Ballard Spahr LLP: Single Publication Notice of Class Action Settlement Did Not Bar Subsequent Lawsuit

By Alan S. Kaplinsky and Burt M. Rublin

The Second Circuit has held that a plaintiff's lawsuit against a debt collector alleging violations of the Fair Debt Collection Practices Act (FDCPA) was not barred even though she was a member of a settlement class in a prior class action against that debt collector.

In Hecht v. United Collection Bureau, Inc. [enhanced version available to lexis.com subscribers] the Second Circuit held that due process prevented the application of res judicata to the debtor's FDCPA claim because she did not receive constitutionally adequate notice of the settlement of the earlier class action.

The settlement notice in the class action against the debt collector had not been mailed to the more than 2 million class members. Instead, it was published once in an advertisement in USA Today. That's because the miniscule settlement recovery for the class (just $13,254, which was the FDCPA maximum class recovery of 1 percent of the debt collector's net worth) was far outweighed by the cost of mailing notices to the class members. In fact, the $13,254 class settlement had not been distributed to class members, but instead was distributed to a charitable organization as a cy pres payment.

The Second Circuit held that the one-time publication notice in USA Today did not satisfy due process requirements. The court stated that aside from individual mailed notice, the debt collector defendant could have undertaken a more extensive notification campaign to inform class members of the settlement, including the use of electronic media and local publications. Since due process requires the "best practicable" notice, the plaintiff's claims were not extinguished by the class settlement.

Ballard Spahr lawyers regularly provide advice to clients engaged in consumer debt collection on compliance with the FDCPA and state debt collection laws. Ballard Spahr's Consumer Financial Services Group produces the CFPB Monitor, a blog that focuses exclusively on important CFPB developments. To subscribe, use the link provided on the right. The group is nationally recognized for its guidance in structuring and documenting prepaid cards and other consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs).

For more information, please contact Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, or Burt M. Rublin at 215.864.8116 or rublin@ballardspahr.com.


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