Seventh Circuit Says “Smallness” Is Not a Bar to Class Certification

In what it describes as an effort to advance the law of class certification, the Seventh Circuit last week issued a decision, written by Judge Posner, that many would say does just the opposite.
 
In Hughes v. Kore of Indiana Enterprise, Inc., the court granted plaintiff’s Rule 23(f) petition “in order to further the development of class action law . . . regarding issues of notice in cases in which the potential damages per class member are very slight, and the suitability of class action treatment of such cases.”  At bottom, the decision seems to stand for the proposition that when damages are extraordinarily small — so small that administrative costs would exceed the damages themselves– certify the class by providing only publication notice and giving the damages to charity.
 
The defendants in this case owned ATM machines in two bars in Indiana. They allegedly failed to provide one of the required notices on their ATMs regarding fees.  At the time of the alleged violations, under the Electronic Funds Transfer Act (“EFTA”), an ATM was required to provide two fee notices — a sticker notice on the ATM itself and an on-screen notice.  The bars allegedly provided only the on-screen notice.  (Notably, the sticker notice is no longer required.)
 
Although the district court originally certified the class, it later decertified it on two grounds:  (1) the potential class recovery was de minimis, and litigants could recover more in individual litigation; and (2) the cost of providing notice would exceed the class damages.  Indeed, under the EFTA, class-wide damages are limited to “the lesser of $500,000 or 1 percent of the defendant’s net worth,” which in this case translated to $3.57 per class member.  Meanwhile, a litigant in an individual action, if successful, could recover at least $100 in statutory damages.
 
The Seventh Circuit rejected these concerns, reversing and remanding the case.  It held that individual litigation was not truly a possibility because no attorney would take a case that offered such minimal fees.  As to class notice, the Seventh Circuit held publication notice would suffice because “[t]he members of the class in this case can’t be identified through reasonable effort, effort commensurate with the stakes.”
 
Moreover, the court suggested that instead of damages being awarded individually, they be provided to a charity under the “cy pres” doctrine.  As the court put it:  “[s]ince the distribution of damages to the class members would provide no meaningful relief, the best solution may be what is called . . . a ‘cy pres’ decree.  Such a decree awards a charity the money that would otherwise go to the members of the class as damages, if distribution to the class is infeasible.”  Judge Posner reasoned that a cy pres award would make sense, among other reasons, because “the award of damages to the class members would have no greater deterrent effect than the cy pres remedy, would do less for consumer protection than if the money is given to a consumer protection charity, and would impose a significant administrative expense . . .”
 
What to make of this decision?  As the court itself explained, the “deeper question is whether a class action should be permitted when the stakes, both individual and aggregate, in a class action are so small — so likely to be swamped by the expense of litigation . . . But we do not think smallness should be a bar.”  But at some point, it would seem, “smallness” would subvert the meaning of a class remedy, as here, where the court suggests that damages go to a charity rather than class members.  And shouldn’t the class members have a say in whether they want their recovery, no matter how small.  Perhaps more importantly, when individual litigation promises greater damages, is class treatment truly “superior” under Rule 23?
 
Recall that this is the court that certified a nationwide employment discrimination class despite the Supreme Court’s ruling in Wal-Mart.  (See my  Sept. 27, 2012 and Oct. 3, 2012 posts on McReynolds v. Merrill Lynch, 672 F.3d 482 (7th Cir. 2012).)  This case provides yet another example of the Seventh Circuit’s tendency to favor class certification as it works through the Rule 23 constraints.

Comments are closed.