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Is There New Hope for Challenging Aggregated Statutory Damages?

Posted in Class Certification, Superiority, U.S. Supreme Court

Congress and state legislatures have enacted many statutes that provide for minimum statutory damages recoveries that are far in excess of the actual damages most individuals will suffer. A prominent example is the Telephone Consumer Protection Act (TCPA), which offers $500 per violation of the statute, trebled to $1500 for willful violations. The idea is that offering such damages will create incentives for individual plaintiffs to pursue such claims in court when actual damages are minimal or difficult to measure. But the numbers can quickly add up when such statutory damages claims are aggregated as part of a putative class action. By the simple expedient of cutting and pasting standard class allegations into their complaints, plaintiffs’ lawyers can transform a $500 claim into one for $500 million. (For fans of the Austin Powers movies: Insert Dr. Evil impression here (or take a look at this clip).)

For good reasons, defendants find this phenomenon troubling, to say the least. My colleagues and I have argued in a pair of articles (here and here) that courts should refuse to certify class actions when the claims involve statutory damages. It is hard to believe that when Congress enacted laws providing for statutory damages, it intended to hand private plaintiffs (and their counsel) the ability to threaten massive liability—perhaps even bankruptcy—for often relatively minor or technical violations of a statute, especially when, as is common, the actual harm is minor or speculative.

That said, these arguments have met with mixed success in the courts. But a recent Supreme Court opinion issued earlier this week, Maracich v. Spears, No. 12-25, could provide defendants with new hope.

In Maracich, the Court held that attempts by lawyers to solicit clients did not qualify for the “litigation exception” to the Driver’s Privacy Protection Act of 1994 (DPPA). In an ironic twist, a group of plaintiffs’ lawyers had themselves become defendants in a class action. In order to solicit new plaintiffs for lawsuits against certain auto dealers, these lawyers had obtained personal information about customers of those auto dealers from the state DMV. Some of the customers didn’t like it, including one who happened to work for a defendant auto dealer. These customers sued the plaintiffs’ lawyers in a class action, alleging violations of the DPPA.

By a 5-4 vote, the Court held that soliciting clients doesn’t count under the DPPA’s litigation exception. We summarize that holding elsewhere. But to me the most interesting takeaway from Maracich is what the decision has to say about statutory damages.

Justice Ginsburg’s dissent expressed a concern with “astronomical liquidated damages”; the customers “sought $2,500 in statutory damages for every letter mailed—a total of some $200 million—and punitive damages to boot.” As she put it, “such damages cannot possibly represent a legislative judgment regarding average actual damage.”

In response, Justice Kennedy’s majority opinion recognized that the Court was leaving open two questions about the appropriateness of such massive awards. First, “[w]hether the civil damages provision in [the DPPA], after a careful and proper interpretation, would permit an award in this amount”—in other words, as a matter of statutory interpretation, did Congress intend to allow such enormous liability? Given the DPPA’s express language allowing individual claims for $2500, that question boils down to whether courts should assume that Congress intended to allow class actions that transform a $2500 claim into lawsuits for $200 million. Second, if that is what Congress intended, “whether principles of due process and other doctrines that protect against excessive awards would come into play.”

To be sure, the Court did not answer those questions; as Justice Kennedy pointed out, they were not “argued or presented in” Maracich. But it now seems clear that at least some Justices are open to the possibility that when class actions exponentially increase potential liability in statutory damages cases, such “astronomical” damages may violate constitutional limits.

Accordingly, businesses (and the lawyers who represent them) should read Maracich as extending an invitation to challenge class actions for statutory damages. Specifically, when businesses face class actions for massive damages under federal or state statutes—including the TCPA, Fair Credit Reporting Act, or some state consumer-protection statutes—they should consider arguing that class actions are not a superior method for adjudicating the statutory claims because the potential for extraordinarily massive liability imposes excruciating (and improper) pressure on defendants to settle, raising serious due process concerns.