Class Action 'Ascertainability' In New Jersey

We have blogged about the increasing disfavor with which federal courts regard cy près awards in class action settlements. Cy près awards, and the related "fluid recovery," are structures in which some class members receive no actual award, but are deemed to have benefited indirectly. For example, in consumer class actions with low individual value the device may be used to distribute any remainder of a common fund that is left unclaimed by the class. How it usually works is, after awards are made to the class, a donation is made to a third party charity or some group that is identified as similarly situated to the class members.

There may be many reasons why cy près or "fluid recovery" is proposed in any given class action. In some class actions, individual distributions might be so small that mailing them out make no economic sense. In others, an individual award viable, but if the parties do not have good address information, some or all individual class members must make a claim before they can receive anything. In cases involving such a claims process, it is almost certain that only a relatively small percentage of the class will file a claim. Counsel on both sides know this from experience. One side has an interest in basing a fee award on the total projected liability (or the total amount of a settlement fund) regardless of how many class members actually make claims. The other side - beyond the obvious incentive to limit the total amount paid - might seek to benefit from the positive public relations value in a cy près award to charity, and, at the same time, bind the largest possible number of persons to the judgment. Federal courts have criticized class action resolutions that provide funds to non-class-members unconnected to the plaintiff class, especially when fee awards to counsel are based on funds that the class does not receive. It has also been observed that the cy près mechanism can test the virtue of class counsel, because it tempts counsel to bargain away potentially greater direct benefit to class members. The cases generally hold that binding a class member who receives no award to a judgment is acceptable, as long as that person had notice and an opportunity to opt out of the class action and preserve his or her claim. Recently, federal courts have asked whether it is fair to the defendant to certify a class when membership cannot be ascertained except perhaps by an individual's "say so."

Carrera

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