Hughes v. Kore of Ind. Enter., Inc.

• Citation: 731 F.3d 672
• Decision Date: 10 September 2013
• Docket Number: No. 13–8018.,13–8018.
• Court: U.S. Court of Appeals — Seventh Circuit
• Parties: David HUGHES, individually and on behalf of all others similarly situated, Plaintiff–Petitioner, v. KORE OF INDIANA ENTERPRISE, INC., et al., Defendants–Respondents.

731 F.3d 672

David HUGHES, individually and on behalf of all others similarly situated, Plaintiff–Petitioner,

v.KORE OF INDIANA ENTERPRISE, INC., et al., Defendants–Respondents.

No. 13–8018.

United States Court of Appeals, Seventh Circuit.

Submitted Aug. 8, 2013.

Decided Sept. 10, 2013.

Eric G. Calhoun, Attorney, Travis Calhoun & Conlon, Dallas, TX, for Plaintiff–Petitioner.

Thomas E. Rosta, Attorney, Metzger Rosta, Noblesville, IN, for Defendants–Respondents.

Before POSNER, MANION, and WOOD, Circuit Judges.

POSNER, Circuit Judge.

The plaintiff in this class action suit seeks leave to appeal from the district judge's decertification of the class. Fed.R.Civ.P. 23(f). We have decided to allow the appeal in order to further the development of class action law (Blair v. Equifax Check Services, Inc., 181 F.3d 832, 835 (7th Cir.1999)) 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. The plaintiff has filed a brief in support of its motion for leave to appeal. The defendants have chosen to file nothing, so we can proceed to the merits. The defendants did not oppose class certification in the district court. Does that mean they favor it? Maybe, if they think that otherwise they might face multiple suits, though as we'll see this is extremely unlikely.

The defendants, affiliated companies that we'll treat as one and call Kore, owned ATMs in two bars in Indianapolis said to be popular with college students. The suit charges Kore with failing to post a notice on the ATMs that Kore charges a fee for their use. Such an omission violates, or rather violated, a provision of the Electronic Funds Transfer Act, 15 U.S.C. § 1693b(d)(3); see also Regulation E, 12 C.F.R. § 205.16(c), and so exposed Kore to liability to users of its ATMs. At the time of the alleged violations, the Act required two fee notices: a sticker notice on the ATM and an on-screen notification during transactions. Kore provided the latter notice but not, the suit alleges, the former. The Act has since been amended to remove the requirement of the sticker notice. Act of Dec. 20, 2012, Pub.L. No. 112–216, 126 Stat. 1590; Charvat v. Mutual First Federal Credit Union, 2013 WL 3958300, at *1, 725 F.3d 819, 821–22 (8th Cir. Aug. 2, 2013).

A plaintiff in an individual suit who proves a violation of the Act is entitled to his actual damages, if any, or to statutory damages of at least $100 but not more than $1000. 15 U.S.C. §§ 1693m(a)(1), (a)(2)(A). If a class action is filed instead, and is successful, the class is entitled to “such amount [of damages] as the court may allow,” but only up to the lesser of $500,000 or 1 percent of the defendant's net worth. § 1693m(a)(2)(B)(ii). No minimum amount of damages to which a class member is entitled is specified, in contrast to the $100 minimum award to the plaintiff in a successful individual suit. § 1693m(a)(2)(B)(i). In both types of case (individual and class action) the court is to award “a reasonable attorney's fee” if the suit is successful, paid of course by the defendant. § 1693m(a)(3).

The parties stipulated that the limit to damages in this class action suit would be $10,000, that being 1 percent of Kore's net worth. The stipulation further states that there were more than 2800 transactions involving the two ATMs during the period covered by the suit (a year beginning on September 30, 2010). We're not told how many more, so let's assume the total was 2800, which would make the damages $3.57 per transaction at most (given the $10,000 class limit). The transaction fee was $3, and that would be the ceiling on a plaintiff's actual damages per transaction. Those damages might well be zero, if the plaintiff couldn't prove that had he known there was a $3 fee he would not have used the ATM.

The record doesn't indicate the distribution of transactions among class members. If each of them engaged in only one transaction and the class therefore has 2800 members, each would be entitled at most to just $3.57 (10,000 ÷ 2800) if the suit was successful. (Whether total damages in a class action under the Electronic Funds Transfer Act can exceed actual damages is unclear from the Act's wording. See 15 U.S.C. § 1693m(a)(2)(B).)

The district judge decertified the class on two independent grounds. One was that the class members would do better bringing individual suits, since if an individual suit were successful the plaintiff would be entitled to at least $100 in damages. Although some class members may have made a great many transactions on the ATMs, it appears that the $100 to $1000 range for statutory damages is per suit rather than per transaction. For the statute states that liability “in the case of an individual action [is] an amount not less than $100 nor greater than $1,000.” 15 U.S.C. § 1693m(a)(2)(A). The alternative to a class action—individual lawsuits most or even all of which would be seeking damages of only $100—would therefore not be realistic. What 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 provision of the Electronic Funds Transfer Act that requires a sticker on an ATM warning that there is a fee for using it. Although one reason for the paucity of litigation may be unfamiliarity with the law, another may be the difficulty of finding a lawyer willing to handle an individual suit in which the stakes are $100 or an improbable maximum of $1000 (improbable because it is difficult to see what aggravating factors might warrant a maximum award of statutory damages in suits against Kore, given how small Kore's fee was). True, should an individual suit be successful the plaintiff's lawyer would be entitled to a fee paid by the defendant. But what is a reasonable attorney's fee for obtaining a $100 judgment? More than one might think, if the judge thought that the suit had broadcast a needed warning about compliance with the Electronic Funds Transfer Act (albeit the specific provision that Kore is charged with violating has been repealed); but enough to interest a competent lawyer? The paucity of litigation suggests not.

The smaller the stakes to each victim of unlawful conduct, the greater the economies of class action treatment and the likelier that the class members will receive some money rather than (without a class action) probably nothing, given the difficulty of interesting a lawyer in handling a suit for such modest statutory damages as provided for in the Electronic Funds Transfer Act. But in this case the amount of damages that each class member can expect to recover is probably too small even to warrant the bother, slight as it may be, of submitting a proof of claim in the class action proceeding.

Since distribution of damages to the class members would provide no meaningful relief, the best solution may be what is called (with some imprecision) a “cy pres” decree. Such a decree awards to a charity the money that would otherwise go to the members of the class as damages, if distribution to the class members is infeasible. Mace v. Van Ru Credit Corp., 109 F.3d 338, 345 (7th Cir.1997); Lane v. Facebook, Inc., 696 F.3d 811, 819 (9th Cir.2012); Six (6) Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1305 (9th Cir.1990); 3 William B. Rubenstein, et al., Newberg on Class Actions § 10:17 (5th ed.2013). (For criticism, see Martin H. Redish, Peter Julian & Samantha Zyontz, “Cy Pres Relief and the Pathologies of the Modern Class Action: A Normative and Empirical Analysis,” 62 Fla. L.Rev. 617 (2010).) Payment of $10,000 to a charity whose mission coincided with, or at least overlapped, the interest of the class (such as a foundation concerned with consumer protection) would amplify the effect of the modest damages in protecting consumers. A foundation that receives $10,000 can use the money to do something to minimize violations of the Electronic Funds Transfer Act; as a practical matter, class members each given $3.57 cannot.

As explained in Mirfasihi v. Fleet Mortgage Corp., 356 F.3d 781, 784 (7th Cir.2004), “cy pres” is the name of a doctrine of trust law that allows the funds in a charitable trust, if they can no longer be devoted to the purpose for which the trust was created, to be diverted to a related purpose; and so when the polio vaccine was developed the March of Dimes Foundation was permitted to redirect its resources from combating polio to combating other childhood diseases. The trust doctrine is based on the idea that the settlor would have preferred a modest alteration in the terms of the trust to having the corpus revert to his residuary legatees because the trust's original aim could no longer be achieved. In a class action the reason for a remedy modeled on cy pres is to prevent the defendant from walking away from the litigation scot-free because of the infeasibility of distributing the proceeds of the settlement (or of the judgment, in the rare case in which a class action not dismissed pretrial goes to trial rather than being settled) to the class members. When there's not even an indirect benefit to the class from the defendant's payment of damages, the “cy pres” remedy (misnamed, but the alternative term found in some cases—“fluid recovery”—is misleading too) is purely punitive. But we said in Mirfasihi that the punitive character of the remedy would not invalidate it. Id. at 784–85. Other courts, disagreeing, require the charity or other recipient to have an interest parallel to that of the class. E.g., In re Lupron Marketing & Sales Practices Litigation, 677 F.3d 21, 33 (1st Cir.2012); Nachshin v. AOL, LLC, 663 F.3d 1034, 1038–39 (9th Cir.2011). No matter; it should be possible in ...