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FACTA Class Action Defense Cases-Spikings v. Cost Plus: Certification Of Class Action Rejected For Technical Violation Of Fair And Accurate Credit Transactions Act Because Class Action Treatment Would Subject Defendant To Disproportionate Liability

Rule 23(b)(3) Superiority Class Action Requirement not met Where Financial Impact on Defendant for Technical Violation of FACTA (Fair and Accurate Credit Transactions Act) would be Disproportionate to any Harm to the Class California Federal Court Holds

Within hours of purchasing an item at Cost Plus with her credit card, plaintiff filed a putative class action alleging a technical violation of the federal Fair and Accurate Credit Transactions Act (FACTA) in that her receipt truncated her credit card number but failed to omit the expiration date of the card. Spikings v. Cost Plus, Inc., Case No. CV-06-8125-JFW (C.D. Cal. May 25, 2007) [Slip Opn., at 1-2]. Plaintiff filed a motion for certification of class action treatment; defense attorneys objected arguing in part that the prerequisite Rule 23(b)(3) finding of superiority did not exist thus barring class action certification. Id., at 2. The district court agreed with the defense and refused to certify the litigation as a class action.

FACTA requires that no more than the last 5 digits of a credit card number be shown on customer receipts, and that the expiration date of the credit card not be disclosed on the receipt. 15 U.S.C. § 1681c(g). Plaintiff purchased an item at Cost Plus on December 19, 2006, and within four (4) business hours filed her putative class action complaint. Spikings, at 2. Plaintiff served the class action complaint on December 26, 2006, defendant deleted the expiration date from credit card receipts in all but three of its stores by January 11, 2007, and completed the process of deleting the expiration date from all customer credit card receipts by January 29, 2007. Id. Nonetheless, plaintiff pursued the class action, alleging that defendant’s violation of FACTA was “willful” within the meaning of 15 U.S.C. § 1681n, thus entitling the class to statutory damages of $100-$1000 per violation, as well as punitive damages and attorney fees. Id. Plaintiff also moved the court to certify the litigation as a class action, id., at 1.

The district court focused its analysis on whether the superiority requirement of Rule 23(b)(3) had been met. Spikings, at 2-3. The court noted that “the superiority requirement allows the Court to exercise its considerable discretion in deciding whether or not to certify a class for a category of cases for which a class action may not be the best method.” Id., at 3. The federal court also cited Ninth and Eleventh Circuit authority holding that courts may refuse to certify class action treatment “where the defendant’s liability ‘would be enormous and completely out of proportion to any harm suffered by the plaintiff.’” Id. (citations omitted). The court explained at pages 3 and 4, “In these cases, certification is not denied solely because of the possible financial impact that it would have on a defendant, but based on the disproportionality of a damage award that has little relation to the harm actually suffered by the class, and on the due process concerns attendant upon such an impact.” (Citations omitted.) Put simply, class action treatment may be denied “where the damages would be ‘ad absurdum.’” Id., at 4 (citations omitted).

Plaintiff’s class action sought to represent an estimated 3.4 million people nationwide, at $100-$1000 per violation; thus, “statutory damages alone would range from a minimum of $340 million to a maximum of $3.4 billion,” Spikings, at 4. Defendant’s net worth, however, is only $316 million, id. “Thus, an award of even the minimum statutory damages of $340 million would put Defendant out of business,” id. Such an outcome is particularly absurd in light of plaintiff’s admission that “she did not suffer any actual damage, such as identity theft, as a result of her expiration date appearing on her credit card receipt from Defendant’s store, and there is no evidence that any customer making a purchase from Defendant’s store…suffered any actual harm due to the inclusion of the expiration date on credit card and debit card receipts.” Id., at 4-5.

Moreover, because the district court found that FACTA, like the Truth in Lending Act (TILA), had as its goal compliance rather than “to punish an unwary violator,” the fact that defendant corrected the technical violation within one month of receipt of the class action complaint argued against class action treatment. Spikings, at 5. Accordingly, the federal court concluded that class action treatment was not superior within the meaning of Rule 23(b)(3) and denied the motion for class certification, id. at 5-6.

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