David Hughes, individually and on behalf of all others similarly situated v. Kore of Indiana Enterprise , Inc.

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 13‐8018
D AVID HUGHES, individually and on behalf of all others
similarly situated,
Plaintiff‐Petitioner,
v.
KORE OF INDIANA ENTERPRISE , INC., et al.,
Defendants‐Respondents.
____________________
Petition for Leave to Appeal from the
United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:11‐cv‐01329‐JMS‐MJD — Jane E. Magnus‐Stinson, Judge.
____________________
SUBMITTED A UGUST 8, 2013 — D ECIDED SEPTEMBER 10, 2013
____________________
Before P OSNER , MANION, and W OOD, Circuit Judges.
P OSNER , Circuit Judge. The plaintiff in this class action suit
seeks leave to appeal from the district judge’s decertification
of the class. Fed. R. Civ. P. 23(f). We have decided to allow
the appeal in order to further the development of class ac‐
tion law (Blair v. Equifax Check Services, Inc., 181 F.3d 832, 835
(7th Cir. 1999)) regarding issues of notice in cases in which

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2 No. 13‐8018
the potential damages per class member are very slight, and
the suitability of class action treatment of such cases. The
plaintiff has filed a brief in support of its motion for leave to
appeal. The defendants have chosen to file nothing, so we
can proceed to the merits. The defendants did not oppose
class certification in the district court. Does that mean they
favor it? Maybe, if they think that otherwise they might face
multiple suits, though as we’ll see this is extremely unlikely.
The defendants, affiliated companies that we’ll treat as
one and call Kore, owned ATMs in two bars in Indianapolis
said to be popular with college students. The suit charges
Kore with failing to post a notice on the ATMs that Kore
charges a fee for their use. Such an omission violates, or ra‐
ther violated, a provision of the Electronic Funds Transfer
Act, 15 U.S.C. § 1693b(d)(3); see also Regulation E, 12 C.F.R.
§ 205.16(c), and so exposed Kore to liability to users of its
ATMs. At the time of the alleged violations, the Act required
two fee notices: a sticker notice on the ATM and an on‐
screen notification during transactions. Kore provided the
latter notice but not, the suit alleges, the former. The Act has
since been amended to remove the requirement of the sticker
notice. Act of Dec. 20, 2012, Pub. L. No. 112–216, 126 Stat.
1590; Charvat v. Mutual First Federal Credit Union, 2013 WL
3958300, at *1 (8th Cir. Aug. 2, 2013).
A plaintiff in an individual suit who proves a violation of
the Act is entitled to his actual damages, if any, or to statuto‐
ry damages of at least $100 but not more than $1000. 15
U.S.C. §§ 1693m(a)(1), (a)(2)(A). If a class action is filed in‐
stead, and is successful, the class is entitled to “such amount
[of damages] as the court may allow,” but only up to the
lesser of $500,000 or 1 percent of the defendant’s net worth.

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No. 13‐8018 3
§ 1693m(a)(2)(B)(ii). No minimum amount of damages to
which a class member is entitled is specified, in contrast to
the $100 minimum award to the plaintiff in a successful in‐
dividual suit. § 1693m(a)(2)(B)(i). In both types of case (indi‐
vidual and class action) the court is to award “a reasonable
attorney’s fee” if the suit is successful, paid of course by the
defendant. § 1693m(a)(3).
The parties stipulated that the limit to damages in this
class action suit would be $10,000, that being 1 percent of
Kore’s net worth. The stipulation further states that there
were more than 2800 transactions involving the two ATMs
during the period covered by the suit (a year beginning on
September 30, 2010). We’re not told how many more, so let’s
assume the total was 2800, which would make the damages
$3.57 per transaction at most (given the $10,000 class limit).
The transaction fee was $3, and that would be the ceiling on
a plaintiff’s actual damages per transaction. Those damages
might well be zero, if the plaintiff couldn’t prove that had he
known there was a $3 fee he would not have used the ATM.
The record doesn’t indicate the distribution of transac‐
tions among class members. If each of them engaged in only
one transaction and the class therefore has 2800 members,
each would be entitled at most to just $3.57 (10,000 ÷ 2800) if
the suit was successful. (Whether total damages in a class
action under the Electronic Funds Transfer Act can exceed
actual damages is unclear from the Act’s wording. See 15
U.S.C. § 1693m(a)(2)(B).)
The district judge decertified the class on two independ‐
ent grounds. One was that the class members would do bet‐
ter bringing individual suits, since if an individual suit were
successful the plaintiff would be entitled to at least $100 in

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4 No. 13‐8018
damages. Although some class members may have made a
great many transactions on the ATMs, it appears that the
$100 to $1000 range for statutory damages is per suit rather
than per transaction. For the statute states that liability “in
the case of an individual action [is] an amount not less than
$100 nor greater than $1,000.” 15 U.S.C. § 1693m(a)(2)(A).
The alternative to a class action—individual lawsuits most or
even all of which would be seeking damages of only $100—
would therefore not be realistic. What lawyer could expect
the court to award an attorney’s fee commensurate with his
efforts in the case, if his client recovered only $100? There is
no indication that many people, or indeed any people, have
filed individual claims under the provision of the Electronic
Funds Transfer Act that requires a sticker on an ATM warn‐
ing that there is a fee for using it. Although one reason for
the paucity of litigation may be unfamiliarity with the law,
another may be the difficulty of finding a lawyer willing to
handle an individual suit in which the stakes are $100 or an
improbable maximum of $1000 (improbable because it is dif‐
ficult to see what aggravating factors might warrant a max‐
imum award of statutory damages in suits against Kore, giv‐
en how small Kore’s fee was). True, should an individual
suit be successful the plaintiff’s lawyer would be entitled to
a fee paid by the defendant. But what is a reasonable attor‐
ney’s fee for obtaining a $100 judgment? More than one
might think, if the judge thought that the suit had broadcast
a needed warning about compliance with the Electronic
Funds Transfer Act (albeit the specific provision that Kore is
charged with violating has been repealed); but enough to
interest a competent lawyer? The paucity of litigation sug‐
gests not.

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No. 13‐8018 5
The smaller the stakes to each victim of unlawful con‐
duct, the greater the economies of class action treatment and
the likelier that the class members will receive some money
rather than (without a class action) probably nothing, given
the difficulty of interesting a lawyer in handling a suit for
such modest statutory damages as provided for in the Elec‐
tronic Funds Transfer Act. But in this case the amount of
damages that each class member can expect to recover is
probably too small even to warrant the bother, slight as it
may be, of submitting a proof of claim in the class action
proceeding.
Since distribution of damages to the class members
would provide no meaningful relief, the best solution may
be what is called (with some imprecision) a “cy pres” decree.
Such a decree awards to a charity the money that would
otherwise go to the members of the class as damages, if dis‐
tribution to the class members is infeasible. Mace v. Van Ru
Credit Corp., 109 F.3d 338, 345 (7th Cir. 1997); Lane v. Facebook,
Inc., 696 F.3d 811, 819 (9th Cir. 2012); Six (6) Mexican Workers
v. Arizona Citrus Growers, 904 F.2d 1301, 1305 (9th Cir. 1990);
3 William B. Rubenstein, et al., Newberg on Class Actions
§ 10:17 (5th ed. 2013). (For criticism, see Martin H. Redish,
Peter Julian & Samantha Zyontz, “Cy Pres Relief and the Pa‐
thologies of the Modern Class Action: A Normative and
Empirical Analysis,” 62 Fla. L. Rev. 617 (2010).) Payment of
$10,000 to a charity whose mission coincided with, or at least
overlapped, the interest of the class (such as a foundation
concerned with consumer protection) would amplify the ef‐
fect of the modest damages in protecting consumers. A
foundation that receives $10,000 can use the money to do
something to minimize violations of the Electronic Funds

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6 No. 13‐8018
Transfer Act; as a practical matter, class members each given
$3.57 cannot.
As explained in Mirfasihi v. Fleet Mortgage Corp., 356 F.3d
781, 784 (7th Cir. 2004), “cy pres” is the name of a doctrine of
trust law that allows the funds in a charitable trust, if they
can no longer be devoted to the purpose for which the trust
was created, to be diverted to a related purpose; and so
when the polio vaccine was developed the March of Dimes
Foundation was permitted to redirect its resources from
combating polio to combating other childhood diseases. The
trust doctrine is based on the idea that the settlor would
have preferred a modest alteration in the terms of the trust
to having the corpus revert to his residuary legatees because
the trust’s original aim could no longer be achieved. In a
class action the reason for a remedy modeled on cy pres is to
prevent the defendant from walking away from the litiga‐
tion scot‐free because of the infeasibility of distributing the
proceeds of the settlement (or of the judgment, in the rare
case in which a class action not dismissed pretrial goes to
trial rather than being settled) to the class members. When
there’s not even an indirect benefit to the class from the de‐
fendant’s payment of damages, the “cy pres” remedy (mis‐
named, but the alternative term found in some cases—“fluid
recovery”—is misleading too) is purely punitive. But we
said in Mirfasihi that the punitive character of the remedy
would not invalidate it. Id. at 784–85. Other courts, disagree‐
ing, require the charity or other recipient to have an interest
parallel to that of the class. E.g., In re Lupron Marketing &
Sales Practices Litigation, 677 F.3d 21, 33 (1st Cir. 2012);
Nachshin v. AOL, LLC, 663 F.3d 1034, 1038–39 (9th Cir. 2011).
No matter; it should be possible in this case to find a charity

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No. 13‐8018 7
concerned with consumer protection issues of the general
character presented by the case.
The judge’s second ground for decertification was that
the requirement of notice to class members could not be sat‐
isfied. ATMs do not store users’ names. Instead they keep
track of each transaction by assigning a 10‐digit identifica‐
tion number to it. The first six digits identify the user’s bank;
the last four identify the user. To attach names to those last
four digits would require subpoenaing each bank identified
by the first six. Since Kore’s two ATMs were in college bars,
obtaining the identity of all the users might require subpoe‐
naing hundreds of banks (the hometown banks of the stu‐
dents, by now mostly ex‐students, who are the class mem‐
bers).
Rule 23(c)(2)(B) of the civil rules requires (for a class ac‐
tion under Rule 23(b)(3), as this one is) only the “best notice
that is practicable under the circumstances, including indi‐
vidual notice to all members who can be identified through
reasonable effort.” The members of the class in this case
can’t be identified through reasonable effort, effort commen‐
surate with the stakes. (If they could be, they would be enti‐
tled to individual notice even if it were very costly, Eisen v.
Carlisle & Jacquelin, 417 U.S. 156, 175–76 (1974), as the lan‐
guage of Fed. R. Civ. P. 23(c)(2)(B) implies.) When reasona‐
ble effort would not suffice to identify the class members,
notice by publication, imperfect though it is, may be substi‐
tuted. Juris v. Inamed Corp., 685 F.3d 1294, 1321 (11th Cir.
2012); Federal Judicial Center, Manual for Complex Litigation
§ 21.311, pp. 287–88 (4th ed. 2004).
The notice proposed by class counsel consists of sticker
notices on Kore’s two ATMs and publication of a notice in

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8 No. 13‐8018
the principal Indianapolis newspaper and on a website. That
is adequate in the circumstances. We are mindful that notice
by publication involves a risk that a class member will fail to
receive the notice and as a result lose his right to opt out of
the class action—a right that can be valuable if his individual
claim is sizable. But there is no indication that any member
of the class in this case has a damages claim large enough to
induce him to opt out and bring an individual suit for dam‐
ages. And notice posted conspicuously in both bars in which
Kore’s ATMs were located may be the best way to reach the
bars’ regulars (though many of them will have graduated
from college and left Indianapolis)—and they are the pa‐
trons most likely to have made repeated use of the ATMs
and thus to have a potential interest in opting out. See
Holtzman v. Turza, 2013 WL 4506176, at *5–6 (7th Cir. Aug.
26, 2013); Travelers Property Casualty v. Good, 689 F.3d 714,
717–20 (7th Cir. 2012); Klier v. Elf Atochem North America, Inc.,
658 F.3d 468, 474–75 and n. 15 (5th Cir. 2011). But even
someone who had made 100 transactions on a Kore ATM
during the year embraced by the complaint could obtain ac‐
tual damages of only $300.
The district court added a further twist to the issue of no‐
tice by pointing out that the provision of the Electronic
Funds Transfer Act that Kore is alleged to have violated is
applicable only to consumer users of ATMs, 15 U.S.C.
§ 1693b(d)(3)(A), not to business users, so that it would be
necessary to determine which users of Kore’s ATMs should
be excluded from the class. But this problem is more theoret‐
ical than real in the circumstances of this case; for it is un‐
likely that ATMs in bars are commonly used for business
transactions.

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No. 13‐8018 9
A deeper question is whether a class action should be
permitted when the stakes, both individual and aggregate,
in a class action are so small—so likely to be swamped by
the expense of litigation—as they are in this case. But we
don’t think smallness should be a bar. This is obvious when
what is small is not the aggregate but the individual claim;
indeed that’s the type of case in which class action treatment
is most needful. See, e.g., Mace v. Van Ru Credit Corp., supra,
109 F.3d at 344–45. But even when as in this case the aggre‐
gate claim—the sum of all the class members’ claims—is
meager, such treatment will often be appropriate. A class ac‐
tion, like litigation in general, has a deterrent as well as a
compensatory objective. See, e.g., 1 Rubenstein, et al., supra,
§§ 1:7–8. “[S]ociety may gain from the deterrent effect of fi‐
nancial awards. The practical alternative to class litigation is
punitive damages, not a fusillade of small‐stakes claims.”
Murray v. GMAC Mortgage Corp., 434 F.3d 948, 953 (7th Cir.
2006). The deterrent objective of the Electronic Funds Trans‐
fer Act is apparent in the provision of statutory damages,
since if only actual damages could be awarded, the provid‐
ers of ATM services such as Kore might have little incentive
to comply with the law.
The compensatory function of the class action has no sig‐
nificance in this case. But if Kore’s net worth is indeed only
$1 million (which it is if 1 percent of Kore’s net worth is only
$10,000, as stipulated), the damages sought by the class, and,
probably more important, the attorney’s fee that the court
will award if the class prevails, will make the suit a wake‐up
call for Kore and so have a deterrent effect on future viola‐
tions of the Electronic Funds Transfer Act by Kore and oth‐
ers. The sticker requirement is no more; but a judgment
would remind Kore to take greater care in the future to

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10 No. 13‐8018
comply with federal law, however irksome compliance may
seem.
But the district court must be careful not to allow the liti‐
gation expenditure tail to wag the remedy dog. In re Baby
Products Antitrust Litigation, 708 F.3d 163, 179 (3d Cir. 2013).
(A reason, remember, to allow notice by publication in this
case.) The court must be alert to prevent class counsel from
milking a small case for huge fees, lest the threat of an award
of such fees induce a small defendant, such as Kore, to throw
in the towel, agreeing to a settlement favorable to the class
even if the defendant has an excellent defense. “When the
potential liability created by a lawsuit is very great, even
though the probability that the plaintiff will succeed in es‐
tablishing liability is slight, the defendant will be under
pressure to settle rather than to bet the company, even if the
betting odds are good.” Kohen v. Pacific Investment Mgmt. Co.,
571 F.3d 672, 678 (7th Cir. 2009).
With the maximum statutory damages $100 to $1000 per
individual plaintiff (and the actual share of each class mem‐
ber much less because of their likely number) and the ATM
user fee (the maximum actual damages per transaction) only
$3, the cy pres remedy may be the only one that makes
sense, though that is just our guess given the early stage of
the litigation. Ordinarily of course class action damages go
to the class. But in a case like this, the award of damages to
the class members would have no greater deterrent effect
than the cy pres remedy, would do less for consumer protec‐
tion than if the money is given to a consumer protection
charity, and would impose a significant administrative ex‐
pense that handing the $10,000 over to a single institution
would avoid.

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No. 13‐8018 11
A time‐saving alternative might be a class action with the
stated purpose, at the outset of the suit, of a collective award
to a specific charity. We are not aware of such a case, but
mention the possibility of it for future reference.
The order decertifying the class is reversed and the case
remanded for further proceedings consistent with this opin‐
ion. We hold only that the judge’s opinion decertifying the
class does not provide adequate grounds for her ruling.
There may be such grounds. And our extended discussion of
how to distribute damages was not meant to imply that Kore
must be liable in this case. For all we know, it has good de‐
fenses.
R EVERSED AND R EMANDED.

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