Much has been written on how privacy class actions have led courts to re-examine well-settled notions of standing, as the question of how the loss of private information that is not in any way used can be an “actual injury” under the law. But privacy class actions are also pushing the edge of class action law in terms of class action settlements, as plaintiff and defense counsel find ways to settle class actions where class damages are de minimus because they are statutorily limited.
For decades, those of us negotiating class action settlements have used a cy pres fund as a way of distributing unclaimed settlement funds at the very end of the settlement process. But now we find cy pres awards — awards given to charitable organizations — being doled out as the only award in a class action settlement. This happens when, at the very outset of settlement negotiations, counsel for both sides realize that for one reason or another, it would not be economically feasible to distribute funds to the class — typically, this happens when the award to each class member would be outweighed by the administrative cost of cutting and mailing the check.
In these circumstances, the argument goes, why not settle the class action by just giving the settlement funds to a charity? As Judge Posner reasoned in the Hughes v. Kore of Indiana Enterprise, Inc. case –a case dealing with damages under the Electronic Funds Transfer Act that would have amounted to a little over $3.00 per class member — giving the money to charity would have the same deterrent effect as giving the money to class members.
So, what is wrong with settlements that have nothing but a cy pres award? Two things. First, the settlement fund belongs to the class. It is the property of the class. Second, and important from the defense perspective, why should be class be certified at all if the class members will not see any direct award? Some would argue that certification is intended precisely for those cases where awards are so small that litigation would otherwise not be brought. But where should the line be drawn?If an award is so small that there is no direct recovery for the class, should a class be certified?
While the debate on cy pres centers on the specifics of “when” cy pres is appropriate, perhaps the more important question is “if” cy pres is appropriate when class damages are so small that class certification offers no direct benefit to the class.