Appeals Court Rules FDCPA Settlement Invalid Because Class Members Did Not Get Enough

The United States Court of Appeals for the Ninth Circuit ruled earlier this week that a class-action settlement approved by a lower court was not “fair, reasonable, and adequate” because the “relief afforded by the settlement” did not have enough value for the members of the class.

The case, Koby v. Helmuth, was argued before the Circuit Court last January. The ruling was issued on Wednesday.

The case, which was filed in April 2009, centered around allegations that a collection agency, ARS National Services, left voicemail messages in which employees of the agency failed to disclose the company they worked for, failed to disclose that the company is a debt collector, and failed to disclose that the purpose of the call was an attempt to collect a debt. The class included 4 million individuals nationwide — anyone who received a voicemail from ARS which failed to make those disclosures.

Settlement talks began more than six years ago. The terms of a settlement agreement were reached in January 2013. As part of the settlement, each of the three named plaintiffs would receive $1,000 — the maximum amount they could possibly receive under the Fair Debt Collection Practices Act. Based on the value of the collection agency, each of the other 4 million class members were due to split $35,000 — or less than $0.01 each. Instead, ARS agreed to make a $35,000 donation to a charity. The attorneys for the plaintiffs would receive $67,500. Under the terms of the settlement, however, the 4 million class members were not allowed to opt out of the class, and subsequently forfeited their right to seek damages from ARS.

One of the 4 million class members, Bernadette Helmuth, had a separate, but smaller class-action lawsuit against ARS pending in Florida. In this suit, the class was limited to Florida residents who owed money to a particular creditor and received the problem voicemails. Helmuth objected to the settlement on the grounds that she would be barred from pursuing her own case against the agency. The judge in the original lawsuit certified the terms of the original settlement anyway.

The Appeals Court ruled that the settlement should not have been approved because the original class members received no relief and had to “relinquish their right to seek damages in any other class action.”

Because the settlement gave the absent class members nothing of value, they could not fairly or reasonably be required to give up anything in return. Yet the settlement requires absent class members to relinquish their right to pursue damages claims against ARS as part of a class action. The parties dispute whether that right has any real value to the absent class members, given the FDCPA’s cap on class action damages. ARS asserts that, with total damages capped at $35,000, none of the absent class members have any hope of obtaining meaningful monetary relief as part of another class action because it would be impossible to define a class small enough to afford individual recoveries of more than a trivial amount. Helmuth asserts, however, that the proposed class in her pending Florida action might contain as few as several hundred members, each of whom could recover meaningful relief of roughly $100.

The case has been remanded back to the lower court.

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