United States: 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."


The leading case on the so-called "ascertainability" question is Carrera v. Bayer, 727 F.3d 300 (3d Cir. 2013). In Carrera, the Third Circuit Court of Appeals observed that "[a] defendant in a class action has a due process right to raise individual challenges and defenses to claims, and a class action cannot be certified in a way that eviscerates this right or masks individual issues." Id. at 307 (citing McLaughlin v. Am. Tobacco Co., 522 F.3d 215, 231-32 (2d Cir. 2008)(rejecting a "fluid recovery" method of determining individual damages)). The Third Circuit explained that a "rigorous analysis" of class certification motions must include a determination of "how the class is to be ascertained" and the representative plaintiff "does not satisfy the ascertainability requirement if individualized fact-finding or mini-trials will be required to prove class membership." Id. (citation omitted). According to Third Circuit (and no other to date), a class action defendant "has a similar, if not the same, due process right to challenge the proof used to demonstrate class membership as it does to challenge the elements of a plaintiff's claim" Id.

There is tension between the holding of Carrera and the concept of "fluid recovery." When names and addresses of putative class members are ascertainable, a "fluid recovery" plainly violates the due process rights of the class members unless, perhaps, the individual damages are less than the value of a postage stamp. When class members' identities are not ascertainable, Carrera states that due process rights of the defendant are violated. This cannot be so, it would seem, if a "fluid recovery" is constitutionally permissible and payment may flow from the defendant to persons or entities that are not even class members. If Carrera is correctly decided, and the Constitution mandates a right to challenge proof of class membership, then it makes sense to decide before certifying a class, whether the identities of class members can be determined with reasonably accuracy. If, however, the "fluid recovery" device is constitutionally firm, even when none of the class members are known, it makes much less sense to tackle this issue at the class certification stage of the case – or to tackle it at all.

A recent New Jersey case, Daniels v. Hollister Co., A-3629-13T3, 2015 N.J. Super. LEXIS 77 (N.J. Super., App. Div. May 13, 2015), sharply criticizes the holding of Carrera. Although the Daniels court did not draw distinctions between federal and New Jersey class action procedure based upon the availability of "fluid recovery," it might have done. This is one aspect of class action law that differs under federal and New Jersey procedural rules.

The Background of Daniels

Vincent Daniels, seeking to represent a class of similarly situated consumers, sued the clothing chain Hollister in New Jersey Superior Court alleging that Hollister, as part of a 2009 promotion, gave him a $25 gift card for future purchases. Although the gift card itself apparently bore no expiration date, Hollister refused to honor the card when Daniels presented it.

Hollister argued in the Superior Court that a class should not be certified because the members could not be ascertained, given that Hollister stores kept no record of who got the cards. The leading case in the developing law of "ascertainability" is Carrera v. Bayer, in which the Third Circuit Court of Appeals explained that a "rigorous analysis" of class certification motions must include a determination of "how the class is to be ascertained." 727 F.3d 300, 307 (3d Cir. 2013). The Third Circuit held that "ascertainability" is embedded in Federal Rule of Civil Procedure 23(b)(3)'s requirement that a class action be superior to other methods of adjudication. A representative plaintiff "does not satisfy the ascertainability requirement if individualized fact-finding or mini-trials will be required to prove class membership." Id. (citation omitted). In Daniels, the Superior Court rejected Hollister's "ascertainability" argument and certified a class.

The Daniels Decision

The New Jersey Appellate Division granted Hollister leave to appeal, then soundly rejected the idea that New Jersey Court Rule 4:32-1 contained, or had ever contained, a requirement that class membership be "ascertainable." The appeals court concentrated its analysis on the distinction between the need for a clear class definition, which New Jersey precedents support, and a requirement that the individual members of the class be identifiable at the class certification stage, for which it found no New Jersey precedent. Daniels contains a detailed discussion of the development of the "ascertainability" doctrine in the federal courts and ultimately detects in federal decisions more recent than Carrera a "rollback of the doctrinal wave." Daniels, at *10. The court concluded its analysis by observing that identification of individual class members could wait until the administration phase of any judgment or settlement. In fact, under New Jersey's rules, identification of all individual members of the class might not even be needed at that later stage.

Although the court does not refer to it, New Jersey Court Rule 4:32-2(c), unlike its federal counterpart, explicitly adopts the "fluid recovery" principle: "In any class action, the judgment may, consistent with due process of law, confer benefits upon a fluid class, whose members may be, but need not have been members of the class in suit." While the New Jersey class action rule does not condone the use of cy près to avoid proving class members' damages, it explicitly allows "fluid recovery," including distribution to non-class members, when the identities of all class members are not known. See Muise v. GPU, Inc., 371 N.J. Super. 13, 53-54, 851 A.2d 799 (App. Div. 2004). In other words, New Jersey's class action rule supports directly the proposition that a class may be certified and a judgment awarded when the identity of all class members cannot be ascertained and implicitly the proposition that such a result is "consistent with due process of law," at least some of the time.

Bottom Line

In Daniels, the Appellate Division confirmed a stark difference between class certification procedure in New Jersey's state and federal courts and stressed that consumer class actions in New Jersey's state courts are to be "liberally" certified when class members' individual claims are small in dollar value. Moreover, in a footnote, the Daniels court announced a prospective relaxation in the standard for interlocutory appeal of class certification rulings that will make it more likely that denials of consumer class actions are immediately reviewed on appeal. See Daniels, 2015 N.J. Super. LEXIS 77 at n.1. As a result, defendants in putative consumer class actions brought in New Jersey Superior Court who can take advantage of the liberalized removal provisions of the Class Action Fairness Act of 2005, Pub.L. 109–2. 19 Stat. 4–14, will probably decide that removal is the wise choice.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

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