Bateman v. American Multi-Cinema, Inc.: Ninth Circuit Deals Blow to “Annihilating” Penalties Class Actions Defense

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Class action defendants frequently argue, under the class certification superiority rubric, that potentially annihilating penalties means class treatment is not superior to individual litigation, and thereby precludes certification. However, under Bateman v. American Multi-Cinema, Inc., 623 F.3d 708 (9th Cir. 2010) (available here), the Ninth Circuit has held that Rule 23 does not permit the trial court to consider whether the defendant’s potential liability would be disproportionate to the class members’ actual damages. The three-judge panel reversed the denial of class certification by former Central District Judge, the late Florence-Marie Cooper, under the Fair Credit Reporting Act (FCRA), 15 U.S.C. §§ 1681 et seq. Judge Cooper’s certification denial had focused on the purported lack of superiority because “the magnitude of Defendant’s statutory liability is enormous and completely out of proportion to any harm suffered by Plaintiff or potential class members.” Bateman v. American Multi-Cinema, Inc., 252 F.R.D. 647, 651 (C.D. Cal. 2008) (available here).

In reversing the denial of certification, though, Bateman declined to follow a number of earlier cases involving the Truth-in-Lending Act (TILA), 15 U.S.C. §§1601 et seq., in which courts considered annihilating penalties as bearing on the superiority criterion, and on that basis denied class certification. For instance, in the much-cited case of Ratner v. Chemical Bank New York Trust Co., 54 F.R.D. 412 (S.D.N.Y.1972), District Judge Frankel denied class certification in a TILA claim because the potential $13 million award “would be a horrendous, possibly annihilating punishment, unrelated to any damage to the purported class or to any benefit to defendant, for what is at most a technical and debatable violation of the Truth in Lending Act.” Id. at 422.

Under Bateman, the law of the Ninth Circuit is that “the Rule 23(b)(3) superiority analysis must be consistent with the congressional intent in enacting a particular statutory damages provision.” Bateman, 623 F.3d at 716. After acknowledging the different holding in Ratner, the Bateman panel explained “[t]here is no language in the statute, nor any indication in the legislative history, that Congress provided for judicial discretion to depart from the $ 100 to $ 1000 range where a district judge finds that damages are disproportionate to harm. Further, we cannot surmise a principled basis for determining when damages are and are not ‘proportionate’ to actual harm. Indeed, one might plausibly argue that a $ 1000 award, or even a $ 100 award, for a single violation of FACTA, without any allegation of harm, is not proportionate. But the plain text of the statute makes absolutely clear that, in Congress’s judgment, the $ 100 to $ 1000 range is proportionate and appropriately compensates the consumer.” Id. at 719.

Other circuit courts, as well as district courts in other circuits, have similarly held that the Ratner annihilating penalties analysis to be improper. See, e.g., Murray v. GMAC Mortgage Corp., 434 F.3d 948 (7th Cir. 2006) (holding that problem of annihilating penalties should not be addressed at the class-certification stage).