Seventh Circuit suggests cy pres class actions are viable

Posted on: October 18th, 2013 by Steve Larson
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FeeUsers of ATMs in two bars in Indiana brought a class action alleging that Defendant Kore of Indiana Entertainment, Inc. violated the Electronic Funds Transfer Act by failing to post a notice on the ATMs regarding fees that may be imposed.  At the time of the alleged violation, the Act required a notice on the outside of the machine, as well as a notice on the screen, but has since been amended.  In detailing the case background, the Seventh Circuit described the monetary relief available for violations of the Act, noting that while indivdiual claims are entitled to (1) any actual damages, and (2) statutory damages of at least $100 but not more than $1000, any case brought under the Act that proceeds as a class action can obtain no minimum amount of damages per class member, and overall, such plaintiffs are entitled to the lesser of $500,000 or 1% of a defendant’s net worth, which translated in this matter would be around $10,000.

After the United States District Court for the Southern District of Indiana initially granted certification, it later decertified the class reasoning that (1) plaintiffs would be better off bringing their own claim because they would get a minimum of $100, whereas class treatment will likely result in an award of less than $5; and (2) notice to class members would be impracticable because the ATMs do not store users’ names or addresses or sufficient bank user information.  Plaintiffs appealed the denial of class certification.

The Seventh Circuit vacated the district court’s decision to decertify the class, stating that it does not believe “smallness should be a bar” to class certification, and reasoning that class treatment was the superior method of adjudication of this dispute; given the stakes very few attorneys would be willing to pursue individual claims valued at $100.  The Court also rejected the district court’s reasoning regarding class notice, stating that notice to the class members need not be perfect, as Rule 23(c)(2)(B) only requires the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable efforts.

The Seventh Circuit found stickers on the ATMs and publication to be adequate notice under the circumstances, as it was likely to reach regular users of the ATMs, and there was no indication that anyone had such large stakes that the risk of them being denied the right to opt out was substantial enough to require more notice.  The Seventh Circuit then reemphasized that class actions should be permitted when both the individual and the aggregate states are small, as such a policy serves the deterrent objective of both litigation in general and also the Electronic Funds Transfer Act.

The Court then addressed the potential remedy in a case with such small stakes, and suggested that a cy pres remedy may make the most sense in a case where distributing the available damages (here, $10,000) to the class would require a significant administrative expense.  The Court then speculated that in lieu of such a remedy, 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.  We are not aware of such a case, but mention the possibility of it for future reference.”

The case is Hughes v. Kore of Indiana Enter., Inc., No. 13-8018, 2013 WL 4805600 (7th Cir. Sept. 10, 2013) (Posner, J.).