The U.S. Court of Appeals for the Seventh Circuit recently reversed a lower court's decision to decertify the class in a class action brought under the Electronic Funds Transfer Act. In so ruling, the Seventh Circuit indicated that class actions are appropriate even where a successful action offers insignificant compensation to class members, due to their value as deterrents -- and further indicated that in such situations, awarding the money to a related charity might be the most feasible solution.
A copy of the opinion is available at http://scholar.google.com/scholar_case?case=14393858798341078038&hl=en&as_sdt=2&as_vis=1&oi=scholarr.
Multiple affiliated companies (collectively, "Defendants") owned two ATMs located in Indianapolis. A consumer filed a class action lawsuit alleging that Defendants failed to post a notice of the fee charged for the use of its ATMs, in violation of the Electronic Funds Transfer Act, 15 U.S.C. Sec. 1693b(d)(3) (the "EFTA").
The parties agreed that the EFTA capped damages, if any, at 10% of the defendants' net worth -- here, $10,000.
The lower court decertified the class on two grounds: first, that the class members would be better served by filing individual actions, in light of the small amount of money recoverable to each member in a class action; and second, that the requirement of notice to class members could not be satisfied here, and ATM machines do not store users' names. The consumer appealed.
As you may recall, the EFTA provides for statutory damages of at least $100, but no more than $1000, for individual plaintiffs. Id. at Sec. 1693m(a)(1), (a)(2)(A). If a class action is filed instead, the class is entitled to the lesser of $500,000 or 1% of the defendant's net worth. Id. at 1693m(a)(2)(B)(ii). Courts are to award reasonable attorney's fees to the defendant where a suit is successful. Id. at Sec. 1693m(a)(3).
On appeal, the Seventh Circuit indicated that it allowed "the appeal in order to further development of class action law...regarding the 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." Here, each class member might expect to receive roughly $3.57, given the available information as to the use of the ATM machines in question.
The Seventh Circuit observed that the monetary damages available to any individual class member were small enough that they "would provide no meaningful relief" to class members. In this circumstance, the Seventh Circuit speculated that a cy pres decree may be the best solution -- i.e., the Court noted that awarding the money to a charity whose mission "overlapped the interest of the class ...would amplify the effect of the modest damages in protecting consumers."
Next, the Seventh Circuit considered the lower court's holding that the class should be decertified because the notice requirement could not be satisfied. However, the Seventh Circuit examined the remedy proposed by the consumer's counsel -- notice posted on the ATMs, publication in a newspaper and on a website -- and found it "adequate in the circumstances."
However, the Seventh Circuit noted that the "deeper question" is whether a class action with such small stakes should be considered at all. Although it acknowledged that the compensatory function of class actions has "no significance in this case," the Court emphasized that deterrent function of class actions remains important, speculating that a successful class action might serve as a "wake-up call" to the Defendants encouraging them to be more diligent in complying with federal law going forward.
Accordingly, the Seventh Circuit reversed the lower court's order decertifying the class, and remanded the matter for further proceedings.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
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Email: RWutscher@mwbllp.com
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