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Introduction to Appendices

Primary Source Materials

The appendices contain two important primary sourcematerials relating to consumer class actions. AppendixA reprints Federal Rule of Civil Procedure 23, that gov-erns class actions in federal court. The Appendix is alsofound on the Companion Disk, allowing easy copying ofthe rule for use in briefs and other documents. Statecourt actions will follow state court rules, which are notreprinted. Nevertheless, most state rules are patterned

on Federal Rule 23.Appendix B reprints the Consumer Class Action Guide-

lines adopted in 1998 by the National Association ofConsumer Advocates. These guidelines provide not onlyrecommended practices by the leading association ofconsumer attorneys, but also contain useful analysis ofcurrent issues. These guidelines are also found on thecompanion disk, again allowing easy copying of pas-sages directly into briefs and other documents.

About the Sample Pleadings

This volumes appendices also contain sixty-eight sam-ples of documents which have been used in litigated con-sumer class actions. Some of the names have been changedto protect the privacy of the plaintiff consumers. Thesesamples should not be viewed as models, but rather asexamples of the form and content of documents requiredat various stages of class action litigation.

The documents were drafted by several different at-torneys, and therefore vary in language, style, and con-tent from one sample to the next. Many appendicesprovide a number of different samples of the same typeof pleading, allowing the practitioner to select the plead-ing closest to the facts and legal issues of the practitio-ners own case. The various samples also allow the prac-titioner to review a number of stylistic alternatives.

Pleadings Available on Companion

WordPerfect Disk

Consumer Class Actions contains a companion Word-Perfect disk that contains most of the materials in theappendices. To save disk space, the disk contains onlyinformation an attorney would wish to copy or search,and thus does not include certain heavily formatted no-tices and other forms, this introduction, or the introduc-tions to the appendices.

All other appendices are set out as WordPerfect filesso that a practitioner can copy the file, edit it to fit thefacts of a particular case, and print the document outfor submission in an actual case. Of additional utility isthe ease with which specific information can be locatedusing keyword WordPerfect searches. For this reason,the disk also includes the index to this volume, and thequick reference to the complete series.

See the last page of this volume for installation, use, warranty, and other information about the disk. Thedisk itself is located in an envelope adhered to the in-side back cover of this manual.

Other Class Action Pleadings Available

in NCLC Manuals and on Disk

In addition to the sixty-eight class action pleadingsand documents found in these appendices, a number ofother class action pleadings, orders, notices, and briefsare found in other NCLC publications and their com-panion WordPerfect disks, specifically Consumer LawPleadings With Disk, Numbers One (1994) through Five(1999). Individual appendices specify when related plead-ings are found in any of these five volumes ofConsumer

Law Pleadings With Disk, which may sometimes be closerin law or factual allegations to the practitioners casethan the samples found in this volume.

In addition, several types of documents appear in thefive Consumer Law Pleadings With Disk volumes that arenot found in this manuals appendices, such as documentspertaining to binding arbitration, cy pres awards, and at-torney fees. For a complete listing of documents in these

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five pleading books, go to www.nclc.org, click on manu-als, and scroll down to the Consumer Law Pleadings en-try. This will provide the complete contents for each book.

Listing of Documents By Case Name

The sixty-eight documents in the appendices primarilycome from twenty-two class actions, with each case provid-ing from one to ten documents. The listing below summa-rizes the twenty-two cases, and enumerates in which ap-pendices the pleadings from each case are to be found.

Federal Fair Debt Collection Case (Boddie): a class action onbehalf of persons who received debt collection letters whichwere rubber-stamped by an attorney to give the falseimpression of legal action by a sales finance agency. Thecase settled with the provision of $60,000 to a commonfund. For more Fair Debt Collection pleadings, see Na-tional Consumer Law Center, Fair Debt Collection (3d ed.1996 and Supp.) and also its companion disk.

D.1 ComplaintE.1.1 InterrogatoriesE.1.2 Production of Documents RequestE.1.3 Request for AdmissionN.3.1 Combined Rule 23(c) and (e) Notice of Certifi-

cation/SettlementO.1 Stipulations of Proposed Settlement

Federal Fair Debt Collection Case (Bauer): a class actionagainst a creditor for collecting debts not in its ownname (and thus covered by the federal act) for mislead-ing collection notices.

K.1 Motion for Class Certification

L.1 Memorandum in Support of Motion for ClassCertification

M.1 Reply Memorandum in Support of Class Certi-fication

Federal Fair Debt Collection Case (Smith): a class actionagainst a hospital collection service on behalf of all per-sons who received letters falsely representing that legalaction would be filed. For more Fair Debt Collection plead-ings, see National Consumer Law Center, Fair Debt Collec-tion (3d ed. 1996 and Supp.) and its companion disk.

J Objection to Defendants Document Request toNamed Plaintiff

TIL Rescission and Deceptive Practices CaseHome Im- provement Contract (Mount): a class action against a fi-nancing company for home improvements on behalf ofall persons who were denied a three day period of rescis-sion guaranteed by the Truth in Lending Act and who were required to sign a confession of judgment. Thiscase resulted in a decision certifying the class reportedat 1994 U.S. Dist. LEXIS 4027 (N.D. Ill. March 31,1994). For more TIL pleadings, both printed and on

WordPerfect disk, see National Consumer Law Center,Truth in Lending (3d ed. 1995).

D.2 ComplaintK.2 Motion for Class CertificationL.3 Opening Memorandum in Support of Class Cer-

tificationM.3 Reply Memorandum in Support of Class Certi-

ficationTIL Rescission CaseHome Improvement Contract (Og-

den): a class action against a financing company for homeimprovements on behalf of all persons who signed anagreement which had a hidden finance charge, whichdenied a three day period for rescission guaranteed un-der TILA and which did not properly disclose the pointscharged by the company. For more TIL pleadings, bothprinted and on WordPerfect disk, see National Con-sumer Law Center, Truth in Lending (3d ed. 1995).

P.1 Memorandum in Support of Approval of ClassSettlement

TIL Disclosure CaseHidden Finance Charge in Car Sale(Willis): a class action against an automobile dealership onbehalf of all persons who signed sales contracts in whichinsurance premiums were not included in the disclosedfinance charge and in which the annual percentage ratewas understated. The named plaintiff was given title toher trade-in, recovered all her payments, had her indebt-edness cancelled, and her credit report corrected. Otherclass members recovered $150 each. For more TIL plead-ings, both printed and on WordPerfect disk, see NationalConsumer Law Center, Truth in Lending (3d ed. 1995).

D.3 ComplaintK.3 Motion for Class Certification

L.4 Opening Memorandum in Support of Class Cer-tification

N.3.2 Combined Rule 23(c) and (e) Notice of Certifi-cation/Settlement

O.2.1 Stipulations of Proposed Settlement with DealerO.2.2 Stipulations of Proposed Settlement With Re-

lated Lender/Assignee

TIL Untimely Disclosure Case (Diaz): a class action againstan automobile dealership on behalf of persons who signeda binding contract for the sale of an automobile beforeTruth in Lending disclosures were made and who signeda confession of judgment. This case resulted in a deci-

sion certifying the class and granting summary judg-ment reported at 1994 U.S. Dist. LEXIS 16300 (N.D.Ill. Nov. 14, 1994). For more TIL pleadings, both printedand on WordPerfect disk, see National Consumer LawCenter, Truth in Lending (3d ed. 1995).

D.4 ComplaintK.4 Motion for Class CertificationL.5 Opening Memorandum in Support of Class Cer-

tification

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Consumer Leasing Act and Deceptive Practices CaseCar

Lease (Shepherd): a class action on behalf of all personswho signed an automobile lease with defendant in whichdefault and early termination charges were reported in-accurately, as well as the method of calculating the charges,

in which a penalty for default was unconscionable andin which the buyers rights under the warranty were notmade clear. For similar state law pleadings, see Na-tional Consumer Law Center, Consumer Law PleadingsWith Disk, Number One Ch. 9 (1994).

D.5 ComplaintE.2.1 InterrogatoriesE.2.2 Production of Documents RequestE.2.3 Request for AdmissionsE.2.4 Production of Documents Request #2L.6 Opening Memorandum in Support of Class Cer-


ficationO.3 Stipulations of Proposed SettlementP.2 Memorandum in Support of Approval of Class

Settlement

RICO and Deceptive Practices CaseAutomobile Sale

(Brown): a class action against a financing company onbehalf of persons who purchased an automobile fromassociated dealer and who signed a financing agree-ment which did not contain the FTC Holder Notice.This case resulted in three reported decisions: 148 F.R.D.584 (N.D. Ill. 1993) (defendants motion to dismiss theoriginal complaint is granted); 820 F. Supp. 1078 (N.D.

Ill. 1993) (defects in the original complaint are cured bythe amended one); and 1993 U.S. Dist. LEXIS 11419(N.D. Ill. Aug. 13, 1993) (class is certified). The casewas settled for approximately $350,000 to the class andno more than $150,000 to the class attorneys. Otherpleadings in the Brown case are reprinted in and in-cluded on the companion WordPerfect Disk for Na-tional Consumer Law Center, Consumer Law PleadingsWith Disk, Number One Ch. 4 (1994). That volume in-cludes the demand letter, the motion to file an amendedcomplaint, the amended complaint, a memorandum inopposition to the motion to dismiss, discovery, plain-tiffs response to the defendants discovery, motion, mem-orandum, and reply memorandum for class certifica-tion, plaintiffs response to defendants motion for re-consideration of class certification, notice of pendencyof class action, memorandum in support of a proposedsettlement, and request for attorney fees.

F Response to Defendants Motion to Stay Discovery

Automobile Dealer Deceptive Sale of Service Contract (Nor-

ris): a class action against a dealer for failing to disclose

that it kept a large portion of service contract payments.Allegations included violations of TIL and the state UDAPstatute. The case was settled.

N.2.2 Rule 23(e) Settlement Notice

RICO and Deceptive Practices CaseLenders Failure to

Include FTC Holder Notice (Howard): a class action againsta financing company of satellite dishes on behalf of all

persons who signed a contract with the company whichhad omitted the FTCs Holder Notice.

D.6 Complaint

Deceptive Practices CaseVendors Single Interest Insur-

ance (Ortiz): a class action on behalf of all persons whohad automobile single interest physical damage insur-ance force placed for them by a finance company. Thecase also included a subclass of all persons whose carswere damaged and who did not recover in accordancewith the policy. For more pleadings on force-placed au-tomobile insurance, see National Consumer Law Cen-ter, Consumer Law Pleadings With Disk, Number One

Ch. 2 (1994).D.7 ComplaintE.3.1 InterrogatoriesE.3.2 Production of Documents RequestK.5 Motion for Class CertificationL.7 Opening Memorandum in Support of Class Cer-


fication

Revolving Repossession Case (Corral): a class action againstan automobile financing company on behalf of all per-sons who had their automobile repossessed and resold

to an affiliate of the defendant company. For more re-possession pleadings, in print and on a WordPerfect disk,see National Consumer Law Center, Repossessions andForeclosures (3d ed. 1995).

H Motion and Order for Protection of Class Mem-bers Files

Revolving Repossession Case (Carr): a class action againsta car dealership and lender for a revolving repossessionscheme. While this case was settled with the dealer, thecase against the lender has gone up several times to theFourth Circuit. It now appears that the case will becertified and go forward.

D.9 Complaint

Revolving Repossession Case (Johnson): a class action againstfinancing company for automobile sales on behalf of allpersons who had their automobile repossessed and resoldto the dealership from which they had originally pur-chased the automobile. The case resulted in a $1.1 mil-lion cash settlement, waiver of $1.3 million in claimeddeficiencies, and $175,000 in attorney fees. For morerepossession pleadings, in print and on a WordPerfect

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disk, see National Consumer Law Center, Repossessionsand Foreclosures (3d ed. 1995).

O.4 Stipulations of Proposed Settlement

Loan Flipping and Packing (Walsh): a class action againsta finance company for the unconscionable lending prac-tices of flipping loans into additional higher rate loansand packing loans with unrequested, extravagantly priced

insurance products. The case is based on violations ofTruth in Lending, UDAP, common law fraud, and un-conscionability.

G Sample Pleadings to Compel Discovery

State Usury Case (Adams): a class action on behalf ofpersons who signed home improvement financing con-tracts secured by a mortgage on real estate and whopaid an interest rate calculated by the illegal Rule of78 method. The defendant agreed to stop using theRule of 78, and established a $200,000 common fund.For more usury pleadings, see National Consumer LawCenter, The Cost of Credit: Regulation and Legal Chal-

lenges (1995).D.8 ComplaintE.4.1 InterrogatoriesE.4.2 Production of Documents RequestE.4.3 Request for AdmissionsL.8 Opening Memorandum in Support of Class Cer-

tificationN.3.3 Combined 23(c) and 23(e) Notice of Certification/

SettlementO.5 Stipulations of Proposed Settlement

Card Issuers Slow Payment on Credit Balances (Coe): aclass action of those who overpaid their card balance,

requested payment for the credit balance, and were notpaid that balance in a timely manner. Allegations werebased on TIL, UDAP, and breach of contract.

L.2 Memorandum in Support of Motion for ClassCertification


Campground Membership Fraud (Hughes): a class actionagainst those providing financing for purchase of a camp-ground membership, based on the FTC Holder Rule,alleging fraud, UDAP, and other claims. The case wassettled.

N.1 Rule 23(c) NoticeN.2.1 Rule 23(e) Settlement Notice

Insurance Sales Fraud (In Re: Metropolitan Life Insurance

Company Policyholders Litigation): two consolidated classactions concerning MetLifes sale of replacement insur-ance policies which were funded by the cash value in anexisting policy, alleging UDAP violations, breach of fidu-

ciary duty and the duty of good faith and fair dealing,concealment by deceit and negligent supervision of itsagents in the sale of insurance.

I Brief in Support of Plaintiffs Motion to RestrictDefendants Communications with Class Members

Hospital Collection Case (Albino): a class action on be-half of women who were eligible for free pregnancy-related services under Maternal and Child Health Actagainst Project 502 which failed to pay the hospital fortheir pregnancy-related services.


Objections to Settlement of TIL and RICO Case (Buchet): aclass action against a consumer loan company on behalfof all persons whose loans were deferred by the com-pany without knowledge of the consumers. The originalproposed coupon or scrip settlement resulted in ob-jections by class members. The settlement was rejectedby the court, and the decision rejecting the proposedsettlement is reported at Buchet v. ITT Financial Corpo-ration, 845 F. Supp 684 (D. Minn. 1994), amended 1994U.S. Dist. LEXIS 10020 (D. Minn. 1994).

Q.2 Objections to Proposed SettlementQ.3 Memorandum in Support of Counsel for Objec-

tors Request for Attorney FeesObjections to Settlement in Mortgage Escrow Case (Robin-

son): a class action against a mortgage lender for itsescrow practices resulted in a settlement agreement andfees that intervenor argued were unreasonable. Interve-nor particularly objected to fees in excess of the realvalue of a coupon settlement, inadequate recovery forthe class members, and a one-way gag order.

Q.1 Objections to Settlement Agreement and Fee Pe-tition

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Appendix A Federal Rule of Civil Procedure 23

Federal Rule of Civil Procedure 23. Class Actions

(a) Prerequisites to a Class Action. One or more members ofa class may sue or be sued as representative parties on behalfof all only if (1) the class is so numerous that joinder of allmembers is impracticable, (2) there are questions of law orfact common to the class, (3) the claims or defenses of therepresentative parties are typical of the claims or defenses ofthe class, and (4) the representative parties will fairly andadequately protect the interests of the class.

(b) Class Actions Maintainable. An action may be maintainedas a class action if the prerequisites of subdivision (a) aresatisfied, and in addition:

(1) the prosecution of separate actions by or against individ-ual members of the class would create a risk of

(A) inconsistent or varying adjudications with respect toindividual members of the class which would establishincompatible standards of conduct for the party opposingthe class, or(B) adjudications with respect to individual members ofthe class which would as a practical matter be dispositiveof the interests of the other members not parties to theadjudications or substantially impair or impede their abil-ity to protect their interests; or

(2) the party opposing the class has acted or refused to act

on grounds generally applicable to the class, thereby makingappropriate final injunctive relief or corresponding declara-tory relief with respect to the class as a whole; or

(3) the court finds that the questions of law or fact commonto the members of the class predominate over any questionsaffecting only individual members, and that a class action issuperior to other available methods for the fair and efficientadjudication of the controversy. The matters pertinent to thefindings include: (A) the interest of members of the class inindividually controlling the prosecution or defense of sepa-rate actions; (B) the extent and nature of any litigation con-cerning the controversy already commenced by or against mem-bers of the class; (C) the desirability or undesirability of con-centrating the litigation of the claims in the particular forum;

(D) the difficulties likely to be encountered in the manage-ment of a class action.

(c) Determination by Order Whether Class Action to be Main-

tained; Notice; Judgment; Actions Conducted Partially as Class

Actions.

(1) As soon as practicable after the commencement of anaction brought as a class action, the court shall determine byorder whether it is to be so maintained. An order under this

subdivision may be conditional, and may be altered or amendedbefore the decision on the merits.

(2) In any class action maintained under subdivision (b)(3),the court shall direct to the members of the class the bestnotice practicable under the circumstances, including individ-ual notice to all members who can be identified through rea-sonable effort. The notice shall advise each member that (A)the court will exclude the member from the class if the mem-ber so requests by a specified date; (B) the judgment, whetherfavorable or not, will include all members who do not requestexclusion; and (C) any member who does not request exclu-sion may, if the member desires, enter an appearance throughcounsel.

(3) The judgment in an action maintained as a class actionunder subdivision (b)(1) or (b)(2), whether or not favorable tothe class, shall include and describe those whom the courtfinds to be members of the class. The judgment in an actionmaintained as a class action under subdivision (b)(3), whetheror not favorable to the class, shall include and specify or de-scribe those to whom the notice provided in subdivision (c)(2)

was directed, and who have not requested exclusion, and whomthe court finds to be members of the class.

(4) When appropriate (A) an action may be brought ormaintained as a class action with respect to particular issues,or (B) a class may be divided into subclasses and each sub-

class treated as a class, and the provisions of this rule shallthen be construed and applied accordingly.

(d) Orders in Conduct of Actions. In the conduct of actions towhich this rule applies, the court may make appropriate or-ders: (1) determining the course of proceedings or prescribingmeasures to prevent undue repetition or complication in thepresentation of evidence or argument; (2) requiring, for theprotection of the members of the class or otherwise for thefair conduct of the action, that notice be given in such manneras the court may direct to some or all of the members of anystep in the action, or of the proposed extent of the judgment,or of the opportunity of members to signify whether they con-sider the representation fair and adequate, to intervene andpresent claims or defenses, or otherwise to come into the ac-

tion; (3) imposing conditions on the representative parties oron intervenors; (4) requiring that the pleadings be amendedto eliminate therefrom allegations as to representation of ab-sent persons, and that the action proceed accordingly; (5) deal-ing with similar procedural matters. The orders may be com-bined with an order under Rule 16, and may be altered oramended as may be desirable from time to time.

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(e) Dismissal or Compromise. A class action shall not be dis-missed or compromised without the approval of the court,and notice of the proposed dismissal or compromise shall begiven to all members of the class in such manner as the courtdirects.

(f) Appeals. A court of appeals may in its discretion permit anappeal from an order of a district court granting or denyingclass action certification under this rule if application is madeto it within ten days after entry of the order. An appeal doesnot stay proceedings in the district court unless the district

judge or the court of appeals so orders.

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Appendix B NACA Consumer Class Action Guidelines

National Association of Consumer Advocates, Standards and Guidelines for Litigatingand Settling Consumer Class Actions, 176 F.R.D. 3751

TABLE OF CONTENTS

INTRODUCTIONISSUES ADDRESSED

1. The Propriety of Class Actions When Individual Recover-ies Are Small

A. The IssueB. ViewpointsC. NACA Guideline

2. Certificate SettlementsA. The IssuesB. ViewpointsC. NACA Guidelines

3. Settlements When Other Class Actions Are on FileA. The IssueB. ViewpointsC. NACA Guidelines

4. Additional Compensation to Named PlaintiffsA. The IssueB. ViewpointsC. NACA Guideline

5. Class Member ReleasesA. The IssueB. ViewpointsC. NACA Guidelines

6. Cy Pres AwardsA. The IssueB. ViewpointsC. NACA Guidelines

7. Attorneys Fee ConsiderationsA. The IssueB. Viewpoints

C. NACA Guidelines8. Improved Notice of Settlement

A. The IssuesB. ViewpointsC. NACA Position

9. Approval of Settlement Classes A. The IssueB. ViewpointsC. NACA Guidelines

10. Interlocutory Appeal of Class CertificationA. The IssuesB. ViewpointsC. NACA Position

SUMMARY AND CONCLUSION

INTRODUCTION

Consumer class actions serve an important function in our judi-cial system and can be a major force for economic justice. Theyoften provide the only effective means for challenging wrongfulbusiness conduct, stopping that conduct, and obtaining recoveryof damages caused to the individual consumers in the class. Fre-quently, many consumers are harmed by the same wrongful prac-tice, yet individual actions are usually impracticable because the

individual recovery would be insufficient to justify the expense ofbringing a separate lawsuit. Without class actions, wrongdoingbusinesses would be able to profit from their misconduct andretain their ill-gotten gains. Class actions by consumers aggregatetheir power, enable them to take on economically-powerful insti-tutions, and make wrongful conduct less profitable.

In recent years, class actionsand particularly class actionswhich are resolved by settlementhave been subjected to con-siderable public criticism. At times, this criticism has been

warranted. However, much of the criticism has been gener-ated by self-appointed professional objectors and by self-interested entities who are motivated by a desire to immunizethemselves from liability for wrongs rather than by any con-cern for the public interest. Certain types of businesses, suchas financial institutions and insurers, commonly deal with largenumbers of consumers in similar ways. Often, such businessesare essentially immune from individual suits for damages sincethe amounts at issue as to any particular consumer are small.These entities harbor an expectable dislike for the class actionprocedural device, since it provides an effective tool for con-sumer redress in such situations. While such entities are enti-tled to have their voices heard in any public debate, it appearsthat a concerted effort has been initiated in recent years to

1 The National Association of Consumer Advocates is a non-profit association of over 500 consumer advocates, attorneys,law professors and law students. It is dedicated to enhancingcommunication and networking among and between advo-cates and attorneys whose practice is devoted to curbing abu-sivebusiness practices and promoting consumer justice. It pub-lishes a bi-monthly newsletter with special issues focusing ondifferent areas of consumer law, as well as a semi-annualmem-ber directory for use as a consultation resource. NACA co-hosts with NCLC an annual consumer rights litigation confer-ence in the fall and also conducts regional training confer-ences at other times of the year. NACA can be contacted at1717 MassachusettsAvenue, N.W., Suite 704, Washington, D.C.20036, (202) 332-2500, fax number (202) 332-2566, and thee-mail address [email protected].

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undermine the legitimate uses for class actions by over-emphasizing the relatively infrequent occasions when abusesof the procedure occur.

In Deposit Guaranty National Bank v. Roper, 445 U.S. 326(1980), the Supreme Court stated:

A significant benefit to claimants who choose tolitigate their individual claims in a class-action con-

text is the prospect of reducing their costs of litiga-tion, particularly attorneys fees, by allocating suchcosts among all members of the class who benefitfrom any recovery. Typically, the attorneys fees ofa named plaintiff proceeding without reliance onRule 23 could exceed the value of the individual

judgment in favor of any one plaintiff. Here thedamages claimed by the two named plaintiffs to-taled $1,006.00. Such plaintiffs would be unlikely to

obtain legal redress at an acceptable cost, unless coun-

sel were motivated by the fee-spreading incentive and

proceeded on a contingent-fee basis. This, of course,is a central concept of Rule 23.

Id., 445 U.S. 326, 338 n. 9 [emphasis added].In a similar vein, the California Supreme Court recognized

in its landmark decision in Vasquez v. Superior Cour t, 4 Cal. 3d800, 808 (1971) that:

Protection of unwary consumers from being dupedby unscrupulous sellers is an exigency of the ut-most priority in contemporary society . . . The alter-natives of multiple litigation (joinder, intervention,consolidation, the test case) do not sufficiently pro-tect the consumers rights because these devicespresuppose a group of economically powerful par-ties who are obviously able and willing to take careof their own interests individually through individ-

ual suits or individual decisions about joinder orintervention. [Citation omitted.]

The California court further recognized that class actions gen-erally have beneficial by-products, including a therapeutic ef-fect on sellers who indulge in fraudulent practices, aid to legit-imate business enterprises by curtailing illegitimate competi-tion, and avoidance of multiple lawsuits involving identicalclaims.

Even when individual actions could be brought, it is onlythrough class action status and class-wide discovery that thedefendants wrongful practice and its effect on large numbersof similarly-situated consumers may be carefully and accu-rately determined. Class action discovery thus can improve

the strength and size of the eventual recovery for affectedconsumers.Class actions also can be abused. Moreover, any abuse is

sure to be the focus of much adverse comment in the mediaand to be used in an attempt to change the law to disfavorclass suits and thereby insulate abusive business practices fromeffective review. Through this paper, the National Associationof Consumer Advocates (NACA) is undertaking to provideguidelines to specify what practitioners should be doing underthe current state of the law. In some instances, the law does

not require compliance with the standards set forth here, inothers it does, and in yet others there is a split of authority.Except where expressly stated, this paper does not argue for achange in the law. Instead, NACA seeks to educate practitio-ners about how to avoid conduct which is, or may appear tobe, improper and about the most appropriate and effective

way to fulfill the special obligations of class counsel to theclass. Thus, the paper addresses how to curb abuses, while

advocating keeping class actions as a vehicle for protectingconsumers and holding economically powerful interests respon-sible for the harm they do.

NACA is comprised of consumer lawyers and advocates.The views of many NACA members were solicited and re-ceived before this paper was written, as well as after it wascirculated in draft form. Often, different members expressedopposing viewpoints. This paper is intended to reflect the ma-

jority view in those instances where there was any significantdifference of opinion among members.

This paper is directed toward use of class actions within thecontext of consumer cases. It is not intended to address classactions in other contexts, such as mass torts or employmentdiscrimination cases, which often involve more substantial in-

dividual recoveries and a different mix of public policy andprocedural considerations.

ISSUES ADDRESSED

1. The Propriety of Class Actions When Individual Recoveries

Are Small

A. The Issue

Questions recently have been raised about whether someillegal business practices are inappropriate for class treatmentbecause individual recoveries are too small to warrant individ-ual actions and the attorneys fees which are recovered dwarfthe individual damages. The Preliminary Draft of the Pro-

posed Amendments to the Federal Rules of Practice and Pro-cedure issued by the Advisory Committee on Rules of Prac-tice and Procedure of the Judicial Conference of the UnitedStates suggests a new subparagraph (F) to Rule 23(b)(3) which

would allow courts, in deciding whether to certify a class, toweigh the probable relief to individual class members againstthe costs and burdens of class litigation. The Summary forBench and Bar, distributed by the Administrative Office ofthe U.S. Courts, contains the following comment about pro-posed subparagraph (F): In small claims class actions, itmay justify refusal to certify a class even though subpara-graphs (A) and (B) would push toward certification becauseindividual class members are not practically able to pursueseparate actions.

B. Viewpoints

The new proposed subparagraph F requires considerationof the relief to individual class members instead of the size ofthe total sum that the defendant will pay to the entire class.The genesis of this proposal appears to be the viewpoint thatsome recoveries to class members may be so trivial that theydo not warrant redress. Noting that the traditional justifica-tion for litigation is individual remedial benefit and that mostprivate wrongs go without redress, proponents of this rule

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change urge that we should not establish a roving Rule 23commission that authorizes class counsel to enforce the lawagainst private wrongdoers. Request for Comment at 26.

Attorneys who litigate consumer class actions hold the con-trary view and believe that the focus on individual compensa-tion misses a central point of class actions: deterring miscon-duct by the defendants. The class action device is particularlyappropriate in consumer cases where individual recoveries are

small, but which, in the aggregate, involve substantial sums,often millions of dollars in damages. Class actions serve animportant purpose beyond simply compensating the injured.Often, class counsel and class representatives act as privateattorneys general vindicating cumulative wrongs and obtain-ing significant injunctive relief or institutional change, andrequiring disgorgement of illegal profits. HERBERT NEW-BERG & ALBA CONTE, NEWBERG ON CLASS AC-TIONS 5.49 & 5.51 (3d ed. 1992) [cited herein as New-berg]. To refuse to permit class actions on the grounds thatindividual recoveries are small, while ignoring the aggregateamounts involved, would encourage wrongful conduct and largelyimmunize entities engaged in schemes to steal millions in $10increments.

An illustrative example is found in the consumer class ac-tions challenging excessive late and overlimit charges on creditcard accounts which were criticized on the grounds that classmembers are eligible for only a few dollars apiece in compen-sation while class counsel get millions. Max Boot, WALLST. J., Sept. 19, 1996. If Rule 23(b)(3)(F) were adopted, itcould provide a basis for refusing to certify these classes be-cause individual recoveries ranged from $3 to $50, which acourt might deem to be trivial. Such a constricted view disre-gards the facts. For example, in the related Wells Fargo Bankand Crocker National Bank cases, total damages of almost$10 million were recovered, plus interest, and more than $6.5million was distributed directly to the plaintiff classes. Eachclass member received the full amount which he or she was

overcharged, plus interest, through credits to current custom-ers accounts and refunds to former customers. Moreover, $3.3million was given to consumer organizations which providedindirect benefit to absent class members, and the Banks wererequired to pay all but $115,668 of the $2,130,118 awarded inattorneys fees for work in the trial court. The plaintiff classes

were required to pay only 1.28% of the fund for fees.These charges were imposed by the Banks in violation of

California law. It would be unsound as a matter of policy toallow these large corporations to enrich themselves by $10million through illegal conduct simply because each affectedcustomer was overcharged by $50 or less.

The Supreme Court has long recognized that without Rule23 claimants with small claims would be unable to obtain re-

lief. See Deposit Guaranty National Bank v. Roper, 445 U.S.326, 338 n. 9 (1980), quoted above. To the same effect is

Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985). Classactions . . . may permit the plaintiffs to pool claims which wouldbe uneconomical to litigate individually. For example, this law-suit involves claims averaging about $100 per plaintiff; most ofthe plaintiffs would have no realistic day in court if a classaction were not available. Id. at 809.

In addition, assuming that it is desirable for a court to weighthe potential costs of class action litigation against its poten-

tial benefits, it would be a mistake to focus solely on mone-tary relief recoverable as damages or restitution. Rather, manyconsumer class actions provide an additional social benefitdeterrence. Recovery of a significant aggregate sum from thedefendant will have a deterrent effect on resumption of thesame or similar wrongful practices in the future, both by thatdefendant and by other similarly-situated entities. This deter-rent effect is present regardless of the amount recovered by

individual class members. Moreover, injunctive relief can spe-cifically prohibit resumption of a wrongful activity.

The importance of the deterrence factor in consumer casesis evidenced by the frequency with which Congress and thestate legislatures have included fee-shifting provisions in con-sumer protection statutes. By including fee-shifting provi-sions, Congress and the state legislatures seek to encourageenforcement of these consumer laws through a system of pri-

vate attorneys general, even where the amount of damagesat stake would be too small to support litigation if the plaintiffhad to absorb the cost of attorneys fees . See, e.g., De Jesus v.

Banco Popular de Puerto Rico, 918 F.2d 232, 234 (1st Cir. 1990)(construing the Truth in Lending Act). This recognition of theimportance of enforcing consumer protection laws, even in

cases where the amount of damage to an individual consumeris small, is at least as applicable in the class action context asin the individual case context.

Indeed, the use of class actions to deter widespread con-sumer fraud is probably preferable to the only practical alter-native: punitive damage awards. If small compensation classactions are discouraged, the alternative will be to seek largepunitive damage awards on behalf of a few consumers who,

while litigating relatively small individual claims, can provewillful, wide-spread misconduct by the defendant. While bothalternatives result in the appropriate extraction of a large pay-ment from the defendant, class actions result in the distribu-tion of that payment to the victims of the practice, rather thanproviding a seeming windfall to the few consumers who pre-

vailed in their individual punitive damage claims.Finally, what may seem small to those of us fortunate

enough to be lawyers and judges may be significant to thoseconsumers whose annual incomes are at or below the povertylevel. The sum of $50.00 represents two percent of the totalannual poverty guideline allotment per family member underthe United States Department of Health and Human Services1995 poverty guidelines. For a low income consumer, that triv-ial $50.00 individual recovery has significant value, equiva-lent, as a percentage of income, to a $2,000 recovery by asingle person earning $100,000 a year.

While class actions, like any procedures, sometimes may beabused, protections against abuse already exist. Courts mayand do refuse to allow classes to be certified where the poten-

tial recovery to each consumer is nominal or where a distribu-tion would consume such substantial time and expense thatthe class members are unlikely to receive any appreciable ben-efit. See e.g., Buchet v. ITT Consumer Financial Corp., 845 F.Supp. 684 (D. Minn. 1994); Blue Chip Stamps v. Superior Court,18 Cal.3d 381, 386, 134 Cal. Rptr. 393, 556 P.2d 755 (1976);City of San Jose v. Superior Court, 12 Cal.3d 447, 459, 15 Cal.Rptr. 797, 525 P.2d 701 (1974). Further protections are foundin the requirements that courts must find any settlements to

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be fair and reasonable to the members of the class, F. R. CIV.P. 23(e), and that courts must approve amounts to be paid asattorneys fees.

C. NACA Guideline

The class action device is particularly appropriate in con-sumer cases where individual recoveries are small, but which,in the aggregate, involve millions of dollars in damages. This

is precisely the type of case which encourages compliance withthe law and results in substantial benefits to the litigants andthe court. Denial of class certification in such instances wouldresult in unjust advantage to the wrongdoer. Class actionsshould be deemed appropriate precisely because individualdamages are too small to warrant redress absent a class suit,so long as significant aggregate pecuniary and/or nonpecuni-ary benefits to the class are sought. This is particularly true incases with claims for which a legislative body has provided afee-shifting remedy to encourage private enforcement ac-tions.

2. Certificate Settlements

A. The Issues

There appears to be an increasing use of certificate settle-ments, offering relief to the class members in the form ofcertificates that are redeemable on future purchases from thedefendant. Questions have been raised about the propriety ofsuch settlements.

It is important to differentiate between certificate settle-ments, which are discussed herein, and other settlements thatdo not deliver dollars directly into the hands of the class mem-bers, which may well be appropriate. An example of the lattertype of settlement is one in which credits are issued to classmembers accounts with the defendant. When credits are madeto existing accounts, the effect is similar to delivering cash,

with increased efficiency.

By contrast, the General Motors (GM) sidesaddle pickuptruck case is a good example of the type of certificate settle-ment that should never have been proposed for court ap-proval. That class action sought to resolve the worst vehicle-fire safety hazard in history: exploding side-saddle gas tankson GM pickups that have killed 400 people and badly burnedmore than 2,000 more. The plaintiffs alleged that these trucksare flawed by a dangerous and latent design defectthe place-ment of the gas tanks outside the frame railthat increasesthe likelihood that their fuel tanks will rupture in side-impactcrashes, causing fuel-fed fires. The class action sought a recallof these GM trucks, with restitution and refunds to all classmembers, and an order directing GM to pay for the retrofit-ting of all GM pickups to correct the fuel tank defects.

However, in the settlement, class counsel abandoned therecall/retrofit remedy in favor of an approach that limitedclass members recovery to discount coupons to buy new GMtrucks. There was no provision requiring GM to recall or re-pair the trucks, or to reimburse owners who made the repairsthemselves, nor was there any provision requiring GM to warnconsumers about the hazards of the trucks, despite the de-mand for such relief in the complaint. In other words, nothing

in the settlement addressed the animating principle of thislawsuit: that these GM pickup trucks pose a seriousbut re-mediablesafety hazard.

The settlement was criticized and rejected by both federaland state courts. In re: General Motors Corp. Pick-up Truck

Fuel Tank Products Liability Litigation, 55 F.3d 768 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); Bloyed v. General MotorsCorp., 881 S.W.2d 422, (Tex. App.Texarkana 1994), affd,

General Motors Corp. v. Bloyed, 916 S.W.2d 949 (Tex. 1996).One of the main points of criticism was the inadequacy of thecertificates as the sole redress for the injured class members.

The GM case, and others, have served to demonstrate theproblems inherent in non-cash settlements. It is important tonote, however, that settlements that do not actually deliverdollars into the hands of the class may be entirely appropri-ate. For example, credits to existing accounts are usually ade-quate substitutes for mailing checks to each class member;indeed, crediting is more efficient than mailing and shouldserve as the basis for increasing the amount paid to each classmember. Similarly, if the amounts available to each class mem-ber are so small as to make delivery by checks economicallyunviable or if the class members are impossible to determine

with certainty, distribution of the class benefit through cy presawards is advisable, as discussed in Issue 6 below. The com-ments here are directed solely to certificate settlements thatonly offer class members the opportunity to purchase a prod-uct or service from the defendant in the future at a claimeddiscount from the regular price to the consumer.

B. Viewpoints

The potential problems with non-cash settlement of classmembers damages are many:

1 There is no principled reason why delivery of cash settle-ments cannot be achieved, aside from the fact that thedefendant prefers not to do so.

1 For most of the class, redemption may not be an option,because they are unwilling or unable to make a futurepurchase. Thus the class members are not equally compen-satedsome get more, others get less. This situation is atits most aggravated when the certificate requires pur-chase of a new car or other big ticket item.

1 Even where the coupon is for a small ticket item or isfreely transferable, the defendant may be able to use itsspecialized knowledge of the industry to recover the costof the coupon in the marketing of the relevant product.

1 Policy considerations disfavor rewarding the wrongdoingdefendant with new sales from the victims of its illegalpractices.

1 The actual value of certificates is uncertain, making valu-

ation of attorneys fees impossible on a percentage basis,especially where discounted prices are common.

1 Proponents of certificate settlements claim that use ofcertificates makes settlements easier because the defen-dant is more willing to settle for terms that will only meana discount from the retail price of the product or becausethe cost to the defendant is in the future, requiring theimmediate outlay of less money. Proponents stress thatthe particular facts involved in a proposed certificate set-tlement may justify it, pointing for example to In re Sears

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Automotive Center Consumer Litigation, (N.D. Cal. No. 92-2227 RHS). Here these proponents averred that the cer-tificates involved could be redeemed for any merchandisesold at Sears stores (not merely the services and merchan-dise at issue in the litigation) and that 99.6% of the certif-icates issued were redeemed.

C. NACA Guidelines

Certificate settlements have many disadvantages and shouldbe proposed by class counsel only in the rare case. For exam-ple, if (1) the primary goal of the litigation is injunctive andthe defendant agrees to an injunction, or the certificates aregood for the purchase of small ticket consumable items whichclass members are likely to purchase, or the certificates repre-sent true discounts that would not otherwise be available, (2)the certificates are freely transferable, and (3) there is a market-maker to insure a secondary transfer market, a certificate set-tlement might be appropriate. A few basic positions are clear:

1 Certificate-based settlements should never require identi-fiable class members to purchase major, large ticket items

from the defendant as the sole significant relief to theclass.1 Certificates should have some form of guaranteed cash

value. For example, the certificates could have a lessercash redemption value (either upon issuance or within areasonable period of time) that still gives the class mem-bers a benefit that is significant in relation to the actualdamages which would be provable at trial. As a less-preferable approach, the defendant could contract with amarket maker that would promise to purchase all avail-able certificates for a set price that is significant in rela-tion to the likely recovery at trial.

1 Certificate settlements should never be proposed to thecourt unless it is apparent that the defendant is providing

greater true value (i.e., not just the face value of the cer-tificates or their potential value) to class members thanwould be available from an all-cash settlement. There maybe legitimate tax or financial-accounting reasons why agreater recovery for class members can be had from anon-cash settlement. However, class counsel should in-quire about the defendants reasons for preferring a non-cash settlement. The beginning assumption should alwaysbe that the defendant prefers a non-cash to a cash settle-ment because it believes the true value to be less. Sincethe defendant will usually be in a superior position topredict the ultimate redemption rate and benefit to theclass, its preference for a non-cash settlement should be

viewed with skepticism.

1 A settlement involving certificates should require a mini-mum level of redemption by the class members within areasonable period of time. In the event actual redemptiondoes not meet this minimum level, the defendant shouldprovide alternative relief in the form of a common fund.This requirement protects against the use of a meaning-less certificate settlement that has little or no impact on adefendant, and little or no compensatory value to the plain-tiff class.

1 Class counsel and defendants should submit to the courtand all counsel of record detailed information about re-demption rates and coupon transfers during the entirelife of the coupon. By doing so, a public record will bemade of what works and what does not work in non-cashsettlement cases.

3. Settlements When Other Class Actions Are on File

A. The Issue

Settlement of a class action when other similar cases arepending requires consideration of a series of specific ques-tions. How should class counsel approach settlement whenother class actions, whether putative or certified, have beenfiled? How can reverse auctions be avoided? How shouldcounsel deal with differing geographic and/or substantive scopeof multiple class actions?

B. Viewpoints

This issue was the most complex of all issues considered.There is general agreement that class counsel should be sensi-tive to the potential for wiping out claims asserted in other

pending cases by settling a case, and should resist doing so.This problem is particularly apparent where the defendantssuggest expanding a settlement class beyond the class defini-tion contained in the complaint or in a prior order certifying aclass, or expanding the claims settled, but offer no increasedbenefit to the additional class members or for settlement ofthe additional claims. There is also concern about the filing ofnationwide class actions and agreeing to settlements which donot exclude from the class cases pending in certain states orlocales. In either instance, the interests of the classes will notbe well served by settlements which do not maximize benefitsto class members.

One particular area of concern exists when the multiplecases are pending in both state and federal courts and thus

cannot be consolidated under the federal multi-district litiga-tion rules. 28 U.S.C. 1407. Class counsel from Californiamight be concerned about becoming involved in a related casepending in a rural area of Texas or Louisiana, where they areunfamiliar with the rules and traditions of practice. The Man-ual for Complex Litigation addresses this issue, and proposesseveral procedural steps to increase coordination. These stepsinclude (1) joint conference calls among all judges (2) coordi-nation of discovery, and (3) joint appointment of experts. MAN-UAL FOR COMPLEX LITIGATION, THIRD 30.3, 31.14,& 31.3 (1995).

Another area of concern is the settlement of cases througha reverse auction by which defendants propose a cheap set-tlement and shop around among plaintiffs counsel until they

find a lawyer willing to settle on their terms. Although there isno empirical evidence that this problem exists, anecdotes abound,and the potential for collusion and abuse is obvious if a law-

yer agrees to a bad deal in order to secure fees.Commenters agreed that class counsel in overlapping ac-

tions should communicate with each other and work togetherto ensure that class members obtain the maximum settlementbenefit. The personal interests of particular class counsel inreceiving attorneys fees could discourage such cooperation attimes. One member proposed that courts should be encour-

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aged not to approve settlements in copy cat actions and toconsolidate actions whenever possible. However, experiencein the federal securities area suggests that use of a first tofile rule (whether used to determine who will be lead coun-sel or which should be favored for settlement approval) oftenproduces unsatisfactory results.

Cooperation among class counsel through a variety of meansincluding sharing discovery, conducting joint discovery, using

joint experts, coordinating document production, and coordi-nating scheduling of important motions, including motions forclass certification, can expedite the handling of cases and min-imize the cost to each counsel.

C. NACA Guidelines

Class counsel should attempt to learn of any pre-existing casesand to communicate with other plaintiffs counsel in such casesprior to or promptly after filing an overlapping case. Counselshould cooperate with each other to the maximum extent feasi-ble in the pre-trial stage by agreeing to conduct joint discovery,use joint experts, and coordinate document production; or at aminimum sharing discovery among counsel in similar cases; and,

where possible, by allocating responsibility for researching and

drafting important pleadings and coordinating scheduling of im-portant motions, including motions on the pleadings, for sum-mary judgment, and for class certification.

Counsel should be alert to the possibility that a defendant inmultiple cases may seek to conduct a reverse auction, in whichit negotiates separately with various plaintiffs counsel and at-tempts to strike a settlement most favorable to it. Bearing inmind the entitlement of class counsel to a fair fee given all thecircumstances, the interests of the class must remain paramount.

Counsel (1) should be reluctant to agree to expand the classdefinition at the settlement stage, (2) should refrain from agree-ing to unnecessarily-broad releases which wipe out claims as-serted in other pending cases, and (3) should be cautious aboutsettling anything beyond what is alleged in the complaint and

mindful of preserving the opt-out rights of class members.When a settlement has been reached, counsel should al-

ways notify class counsel and the court in other cases involv-ing the same defendant and the same or similar issues. Suchnotice should occur well before the fairness hearing, in suffi-cient time to permit those counsel the opportunity to appear.

After settlement, class counsel should also consider notify-ing persons and groups who have an interest in the proceed-ings that a tentative settlement has been reached and that apreliminary hearing will be scheduled to consider the fairnessand adequacy of the settlement. For example, Trial Lawyersfor Public Justice and Public Citizen would routinely be noti-fied of class action settlements, the National Association of

Attorneys General would receive notice of settlements involv-

ing motor vehicles which states purchase in large quantities,the American Association of Retired Persons would receivenotice of settlements involving schemes that adversely affectthe elderly such as telemarketing fraud and home equity scams,and NACA and the National Consumer Law Center wouldreceive notice of settlements in consumer class actions such aschallenges to deceptive home improvement financing schemesor overcharges by financial institutions. While such notifica-tion should not be an invariable rule, it should be the practiceusually followed.

4. Additional Compensation to Named Plaintiffs

A. The Issue

Is it appropriate to provide additional sums to named plain-tiffs, beyond what each class member receives, and, if so, whenand in what amounts?

B. Viewpoints

Earlier cases reflect a view that it is a conflict of interest fornamed plaintiffs to receive anything more than their propor-tionate share of damages in amounts which are equal to thosereceived by absent class members. The theory was that namedplaintiffs, like class counsel, are fiduciaries to the class, soevery dollar they receive is taken from class members.

Recently, some decisions have recognized that modest in-centive awards to named plaintiffs, in the range of $2,0003,000,are generally desirable in order to compensate people for theirefforts in achieving the results obtained and thereby encour-age them to serve as class plaintiffs. GMAC Mortg. Corp. of Pa.

v. Stapleton, 603 N.E.2d 767, 776 (Ill. App. 1 Dist. 1992); In reGNC Shareholder Litigation: All Actions, 668 F.Supp. 450, 451(W.D. Pa. 1987); Troncelliti v. Minolta Corp., 666 F.Supp. 750,

752 (D.Md. 1987); In re Jackson Lockdown/MCO Cases, 107F.R.D. 703, 709710 (E.D. Mich. 1985).

Payments of even larger sums may be appropriate and nec-essary to compensate class representatives for the time theyspend on the litigation. It is sometimes the case that namedplaintiffs are subjected to embarrassment and harassment bydefense counsel, and are required to submit to multiple daysof depositions or to turn over their financial records for re-

view. Named plaintiffs also may contribute to the litigation byreviewing records, reviewing and commenting on pleadings,responding to written discovery, giving assistance or advice tocounsel and testifying at depositions and trial. It is appropri-ate that they receive additional payments to reimburse themfor expenses they incur and time they spend in participating

in the litigation. See, e.g., Bryan v. Pittsburgh Plate Glass Co., 59F.R.D. 616, 617 (W.D. Pa., 1973), affd, 494 F.2d 799 (3rd Cir.1974), cert. denied., 419 U.S. 900 (1974), reh. den., 420 U.S. 313(1975) (approving special awards to those members of theplaintiff class who were most active in the prosecution of thecase and who devoted substantial time and expense on behalfof the class); Thornton v. East Texas Motor Freight, 497 F.2d416, 420 (6th Cir. 1974) (approving granting earlier seniority tothose class members who had protested and helped to end dis-criminatory employment policy); Harris v. Pernsley, 654 F. Supp.1042, 10521053 (E.D. Pa. 1987) (approving damage award tonamed plaintiff based on meritorious conduct); Genden v. Merrill

Lynch, Pierce, Fenner & Smith, 700 F. Supp 208, 210 (S.D.N.Y.1988) (approving award of $20,085 to one named plaintiff who,

as an attorney, rendered consultative services to class counsel).

C. NACA Guideline

Awards to named plaintiffs are appropriate compensationfor the time and expense they incur in serving as class repre-sentatives. The consumers who fight on behalf of an entireclass should be reasonably compensated for their efforts whenthose efforts are successful. For anything more than modestsums in the range of $2,0003,000, the amounts of such awardsshould be based on the amount of time and money expended

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in connection with prosecuting the case, or other special cir-cumstances.

5. Class Member Releases

A. The Issues

When is it appropriate to release class claims without individual class member signatures? May the scope of releases

exceed the scope of the claims certified by the Court?B. Viewpoints

In agreeing to settle a class action, the defendant understand-ably wishes to obtain protection against later suits by classmembers for the same alleged wrongs that are being settledthrough the class actions. Ordinary principles of res judicataand collateral estoppel apply in the class action context to barsubsequent re-litigation of claims, so long as there was ade-quate representation of the class in the earlier case. Matsush-ita Electric Industrial Co., Ltd. v. Epstein, 516 U.S. 367, 116 S.Ct. 873, 134 L.Ed 2d 6 (1996). Nevertheless, as in individualcases, defendants generally insist upon the inclusion of re-leases within a negotiated settlement document. In some cases,

defendants may also seek individual releases from class mem-bers, either as part of the language contained in claim formsor as an endorsement on settlement distribution checks. Theredoes not appear to be any benefit from releases which do notexceed the scope of the res judicata bar, but neither doesthere appear to be any harm.

Prior to Matsushita, there was some uncertainty whetherclass-wide releases which were broader than the scope of thepleadings and/or certified claims were binding upon individ-ual class members in subsequent litigation. As a noted com-mentator states: A class action settlement agreement cannotrelease the claims of absent class members. Only absent classmembers can release their own claims. Newberg 12.17, at12-52 (3d ed. 1992). However, Newberg subsequently notes

that an alternative to individual releases is the inclusion of aconstructive release clause in the settlement agreement tothe effect that acceptance of settlement benefits releases what-ever claims are described in the settlement agreement. Id. at12-5212-56.

The Supreme Courts recent decision in Matsushita, supra,clearly holds that res judicata bars re-litigation of non-certified claims (and even claims not contained in the plead-ings) which are released on a class-wide basis, so long as thereis adequate representation and an opportunity to opt out.Court approval of a proposed settlement should include adetermination that plaintiffs and class counsel adequately rep-resent the class on all of the settled issues, even if certificationof some of the issues was previously denied.

It was the unanimous view of those who submitted com-ments that individual releases are unnecessary and unproduc-tive if the scope of the class-wide release is limited to thoseclaims certified by the court for class treatment. There wasalso consensus that class counsel should be cautious in discuss-ing settlement of claims beyond the scope of a prior classcertification order (or, if no order has yet been entered, be-

yond the scope of the pleadings). Several comments suggestedthat counsel should seek additional settlement compensationif settlement of such claims is agreed to.

The opportunity to opt out of a proposed settlement is par-ticularly important if claims are being settled which have notbeen previously certified by the Court. It is common practiceto offer class members only one opportunity to opt out of aclass action. When there is a contested class certification mo-tion, that opportunity usually comes immediately after certifi-cation. A subsequently-proposed settlement requires noticeof the settlement terms and an opportunity to object, but usu-

ally not a second opportunity to opt out. If claims are beingsettled which were not described in the initial class notice,serious fairness issues are raised by the lack of a second opt-out opportunity.

In addition, there are very serious, and probably fatal, ob-jections to any settlement that purports to release potentialfuture claims of persons who have not suffered any damage atthe time of settlement. Settlements of this nature are rare, oreven unknown, in consumer cases. Therefore, this paper willnot discuss in depth the many issues relating to these settle-ments. However, we note that even if it were possible to notifysuch future-damaged class members, it is impossible to pro-

vide any meaningful notice and opportunity to opt out, sincethey have not been injured and thus cannot assess what the

proposed settlement means to them. The Supreme Court ad-dressed future-damage issues this past Term in Amchem Prod-ucts, Inc. v. Windsor, 521 U.S. , 117 S. Ct. 2231, 138 L.Ed.689 (1997). In that case, the Court found that including future-damaged persons in the class defeated the predominance re-quirement of Rule 23(b)(3) and also made it impossible forthe named class members (who were not future-damaged) torepresent the interests of the absent future-damaged class mem-bers, as required by Rule 23(b)(4). 117 S. Ct. at 225051, 138L.Ed. at 713714. In addition, the Court noted that there

were significant problems of adequate notice to a class thatincluded persons who were not then aware of their damages.117 S. Ct. at 2252, 138 L.Ed. at 716.

C. NACA GuidelinesClass counsel should proceed cautiously in discussing settle-

ment of claims other than those alleged in the pleadings andcertified by the court. However, since the doctrines of res

judicata and collateral estoppel will preclude subsequent liti-gation based on alternative legal theories arising out of thesame set of facts, it is often reasonable to release any suchalternative claims which could have been asserted, even if notcontained in the pleadings or specifically certified. Except inunusual circumstances, counsel should not agree to any settle-ment which releases non-certified claims unless class mem-bers will be given a subsequent opportunity to exclude them-selves from the settlement.

If a defendant seeks a release of claims arising from factual

circumstances not alleged in the complaint, or as to whichcertification has been sought but not granted, class counselshould seek additional compensation to the class for such re-leases. If possible, negotiation of the certified claims shouldprecede negotiations as to non-certified ones. Adequacy ofrepresentation as to non-certified claims should be addressedin the briefs supporting a proposed settlement.

A general release may be appropriate for the named classrepresentatives. However, absent class members should notbe required to release independent individual claims or claims

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as yet unknown in order to receive settlement benefits. Specif-ically, if the class settlement only provides injunctive benefitsthat do not result in restitution or other monetary paymentsto individual class members, the release should provide thatindividual damages claims are not being released.

6. Cy Pres Awards

A. The Issue

It is typically the case that not all class members can belocated to receive their pro rata share of a damage award, andquestions arise concerning what happens to the undistributedresidue. They include: Are there circumstances under whichthe residue should revert to the defendant? Under what cir-cumstances is a cy pres distribution of all or part of the settle-ment fund appropriate? What is class counsels role in recom-mending recipients of such awards?

B. Viewpoints

Respondents unanimously agreed that cy pres remedies areappropriate to ensure that undistributed residues are used toprovide indirect benefit to absent members of the plaintiff

class or to further the purposes of the statutes which formedthe basis for the underlying litigation. This view is supportedby the case law. Bebchick v. Public Utilities Commission (D.C.Cir.) (en banc), cert. denied, 373 U.S. 913 (1963) approved useof the funds collected in an invalid fare increase for the bene-fit of those who paid it, that is, those who use that transitsystem. A fund was created in this non-class case to be usedby the Commission to benefit transit users in any pending orfuture rate proceedings or to cover costs which might other-

wise lead to an increase in fares, or aid in determining whetherfares should be reduced.

Several other circuits have approved the use ofcy pres rem-edies. An early antibiotic antitrust class action settlement in-cluded the creation of a trust fund from which indirect benefit

could be conferred upon consumers as a whole, and the settle-ment was approved, with the details of the cy pres remedy leftto be resolved at later hearings. State of West Virginia v. Chas

Pfizer Co., 314 F. Supp. 710, 728 (SDNY 1970), affd, 440 F.2d1079, 1083 (2d Cir. 1971). The Seventh Circuit has adopted anapproach requiring a case-by-case analysis of whether the useof a cy pres remedy is consistent with the policy reflected bythe statute violated and whether the statute embodies policiesof deterrence, disgorgement, or compensation. Simer v. Rios,661 F.2d 655, 676 (7th Cir. 1981), cert denied, 456 U.S. 917(1982) (finding an award inappropriate because it would notserve the goals of deterrence or disgorgement on the particu-lar facts of that case).

In Nelson v. Greater Gadsden Housing Authority, 802 F.2d

405, 409 (11th Cir. 1986), the court held that compensatorydamages which were not claimed by class member public hous-ing tenants were to be used by the housing authority to in-crease the energy efficiency of the apartment units or to im-prove the appliances supplied by defendant. In Six MexicanWorkers v. Arizona Citrus Growers, 904 F.2d 1301, 1307 (9thCir. 1990), the Ninth Circuit noted that the Eleventh Circuitsdecision expressly approved the use of fluid recovery to dis-tribute unclaimed class action funds and expressed its agree-ment, holding that the district court properly considered cy

pres distribution of unclaimed funds, although it found thespecific use which had been approved inappropriate. The courtreversed and remanded to the trial court to determine whatremedy would best effectuate the goals of the underlying stat-ute and the interests of the absent class members. Id. at 1309.

Similarly, the Second Circuit in In Re Agent Orange ProductLiability Litigation, 818 F.2d 179, 185 (2d Cir. 1987), concludedthat a district court may set aside a portion of settlement

proceeds for programs designed to assist the class in order tomaximize the beneficial impact of the settlement fund on theneeds of the class. The Court distinguished its earlier decisionin Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973)(Eisen III), vacated and remanded on other grounds, 417 U.S.156 (1974) which reversed a trial court order allowing fluidrecovery through a price reduction. The court explained thatthe fluid recovery at issue in Eisen III would have allowedplaintiffs to satisfy the manageability requirements of Rule 23

where they otherwise could not and would result in a greatlyincreased number of doubtful but astronomical class claims inthe federal courts. That concern was not present in AgentOrange, which was maintainable as a class action regardless ofthe form of recovery available to the plaintiff class. In Re

Agent Orange Product Liability Litigation, supra, at 185.Other courts approving cy pres remedies also have distin-

guished Eisen on the basis that the fluid recovery sought inthat case would have eliminated statutorily required individ-ual proof of damages and circumvented class action manage-ability requirements. Nelson v. Greater Gadsden Housing Au-thority, supra, at 409; Six Mexican Workers v. Arizona CitrusGrowers, supra, at 1307. Those issues are very different fromthe question of cy pres distribution of unclaimed funds, anissue which does not subject defendants to greater liability oralter their substantive rights. Id. In addition, Newberg criti-cizes the Eisen IIIrationale as defective and inconsistent withthe historic purposes of class action remedies and concludesthat cy pres distributions have long been recognized as appro-

priate exercises of the courts general equitable powers underappropriate circumstances. Newberg, 10.22 at 10-57.

State courts have also approved cy pres remedies in a num-ber of unreported decisions in California and Georgia. See,

e.g., Vasquez v. Avco Financial Services of Southern California,Los Angeles Superior Court Case No. NCC-11833B; Beasley v.Wells Fargo Bank, San Francisco Superior Court Case No. 861555,and a related case, Kovitz v. Crocker National Bank, San Fran-cisco Superior Court Case No. 868914; McClendon v. Security

Pacific National Bank, Alameda County Superior Court CaseNo. 613722-5; Patterson v. ITT Consumer Financial Corpora-tion, San Francisco Superior Court Case No. 936818; In Re:

Domestic Air Transportation Antitrust Litigation, No. 1-90 C2485 MHOS & MAL No. 861 (consolidated Nov. 2, 1990); and

Starr v. Fleet Finance, Inc., et al. Cobb County Georgia Supe-rior Court Civil Action No. 9210-2314-06.

The propriety of fluid recovery, including creation of a con-sumer trust fund, was recognized by the California SupremeCourt in State of California v. Levi Strauss, 41 Cal.3d 460 (1986).Following the general principles that wrongdoing must be de-terred and that deterrence requires disgorgement of ill-gottengains, the court approved cy pres distribution of the portion ofa damage fund which could not be distributed to the consum-ers who had been overcharged.


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no computerized records which would enable them to gener-ate a list of class members names and addresses, or whereindividual damages are too small to warrant the issuance, pro-cessing, and cashing of checks.

Class counsel should recommend cy pres remedies whichwill provide indirect benefit to absent members of the class orwhich will further the purposes of the underlying litigation.They should also recommend mechanisms which will provide

for monitoring by class counsel, and, ultimately, judicial over-sight of the expenditure of the funds.

7. Attorneys Fee Considerations

A. The Issue

The issue of attorneys fees is extremely important in classactions today, both because it serves as a rallying point forcriticism of class actions and because the criticisms of exces-sive fees are in some instances well grounded. This is also adifficult and complicated issue since fee awards may be madeon three different bases: statutory fee shifting, in which defen-dant pays the fee; common fund, in which the class memberspay the fee from their recovery; and common benefit, in which

the defendant pays the fee. There is no one problem and noone cure.The prime focus of criticism is the size of the fees. In many

instances, this problem is more apparent than real. For example,when the individual recovery is $50.00 per consumer, an attor-neys fee of $2 million seems excessive at first glance. However, ifthe dollars actually recovered by the individual class members insuch a case were $15 million, then fees are less than 14% of thetotal recovery achieved for the class. This makes the fee reason-able with respect to the total actual recovery.

However, the cases that receive the most criticism are thosewhere the class does not obtain cash recovery that is severaltimes the fees received by the attorneys. The strongest criti-cism is directed at cases in which the actual cash received by

the class is minimal, if any, and the only other benefits re-ceived by the individual members are certificates, of question-able value. The GM Pickup Truck cases, In re: General MotorsCorp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55F.3d 768 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); Bloyed v.General Motors Corp., supra, and the Bronco II case, In re:

Ford Bronco II Products Liability litigation, 1995 U.S. DIST.LEXIS 3507 (E.D. La. 1995) (rejecting settlement of a classaction challenging dangerous vehicles that provided relief tothe class in the form of a flashlight and safety video but nodamages) are well known examples of this problem, but it hadits roots in cases such as the airline antitrust settlement, whichalso provided certificates to consumers and millions of dollarsin attorneys fees to the class lawyers.

B. Viewpoints

There are a variety of proposed solutions, none of whichwould take care of the problem entirely. One viewpoint holdsthat class counsel should be paid only by hourly lodestar rates,enhanced by multipliers when appropriate, and that percent-age calculation of fees is not appropriate. The leading lode-star calculation cases, which primarily consider time spent,hourly rates, the work done, and the results obtained, are:

Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th

Cir. 1974); City of Detroit v. Grinnell Corp., 495 F.2d 448 (2dCir. 1975); Lindy Bros. Builders, Inc. v. American Radiator &Standard Sanitary Corp., 487 F.2d 161 (3d Cir. 1973), on re-mand, 383 F. Supp. 999 (E.D. Pa. 1974), revd on other grounds,540 F.2d 102 (3d Cir. 1976) (en banc). Because the availabilityof multipliers of the lodestar fee is uncertain, prohibiting per-centage fees could make some class actions impossible to bring,if the resources needed to commit to the litigation were so

sizable that the only way a law firm could economically justifytaking on the case, and running the risk of recovering nothing,

would be the potential of a large percentage recovery. In addi-tion, some commentators have suggested that basing a fee onan hourly rate could lead some class counsel to perform un-necessary work (churning).

The opposite end of the spectrum from this viewpoint holdsthat a percentage recovery in the 2030% range is entirelyappropriate and should be left to court approval. Percentagefees have been held appropriate in common fund cases: Boe-ing Co. v. Van Gemert, 444 U.S. 472, 47879 (1980); In re Activi-

sion Securities Litigation, 723 F. Supp. 1373 (N.D. Cal. 1989);Paul, Johnson, Alston & Hunt v. Graulty, 886 F.2d 268 (9th Cir.1989); and have been required in cases not involving a fee

shifting statute in Swedish Hospital Corp. v. Shalala, 1 F.3d1261 (D.C. Cir. 1993) and Camden I Condominium Association

v. Dunkle, 946 F.2d 768 (11th Cir. 1991). However, some com-menters urge that this approach could in class counsel beingunduly compensated for insufficient time and effort.

Others feel that a blended approach is bestevaluatingboth percentage and lodestar fees, to determine a reasonablefee for the particular case. Under this approach judges wouldmake a lodestar calculation based on the hours spent andhourly rates and compare that figure with the percentage awardsmade in similar cases. See, Strang v. JHM Mortgage Sec. Ltd.

Partnership, 890 F. Supp. 499, 50203 (E.D. Va. 1995) (compar-ing the lodestar and percentage of common fund calculationsto conclude that 25% rather than 30% of the fund was a

reasonable fee).Still others urge that different bases for fee awards raise

different issues and require different solutions. A complicat-ing factor is that it is not always clear whether a case is acommon fund, a fee-shifting, or a common benefit case. If theentire case is based on statutes that provide for fee-shifting(and most consumer class actions are primarily based on fee-shifting statutes), some commenters felt that it would be inap-propriate for class counsel to seek fees based on a percentageof the amount awarded the class. This view finds support incase law holding that the lodestar calculation is required infee shifting cases: City of Burlington v. Dague, 505 U.S. 557,562 (1992); Blum v. Stenson, 465 U.S. 886, 895 (1984). Thesecommenters found it even more objectionable if class counsel

sought to obtain percentage fees out of the amounts awardedthe class, rather than insisting that the defendant pay the feesover and above all amounts given the class. These comment-ers felt that this problem was particularly acute in instances

where fees are assessed against members of the class who didnot actually receive any monetary benefit. This situation canarise when class members recoveries are credited to theiraccounts with the defendant but not every class member re-ceives a credit.


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These alternative bases for awarding fees are not necessar-ily in conflict: fees could be recovered from the defendantunder a fee shifting statute or other theory and paid into thecommon fund, with class counsel receiving a percentage ofthe total recovery. This approach finds support in Skelton v.General Motors Corp., 860 F.2d 250 (7th Cir. 1988), which in-

volved the settlement of statutory fee shifting claims. The courtnoted that a settlement merges all claims, including the cli-

ents statutory fee shifting claim, into one common fund thatbelongs to the class clients, and ordered fees to be calculatedunder common fund principles This view is also consistent

with case law noting that the amount which an opposing partycan be required to pay as a reasonable fee may be substan-tially less than a reasonable fee owed by the client (or class ofclients). Venegas v. Mitchell, 495 U.S. 82 (1990).

Whatever the method of calculating fees there is no ques-tion that any contingent fee award must take into account thedifficulty, complexity, and the risk of the case, the relief ob-tained for the class, as well as the fact that some cases willresult in no fee at all. Therefore, it is entirely appropriate inmost class action cases to award fees that are in excess of afee calculated solely on an hourly basis without any multiplier.

When a fee is to be calculated on a percentage basis, thereis no fixed percentage that is appropriate to all cases. A fee of10% on a class recovery of $100 million might be excessivedepending on the circumstances. On the other hand, a 40%fee award would be insufficient in a case where the primaryrelief sought is injunctive and the payment to the class mini-mal, but where thousands of hours of attorneys time wasrequired and the extent of the injunctive relief justified it.

Some commenters argue that there is an inherent problemwith negotiating fees with opposing counsel, even when coun-sel have first agreed on relief to the class. Since the Court hasan independent duty to examine the fees, these commentersfeel, prior agreement does little but create the appearance ofcollusion between class counsel and the defendant. Others

contend that settlement often would be impossible to achieveunless the defendants understand the extent of their total ex-posure, and urge that it is preferable to obtain relief promptlyfor class members and that there is no reason not to reachagreement on fees so long as negotiation of fees follows theobtaining of an agreement to relief for the class on the merits.

C. NACA Guidelines

Reasonable attorneys fees must be awarded in consumerclass actions because fees are the incentive for lawyers to en-gage in private enforcement of the law, but excessive and un-reasonable amounts should not be sought or awarded. Be-cause the issue of reasonable attorneys fees is one that willbe determined by the merits of the lawsuit and the nature of

the settlement, there is no one possible remedy for the abusesthat exist. However, a variety of partial solutions will be bene-ficial.

1 Time to discuss fees. Because the Supreme Court hasrecognized that in a fee-shifting case the defendant hasan economic interest in resolving the fee issues in a settle-ment negotiation along with all other statutory claims [seeWhite v. New Hampshire, 455 U.S. 445, 452 n.14 (1982)],class counsel should avoid any conflicts of interest that

may increase the danger of an improper quid pro quo det-rimental to the class. For example, if a defendant offers a$5 million lump sum settlement, with $4 million for theclass and $1 million to counsel, it would be improper toaccept this offer contingent upon $3 million being madeavailable to the class and $2 million available to counsel.It would be appropriate, however, to state that the $4 mil-lion for the class is acceptable as long as counsels com-

pensation is increased. One alternative is to obtain thedefendants binding agreement to all class relief and thento submit the fees issue to the court for determination. Instatutory fee-type cases, an acceptable alternative is toobtain the defendants agreement on class relief contin-gent on successfully negotiating an agreement on fees. Itis also acceptable to negotiate fees after all relief hasbeen agreed on for the class, and then submit the entireagreement as a whole to both the court and the class forreview and approval. In common fund cases, there is noneed to discuss fees with the defendant since the classclients, not the defendant, pay the fee from the fund that

was created by their counsel, subject to court approval.1 Percentage Benchmarks for most Common Fund Cases.

For the vast majority of common fund cases, courts andcounsel should examine the reasonableness of the feesrequested by the percentage benchmarks that have beenrecognized in similar cases. See, e.g., Camden I Condomin-ium Assn v. Dunkle, 946 F.2d 768 (11th Cir. 1991); Paul,

Johnson, Alston & Hunt v. Graulty, 886 F.2d 268, 272 (9thCir. 1989 ); Brown v. Phillips Petroleum Co., 838 F.2d 451,454 (10th Cir.), cert. denied, 488 U.S. 822 (1988); Swedish

Hosp. Corp. v. Shalala, 1 F.3d 1261, 1272 (D.C. Cir. 1994);Bebchick v. Washington Metro Area Transit, 805 F.2d 396,406407 (D.C. Cir. 1986); see also In re General MotorsCorp. Pick-up Truck Fuel Tank Prods. Liab. Litig., 55 F.3d768, 82021 (3d Cir.), cert. denied, 116 S. Ct. 88 (1995); In

re Continental Illinois Secs. Litig., 962 F.2d 566, 572 (7th

Cir. 1992). In the absence of special circumstances, includ-ing either an unusually large monetary recovery or a rela-tively small monetary recovery coupled with very benefi-cial but difficult to value equitable relief, the courts haverecognized percentage benchmarks ranging from 19 per-cent to 45 percent of the common fund . See, e.g., In reGreenwich Pharmaceutical Sec. Litig., [1995] Fed. Sec. L.Rep (CCH) k 98,774, p. 92,523 (E.D. Pa. Apr. 26, 1995);

In re SmithKline Beckman Corp. Secs. Litig., 751 F. Supp.525, 533 (E.D. Pa. 1990); In re Unysis Corp. Retiree Med.

Benefits ERISA Litig., 886 F. Supp. 445, 467 (E.D. Pa. 1995);Mashburn v. National Medical Healthcare, Inc., 684 F. Supp.679, 692 (M.D. Ala. 1988); In re Activision Secs. Litig., 723F. Supp. 1373, 137478 (N.D. Cal. 1989). As one court has

observed, [w]hen the prevailing method of compensat-ing lawyers for similar services is the contingent fee, thenthe contingent fee is the market rate. Kirchoff v. Flynn,786 F.2d 320, 324 (7th Cir. 1986).

In the few (often highly publicized) cases in which themonetary relief, however valued or estimated, exceeds $30million, reasonable fees will nearly always, though not nec-essarily, represent smaller than the benchmark percent-ages. In such cases, courts have encouraged use of a lode-star analysis to cross-check the reasonableness of fees in

NACA Consumer Class Action Guidelines Appx. B-7C

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