A nationwide settlement of three class actions involving
claims that a creditor's practice of using "robo-signed" affidavits in debt
collection actions violated the Fair Debt Collection Practices Act (FDCPA) has
been overturned by the U.S. Court of Appeals for the Sixth Circuit.
In Vassalle v. Midland Funding LLC [an enhanced version of this opinion is available to lexis.com subscribers],
the Sixth Circuit held that the district court had abused its discretion in
approving the settlement and certifying the nationwide settlement class and
erred in finding that the notice to the class satisfied due process. The settlement
required the defendant to pay $5.2 million into a common fund for the benefit
of the class and, by way of injunctive relief, to create and implement
procedures to prevent the use of robo-signing. A retired federal judge was to
monitor the defendant's compliance with the injunction, which was to last one
The Sixth Circuit found that the settlement should not
have been approved because the disparity in the relief it provided to the named
plaintiffs and to the unnamed class members was so great as to make the settlement unfair. While exonerating the named plaintiffs of their debts, the
settlement would prevent the unnamed class members from using the allegedly
robo-signed affidavits against the defendant in any other lawsuit. In the
court's view, this would "virtually assur[e] that [the defendant] will be able
to collect on these debts."
In addition, the court found the relief provided to the
unnamed class members "perfunctory at best" because it would only pay them
$17.38 each. The court also found that the one-year injunction was of little
value for reasons that included leaving the defendant "free to resume its
predatory practices" after the injunction expired.
The court next concluded that the settlement did not
satisfy two of the requirements for class certification: adequacy of
representation and superiority of a class action. According to the court,
adequacy of representation was lacking because the settlement's forgiveness of
the class representatives' debts gave them an interest that was antagonistic to
that of unnamed class members. While the unnamed class members were interested
in ensuring the settlement's disapproval so they could retain the right to
challenge the affidavits in court, the class representatives were interested in
securing the settlement's approval so their debts would be forgiven.
The court found that the superiority factor was not
satisfied because the unnamed class members had an interest in individually
challenging the affidavits in lawsuits seeking to vacate the defendant's state
court judgments against them. In the court's view, the likelihood was high that
many class members would bring individual lawsuits.
The Sixth Circuit found the class notice to be deficient
because it did not adequately notify class members that by not objecting, a
class member would lose the right to raise the affidavits against the defendant
in the collection actions.
To assist clients in responding proactively to the
documentation-related challenges being faced by the debt collection industry
and creditors attempting to collect their own debts, Ballard Spahr's Consumer
Financial Services Group has formed a Collection Documentation Task Force. The task force
conducts extensive audits of collection procedures and counsels on best
documentation practices. It brings together litigators in the group with
experience defending mortgage lenders and other consumer lenders in documentation-related
lawsuits nationwide and regulatory lawyers in the group with deep knowledge of
the Office of the Comptroller of the Currency's national bank foreclosure
review process and federal and state debt collection laws.
Members of the Group regularly consult with their clients
engaged in consumer debt collection on compliance with the FDCPA and state debt
collection laws, and the Group has created a team of lawyers who are already
helping debt collectors and debt buyers to prepare for their first examinations
by the Consumer Financial Protection Bureau. The Group is nationally recognized
for its guidance in structuring and documenting new consumer financial services
products, its experience with the full range of federal and state consumer
credit laws, and its skill in litigation defense and avoidance.
For more information, please contact CFS Group Practice
Leader Alan S. Kaplinsky at 215.864.8544 or email@example.com,
Collection Documentation Task Force Chair Christopher J. Willis at 678.420.9436
or firstname.lastname@example.org, or Martin C. Bryce, Jr., at 215.864.8238 or
Copyright © 2013 by Ballard Spahr LLP
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