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1.7.7.5 Consider Whether Benefits Can Be Provided to Class Members

The choice of claims will affect the availability of particular remedies. For example, the federal Truth in Lending and Fair Debt Collection Practices Acts contain special class action caps on statutory damages. Bringing a claim under a state debt collection or consumer protection statute may avoid the application of the damages cap. On the other hand, some state consumer protection statutes likewise contain damages caps or do not permit class-wide relief.146

Another possible barrier to collecting damages is the financial solvency of the defendant. Evaluation and investigation of potential defendants is discussed in § 1.8, infra. However, one thing to keep in mind is that defendants may be covered by insurance. When the defendant potentially is covered by some insurance policy or bond, counsel should be careful to avoid pleading claims in such a manner as to allow the insurance company to maintain a coverage defense. For example, intentional misconduct by senior corporate executives is generally not covered (on the theory that one cannot insure against one’s own deliberate wrong). On the other hand, a corporation can insure against vicarious liability for the wrongs of errant employees, even if senior management personnel were negligent or even reckless in allowing the employees to commit the wrongs.

Although one of the primary purposes of consumer class actions is to aggregate small recoveries,147 there may be circumstances under which the individual recoveries are so small that the administrative costs of distribution essentially swallow the relief. This concern is lessened in cases that involve an ongoing business relationship between class members and the defendant (examples include cases against credit card companies, banks, and utility providers). In such cases, the individual payment amounts can be determined based on the defendant’s records and the payment made by credit to an existing account. No proof of claim is required, and it is unnecessary to issue checks for very small sums of money, many of which would likely go uncashed.148

When the benefits of a class action truly cannot be distributed to the injured class members—because administrative costs are too high or because the class members cannot be found (for example, cash purchasers of a product)—a class action may still be appropriate and valuable as a mechanism for enforcing consumer protections. In such cases, damages or disgorgement of unjust enrichment should be distributed to one or more cy pres recipients.149

Footnotes

  • 146 {138} See § 1.7.4, supra.

  • 147 {139} See § 1.2, supra.

  • 148 {140} See NACA Consumer Class Action Guidelines, Guideline 1, para. B (3d ed. 2014), reprinted at Appx. D, infra.

  • 149 {141} See § 14.9, infra. See also NACA Consumer Class Action Guidelines, Guideline 7 (3d ed. 2014), reprinted at Appx. D, infra.