VASSALLE v. MIDLAND FUNDING LLC Nos. 11-3814, 11-3961, 11-4016, 11-4019, 11-4021.
708 F.3d 747 (2013)
Martha VASSALLE; Jerome Johnson; Hope Franklin; Andrea Brent, Plaintiffs-Appellees, Robert Clawson, Christopher Guest, and Manuela Rivera (11-3961); Kelli Gray (11-4016); Ladon Herring, Gilbert James, and Ann Rubio (11-4019), Objectors-Appellants, Elaine Pelzer (11-3814 and 11-4021), Intervenor-Appellant, v. MIDLAND FUNDING LLC; Midland Credit Management, Inc.; Encore Capital Group, Inc., Defendants-Appellees.
United States Court of Appeals, Sixth Circuit.
Decided and Filed: February 26, 2013.
ARGUED: Ian B. Lyngklip, Lyngklip & Associates Consumer Law Center PLC, Southfield, Michigan, for Appellant in 11-3814 and 11-4021. Charles Delbaum, The National Consumer Law Center, Boston, Massachusetts, for Appellants in 11-3961 and 11-4019. Michael D. Kinkley, Michael D. Kinkley, P.S., Spokane, Washington, for Appellant in 11-4016. Dennis E. Murray, Sr., Murray & Murray Co., L.P.A., Sandusky, Ohio, for Plaintiffs-Appellees. Richard L. Stone, Jenner & Block LLP, Los Angeles, California, for Defendants-Appellees. ON BRIEF: Ian B. Lyngklip, Lyngklip & Associates Consumer Law Center PLC, Southfield, Michigan, for Appellant in 11-3814 and 11-4021. Charles Delbaum, The National Consumer Law Center, Boston, Massachusetts, David E. Birkhaeuser, Bramson Plutzik Mahler & Birkhaeuser, LLP, Walnut Creek, California, Adam S. Nightingale, Connelly, Jackson & Collier LLP, Toledo, Ohio, Carolyn E. Coffey, MFY Legal Services, Inc., New York, New York, Matthew A. Dooley, McGlamery & Loughman Co. LPA, Sheffield Village, Ohio, for Appellants in 11-3961 and 11-4019. Michael D. Kinkley, Scott M. Kinkley, Michael D. Kinkley, P. S., Spokane, Washington, for Appellant in 11-4016. Dennis E. Murray, Sr., Donna J. Evans, Murray & Murray Co., L.P.A., Sandusky, Ohio, for Plaintiffs-Appellees. Richard L. Stone, Amy M. Gallegos, Jenner & Block LLP, Los Angeles, California, Theodore W. Seitz, Dykema Gossett PLLC, Lansing, Michigan, for Defendants-Appellees. Kenneth W. Zeller, AARP Foundation Litigation, Washington, D.C., Karuna B. Patel, Center for Responsible Lending, Washington, D.C., for Amici Curiae.
Before: MOORE and COLE, Circuit Judges; and ROSE, District Judge.
COLE, Circuit Judge.
Midland Funding LLC, Midland Credit Management, Inc., and Encore Capital Group, Inc., the defendants-appellees, along with four plaintiffs-appellees, Andrea Brent, Martha Vassalle, Jerome Johnson, and Hope Franklin, sought approval in district court of a nationwide class settlement that settled three related lawsuits. The district court certified the class and approved the settlement. Eight objectors-appellants objected to the settlement, arguing that the settlement was unfair, unreasonable, and inadequate, that the district court abused its discretion in certifying the nationwide settlement class, and that the notice to prospective class members did not satisfy due process. For the following reasons, we REVERSE the district court's order approving the settlement, VACATE the judgment certifying the nationwide settlement class and the award of attorney fees, and REMAND for further proceedings consistent with this opinion.
At issue in this case is a nationwide class settlement of three class-action lawsuits arising from similar factual predicates. In the oldest of the three, Midland Funding v. Brent, Midland Funding LLC ("Midland Funding") filed a debt-collection action in April of 2008 against Andrea Brent in the Municipal Court of Sandusky, Ohio. An affidavit signed by an employee of Midland Credit Management, Inc. ("MCM") was
On August 11, 2009, the district court issued a self-described "landmark ruling," holding that "robo-signing" affidavits in debt-collection actions violates the FDCPA. The court found the affidavit to be false and misleading under the FDCPA due to the false attestation of personal knowledge. As it turns out, Midland employees had been signing between 200 and 400 computer-generated affidavits per day for use in debt-collection actions, without personal knowledge of the accounts. The court, however, denied declaratory and injunctive relief under the FDCPA.
After a failed attempt at mediation, the district court issued another opinion on November 4, 2010, granting Brent's motion for certification of a class whose members Midland had sued in Ohio courts using false affidavits. The court also granted Midland's motion for partial summary judgment, rejecting Brent's claims for actual damages under the FDCPA and thereby limiting both her and other similarly-situated debtors to seeking recovery of statutory damages and attorney fees.
While the Brent litigation was pending, class plaintiffs brought suit in the other two class actions settled under the settlement agreement. In December of 2009, Hope Franklin and Thomas Hyder brought the Franklin v. Midland Funding action in Erie County, Ohio Common Pleas Court, alleging common-law misrepresentation. The Franklin action was removed to the Northern District of Ohio. In January of 2011, Martha Vassalle and Jerome Johnson brought the last of the three class actions, Vassalle v. Midland Funding, in the Northern District of Ohio. The Vassalle suit alleged common-law claims of fraudulent misrepresentation, negligence, and unjust enrichment.
Midland filed a motion to dismiss the Franklin action, which the district court granted. Plaintiffs in Franklin then appealed to this Court. After the appeal, we granted the motion of the parties, on May 27, 2011, pursuant to Sixth Circuit Rule 12.1, to remand the case to the district court. That same day, the district court approved the parties' joint motion "to preliminarily approve their Class Settlement Agreement, to authorize class notice, for an order enjoining parallel litigation, and to schedule a Fairness Hearing on the class settlement."
After two weeks of settlement conferences, the parties in the Brent, Franklin, and Vassalle actions finally reached an agreement and presented it to the court on March 9, 2011. In the settlement, the parties stipulated to the certification of a class that included "[a]ll natural persons" sued by Midland between January 1, 2005, and the date upon which the court would enter preliminary approval of the class action settlement "in any debt collection lawsuit in any court ... where an affidavit attesting to facts about the underlying
The settlement provided for both monetary and injunctive relief. Midland agreed to pay $5.2 million into a common fund for the benefit of the class. From this fund, class counsel would receive attorney fees of no more than $1.5 million, and the costs of administration. From the remainder of the fund, eligible class members who timely returned a claim form would receive payments of $10.00 each. In fact, however, the response rate was such that each class member would receive $17.38. In addition, the four named plaintiffs were to receive $8,000 collectively.
Under the injunctive portion of the settlement, Midland agreed to "create and implement written procedures for the generation and use of affidavits in debt collection lawsuits in order to prevent the use of affidavits where the affiant lacks personal knowledge of the facts set forth in the affidavit." A retired federal judge was appointed to monitor Midland's compliance with the injunction, which was to last one year.
The settlement also included a classwide release, which provided that each class member who did not opt out would release Midland and its attorneys "from all causes of action ... which the class now has ... against the Released Parties, arising out of or relating to the Released Parties' use of affidavits in debt collection lawsuits." The named plaintiffs granted Midland a broader release of "all causes of action." Midland agreed to release the debts owed by the named plaintiffs, but reserved the right to continue attempting to collect debts owed by the unnamed class members.
The court granted preliminary approval of the settlement on March 11, 2011. Out of a class that included approximately 1.4 million members, over 133,000 class members, or 9.2% of the class, filed claims, while 4,262, or about 0.3%, opted out, and 61, or about 0.004%, filed objections.
On May 17, 2011, the district court granted a motion to dismiss the Brent action for lack of subject matter jurisdiction. The district court found that it lacked jurisdiction because the federal question that formed the basis of Brent's claims was found in a counterclaim, not in the original complaint filed by Midland. The district court remanded the Brent case to state court, and the state court dismissed Midland's claim against Brent and ordered realignment of the parties. Brent then filed an amended complaint, and the action was again removed to the district court on June 29, 2011.
On June 1, 2011, class member Elaine Pelzer moved to intervene in the class action for the purpose of conducting discovery regarding the fairness of the proposed settlement. The district court denied Pelzer's motion, but permitted her intervention "for the sole purpose of presenting her objections to the proposed settlement." Pelzer appealed this ruling to this Court, arguing that she was entitled to permissive intervention under Rule 24(b).
On August 12, 2011, the United States District Court for the Northern District of Ohio granted final approval of the settlement. From this opinion, eight unnamed class members appealed.
Kelli Gray, an objector-appellant, argues that the district court lacked subject matter jurisdiction over both the Brent and the Franklin cases. Gray argues that the district court lacked jurisdiction over the Franklin case both at the time of the settlement and at the time the notice was sent because "the Franklin case was dismissed on October 6, 2010." Gray also argues that the district court "never had
Contrary to Gray's assertions, the district court had subject matter jurisdiction over both the Franklin and the Brent cases at the time it granted final approval of the settlement. Although the district court dismissed the Franklin case, we granted the joint motion of the parties, on May 27, 2011, to remand the case to the district court. That same day, the district court approved the parties' joint motion "to preliminarily approve their Class Settlement Agreement, to authorize class notice, for an order enjoining parallel litigation, and to schedule a Fairness Hearing on the class settlement." The district court therefore had subject matter jurisdiction over the Franklin case when it approved the settlement on August 12, 2011.
The district court also had subject matter jurisdiction over the Brent case at the time it approved the settlement. After the district court remanded the Brent case to state court on May 17, 2011, the state court dismissed Midland's claim against Brent and ordered realignment of the parties. Brent then filed an amended complaint, and the action was properly removed to the district court, pursuant to 28 U.S.C. § 1441, on June 29, 2011.
A. Approval of Settlement
Before a district court approves a settlement, the court must find that the settlement is "`fair, reasonable, and adequate.'" UAW v. Gen. Motors Corp.,
A district court looks to seven factors in determining whether a class action settlement is fair, reasonable, and adequate: "(1) the risk of fraud or collusion; (2) the complexity, expense and likely duration of the litigation; (3) the amount of discovery engaged in by the parties; (4) the likelihood of success on the merits; (5) the opinions of class counsel and class representatives; (6) the reaction of absent class members; and (7) the public interest." UAW, 497 F.3d at 631. When we review a proposed class action settlement, we grant the district court "wide discretion in assessing the weight and applicability" of the relevant factors. Granada Invs., Inc. v. DWG Corp.,
Although not included in the seven UAW factors, in evaluating the fairness of a settlement we have also looked to whether the settlement "gives preferential treatment to the named plaintiffs while only perfunctory relief to unnamed class members." Williams v. Vukovich,
The district court in this case weighed the seven factors and found that each was satisfied. While the court did not abuse its discretion in its determination of any of the seven listed factors, the disparity in the relief afforded under the settlement to the named plaintiffs, on the one hand, and the unnamed class members, on the other hand, made the settlement unfair. Despite the wide discretion we must afford the district court in applying these factors, this disparity in relief is so great that we conclude the district court abused its discretion in finding that the settlement was fair, reasonable, and adequate.
Here, like in Williams, the named plaintiffs receive "preferential treatment," while the relief provided to the unnamed class members is "perfunctory." See Williams, 720 F.2d at 925 n. 11. The named plaintiffs receive two benefits from the settlement that the unnamed class members do not receive. First, the named plaintiffs receive the primary benefit of the settlement: the exoneration of debts owed to Midland. If the 1.44 million unnamed class members received this benefit, like Brent, they would be absolved of debts in the hundreds or even thousands of dollars. Instead, the settlement actually prevents the unnamed class members from using Midland's use of false affidavits against Midland in any other lawsuit, virtually assuring that Midland will be able to collect on these debts.
Finally, the relief actually provided to the unnamed class members is perfunctory at best. First, provided they respond to the notice, the unnamed class members receive $17.38. Second, the settlement provides for one year of injunctive relief, overseen by a retired federal judge, under which Midland is required to change its policies. The $17.38 payment can only be described as de minimis, especially in comparison to the now-forgiven debt of $4,516.57 owed by Brent. We can safely assume that many of the 1.44 million class members' debts are in the thousands or at least hundreds of dollars. The one-year injunction is likewise of little value for three reasons. First, it does not actually prohibit Midland from creating false affidavits; rather, it only requires Midland to change its policies and provides oversight of this process. Second, the injunction only lasts one year, after which Midland is free to resume its predatory practices should it choose to do so. Third, the injunction offers only prospective relief that likely does not benefit class members at all.
For the foregoing reasons, the settlement was unfair to the unnamed class members, and the district court therefore abused its discretion in approving the settlement as "fair, reasonable, and adequate."
B. Certification of Nationwide Settlement Class
To certify a class action, a district court must find that the class satisfies the requirements of Federal Rule of Civil Procedure 23(a) and fits into one of the three categories in Rule 23(b). Under Rule 23(a), a class must satisfy the requirements of numerosity, commonality, typicality, and adequacy of representation. Because the district court certified the class under Rule 23(b)(3), the class must satisfy the additional requirements of superiority and predominance. We review a district court's order as to class certification for abuse of discretion. Reeb v. Ohio Dep't of Rehab. & Corr.,
Although the class satisfies four of these six certification requirements — numerosity, commonality, typicality and predominance — the representation is not adequate under Rule 23(a) nor is the class action vehicle superior under Rule 23(b)(3). The district court therefore abused its discretion in certifying the nationwide settlement class.
i. Adequacy of Representation
The district court found that the putative class satisfied the adequacy of
Two of these factors weigh in favor of finding adequate representation. First, the class representatives shared common interests with the unnamed class members: they all shared a desire to obtain both monetary and injunctive relief from Midland. Second, it is undisputed that class counsel here is "qualified, experienced, and generally able to conduct the litigation."
Another two of these factors, however, weigh against such a finding. We find that these second two factors are dispositive. First, the class representatives have no interest in vigorously prosecuting the unnamed class members' most important interest — the ability to use the false affidavits against Midland to contest their debts in court. This is because, under the settlement, the class representatives' debts are forgiven. Second, for the same reason, the class representatives have an interest that is antagonistic to an interest of the unnamed class members: the class representatives are interested in ensuring the settlement is approved so that their debts to Midland will be forgiven, while the unnamed class members are interested in ensuring the settlement is not approved so they can retain the right to challenge Midland's false affidavits in court.
Under the Rooker-Feldman doctrine, the fact that the district court could not itself have vacated the state court judgments against the unnamed class members does not weigh in favor of finding adequate representation. The district court had the option to reject the settlement, which would have left the unnamed class members free to seek the vacatur of the judgments against them. Here, the "`attacks on the credibility of the representative party are so sharp as to jeopardize the interests of absent class members.'" Gooch, 672 F.3d at 431 (quoting Pasternak, 1993 WL 306526, at *5). Accordingly, we find the district court abused its discretion in finding the adequacy of representation factor was satisfied.
The district court also found that this case satisfied the superiority requirement under Rule 23(b)(3). As the court noted, it may look to the following factors in making this evaluation: "(1) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (2) the existence of pending litigation concerning the same controversy;
We recently considered the superiority factor in Young v. Nationwide Mutual Insurance Co.,
The majority of these considerations weigh in favor of finding the superiority factor was satisfied. First, most class members had "limited resources." Second, this case is "far more procedurally advanced" than the other actions bringing similar claims. Third, a threshold issue — whether Midland was liable under the FDCPA — was common to all class members.
There are, however, two considerations weighing against such a finding. First, unnamed class members had an interest in individually controlling the defense of Midland's state court judgments against them. Second, the class members could have collected damages under state law claims that would exceed the value of monetary relief in this settlement. These two considerations tilt the scales in favor of a finding that the class action here was not the superior method of resolving the controversy.
The interest of the unnamed class members in individually controlling the defense of Midland's state court judgments against them is their strongest interest: under the settlement, they are left without a crucial defense against these judgments. And unlike in Young, the likelihood that many members of the class will choose to bring individual lawsuits is not remote. First, several parallel federal and state class actions have already been commenced against Midland outside of the Sixth Circuit, at least one of which is still pending. Second, whereas in Young, the unnamed class members were unaware that they were being overcharged, the unnamed class members here are surely aware of the judgments Midland has obtained against them. Accordingly, we find the district court abused its discretion in finding the superiority factor was satisfied.
C. Notice to the Class and Due Process
The district court erred in finding that the notice to the class satisfied due process. We have held that due process requires that notice to the class be "`reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.'" UAW, 497 F.3d at 629 (quoting Mullane v. Cent. Hanover Bank & Trust Co.,
Appellants cite several alleged deficiencies in class notice, one of which is dispositive. Namely, the notice does not explain the fact that the release of claims impairs the class members' ability to vacate the allegedly fraudulent judgments Midland obtained against them in state court lawsuits. Rather, the notice only states that by not objecting, the class members give Midland a "release." The notice states that "[a] release means you can't sue or be part of any other lawsuit against [Midland] about the claims or issues in this lawsuit, or any other claims arising out of affidavits attached or executed in support of collection complaints filed against Class Members by [Midland]." This language is insufficient to notify a non-attorney class member that by not objecting, he or she loses the right to use Midland's false affidavits against Midland in their debt-collection actions. The failure of the notice to mention this fact is not just "any ground" on which a class member might object; rather, it is the principal ground. The unnamed class members' greatest interest is their ability to contest these allegedly fraudulent judgments. For this reason, the class notice does not "`fairly apprise ... prospective members of the class of the terms of the proposed settlement.'" UAW, 497 F.3d at 630 (quoting Grunin, 513 F.2d at 122). Accordingly, we find the district court erred in finding that the notice to the class satisfied due process.
D. Pelzer Motion to Intervene
The district court did not abuse its discretion in granting objector Elaine Pelzer's motion to intervene "for the sole purpose of presenting her objections to the proposed settlement, and for no other purpose." Pelzer argues to the contrary, asserting that, in addition to presenting her objections, she should have the right to conduct discovery regarding the fairness of the proposed settlement. The district
We review "a district court's denial of permissive intervention for `clear abuse of discretion.'" Blount-Hill v. Zelman,
E. Attorney Fees
Gray challenges the award of fees in the settlement to the attorneys for the plaintiff class. Because we have already held that the district court abused its discretion both in approving the settlement and in certifying the nationwide settlement class, Gray's arguments regarding attorney fees are rendered moot. See Dennis v. Kellogg Co.,
For the foregoing reasons, we REVERSE the district court's order approving the settlement, VACATE the judgment certifying the nationwide settlement class and the award of attorney fees, and REMAND for further proceedings consistent with this opinion.
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