No Class Certification When Class Members Can Obtain Adequate Statutory Damages in Small Claims Court

In Local Baking Prods., Inc. v. Kosher Bagel Munch, Inc., the New Jersey Appellate Division held that private causes of action under the Telephone Consumer Protection Act (TCPA), which prohibits the sending of unsolicited faxes, cannot be prosecuted as class actions under Rule 4:32. The court reasoned that a class action is not a “superior” method for adjudicating such claims, as required by Rule 4:32-1(b)(3), because the TCPA entitles victims to at least $500 in statutory damages which can be recovered in the Small Claims section of the Special Civil Part in a matter of months.

According to the Appellate Division, class actions should be reserved for those instances where the class members’ damages “are, in isolation, too small to warrant recourse to litigation.” The TCPA’s $500 statutory-damage award, the Appellate Division found, is sufficiently large and is so quickly and easily obtained through New Jersey’s Small Claims section that an individual claimant has an adequate incentive to pursue a claim on an individual basis, thus rendering the class action procedure unnecessary. As the Appellate Division put it:

The combination of the TCPA’s design and New Jersey’s procedures suggests that the benefit of a class action has been conferred on a litigant by the very nature of the procedures employed and relief obtained. The cost of litigating for an individual is significantly less than the potential recovery.

While the holding itself is limited to claims under the TCPA, the court’s rationale could have much broader application. To be sure, other private causes action under statutes guaranteeing a minimum statutory damage award which exceeds the claimant’s actual damages — e.g. Truth in Consumer Contract, Warranty and Notice Act (N.J.S.A. 56:12-14, et seq.) and Fair and Accurate Credit Transactions Act (15 U.S.C. § 1681, et seq.) — should be subject to the same reasoning.

More broadly, even when no statutory damages are available, the Local Baking Prods. opinion is another arrow in the defense attorney’s quiver for challenging class certification, at least when the putative class members’ claims are within the $3,000 jurisdictional limit of the Small Claims section but are still large enough to justify the modest burden of filing a form complaint.

Given the potential ramifications on class-action practice in New Jersey, we think there is a reasonable likelihood that the New Jersey Supreme Court will grant certification, if it is sought, to review the Appellate Division’s opinion.