We recently reported on a class settlement in which no members of the class submitted claims.  The plaintiffs in that case contended that the defendant violated the Electronic Funds Transfer Act (EFTA) by failing to post a notice on its ATMs that consumers would be charged a fee for using the machines.

More recently, in another case involving the same kind of alleged violation, Ballard v. Branch Banking & Trust Co. (pdf), Judge Ellen Huvelle of the U.S. District Court for the District of Columbia refused to certify a class, concluding that, under the circumstances, a class action failed Rule 23(b)(3)’s superiority requirement.

It’s pretty clear that Judge Huvelle saw Ballard as a lawyer-driven class action.  She pointed out in the statement of facts that the named plaintiff was not a true victim.  Instead, he was sent to the ATM in question by his lawyer, who had informed him that the ATM lacked the requisite notice on the face of the machine, and he made a withdrawal after receiving actual notice of the fee on the display screen, in order to “collect evidence.”  Perhaps influenced by the fact that the plaintiff suffered no true injury, Judge Huvelle held that a class action is not a superior means of resolving the dispute, explaining: “[I]t is undisputed that each of the prospective class members proceeded with the transaction despite having received the required notice on the screen and that the potential class recovery will be de minimis, especially in comparison to the petition for fees and costs that will ultimately be filed after lengthy and costly litigation.”  Indeed, she reasoned, “the likelihood of de minimis damages [if the case is pursued as a class action] may make it preferable for consumers to litigate their claims as individual actions, for which the minimum recovery is $100.”

Congress has taken note of the growing cottage industry of EFTA lawsuits against banks challenging the lack of a physical notice of fees on ATMs when the ATMs provide on-screen notices.   On July 9, 2012, the House passed H.R. 4367 (pdf), which would require banks to make fee disclosures required by EFTA on the ATM screen alone.  The bill is now pending in the Senate, where it has attracted a growing number of co-sponsors.  The House committee report (pdf) provides useful background about the abuses of EFTA–some truly egregious–that are motivating the legislation.

Should a class action go forward when the company voluntarily has provided all the relief plaintiffs have sought?  At least in some circumstances, the answer is “no,” according to the Tenth Circuit.

Here’s some background.   Many product manufacturers—and especially auto makers—are targeted by the class action bar when they announce voluntary recalls.  The lawsuits typically allege (among other things) that the manufacturer had fraudulently concealed the defect, and seek an injunction ordering the manufacturer to repair the defect.  In other words, these suits seek precisely the same relief that the manufacturer is already providing.  Sometimes the plaintiffs tack on requests for damages, even though practically—or literally—none of the members of the putative class have experienced any injury or harm, because the manufacturer announced the recall even though the defect has manifested only a handful of times.  Thus, these lawsuits often represent little more than attempted shakedowns by plaintiffs’ lawyers, who hope to capitalize on a manufacturer’s perceived vulnerability and thereby get a quick settlement for attorneys’ fees.  The consumers in whose names the suits are brought, however, get nothing at all, because the recall already has given them all of the relief for which they might have a legitimate claim.

Manufacturers who face these lawsuits often seek dismissal on the ground that the recall renders the claims moot.  Winzler v. Toyota Motor Sales USA, Inc. (pdf), 681 F.3d 1208 (10th Cir. 2012), is a perfect illustration of a successful invocation of the mootness argument.  In that case, the district court dismissed a lawsuit alleging a defect in certain Toyota vehicles for failure to state a claim.  During the pendency of the plaintiff’s appeal, Toyota announced a voluntary recall of certain Toyota vehicles.  The Tenth Circuit therefore affirmed the dismissal on the alternative ground that the lawsuit was now moot—a doctrine that the court said “describes a situation where events in the world have so overtaken a lawsuit that deciding it involves more energy than effect, a waste of effort on questions now more pedantic than practical.”  Id. at 1209.

The court explained that “promises of reform or remedy aren’t often sufficient to render a case moot as a constitutional matter,” because of the “risk” that “as soon the court turns its back, the defendant might renounce his promise and ‘return to his old ways.’”  Id. at 1210 (citation omitted).  But the court added that that risk “isn’t necessarily enough to avoid the application of prudential mootness doctrine. That’s because any party invoking the equitable remedial powers of the federal courts must still ‘satisfy the court that [requested] relief is needed,’ and when it comes to assessing that question, a remedial promise always qualifies as ‘one of the factors to be considered.’”  Id. at 1210-11 (citations omitted).  The court then held that the plaintiff in that case couldn’t meet the burden of avoiding mootness because, by beginning the recall process, Toyota had undertaken the obligation to inform all affected owners and to conduct the recall under the supervision of NHTSA.  Id. at 1212.

Businesses should remain alert for possible challenges to class actions that seek superfluous relief on mootness grounds.  Alternatively, businesses could argue that such class actions flunk either Rule 23(b)(3)’s requirement that a class action be “superior” to other methods of resolving the dispute or Rule 23(a)(4)’s requirement that the class representative be adequate to protect the interests of the class.  Other courts—such as the Seventh Circuit—have recognized that a plaintiff bringing a class action that would simply duplicate—at much expense—relief already available to the class cannot satisfy Rule 23(a)(4)’s “adequacy of representation” requirement.  See, e.g., In re Aqua Dots Prod. Liab. Litig. (pdf), 654 F.3d 748 (7th Cir. 2011).