Paul Karlsgodt (of the longstanding and outstanding Class Action Blawg) has published an article with the University of Denver Law Review’s Online Edition: Statutory Penalties and Class Actions: Social Justice or Legalized Extortion? Statutory Penalties is an excellent introduction to the problem of defending class actions based on statutory violations, and Karlsgodt’s focus on privacy litigation is a welcome one.
Among the most useful parts of his article, Karlsgodt provides a handy summary of the "annihilation argument" and how it’s currently received by the courts.
One argument raised in early class actions involving potentially annihilating statutory damages liability was that the potential of putting a defendant out of business defeated the superiority element required for class certification. Courts found that class actions were not the superior means of resolving claims because the potential liability in a class action would put the defendant out of business and because statutory penalties themselves facilitated individual lawsuits. More recently, as illustrated by the Ninth Circuit Court of Appeals’ decision in Bateman v. American Multi-Cinema, Inc., courts have rejected the idea that the potential for annihilating liability is a basis for finding a lack of superiority.
(Emphasis added.) Since he’s writing for a university law review, Karlsgodt jumps quickly from diagnosing the problem to legislative solutions. And that’s understandable: after all, the legislature caused the problem in the first place. But, despite what the leap to legislative recommendations implies, there are some tactics class action defense lawyers can use (short of the due process challenges he discusses) to fight statutory damage cases:
- Focus on fairness. Judges are human: they often look at what’s really at stake in a case, and many of them don’t really like "gotcha" class actions. As a result, they are often willing to read causation or other requirements into statutory class actions that might otherwise result in billions of dollars of nominal damages.
- Focus on the class definition. Overeager plaintiffs may botch the class definition, reaching for more than the statute will grant them. (This has proven particularly true in TCPA cases.) But, in addition, some statutory class actions (like those under EFTA) may not lend themselves to widespread class definitions.
- Make an offer of judgment.
Depending on How the Supreme Court decides Symczyk, it may be thatDepending on the jurisdiction, a Rule 68 offer of judgment can stave off some of these cases by offering relief to the few plaintiffs who might actually care about the "gotcha" violation.
Go. Read. It’s an interesting article about an important current issue.
[Disclosure: Paul and I correspond occasionally, and he has been very kind to the Class Action Playbook over the years. Also, I quite liked his book World Class Actions.]