claims can result in absurd liability exposure in the hundreds of millions--or billions--of dollars on behalf of a class whose actual damages are often nonexistent. Despite presenting the risk of grossly excessive punishment that prompted the development of due process limits on punitive damages, courts have yet to uniformly apply the now familiar punitive damages due process framework to aggregated statutory damages. (6) Indeed, most courts confronted with the issue of grossly excessive statutory damages sought in class actions have engaged in a quintessential judicial punt: declining to consider any due process limit until after the class has been certified and a verdict entered. As a practical matter, this means that the court will never reach the due process issue. That is, once 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 if the company believes the claim lacks merit. A recent example of this phenomenon is the so-called FACTA class action (7)--class litigation under the Fair and Accurate Credit Transactions Act (FACTA), (8) which requires retailers to redact all but the last five digits of a credit card number as well as the expiration date from a printed receipt. (9) Under FACTA, a plaintiff can seek actual damages or statutory damages of less than $100 and not more than $1,000.10 When pursued as a nationwide or statewide class action, the statutory damages create devastating liability that would put the defendant out of business simply for failing to redact information from a retail receipt. (11) For instance, in a recent class action in California district court, the potential minimum statutory damages award was nearly half of the defendant's net worth. (12) Similarly, in a FACTA class action against Cost Plus, Inc., the court noted that even the minimum statutory damages of $340 million would put Defendant out of business. (13) A nationwide FACTA class action against Chuck E. Cheese sought $1.9 billion, though the company's net income the prior year was only $68 million. (14) A FACTA class suit against the Vitamin Shoppe sought between $22.7 million and $227 million in statutory damages, though the company's securities filings reflected only $31 million in equity and $161 million in total assets. (15) And a FACTA class action against clothing retailer Charlotte Russe sought statutory damages of $220 million to $2.2 billion, despite that the company's total stock equity was only $206 million. (16) As the court there noted, award of the minimum statutory damages ... would destroy [d]efendant's business. (17) Although a few scholars have identified the potential due process implications of statutory damages, no one has thoroughly examined the question. (18) Using the FACTA cases as a paradigm, this Article assesses the current due process jurisprudence regarding statutory damages, and proposes an analytical framework that would remain true to the intent of FACTA and similar statutory damages regimes, while giving more than mere lip service to a defendant's due process rights. Part II examines the theoretical rationale underlying both statutory damages and class actions: making individual claims marketable. This Part explains how combining the class action with statutory damages invites over-deterrence, a fact aptly demonstrated by the FACTA class actions. …
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