Judge Posner of the Seventh Circuit, a prolific writer of class action opinions in recent years, recently wrote a new decision addressing whether a class action with small stakes could properly be decertified. The decision includes some extensive commentary on how such a case might be resolved. Notably, this was a case where the defendant did not oppose class certification in the district court, and did not file any brief in the court of appeals, so the court did not have the benefit of adversarial briefing on the issues.
Hughes v. Kore of Indiana Enterprise, Inc., No. 13-8018, 2013 U.S. App. LEXIS 18873 (7th Cir. Sept. 10, 2013) involves a class action brought against a company that owns ATM machines. The complaint alleged that the defendant failed to post stickers on ATM machines advising of a $3 fee to withdraw funds, in accordance with a requirement of the federal Electronic Funds Transfer Act (which has subsequently been eliminated, so don’t get all excited about collecting $100 if you come across an ATM without the sticker). The Act imposes, in an individual suit, actual damages or statutory damages of at least $100, but not more than $1000. In a class action, damages are limited to the lesser of $100,000 or 1% of the defendant’s net worth (here, that was $10,000). Id. at *2-3. The district court decertified the class on the grounds that: (1) class members would be better off suing individually, where they could collect at least $100 each; and (2) the class members could not be identified and notified of the suit.
The Seventh Circuit reversed the decertification of the class. Judge Posner’s opinion first explained that individual lawsuits would be impractical. Although attorneys’ fees are available under the statute, “[w]hat lawyer could expect the court to award an attorney’s fee commensurate with his efforts in the case, if his client recovered only $100? There is no indication that many people, or indeed any people, have filed individual claims [under the statute].” Id. at *5. Judge Posner further explained that distributing the $10,000 maximum recovery to the class members, who would each receive about $3.57, probably would not warrant them spending the time to submit a claim. He suggested, however, that the $10,000 (assuming that amount was awarded) be distributed, as cy pres relief, to a consumer protection charity. Judge Posner wrote that “the cy pres remedy may be the only one that makes sense,” and “[a] time-saving alternative might be a class action with the stated purpose, at the outset of the suit, of a collective award to a specific charity.” Id. at *14-15. But is that something the court could ever do as a remedy after a trial, as opposed to in a settlement? Is that a proper way of distributing a money judgment after trial? There is no discussion of that subject in the opinion.
With respect to identification of class members, identifying the people who withdrew money from the ATMs during the relevant time period would require subpoenaing hundreds of banks to match account numbers (retained by the ATMs) to the approximately 2800 individuals who were class members. The Seventh Circuit concluded that this effort would not be “reasonable,” and therefore notice by publication could be issued. I’m not sure about this. Although certainly a fair amount of effort would be required by plaintiffs’ counsel to serve the subpoenas, and there would be costs involved in paying the process servers, etc., it seems odd that due process rights of absent class members to individual notice (as required under Supreme Court precedent) could be ignored simply because there is time and cost involved in serving hundreds of subpoenas. The class members certainly could be identified and there would be only 2800 of them; it just would be time consuming and somewhat expensive to identify them and send them something in the mail.
This decision, along with other court of appeals opinions over the last several years, frame a significant debate among the courts of appeals on what the proper role of the judiciary is in a class action where cy pres relief is sought, or, more typically, agreed upon in a settlement. The Third Circuit, for example, in In re Baby Products Antitrust Litigation (blog post), suggested that individual payouts, even if they are small, should generally be favored over cy pres relief. And, in In re Lupron Marketing & Sales Practices Litigation (blog post), the First Circuit also concluded that payments to class members generally should be preferred, and that courts should not be placed in the role of deciding how to distribute cy pres funds. On one hand, cy pres relief can be a practical way to settle class actions that otherwise would be difficult to settle and can serve an important purpose in that regard. But on the other hand, is supporting charities a proper function of the court system? I expect we’ll see this debate continue.