Equitable Trusts: An Effective Remedy in Consumer Class Actions

Abstract

The "liberalization" of Rule 231 in 1966 brought great hope to those who saw the class action as the answer to a broad range of marketplace abuses. 2 Twenty years later, many of these expectations have not been met.In particular, for the large consumer class seeking to adjudicate small individual claims, 3 the class action has proved to be an imperfect and sometimes unworkable device."Consumer class actions raising small individual claims are often derailed at one of three stages.First, the action may fail through noncertification. 5Courts are wary of certifying a class as manageable' when the I. Fm)n.R. Civ.P. 23.Destruction, 55 F.R.D. 375, 375 (1972); see also State v. Levi Strauss & Co., 41 Cal.3d 460, 471, 715 P.2d 564, 570, 224 Cal.Rptr.605, 611 (1986) ("[Tlhe consumer class action is an essential tool for the protection of consumers against exploitative business practices."). Simon, Class Actions-Useful Tool or Engine of3. "Small individual claim" is a relative term.It refers not to any absolute amount, but rather to the value of the claim to the claimant.Thus, it approximates the actual amount of the claim minus the costs of prosecuting it.These costs include the administrative expense incurred by the justice system in adjudicating and processing the claim (since this expense is eventually deducted), and the personal costs to the claimant (in terms of time, energy, aggravation, and out-of-pocket expenses, including legal fees, if any) necessary to prosecute the claim.This expected value of the claim limits the utility to the claimant of prosecuting it.4. For an excellent example, see In re Hotel Tel.Charges, 500 F.2d 86 (9th Cir.1974), a class action on behalf of 40 million consumers alleging a conspiracy to inflate hotel charges by imposing a separate fee for telephones.Damages averaged only two dollars per class member.The court refused to certify the class, citing administrative costs and lengthy individual proof of claim proceedings: "In a class of forty million, assuming only ten percent of these unknown class members came forward with claims, and assuming the proof of each claim required only ten minutes, approximately one hundred years would yet be required to adjudicate the claims."Id. at 89.The hotel owners retained the approximately S80 million in alleged overcharges.Id. at 88. 5.For a discussion of the prerequisites for maintaining a class action under Rule 23, see I H.